A wunch of bankers

I have just finished listening to Michael Lewis’s excellent book The Big Short on Audible. It is a fascinating narrative based around the collapse of the sub-prime mortgage market told through the stories of those who saw it coming and laid bets involving huge amounts of money. Lewis does a great job of making the complexity of the story understandable and while none of the characters are what you’d call likeable you do end up getting carried away with the roller coaster ride they were on.

The book reminded me of the time a few years ago when we went to our bank to ask for an extended mortgage to extend the our house. I would have said that I visited “our bank manager” but he wasn’t our bank manager he was some guy in a suit driving a computer terminal. He still had the air of pomposity and making me feel small for asking for money but I realised as we watched him struggling to input the data into his terminal that he wasn’t deciding if we could have the money, the algorithms behind the software he was using were. I was tempted to say “You go off and have a coffee while I input the data because I could do it much faster myself”. But then I realised that I actually wanted him to be like an old fashioned bank manager. I wanted him to know my circumstances, have known my father, have a basis on which to make a judgement on both of our behalfs as to whether or not to lend me the money.

Reading Paul Volcker’s article in The New York Review Of Books this morning on the financial crisis I was struck by the following paragraph:

One basic flaw running through much of the recent financial innovation is that thinking embedded in mathematics and physics could be directly adapted to markets. A search for repetitive patterns of behavior and computations of normal distribution curves are a big part of the physical sciences. However, financial markets are not driven by changes in natural forces but by human phenomena, with all their implications for herd behavior, for wide swings in emotion, and for political intervention and uncertainties.

This is yet another time when I want experts, I want intelligent meatware, and I’m not so sure I can trust disembodied, disconnected systems run by morons!

 

[I would have linked to the Audible file of the book rather than Amazon but Audible’s affiliates scheme is such a pitiful mess I couldn’t be bothered]

15 thoughts on “A wunch of bankers

  1. Hi Euan. The dominance of technology in banking, and the resulting destruction of any kind of relationship between staff and customers, really has hit extraordinary lows right now. I saw a huge NatWest billboard recently offering you "a named mortgage advisor". I was recently told by Lloyds TSB’s business banking staff that I’m only assigned a ‘relationship manager’ when my company has a turnover of more than £200,000 per year. Which implies that vast swathes of UK small firms, consultancies, etc, just get ignored – they’re just data.In the early 1980s, I joined the Midland Griffin Savers, a kids bank account that came with the most elaborate plastic folder I’ve ever possessed. I’m pretty sure that someone at the bank was assigned my name. But that was the 1980s, in a Cheshire market town of 10,000 people. There were four or five banks on the high street, and the staff knew the people in the town.Fortunately we know the world is moving rapidly in a new direction, where relationships are now possible because of technology, rather than being eliminated by it. I suspect, however, that the large banks won’t see it for at least a decade. Maybe there’s a gap for a new generation of banks in the meantime.

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  2. Euan the problem with excellence is that it requires training and time to achieve. When you and I were leaving school banks took on trainees who were sent to gain qualifications. They worked for an organisation that worked on a time served model of promotion that charged customers fees for having a Bank Account.Moving on to now and we have a free service which means that money for investment in the staff is limited. This means that the staff are hired from retail and so knowledge has been replaced by process. Banks are helped by the fact that very few of the customers are motivated to switch to a rival because they all follow the same processes.The next issue is that with the removal of control of the money supply we saw Banks capable of fiscal alchemy in that they could increase the supply of money by using options rather than equities/bonds to make money. This resulted in the Retail Banks starting to speculate on debt in order to utilise the increased supply of money. With little understanding of Risk the speculation was ill judged and thus failed. The fact that the loans that went bad were on the whole to people rather than businesses meant that they in the end were not underwritten by insurance and so liquidity left the market. This was a Global failure of the market and so needed intervention by Governments.This Intervention has shown that the model was flawed and now corrections are taking place the issue is that in becoming Flat Banks lost those members of staff who had experience AND qualifications. The future now means that we will have to provide more data before a Bank gives a significant loan and/or pay a higher price for the loan.

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  3. Given the uphill struggle I am having to go through to get Santander to accept my money for a cash ISA I will happily pay a premium to the first bank that convince me they aren’t shit!

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  4. I’ve also just finished reading The Big Short – excellent book and hard to put down but it left me feeling angry about a financial system which can nearly bring down whole economies through dodgy accounting, a herd mentality and with little accountability. I hope some lessons have been learned but I have a nasty feeling they haven’t.

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  5. Interesting comment Mark. I am seeing the same drive to replace skilled staff with process in Enterprise IT. However the products (software) we are producing don’t work. It wasn’t always like this. Before outsourcing became the norm we had a close relationship with the customer i.e IT was ‘inhouse’. Now IT is a faceless service provided by multiple layers of complicated process. When the product pops out the end it’s unrecognisable and unusable.

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  6. Years ago – when I was young enough to think I knew it all – I was speaking to the Chairman of the bank I used to work at and made the case for using scoring and technology to make the lending decisions. His response was to remind me that the key to lending was not if the borrower could pay you back but whether he WOULD. You had to KNOW the person.Banking is surely the second oldest profession? The basic rule of lending is CHARACTER. The world has not changed in that regard but all these wankers in banking now know nothing – as I did back in the day. The trouble is that there are no Don Fullertons left at the top. The idiots run the show

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  7. The banking system has disconnected itself in a way that will result in another crisis. Lewis focused on how the mortgage system had disconnected itself from reality and believed that the creation of CMBS and CDOs would magically continue.What Lewis didn’t focus on was the disconnect between the origination of the debt and the repayment of the debt. Most bankers, including your computer jockey, only focus on the origination of the loan. They are not involved in the repayment of the loan. It’s one thing to make an investment in a company or person by giving them a loan. It’s a very different view when you are also responsible for getting that investment repaid. Those computer systems are put in place so that the repayment folks can try to keep some semblance of control and limits on the origination folks. It leads to a much richer flow of capital but will always result in over-lending and will inevitably lead to another bubble.

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  8. I’m sure this wouldn’t work for some reason, but I’ve always thought when reading this kind of discussion that the loan officers should have part (all?) of their pay held back to be doled out as the loans are paid off. My impression is that the loan officers push the loans (are pushed to close the loans) because they only get paid when the documents are signed. If they’re paid as the loan is paid off, then they are much more interested in actually making sure that their customer WILL pay off the loan.

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  9. Trouble begins at the top: Odd man out of this lot?Lord Stevenson: former chairman, HBOSSir Fred Goodwin: former chief executive, RBSSir Terry Wogan: ex-presenter of Radio 2’s Breakfast ShowAndy Hornby: former chief executive, HBOSSir Tom McKillop: former chairman, RBSYou’re right! Terry Wogan, because he’s the only one who’s got any formal qualification in Banking…Boom! Boom!

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  10. I recently attended a lecture at Judge Business School, Cambridge where Dr Khaled Soufani made this same joke so either it’s true or an urban myth which is now so pervasive that it is being propagated by educators of our business leaders and therefore tantamount to truth anyway.

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  11. I wanted him to know my circumstances, have known my father, have a basis on which to make a judgement on both of our behalfs as to whether or not to lend me the moneyI think that this is the image most or many people still have (or want) about bankers .. but it’s pretty much an obsolete species now, overtaken by supposed "efficiency" 😉

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  12. Like Rob P. I was a banker for the first 6 or 7 years of my adult career.It was clear then (late 70’s and early 80’s) that knowing someone’s situation, job, prospects and making a judgment about character were key to lending. It was important to know, as the lender, whether people had the forward capacity to repay, but it was more important to make a judgment as to whether or not they would repay .. character.Your readers in the UK may or may not know this, but in the USA with respect to foreclosures (for example) there is a growing phenomenon of the debtors asking the bank that is foreclosing to come up with the actual promissory note (in many cases they can’t, that documentation long-lost to the originating lender, who is light-years removed from whomever owns the CDO in which a given mortgage resides). If the note is not available, it puts the bank’s position in some jeopardy, and may take pressure of the householder who is facing foreclosure.Doug Cornelius is right .. the banking system is disconnected from peoples’ everyday realities.

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