Yes, some automated platforms are benign. We're talking about the ones that are not, which I agree we agree on.
At the same time, it's unbelievable and perfectly normal that nothing is done.
I wanted to address HFT specifically, but yes, deregulation has created a monstrosity in the banking industry with this cringworthy phrase "too big to fail". While I'm a shareholder of most large banks, I do believe they should be split apart, I really don't see how small partnerships solves a problem, so help me understand what you think would actually change? To me it seems you'd just have the same characters with their hands in all of them, just distributed.
First of all, small partnerships would take away the massive size, meaning it's easier to oversee things and manage risk.
Secondly, right now bankers have no skin in the game whatsoever. The ones who run the day to day business, the Managing Directors, are all on comfortable £1,000,000 base salaries, some much higher than that, with the chance of a bonus that's multiples of that. If the bank loses money, the MD does not lose money, only part of his bonus, but if the bank makes a profit, the MD profits as well. This skews the risk/reward of risk taking in favour of taking massive risks.
With a partnership, the MDs are partners as well, which means they own part of the business. If the bank loses money, the partner loses as well, if the bank makes a profit, the partner profits too. Hence, partners will be incentivised to manage their risk, as they risk losing their own money, not the shareholders' money.
Third, because the ones who manage the risk do not own the company, they do not feel any responsibility or loyalty towards the company's long term future. The culture at investment banks is extremely toxic, and is based on fear. You could lose your job any day for any reason. Banks over hire and over fire massively. It's hard to imagine, but people are always afraid of losing their job. It's always in the back of your mind. Some banks fire the bottom 5% every year, but on top of that there are layoffs throughout the year. I see rounds at least every quarter, and there have been weeks where every week people are escorted out of the building by security. The 'front office' trading floors of big banks exist out of maybe 500 people, who have to make enough money to pay for the 10,000 or so support staff, the systems they use, their own salaries and the shareholders. Because it's such a small group, you'll likely know everyone that's let go and it does affect you personally.
So, if the bank is not loyal to its employees, the employees will not be loyal to the bank either. Hence, the MDs feel no responsibilty towards the bank, which means their planning is very, very short term. You'll have to look hard to find any manager that thinks further ahead than a year. This means that if the MD sees a way to make lots of money in the short term, but with massive risks of losing many multiples of that in the long run, he will always go for that short term gain. Who cares what happens in the future? He'll probably be let go by then, or he might've left for another bank. Moreover, a lot of MDs have annual budgets/PnL of their own. This means if they don't make this personal trading/sales PnL, they'll get fired. This doesn't leave much time for managing and overseeing the risk. On top of that, the best performers get promoted to MD, but they're not necessarily the best managers. A lot of traders are unfit to manage, but because they make a massive PnL they get put in charge.
With a partnership, a partner is forced to think long term, as he's actually an owner of the business that cannot be fired at the drop of a hat.
So, a partnership takes away the incentives for irresponsible, short term risk taking, and should make an investment bank a much healthier business and more pleasant environment to work in. Before the 1980s every bank was a partnership, and instead of 10 big banks there were 100s of smaller partnerships. Going public has caused the incentives of the bank and its employees to be misaligned, which has partly caused a lot of the crises over the past 3 decades.
Bankers shouldn't be demonised in the media, they're not evil people. Many of them are a bit nerdy people, often with a STEM background that went into banking because they're good with numbers. There should be an open discussion about what makes them behave the way they do, which is the misaligned incentives. Only then will we able to look at the problem as a whole and solve it. Painting them as subhuman enemies that should be hanged is not helpful for the discussion, yet that's what the media is doing. I'm not saying they should be absolved from personal responsibility, but if you don't want history to repeat itself you'll have to look at the environment that causes it, because 99% of the people that start off in banking are not evil psychopaths that are only out for themselves. They're normal people, like you and me.
Russell Street
who would you lock up?