When investment banks hire risk-takers

The brains of investment bankers by nature are not wired for “client-based” thinking. This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.

In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way.

Taibbi is receiving some blogospheric pushback, because the term “investment banker” means two very different things depending on the context. On the one hand, there’s investment banking as in M&A advice and old-fashioned merchant banking. A typical sentence would be “traders have replaced bankers in the executive suite at Goldman Sachs”. And then there’s Taibbi’s meaning: investment bankers as opposed to commercial bankers, or people who work at investment banks rather than at commercial banks. These are the people that the Vickers report is scared of.

The fact is that old-fashioned advisory bankers are pretty irrelevant here: the big money in finance has always been where the balance sheet is. And balance sheet is used on the trading floor and in commercial banking. So let’s put the fee-based bankers to one side: it’s absolutely true that investment bankers tend to love risk, even as commercial bankers have historically shunned it.

I’m reading The Devil’s Derivatives right now, Nick Dunbar’s fantastic book about credit derivatives traders. (I’ll have much more on the book when I’m done with it.) In the introduction, he makes this distinction really well, introducing the hotshot traders he dubs “the men who love to win”:

This rare, often admirable, but ultimately dangerous breed of financier isn’t wired like the rest of us. Normal people are constitutionally, genetically, down-to-their-bones risk averse: they hate to lose money. The pain of dropping $10 at the casino craps table far outweighs the pleasure of winning $10 on a throw of the dice. Give these people responsibility for decisions at small banks or insurance companies, and their risk-averse nature carries over quite naturally to their professional judgment. For most of its history, our financial system was built on the stolid, cautious decisions of bankers, the men who hate to lose. This cautious investment mind-set drove the creation of socially useful financial institutions over the last few hundred years. The anger of losing dominated their thinking. Such people are attached to the idea of certainty and stability. It took some convincing to persuade them to give that up in favor of an uncertain bet. People like that did not drive the kind of astronomical growth seen in the last two decades.

Now imagine somebody who, when confronted with uncertainty, sees not danger but opportunity. This sort of person cannot be chained to predictable, safe outcomes. This sort of person cannot be a traditional banker. For them, any uncertain bet is a chance to become unbelievably happy, and the misery of losing barely merits a moment’s consid- eration. Such people have a very high tolerance for risk. To be more precise, they crave it. Most of us accept that risk-seeking people have an economic role to play. We need entrepreneurs and inventors. But what we don’t need is for that mentality to infect the once boring and cautious job of lending and investing money.

When you’re hiring people for the UBS trading floor, you’re hiring men who love to win, congenital risk-takers. And then you surround them with risk-management protocols designed to keep them under some semblance of control. There’s a natural tension there. And if you take the hundreds of thousands of risk-takers working on trading floors in London and Hong Kong and New York and Paris, it’s a statistical inevitability that one or two of them will go rogue every year or so.

Risk-managment protocols are important, but they can never be foolproof, because they’re run by humans. So we really shouldn’t let investment bankers — by which I mean risk-hungry traders with access to billions of dollars of balance sheet — anywhere near the systemically-important balance sheets of our largest commercial banks. Losses like the $2 billion at UBS are manageable. But they’re small beer compared to the entirely legitimate losses made by the likes of Morgan Stanley’s Howie Hubler during the financial crisis. He managed to lose $9 billion, and get paid millions for doing so.

eBay's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to eBay's Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Jennifer Cerran, Vice President of Investor Relations. Ma'am, you may begin.

Jenny Cerran

Thank you. Good afternoon, everyone, and thank you for joining us, and welcome to eBay's earnings release conference call for the second quarter of 2011. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're providing a slide presentation to accompany Bob's commentary during the call. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website at investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures when talking about our company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements relating to our future performance that are based on our expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the third quarter and full year 2011 and the future growth in the Payments, Marketplaces and GSI businesses. Our actual results may differ materially from those discussed in this call for a variety of reasons, including, but not limited to: global economic events, including sovereign debt uncertainties; changes in political, business and economic conditions; foreign exchange rate fluctuations; our ability to integrate, manage and grow businesses recently acquired or that may be acquired in the future, including GSI; our increasing need to grow revenues from existing users, particularly in more established markets; an increasingly competitive environment for our businesses; the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity; our need to manage regulatory, tax, IP and litigation risks, including risks specific to PayPal, Bill Me Later and the financial industry; and our need to timely upgrade our technology and customer service infrastructure at reasonable cost, while adding products and features and maintaining site stability and performance. You can find more information about factors that could affect our operating results in our most recent will report on our Form 10-K and our subsequent quarterly report on Form 10-Q at investor.ebayinc.com. You should not rely on any forward-looking statements. All information on this presentation is as of July 20, 2011, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to John.

Voice Commerce app converts iPhone to sales terminal

The CashFlows Portable App allows businesses to accept real-time credit and debit card payments on the move, whether they are visiting customers or exhibiting at a trade show or event - all they need is a mobile signal!
Designed for iPhones, CashFlows Portable is a Virtual Terminal which can be used as a standalone service similar to a normal Face-to-Face payment terminal that is used in the high street today, or in conjunction with accepting credit & debit card transactions from a business' website.

CashFlows Portable is also fully integrated with Voice Commerce's VoicePay m-commerce service, which allows consumers to authorise a payment using their unique voice signature.

CashFlows Portable can be downloaded from the App store for FREE and has been designed to be intuitive and easy to use to enable businesses to start accepting payments less than five minutes after downloading the App.

Commenting on the launch of CashFlows Portable, Nick Ogden, CEO of Voice Commerce Group, said:
"By enabling our customers to accept payments with their phone and for consumers to make a payment with just their voice signature, we have created a true end-to-end m-Commerce solution".

HSS Hire chief Chris Davies powers up to lift a bigger load

Chris Davies knew he was on the right track when he got a call from Radio 4. They wanted him to star in a new television show. This was the big time.

“It was this programme called The Undercover Boss and the guy went on about how I would wander around the company, spotting problems and not being recognised. I had to stop him after about five minutes and point out a flaw – in the first depot I went into, the first person I saw would have said 'hello Chris, how you doing?’ Thinking about the concept of the programme, it’s pretty telling of those organisations that take part. I would be mortified if people didn’t recognise me. ”

He might not have got to enjoy his 60 seconds of fame but Davies is upbeat as he sits in the boardroom of HSS Hire’s headquarters a few miles from Heathrow. The rain is lashing down outside in the resolutely uninspiring business park, pinging off HSS’s forklift trucks and heavy loaders, but Davies seems happy someone’s come to visit his “big small company”.

With the economic recovery as dreary as the weather, HSS is in surprisingly good health. The privately owned hire company, which specialises in providing machinery and tools for commercial customers, posted a 12pc increase in like-for-like sales in the three months to April and unlike some competitors is firmly in growth mode.

Such has been the turnaround – five consecutive quarters of like-for-like sales growth – that speculation about a potential sale or flotation is growing steadily.

The Real Enemy of Unions

Last August, on a blazing-hot Nebraska evening, I sat in a cool hotel bar in downtown Omaha and listened as a team of Dockers-clad union organizers joked, drank, and argued their way into an alliance with a group of southern and western ranchers. The organizers, from the United Food and Commercial Workers (UFCW), made a simple argument: Meat-packing houses like JBS and Smithfield — their already immense power swelled from years of mergers — are using their dominance of cattle markets to hammer down what they pay for beef and for in-house unionized meatcutters. So rather than “scrap over nickels,” perhaps the ranchers and workers should lock arms and fight for bigger stakes.

Cowboys and labor? Plotting together? Polo shirt and bolo tie? In recent years, the two groups have, on occasion, signed the same statements against foreign trade. But closer to home, ranchers and unions have tended to view one another as rivals for the same wafer-thin slice of the retail dollar — and as parties on opposite ends of a gaping cultural divide. “It wasn’t easy,” one union organizer summed it up recently. “In recent years, we have not been friends.”

Yet half a year on, it’s evident that the alliance was no momentary fling, no mere “enemy of my enemy” excuse to clink a few beer bottles before stumbling back to opposite ends of the political corral. When the Justice Department held a series of hearings last year on concentration in agriculture markets, including cattle, the UFCW helped to pack the room for the cattlemen’s testimony, one of the only times in recent decades that an American labor union has promoted stronger enforcement of anti-monopoly law.

And in exchange? While in that room, the UFCW got a chance to make the case that the trustbusters should take on Walmart. The union views the retailing goliath as the main force smashing down the wages and benefits of the retail workers the union represents. More to the point, the union has also come to view Walmart as the real power driving the big meatpackers’ assault on both cattlemen and packing- house workers. (The basic thinking here is that Walmart now controls such a giant swath of the U.S. marketplace that it can dictate prices even to the biggest of suppliers, which leaves less money in the system for the people who actually produce goods and provide labor.)

Ever since Scott Walker and the Republican Party of Wisconsin set out to bust the public-sector unions in that state, one of the biggest questions in American politics has been whether organized labor, seventy-five years after winning a seat at the mahogany table, is about to get the bum’s rush. And if so, what does this mean for the Democratic Party and for popular politics in general?

Yet the future may be brighter than even the most optimistic of union members hope. If, that is, the UFCW’s example inspires the rest of organized labor to open its eyes to the political and economic dangers posed by the radical consolidation evident in most sectors of America’s political economy over the last generation. Doing so would give organized labor a far more complete and sophisticated grasp of how the few exert power over the many in America today. And it would arm organized workers with a message that enables them to reach out to all sorts of economic groups that now tend to oppose labor politically—not least America’s independent entrepreneurs.

In a recent editorial, the Wall Street Journal urged GOP operatives to attack the “monopoly power” of unions to win votes and undermine popular political structures. If organized workers respond in kind, and attack the monopoly power of actual monopolists—the people who pose real threats to the economic and political well-being of the great majority of Americans—maybe they too would win some votes. Better yet, maybe they could begin to undermine the ideological and institutional foundations of the very groups that are now using both major parties to organize the assault against labor.