Goal-hangers and Glory-hunters

‘The banking-football XI would certainly play an unusual formation: no defenders but 11 strikers’

The finances of sport, the sport of finance: both have been in the news recently. While two England cricketers netted £1.55 million for six weeks’ work in the Indian Premier League, the newest form of entertainment in town is watching the bloody spectacle of former banking bosses apologise to the nation. So it was thought-provoking that Royal Bank of Scotland’s interrogation has coincided with the renewal of its sponsorship of the Six Nations’ rugby tournament. Given that RBS is now 68 per cent state-owned, perhaps a more accurate title would be the Her Majesty’s Revenue and Customs’ Six Nations.

How timely, then, that Tim Congdon, in last month’s Standpoint, should suggest that bankers shouldn’t be denied their bonuses any more than elite sportsmen should give their salaries back. “Why should the Beckhams and Rooneys of corporate finance be penalised,” he argued, “but not the Beckhams and Rooneys of football?” If star bankers weren’t worth it, said Congdon, they couldn’t command such huge salaries because “if an investment bank continuously gives unjustified and excessive bonuses to its staff, it will go bust in just the same way as any company in any industry”.

Isn’t that just the point? These investment banks would have gone bust – and hence the bankers wouldn’t have been paid their bonuses – if the taxpayer hadn’t bailed them out. This is not about envy. It’s not high earning per se which people don’t like, it’s state-funded largesse as a reward for failure which causes resentment.

But let’s run a bit further with the metaphor about the parallels between sportsmen and bankers. Imagine the current crop of “star bankers” were transformed into a team of professional athletes. We need enough to make up a football team – so 11 stars from Northern Rock, HBOS, RBS and a few American ringers from Lehman Brothers. We should kit them out properly – a sharp pinstripe, a bit like the New York Yankees, always looks good. In this moral metaphor, how should we evaluate the recent performance of this team of banker-footballers? How would the stars be treated by supporters on the freezing terraces?

The banking-football XI would certainly play an unusual formation: no defenders but 11 strikers. In fact, given the huge incentives for personal high achievement, all 11 would be camped in the few feet immediately around the opposition goal-area, looking for the chance to net a really big bonus.

Alongside the goal bonuses, the banking-football team would use what economists call a “tournament theory” of remuneration, in which each player’s salary depends on his ranking order within the team. Hence much of the team’s energy would be devoted not towards defeating the opposition, but instead elbowing their own teammates out the way. As the Financial Times‘s Tim Harford put it, “Once you start handing out large quantities of cash to people for outperforming their peers, they will work out there are two ways to win this game: either do a great job, or make sure your colleagues do a bad one.”

With extra incentives available for eye-catching goals, each banker-footballer would devise yet more extravagantly acrobatic goal-attempts: one minute bicycle-kick volleys, next “look-I-haven’t-even-got-my-eyes-open” overhead back-flips-the equivalent of the “rocket science” products of modern finance. One sure thing is that playing it safe would not be on the tactics sheet.

What, then, would this sporting spectacle look like? Eleven grown men, immaculately attired, jostling for position, cart-wheeling and whinnying on a tiny strip of grass where the big money resides, tugging at each other’s shirts and trying to wrestle their own team-mates into the mud-while completely ignoring the fact that the ball is quietly being rolled repeatedly into their own net for a series of spectacular own goals.

Let’s not forget crowd participation. Amid this disaster, the banker-footballers ask the punters in the crowd for a giant whip-round (or bail-out). Their argument is that banking-football is of such fundamental importance to society that it simply “cannot be allowed to fail”.

The punters coughing up the cash to keep the team afloat have a tiny fraction of the money of the banker-footballers themselves. Worse still, what little cash the fans did have is fast disappearing: it was index-linked, unbeknown to them, in line with the performance of the banking-football team, so the fans’ houses are nose-diving in value, their investments are collapsing and their pension pots evaporating.

What about our banker-footballers? Didn’t they stash a little away in the good years? After all, however odd their tactics might look in retrospect, they certainly brought in good results for a few years. Surely there was some slack in the system? Apparently not. For the crowd, then, first humiliation, then impoverishment, and finally the begging bowl.

Given the context of this performance, there would be little need for “the David Beckhams and Wayne Rooneys of corporate finance” to be financially penalised.

Having played professional sport for 13 years, I know a bit about angry fans. The banker-footballers’ team bus would be hijacked on the way out of the stadium and barricaded in. Then the furious fans would mete out cruel and unusual punishments on the “stars”. First up? A long disquisition on the significance of credit default swaps and collateralised debt obligations.

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