Why we can't afford the rich by Andrew Sayer

Author:Andrew Sayer [Sayer, Andrew]
Language: eng
Format: epub, mobi
Publisher: Policy Press
Published: 2014-11-25T07:00:00+00:00

THIRTEEN

Key winners

Who were the main beneficiaries of the rise of finance? Some have attracted considerable publicity and scrutiny, while others have largely escaped it.

Intermediaries: the anonymous rich

Around the world every year an astronomical number of transactions take place in the financial sector. While the majority may be automated, the more customised ones provide rich pickings for intermediaries in financial and legal institutions who provide the services necessary for conducting them for fees and commission. The intermediaries are an essential part of the financial ecology and make up the majority of the working rich in the financial sector. Flourishing from being near a big till where they can engage in value-skimming and assisting active rentiership, they are a key group of beneficiaries of financialisation. The more trading – or churning – of assets they can facilitate, the greater their income; not surprisingly, they encourage transactions rather than wait for custom. Managers of funds on behalf of clients such as pension funds can take advantage of their superior market knowledge to corner a significant share of the gains for themselves and to charge high fees. Trading of customised financial products such as credit derivatives ‘over the counter’ – that is, one-to-one between buyer and seller rather than in a competitive market trading more transparent standardised products with many buyers and sellers – heightens the information asymmetry in favour of sellers and the opportunity for them to extract rents. Carrying out mergers and acquisitions is an especially lucrative line of business, with fees averaging 1.5% of deal value. Vodafone’s takeover of Mannesman yielded $640 million in fees for intermediaries.87 These fee revenues are typically concentrated at the top. In Goldman Sachs, around 8% of net revenue was claimed by partners who made up about 1% of the firm’s 25,000 workforce, receiving bonuses of nearly $7 million in 2005. Then there is the support force of public relations people, consultants, marketing experts, lawyers, creative accountants and tax avoidance experts, all of whom are in a strong position to reap large rewards.

In the financial sector in Britain, the number of intermediaries has been estimated at 15,000.88 These largely anonymous members of the so-called working rich far outnumber chief executive officers (CEOs) and senior executive directors (c.600), let alone footballers and celebrities.

CEOs’ pay: because they can

You have to realise: if I had been paid 50 per cent more, I would not have done it better. If I had been paid 50 per cent less, then I would not have done it worse. (Jeroen van der Veer, former Chief Executive, Royal Dutch Shell)89

OK. If I am being honest with you then yes, let’s whisper it, but the truth of the matter is that all of us are overpaid. There is nothing magical about what we do. Anybody can do it. (Allen Wheat, Chief Executive of the giant investment bank Credit Suisse First Boston, 1998)90

If you’ve made a lot of money, it’s really just a matter of keeping score. (H.L. Hunt, Texan oil millionaire)91

CEOs are only a minority

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