22 December 2010

Bankers using bonus payments to create bogus business is another aspect of the financial sector meltdown reported by Pro Publica, a United States NGO .  The report will give more ammunition to those who claim that some in the finance industry are without ethics.  Merrill Lynch informants disclosed to pro Publica how they placed mortgage-backed securities which were too toxic even in a market  that eagerly bought risky assets.

Bank executives  set up a group within Merrill to take on the bank’s money-losing securities. The part of the bank creating the securities paid for them by passing portions of their bonuses to the new group. This  then enhanced their capability to earn even larger bonuses.

Pro Publica indicates that tens of billions of dollars of Merrill Triple A-rated mortgage-backed assets were developed. When their value evaporated, Merrill folded, was sold  to Bank of America, and had to be bailed out by taxpayers.

Not surprisingly stories of this sort influence the declining public perceptions of once revered bankers.

In the 2010 UMR Mood of the Nation Report, NZ bankers improved on the levels of public confidence, but still rated below public servants and lawyers, although above politicians.   Doctors, nurses, teachers and police officers continue to be held in considerably higher regard by the public.