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Triumph of the investment bankers

Robert Peston | 09:23 UK time, Saturday, 25 September 2010

The title of this piece should be called "the triumph of the investment bankers and finance directors".

Because something rather remarkable has happened at the UK's big four listed banks with the appointment of Doug Flint as chairman of HSBC and Stuart Gulliver as chief executive of that huge bank.

It means that - if we exclude from consideration Eric Daniels, who is quitting as chief exec of Lloyds and is yet to be replaced - every single chairman and chief exec at our biggest banks is either an investment banker by training and temperament or a former finance director.

Which tells you something about the culture and ambitions of our banks.

Here's the list.

Royal Bank of Scotland: the chairman is Sir Philip Hampton, a former investment banker (Lazards) and former finance director (lots of places, but notably at Lloyds); chief executive is Stephen Hester (not far off 20 years as an investment banker at CSFB, before stints at Abbey and British Land).

Barclays: the chairman is Marcus Agius (an investment banking lifer, from Lazards); newly appointed chief executive is Bob Diamond (perhaps the quintessential modern investment banker, as de facto creator of Barclays Capital).

Lloyds: the chairman is Win Bischfoff (another investment banking lifer, from Schroders and then Citi).

HSBC: the new chairman will be its long serving finance director, Doug Flint; and the new chief executive will be Stuart Gulliver, feted as having created a highly successful investment banking operation at HSBC.

So what does the takeover of the investment banking and finance cadre mean for these banks and for us?

Well, it shows that the focus of these huge, complicated and sprawling organisations is managing risk.

Which is probably a very good thing, if we remember that rather nasty accident in 2008 - when our banks were run by a miscellany of so-called professional managers and assorted grandees.

But there are other implications, which some will see as not quite so positive.

First, the absence of what you might call a proper retail or commercial banker from these top jobs might lead you to fear that providing the best possible service to customers isn't their metier or top priority.

Second, the ideology and instincts of this new financial ruling class were conditioned by having lived and breathed the recent years of financial globalisation, the erosion of barriers between investment banking and retail banking, massive financial innovation, the pervasive spread of the use of complex derivatives, and the rise of securitisation.

That implies they regard complex global universal banking as the natural order of things - which they may defend against radical change and reform, because it is their world.

On the whole, they take the view that the notion of the banking industry being reconstructed so that it became simpler to understand, more transparent and easier to manage, well they see that as naïve, futile nonsense (they've told me as much).

It also means, if there were any doubt, that the government's new banking commission will probably be fighting the banking industry every inch of the way, in trying to take the risks for taxpayers out of banking.

That said, many would say that our banks are in safer hands - because at least the new bank bosses are equipped to understand and manage the highly complex risks that their banks are running.

The question is whether they're also the appropriate people to take bold action to change the structure of their industry, so that mere mortals might have a better chance of grasping the risks they're running.

As it happens, the City watchdog the Financial Services Authority has encouraged - and indeed mandated - the appointment of these financial specialists to these highly important roles.

And in terms of experience and expertise, the top team running the FSA doesn't look that different fromt the top teams running these banks: the chief executive, Hector Sants, is an investment banking lifer (perhaps best known for his years at DLJ and UBS); Lord Turner was a vice chairman of Merrill Lynch for a few years (although no one would describe Turner as an investment banker).

This is not to imply that Sants and Turner aren't tough on their former investment banking colleagues. They are frequently beastly to them.

It's just that we're all prisoners of our backgrounds. And therefore it must be of some significance that an entire industry, of some importance to the rest of us, is managed and regulated by investment bankers.

Comments

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  • Comment number 1.

    "That said, many would say that our banks are in safer hands - because at least the new bank bosses are equipped to understand and manage the highly complex risks that their banks are running." Who says. Surely it is more of the case that these people take more risks with other peoples' money. These appointments tell me that the industry has put two fingers up to the government and country. It will require a bold government and regulator to get the reforms needed. The case for supervision above regulation and retaining a state owned proportion of the industry is stronger. Given that two of the organisations appointing Chefs de Casinos are state owned does not encourage belief the government has the necessary resolve to sort the industry out.

  • Comment number 2.

    RP: "And therefore it must be of some significance that an entire industry, of some importance to the rest of us, is managed and regulated by investment bankers."

    -------------------

    The significance is these people are more risk takers than their retail counterparts?

  • Comment number 3.

    Well, they used early retirement to get rid of the career Bankers, and now all they have left are 'Finance Directors' and Investment Bankers.

    Time to dispose of HSBC shares I guess.

  • Comment number 4.

    The only thing these Investment bankers are good at is inventing new ways to pay themselves Bonuses, at the expense of their Shareholders, and for some the Taxpayer.

    Don't forget it was Investment bankers who packaged up rubbish American Loans which they sold around the World in a game of pass the Toxic parcel. These so called Risk managers didn't see that coming and they won't see the next crisis coming either.

    Just ridiculous.

  • Comment number 5.

    You bemoan the lack of a "proper retail or commercial banker". Ever since the 1980s, no sizeable bank has made its money from pure retail deposits & lending. Every sizeable bank has used capital market instruments (what you would call "casino derivatives") since then, and every large bank customer has required more than just money holding & basic loans, with a spectrum of structured finance all the way to strategic advisory and M&A services.

    Retail banking only works if fees are charged for deposit holding. People are not likely to rush to banks levying £10 per month, and no interest, just for having a bank account (before any other charges). That's what it was like before banks could subsidise loss-making retail arms with more lucrative capital markets activity.

    We have excellent example of banks run by people who don't understand modern capital markets - Northern Rock, HSBC and Baring Brothers all ended up being run by people who weren't "investment bankers".

    So the real question is - do you want people running banks who understand these risks, or people who have no experience in these markets?

  • Comment number 6.

    And now the small customers who have to use the banks will pay though the nose as they will charge for banking "the amounts are so small and the costs are so high to process them".

    Mark my words.
    The cashless society they all want means more profit for using the computers they already have. Again I am willing to be proved wrong.

    Lets hope they still like living around London, eh?

  • Comment number 7.

    It is one of the laws of nature. Evolution in action. The world cannot exist without money. Money cannot exist without Banks (whatever name you give them)
    The Industrial Revolution was centred in England because that is where available credit was to be found.
    You can huff and you can puff, but you will not bring the house down, or at least the only house you will bring down is your own.
    Now that is what I call "Real politik"

  • Comment number 8.

    Interesting perspective on the way our banks are being led.

    "they take the view that the notion of the banking industry being reconstructed so that it became simpler to understand, more transparent and easier to manage, well they see that as naïve, futile nonsense "

    Vince Cable will find it impossible to regulate these resourceful individuals into providing a secure bank system so he should change the rules of the game. The cat is out of the bag now that the taxpayer will have to bail out banks if they are 'too big to fail' and so the government should introduce a new entity under company law - a 'bank underwritten by public guarantee'.

    These banks would be required to meet strict rules which would include not being involved in high-risk investment and would be identified by their company status as a 'Guaranteed Bank Limited'. Anyone who wants a low risk account for their domestic finance can go to Safebank GBL and those that don't mind the risk can remain with Anybank PLC. If a GBL fails then the government steps in, if a banking PLC fails then it is treated like any other PLC - it goes to the wall.

    This would both reduce the taxpayers exposure to risk and allow individuals to choose whether to place funds in a protected or an unprotected account. I know where I'd put my salary cheque.



  • Comment number 9.

    7. At 10:40am on 25 Sep 2010, peterbolt wrote:
    "Money cannot exist without Banks:

    nonsense. anything that 2 parties agree to exchange can be considered money.

    time to remove the paper blinkers.

  • Comment number 10.

    Stepahnie Flanders' discussions with Ha-Joon Chang and Anatoly Kaletsky are well worth listening to on the BBC i-player if you missed it last night:

    http://www.bbc.co.uk/iplayer/episode/b00tx3fq/Newsnight_24_09_2010/

    Cambridge prof Ha-Joon Chang in particular was well worth listening to, criticising the "finance driven capitalism of the last 30 years". Kaletsky was more waffly. Both reaffirmed their general belief in Capitalism (of course I believe in God but.... ,) before telling us that it had failed, and must be reinvented.

    Of course, "capitalism" and "socialism" are words with less and less meaning as people redefine them to suit their own agendas. It's worth remembering that Adam Smith thought that Joint Stock (limited liability) companies were a conspiracy against the public; yet now many chiefs of these companies pay lip-service to his name. "Thou shalt not sleep in a bed with sheets" describes a recurrent trend in human hypocrisy

  • Comment number 11.

    Hester really gets my goat. As the CEO of what is essentially a nationalised bank you'd think he would show a little humility. But far from it he's already arguing in favour of not breaking the banks up.

    Now I'm not sure what his contract of employment says but I think it's about time someone took him to one side and told him to either shut up or ship out.

    That apart why on earth would we want to re-privatise RBS and Lloyds/HBOS? Lets just keep them as state controlled banks and force them to work for us not against us.

    I find it entirely bizarre that we would want them 100% back in the private sector because you just know that they're going to screw us again.

  • Comment number 12.

    Obviously evolution wanders on far more levels and plains than we have professions devised to provide a proper understanding of it.

    The historian does a reasonable job of raking up the past and selecting the bits that fit in with our present perception, the lawyer does what he can to keep the balance of morality and sanity within reason, the physician still provide us with some hope, despite our obvious addiction to things which defy mortality. The engineer, well, who ever cared what he does, as long as he keeps things going reasonably efficiently, for now?
    Journalists can be relied on to find a general fault in anything, especially if it can be made to look like a politicians mistake. But Economists, are they not supposed to be the ones that provide the right formulae for the glue that holds it all together?, in our always slightly blinkered Capitalist view of this shared world, or is that only done by blind faith after all?

    Faith is a fragile thing, any right thinking clergyman will testify to that. Whether it entails giving unlimited credit to a particular profession, just because the politician thinks we should, is a riddle best left to the philosopher. But for now we must all have faith the glue will hold, or it might fail and anarchy or hell ensue.

    We all live by faith up to a point , but where is the unity cousins, where is the love in what we do? And what precisely is the point without it ?

  • Comment number 13.

    How many times will it be necessary to repeat the point that the failures in the banking industry in the UK werre nothing to do with investment banking and everything to do with poor management of the banks' core business of raising funds and lending money?

    Look at the evidence. Northern Rock lending far too much with too few checks; basic poor retail banking. HBOS, same pattern but the lending was to commercial companies instead of homeowners. RBS I will grant is more complex. But the root cause was RBS loading itself up(by buying ABN) with assets it had not properly credit-checked; it just assumed that ABN's credit control function was up to standard. In addition they all got caught out because they committed the oldest sin in the banking book - too high a proportion of their funding was short term.

    Barclays and HSBC didn't run into trouble and both had well developed investment banks. Lloyds didn't run into trouble because it ran its commercial banking side conservatively.

    This is why Cable's talk of splitting off the casino banks is nonsense; his analysis of where the problems arose is completely flawed.

    The real thread that ran through all 3 of Northern Rock, HBOS and RBS was that thery were managed by boards that were based outside the City, thought they were cleverer than their city-slicker cousins, and were wrong.

    Don't blame the investment bankers - blame the clowns in Edinburgh and Newcastle.

  • Comment number 14.

    'It's just that we're all prisoners of our backgrounds. And therefore it must be of some significance that an entire industry, of some importance to the rest of us, is managed and regulated by investment bankers.'

    .............................

    This is what hapepns when the constitutional 'rights and privileges' are not addressed at an appropriate level and so that the establishment's relationship with business and banking is fairly and properly reflecting the interests of all of the 'stakeholders' and not just the vested interests.

    This is also what happens when the UK does not have a constitutional generic definition of 'national interest' and sepcific definitions of national interest as relating to the key elements of the UK economy/society. Our 'National interest' definition(s) is/are not just economic and business in nature.

    Of course, we do not have a constitutional or other legally defined definition of 'national interest' and so the critical discussions on 'rights and privileges' ... never occur as our UK constitution was/has been constructed by the generic establishment, privileged and political class to work in the direct interest of the generic establishment, privileged and political class. No UK government has ever tried or even discussed trying to tackle these hidden key omissions in the UK constitution ... as are merely regarded as the 'trappings of power'.

    By not having procedures in place for addressing 'rights and privileges', our political class is continually failing all of the stakeholders as the necessary structural reforms and regulators will not adequately reflect the political will and aspirations of all of the 'stakeholders'.

    This means having an independent review body for all senior appointments within the industry and so that all stakeholders are represented or consulted through demorcatic and other means. This is esssential for all corporate entities that are using our money and not their own personal money and this should include pay reviews.

    There has to be an independent body monitoring the industry which is a political and be democratically structured and not be simply the preserve of the privileged class for playing with and skimming our stakeholder's money.

    The 'four appointments' are an insult to the silent majority of stakeholders and provide further evidence of the arrogant and 'untouchable' attitude of the 'privileged classes'.

    The result is that e.g. the UK banks do not lend in sufficient quantity to UK business as instead preferring to deal with multi nationals and internationalised sophisticated gambling and betting syndicates.

    This is sophisticated privileged class corruption and it needs stopping as it has/is ruining the UK for the living standrads and prospects for the majority of its citizens and is creating a divided society between those with vested interests and the rest.

  • Comment number 15.

    After all that has happened over the past two years (with more to come), we now have a banking sector that is controlled by a cadre of risk-takers.

    You really couldn't make it up!

  • Comment number 16.

    Its like a David Rockefeller wet dream: " The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries. " He may have been joking when he said that in 1991 but it isn't far from what he and his ilk have been working towards for a very long time. Like it or not our 'elected' leaders really don't have much of a say and there is nothing we can do about it. As I've said before its not a conspiracy its just what the hyper wealthy do.

  • Comment number 17.

    Well thats it then.It is clear that the Banks are untouchable because they know that the aspiration to "rebalance" the economy will take at least 20 years (if ever), and in the mean time our dependance on the financial services sector is absolute.Hence the two fingers from the bankers.

  • Comment number 18.

    RP this may be indicative that the salaries and bonus culture of investment banks attracted the best people in the first place.

    If the objective is to minimise poor and misundersood decision making and avoiding potential terminal risk taking surely it needs to be people who understand the products and what is going on who needs to manage this.

  • Comment number 19.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 20.

    And the decision has been made. We are supporting the massive gambling habit. The alternative to supporting the massive gambling habit is, apparently, "naive, futile nonsense".

    Of course the next casino bail out will mean scrapping public services including the NHS and free state schools.

    But hey, casinos for mega rich bankers, can't do without them, can we?

  • Comment number 21.

    Robert, as always an interesting blog.

    A few points: you mention:

    "That said, many would say that our banks are in safer hands - because at least the new bank bosses are equipped to understand and manage the highly complex risks that their banks are running."

    mmmmmm..... Who would these many people be? The same people aka spivs that CREATED these products, the same people who stood in front of govt and congressional committees and said NO ONE could have known what would happen (honest guv!!!). What part of understanding and managing risk did they not get!!!!!!

    The same people who actually think that FOREX Trading and DERIVATIVE Trading actually CREATE Wealth as opposed to recycling and getting a nice little commission for their HARD work!!!).

    The same people who think that synthetic CDOs create wealth and are highly complex products and only suitable for sophisticated investors (the terminology maybe, the investment concept of betting on up or down not so complex me thinks).

    Look we all know and agree that we need a strong, innovative and vibrant financial system, just that we dont have one at the moment. The current system is confused.

    Is it a Financial Industry or a Financial Services Industry? They are completely different animals. At the moment we have a system that has too many products created to recycle wealth (Forex, derivatives etc). The real Wealth CREATORS (ie business, SMEs etc) have to compete for investment and funds with these (so called financial products).

    So simple solution, any product that helps create wealth encourage, any product that recycles wealth (like those mentioned above) ban. OK, so the regulators and political spivs don't have the backbone to do this so tax highly.

    A little suggestion to the banking inquiry. Do M&As and IPOs in the current form really offer value (yes I know spivs get lots of bonuses and pay tax) but do we the institutional share holders get any VALUE or do we hold the completely over valued equity stakes?

    Anyway, my first post, that is 2 years worth of ranting and raving stored up. I have read enough comments and have given my (two) pennies worth. Value? I will let you decide!!!!!

  • Comment number 22.

    What is abundantly apparent is that there are far too few banks. And the few that there are are far too powerful. This is the result of 'Thatcherite 'light regulation. We are reaping the rewards of previous (erroneous) conservative (sorry Conservative - capital 'C') economic theory.

    The banks have subverted the total country to finance themselves. All commercial activity is used by these banks as a social security support system. This is the WRONG way round. Industry and trade needs the support of the banking service industry - not the other way round.

    Somehow we need to find a way, probably through regulation, interest rates and tax policy to change the power relationship between real wealth creators and main employers, and the banks.

    In fact, the banks need us to do this as in the end their prosperity relies on prosperous customers. If we bottle this there is nothing left but downhill decline and we are looking at joining the third world where public services decline, corruption blossoms and most of what we call civilisation erodes - it is as important as that!.

  • Comment number 23.

    the new bank bosses are equipped to understand and manage the highly complex risks that their banks are running"

    Totally agree. The bank bosses understand that every time their gambling habit needs bailing out they will be bailed out by taxpayers.

    Perfect risk management. With taxpayer backing rich gamblers can do no wrong.

  • Comment number 24.

    @21 Value? Definitely! Please post again. :-)

  • Comment number 25.

    As an ordinary punter the information that the top bankers are all of the same ilk, only exacerbates my anger, disgust and cynicism of the banks, financial institutions, the stockmarket and the coalition who are part of this tribe. I am appalled and I can't express my feelings as they are so deep. It turns me off completely but God knows what it does to the younger generation whose opportunities have been largely swept away by what these people have collectively done to the economy. They are creating a rich-list of immoral and unethical spiv and bad practive, stalking the prospects of the majority of the people in our country, whilst at the tax payers expense are ensuring they stay on top of the pile. They are alient, cold, uncaring and contemptable and a worthy of the deserved demonising and verbal lashing they are experiencing by the masses. They are thick skinned and indifferent, but hopefully the public's memory will be long and their selfish ways will be cast into legend. Long let them suffer, for they are created ugly by their activity.

  • Comment number 26.

    @5, Alan wrote:
    “Ever since the 1980s, no sizeable bank has made its money from pure retail deposits & lending.”

    @6 barry white wrote:
    “And now the small customers who have to use the banks will pay though the nose as they will charge for banking "the amounts are so small and the costs are so high to process them".”

    Both statements are all too true. Recall the financial news from Porsche over the last few years. They found they could make more money from financial dealing than from their over-priced sports cars: enough to initiate a takeover of VW – David buying Goliath. Happily, it all went wrong for them.

    The point is that every individual and every organisation that isn’t already doing it can, at least in the short-term, make more money by switching into spurious financial activity than by continuing their regular work. Fortunately, most of us are more interested in something else or too honest, so the world continues to function.

    In the case of banks, the switch is all too easy to make. They continue their retail banking ‘as a service’ to their retail customers. And, because of this service, when the big bucks gambling goes wrong, the taxpayer has to save the bank in order to save his deposit account.

    Personally, if they still existed and would give me a credit card, I’d put my money in the St. Mary Mede and Cider Growers' Building Society.

  • Comment number 27.

    @John_from_Hendon #22

    "The banks have subverted the total country to finance themselves."

    Wrong.

    The banks have subverted the global economy to finance themselves. That is why they can threaten to dump Britain if we "interfere" with our "naive, futile nonsense".

  • Comment number 28.

    Trouble with breaking up the banks especially in Lloyds case, would I think be open to possible legal action.

    Lloyds actually did UK government AND taxpayers a HUGE favour by taking over HBOS. It was a VERY rushed affair, one in which the UK government did NOTHING to prevent, because ultimately it saved them £BILLIONS.

    Without Lloyds takeover, UK taxpayers would have had to come up with many more £billions to stop HBOS failing, much much more than was eventually used.

    Lloyds got damaged and taxpayers still contributed, but it was subsidised by Lloyds own reserves and assets.


    When things tighten essentially due to economic circumstance, which has been the FUNDAMENTAL driver of so many amalgumations, airlines or other businesses, the market, especially regulators allow considerably more leeway resulting in relaxation of competition regulations.

    Thing is, banking competion and other regulations went straight out the window in respect of Lloyds/HBOS because it was benefitial to UK economy to do so. Lloyds itself was NOT in ANY serious detrimental position until it took over HBOS, which had many a nod by government, basically to save its political skin resulting in LESS government borrowings to hold up HBOS.

    Now Lloyds is slowly getting back on its feet I cannot see it just surrendering all its efforts so easily as per Business Secretary Vince Cable's recent statements.

    Such statements of intent, are so easily vocalised, but implementing them, will be near impossible.

    Whats going to happen, will UK government attempt to stop UK banks from registering and moveing elsewhere.

    I very much doubt it.

    The banks, are STILL in a dominant position. The time and opportunity to make such changes has long passed, it should have happened in early 2009.

    The window of opportunity and relative circumstance I think resembles the German attack on Russia and Stalingrad, the UK government respectfully being the attacking German force. Lots of initial effort but in totality not in any position to carry forward total defeat and set/dictate terms, hence the counter attack is building and is already pushing back government forces, who, like the retreating Germans, spin loads of pretentious denials and propaganda and may even ultimately and dangerously make stupid destructive and immoral decisions, out of spite of their fighting a LOST CAUSE.

    There is much further danger in so much policy this UK government is intent on implementing.

    There is so much evidence of MASSIVE MASSIVE failure in Iraq as a consequence of smashing up and destroying its administration without VIABLE and COMPETANT plans/policys to ENSURE STABILITY and COMPLIANCE of standards etc, yet this ConDem government are implementing similar policys within UK across the WHOLE spectrum of public service.

    I wonder, how many in UK will suffer ATTROCIOUSLY as a consequence of so much ill thought out and BADLY implemented disruption and change.

    I am waiting, waiting for the FEEBLE apologys, which I think will be longer than ANY known length of piece of string.

    Yes the banks need regulating, yes we need drastic changes to UK public service as a RESULT and CONSEQUENCE of the BANKS/financial services and MAINLY - CREDIT rating agencys behaviour, BUT each and EVERY TIME UK governments set out to implement fundamental policys and changes, or even building white elephants, or IT systems, there are just SO MANY issues/problems as a DIRECT RESULT of INCOMPETANCE and even MALPRACTICE and DECEIT.

    Hence that which awaits the UK/British public, is evidentially, based upon historical FACT, an ATTROCITY in waiting, for if such is implemented which ultimately results in deaths, or serious social/economic damage, then it is factually an ATTROCITY inflicted and implemented with FULL knowledge of government, and/or FULL LIABILITY of INCOMPETANCE/NEGLECT of care of duty to the British/UK people/population as a whole as government is indemnified to maintain care of duty to 100% of people with ABSOLUTE care of duty and NOT 60% or 80% or even 99.99%.

  • Comment number 29.

    No 13:

    "The real thread that ran through all 3 of Northern Rock, HBOS and RBS was that thery were managed by boards that were based outside the City, thought they were cleverer than their city-slicker cousins, and were wrong.

    Don't blame the investment bankers - blame the clowns in Edinburgh and Newcastle."

    The above is probably intended to wind things up but I'll go for a more measured response.


    Retail banks made massive mistakes in terms of quality of lending but even more crucially quality of financing. The former had bitten the banks before, especially in previous recessions but its the latter, ie the credit crunch (clue in the name) that caused this time things to spiral out of control.

    So who came up with the fancy credit - packaged up so-called AAA investments. Yup, the so-called blameless investment banks, sometime even those connected to the almost criminally naive retail banks. Taking advantage of loose worldwide regulation the investment banks made a killing before they forgot that it was all one big merry go round that came back and hit them, in Lehmans case for a pretty big six.

    So lets not let any of the parties off the hook here as we strive to sort things going forward. Retail bankers, investment bankers, governments and indeed all of us trying to live on the never never world of cheap credit have to think how this can be avoided or at least mitigated going forward.

  • Comment number 30.

    The title of this piece should be called "the triumph of the investment bankers and finance directors".
    Nope, the title of this piece should be: “investment bankers and finance directors will take UK to the cleaners, likely dipping them once or twice unless the UK aligns itself tightly with Basel III and covers the customer under a a contracted risk statement”.
    Every single chairman and chief exec at UK's biggest banks is either an investment banker by training/temperament or a former finance director. Seems to me like a healthy (cough, cough) financial sector (cough, cough) ready to make and keep the UK healthy (cough, cough).
    It tells Brits something about the desperation of the speculators to find an environment in which they can speculate. Jeez, I wonder why they’ve chosen the UK; I guess there was no more room in the US.
    So what does the takeover of the investment banking and finance cadre mean for these banks and for us?
    It means you MUST get financially tight with the EU, at least as far as financial regulation (Basel III) to slap those fingers that reach to play with the economic buffer. Slapping fingers means no dividends, no bonus if you dare get into the cookie jar.
    You must proceed with splitting regular banks from investment banks so that consumers who walk into a regular bank can trust that they are not speculating on the value of the pound, or the failure of some country, or hedgining, short selling, etc. etc. etc.
    If means that if the banks cannot be split (and I don’t see why not), legislation must be put in place that says every customer at the investment bank must have his/her financial circumstances reviewed. The onus is on the customer to be honest; the onus is on the investment bank to formulate a risk tolerance level that the customer can withstand. (e.g. This guy cannot afford to lose a cent, probably in more formal language.) The agreement is legally binding such that if the investment bank invests in investments that exceed the customers established level of tolerance and the customer loses money, the customer has all his/her paperwork for civil action. Accordingly, each customer must receive a signed copy of his/her agreement and financial statements at least quarterly. Let the investment banks choke on that paperwork.(p.s. In Canada we already have this risk aversion statements that are used with all investment banks.)
    Well, it shows that the focus of these huge, complicated and sprawling organisations is managing risk. I wish they were managining risk! I think all these guys belong at Gamblers Anonymous because they just can’t seem to stop betting and evidently will not quit until they are wedged, kicking and screaming, into compliance.
    Why, why, why is the UK trying to do this alone?
    You say: At least the new bank bosses are equipped to understand and manage the highly complex risks that their banks are running. Excuse me! That’s the problem!! The wheeling and the dealing, the betting and the gambling – mostly less than an inch within the line of legality. Germany has already cut off short-selling. Ask the Greeks what they think about sovereign betting.
    We are prisoners of our backgrounds, but our backgrounds now include the risk of the risk managers and the investment banks.
    Therefore
    - get tight with EU, Basel III (cut the bonuses & dividends should buffer-tampering occur)
    - bring in risk statements for customers who can then pursue civil action.
    We Lilliputians can reck havoc in Brobdinnag.

  • Comment number 31.

    @26: "In the case of banks, the switch is all too easy to make. They continue their retail banking ‘as a service’ to their retail customers. And, because of this service, when the big bucks gambling goes wrong, the taxpayer has to save the bank in order to save his deposit account. "

    Fair point but another more fundamental issue and the real reason why retail banks and the universal banking model is so desirable to investment banks and need separating is that having access to these retail deposits allows a little known intrinsic banking subsidy called the fractional reserve system to apply and kick in.

    £1 deposit allows them to magically (actually legally) lend/invest up to 10+ times the deposit. So having access to deposits is key to the whole universal banking model so they can leverage. Now the fact that these deposits also have implicit govt backing is a tad useful as we have seen and as you say when things go belly up.

    Goes back to my earlier post. A Financial services industry would care about and profit from the success of its customers/clients by offering products that they need. A Financial Industry is in competition with its so called clients (conflict of interest me thinks).

    As witnessed when mr God himself aka Blankfein said during his interview in front of congress that they had no moral obligation to their clients. This proves the detachment of MANY (not all) of the products being pedalled. They have no relation to the wealth CREATING economy and business.

    Think about this. London and its daily Forex activity, what is it about $4 trillion. It creates no wealth. (yes that's right it is a zero sum game) Now $4 trillion of investment (it would not require anywhere near that amount) in alternative energy research/development would have huge economic benefit. Jobs, cheaper energy, less need to go to certain places in the world and ahem.... bring democracy.

    That would require bankers with a knowledge of the real world that would require innovative financial products, that would require well bankers that knew how to CREATE wealth.... lets bring it back to the topic of the post.... that would require bankers with a certain skill set. The current crop of new CEOS, do they have those skills and knowledge.......

    So to sum up we need a new breed of bankers yes, with a wider skill set that help CREATE wealth and add VALUE. Not recycle wealth and skim off a a fat chunk of commission. So if HSBC or the others are reading... then I am willing to offer my services based on PERFORMANCE.












  • Comment number 32.

    @28

    I'm more cynical than you are. I suspect that the government felt that it couldn't afford to let RBS/NatWest fail for economic reasons, but with an eye to the Scottish situation, it couldn't afford to let HBOS fail for political reasons.

    I remember all the pro and anti nationalist posturing, sniping and stupid point-scoring which was going on at the time. The facts were largely obscured by the froth. In hindsight, what seems clear to me is that HBOS was doomed, but HMG needed someone else to wield the knife.

    I believe that the most expensive shotgun wedding in history may have been engineered to save the government from defeat in the Glenrothes byelection, and salvage the Labour Party's position in Scotland.

  • Comment number 33.

    The title of this piece should be called "the triumph of the croupiers".

  • Comment number 34.

    #27. JaneBasingstoke wrote:

    "@John_from_Hendon #22 "The banks have subverted the total country to finance themselves." Wrong. The banks have subverted the global economy to finance themselves."

    Whilst I agree that this may be true - the banks resident in the UK are our responsibility in that we write and enforce the regulations. I would also argue that on a global scale we have been the laxest regulators and have gone out of our way to facilitate the global banking subversion of the democratic process. However, we have the power to reign in the banks and we must do it.

    I disagree with the thrust of your statement "That is why they can threaten to dump Britain if we "interfere" with our "naive, futile nonsense"." - I do not think they can do this and that is why they are threatening to do it. We have to call their bluff even if that means that some banks leave.

    I believe that both HSBC (who never wanted to be in London in the first place and only came as it was a condition of the Midland takeover) and Barclays (whose business is, by volume and profit now in New York) will leave and frankly good riddance. RBS and Lloyds can't leave as we own them.

    As to the branch offices of the foreign gambling institutions they will stay or leave as they choose and I actually don't see them leaving as much of a loss to the Nation. I think we should chuck them out and anyone who works for them! Our Nation has to gain democratic control from the despotic banking oligarchs who are still working against the best interests of the British people and business. The City of London has to understand that they work for us and not the other way round!

  • Comment number 35.

    No 32 - cynical? How about a little bit crazy?

    No matter what your politics are, who in their right mind thinks that the previous govt reckoned that a course of action like trying to help broker a merger of 2 of the biggest UK banks to ensure the whole banking sector didnt go into meltdown was so they could hold onto a by-election win.

    You can agree or disagree with the course of action and there are many on each side of that argument but the suggestion that such a crucial decision was made to keep a majority of 60 intact while all else collapsed around them is simply wrong.

    If the govt hadnt acted as they did I personally think that we would have faced a nightmare scenario of multiple runs on banks while the hedge fund managers made enough hay to get us from here to the moon and back.

  • Comment number 36.

    @35 Crazy? as the saying goes: "Just because you're paranoid doesn't mean they're not out to get you". :-D

    I voted LibDem in 2005. Despite being a Lloyds shareholder and losing £_several_K, I voted Labour for tactical reasons this year. However, I think politicians in power are often only restrained by what they think they can get away with.

    The Glenrothes by-election was pivotal: so far as Westminster was concerned, it turned the tide away from the SNP in Scotland, at least for a while. Ironically, Lloyds' obvious problems after the takeover might have sweetened the bitter pill of Scots loss of pride. For those who believe in the Union, it may have seemed worth the sacrifice of a "good" bank and its shareholders?

  • Comment number 37.

    For the question of banks and financial services leaving the UK, it's almost inevitable. There has to be a token non-finance and banking sector for finance and banking to service. We don't have have one: other countries do. Therefore, banking and finance will go away. You might suggest they'll stay if we offer better conditions, but that would mean competing with tax havens and the like. I don't think that we want that and certainly cannot achieve it from within the EU.

    We need to decide what sustainable future we can produce for the UK economy and then seriously get on with making it happen.

  • Comment number 38.

    I wonder what would happen if the guarantee of deposits up to £50 000 was available to only banks that followed certain 'retail' rules. I have no idea what these rules might be or even if this is possible. But I suspect that many people would take their business away from the Casino Banks. With less of the general public's money at risk the casino banks would be easier to abandon if they get in to difficulties.

    I suppose what I am suggesting is that the government creates conditions that favour setting up new retail banks in such a way that they do not go over the top with novel financial instruments. That way the existing banks can take the casino route if they want and aren't burdened with the retail side. At the moment we have something like an F1 CEO trying to run the production of a mass market car.

  • Comment number 39.

    Mr Peston you still seem to have some strange, mesmerized affliction of worship for these people. You talk about 'us ordinary mortals'; the bankers too are ordinary mortals, Gods they are not nor superhuman, they are neither heroes or villans They indeed have demonstrated an eccentric level of stupidity of the past 30 years so if they are so superhuman how come we are in this mess ?
    So in your interviews please don't ask them easy questions like ' what would you prefer business or cricket [ to Victor Blank]
    Two things you should ask them
    1 Why have they not been sacked
    2 When are the going to take a huge pay cut
    3 Ask Myners about his tax haven habit
    4 Ask Eric Daniels how can he justify his money when screwing up over HBOS ?
    Things like that oh and get them into to studio don't go to them they are not royalty and if they refuse an interview tell us over and over and over again
    Finally give them a reminder that we don't live in a capitalist system we live in a democracy - I think many of these ordinary mortals forget that !

  • Comment number 40.

    #37 WolfiePeters

    So in effect what you are saying is that for every banker there has to be n thousand productive workers.

    The bankers suck the productive workers dry, put them out of work by making them non competitive on the world stage. Then the bankers move on.

  • Comment number 41.

    CyranoInLondon wrote - "The real thread that ran through all 3 of Northern Rock, HBOS and RBS was that thery were managed by boards that were based outside the City, thought they were cleverer than their city-slicker cousins, and were wrong. Don't blame the investment bankers - blame the clowns in Edinburgh and Newcastle."

    Despite living working in the North East - NOT public sector - I don't intend to defend the Northern Rock's management.

    But statement this misses the point. Like thousands of organisations, the Crock was buying/selling products from investment bankers who claimed they knew what they were doing and traded on their expertise in complex products. Its obvious they had no idea what they were doing, where the risks were, or where the next explosion would come.

    The Crock, HBOS and others (though not those mutuals that sensibly stayed away from the financial markets) were blown up by the pointy headed rocket scientists and alpha male traders i the City, and all of them blown up by their greed and incompetence and what Christopher Fildes in the Spectator used to describe as the irrational belief that the laws of reality had been suspended in their favour.

    Blaming it all on Newcastle and Edinburgh is a stunningly offensive thing to say - the Crock/HBOS had overpaid useless and hubristic management certainly, and paid to know much better, but they were suckers like the rest of us (rather more contemptible of course) - the difference being Fed the Shred et al isn't picking up any bills unlike the thousands upon thousands who have already lost their jobs and the much bigger number still to do so.

    Meantime the gravy train rolls on in the City, though with our rescue money being shunted around and siphoned off rather than the dealings of credulous imbeciles in the retail banking sector.

    Still waiting for any signs that the City will create any wealth (rather than take a cut).

    The double dip is deepening....

  • Comment number 42.

    I don't accept--have never accepted ---- that these people are 'risk takers'; where is the risk in taking a 'dangerous' course of action where the worst that happens is you walk away from the ruins with a £double digit millions pension pot after a couple of years of £single digit millions salary?

    All that happened in the last decade was the Peter Principle was shown to be correct--in spades.

  • Comment number 43.

    #40 Prudeboy: "...for every banker there has to be n thousand productive workers. The bankers suck the productive workers dry, put them out of work by making them non competitive on the world stage. Then the bankers move on."

    Exactly!

    And, when they move on, they leave everyone from children to pensioners in total misery.

  • Comment number 44.

    Followers of the brilliant 'More or Less' series that gets behind numbers in public debate will know the answer to the question 'What share of income tax in the UK is paid by the top 1% of earners?'. What's your guess? The figure is 21%. I reckon that many of those in the top 1% work in investment banks in London. So when I read posts like the following:

    'As to the branch offices of the foreign gambling institutions they will stay or leave as they choose and I actually don't see them leaving as much of a loss to the Nation. I think we should chuck them out and anyone who works for them!'

    I believe the writer is misguided. What's the loss to the UK? About 21% (maybe more if you look beyond just the top 1%) of current tax revenues. Which would mean far, far bigger cuts in public spending than even the coalition has proposed. Or a plea to the IMF in 5 years time to be bailed out and acceptance of their conditionality (remember that in the 1970s?).

    So much as I dislike some (not all, but some) arrogant, greedy and objectionable investment bankers in some (but not all) banks, they pay 50% tax on their income and it goes into public coffers to pay for schools, hospitals etc. And even investment bankers pay plumbers, builders, nannies, etc - so the money gets back into the real economy. I would like there to be less inequality between the highest and lowest paid in society but let's not kid ourselves that pushing banks out of the UK is a good idea. Those suffering from this delusion will wake up one day to find that all the jobs and wealth have moved to Shanghai and Frankfurt. No more jobs for plumbers, builders, nannies, taxi drivers, accountants, shopkeepers, car salesmen, etc. London will just be a tourist attraction for those who want to see what it used to be like when it was full of well paid people spending money and paying tax.

  • Comment number 45.

    @44; you see the problem with your view that the top 1% pays 21% of the income tax is that you forget how they EARN(!!!!) the money. The bankers earn the money BECAUSE the rest of us peasants have our salaries paid into the banks which allows them to then leverage this and then do whatever it is that they do.

    I have no problem with people EARNING large bonuses. The point is that the bankers (most of them) did not EARN it. The broke their toy. The system was/is bust. SIMPLES. Their bonuses are not based on ACTUAL wealth, just a temporary snap shot so the fact that they pay 50% for something of no intrinsic value, they should be thanking us. They still get 50% of a huge sum for having created nothing of VALUE. A pretty good deal don't you think!!!!

    Now the few other entrepreneurs that make up the 1% do actually create wealth and earn their money. They are to be encouraged. BUT the fact that they can earn their fortunes is not just down to their entrepreneurial abilities. It is ALSO due to the fact that they operate in a country of laws.

    These laws are upheld by the vast majority of normal people and law and order and education is paid for by every ones taxes. ie they benefit more from these services than most others, therefore they should pay more tax. BTW read these link to understand and dispel a few tax myths

    http://fairsharetaxes.org/Talkingpoints.aspx

  • Comment number 46.

    To Slessac @44
    Personally, I feel sure that it will be very difficult for us to stop most of banking and finance eventually leaving for places like Frankfurt and Shanghai, never mind forcing them to go. Their natural home must be a place with industry or a major trading or fiscal advantage. When it all goes, the gross loss in taxes to the exchequer will be far more than just that from the investment bankers.

    I do not dispute your figures, but surely the net loss would depend on where (and even how) the income of the individual arose. I’ll take an example from an area of the investment banker’s activities that most will not regard as too questionable. If an investment banker makes his money by advising UK based company A on its takeover of company B, then his income is a reduction in profit for A. Thus, extra tax from the banker is partly cancelled by lost tax from company A. You may counter that his advice has reduced the total cost to A. If so, it has reduced the capital gain to the stockholders of B.

    Put it simply, they don't make wealth, they just move it around and, even that, probably much more slowly than someone on a lower income.

    You may say that our investment bankers are mainly advising foreign organisations. However, that takes us back to my original point. If the customers are outside the UK, the activity will, sooner or later, move outside of the UK. And we need to prepare for it.

    From any way of thinking, we’d be better off if we could swap VW for all the investment bankers.

  • Comment number 47.

    Slight change of subject, the photos of the militant brand brothers hugging tonight after the labour party leadership election, should have the caption 'Fredo, you broke my heart' from the the Godfather part two.

    Ed don't go fishing on your brothers boat !

  • Comment number 48.

    Robert Peston.

    "..every single chairman and chief exec at our biggest banks is either an investment banker by training and temperament or a former finance director.

    Which tells you something about the culture and ambitions of our banks."

    just like it used to be in a pub at closing time, "Time, gentlemen", and everybody rushes up to the bar to get theirs before closing time. quite sick, really.

  • Comment number 49.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 50.

    @John_from_Hendon #34

    You may have missed the thrust of my statement. Don't you think this might be more effective if it were the G20 calling the banks' bluff rather than just the UK government?

  • Comment number 51.

    You couldn't get a bigger kick in the teeth for ordinary British people, could you?
    Lest we forget, it was this arm of the banking sector that drove our economy pell-mell into the buffers a couple of years ago. These were the guys whose unalloyed greed and avarice brought us to the point of financial meltdown.
    Still, no worries - the plebs are paying for it.
    The bonuses will continue to be astronomical - and the plebs will pay for it.
    The banks give every signal that they are raring to go on in the same old ways - and the plebs will pay for it.

    We DO need separation. We need separation between banks who pay reasonable wages to their top people and who will accept regulations that forbid short-termist fast-buck strategies and ones that pay astronomical bonuses to people who "take risks". The former should be backed by the Government. The latter should be told firmly and publicly that if they get into financial difficulties NO public money will be spent on them.

  • Comment number 52.

    11. At 11:20am on 25 Sep 2010, Wee-Scamp wrote:
    'That apart why on earth would we want to re-privatise RBS and Lloyds/HBOS?'

    The old half truths will be trailed out
    We must get our money back
    The private sector is more efficient
    We must have more competition


    'Lets just keep them as state controlled banks and force them to work for us not against us.'

    I agree completely. But we must watch them closely.



  • Comment number 53.

    47. At 9:55pm on 25 Sep 2010, AudenGrey

    Mr Ed edges out Mr Bean
    Career politicians. Don't you just love em?

    The future's bland

  • Comment number 54.

    May I make a plea to Robert whose insights have prompted such important debate.

    Could you please clarify for the benefit of all the extent to which the current economic problems of this country are attributable to the financial support provided to the banks. Treasury figures suggest that the Labour government ran structural deficits for years before the global financial crisis restricted credit in the markets. One view (mine) is that this was a time-bomb waiting to explode in terms of a huge level of public debt. The other view expressed frequently on this blog is that the economic ills of this country are directly attributable to investment bankers. I struggle with this latter point. Moral ills - probably, but economically I am under the impression that the wealth brought in to the country by this sector far exceeds any payments by taxpayers to banker.

    I don't have any stake in whether I'm right or I"m wrong, but I would love the facts. By the way, when we discuss bankers, what exactly is a banker? Is it a director of an investment bank? The manager of a high street branch? Its head of marketing? IT director? A manager who lends money to small corporates, big corporates?

  • Comment number 55.

    The question is one of culture; all of us are prisoners of our culture, which largely predetermines our response to challenges, most especially challenges to our own hegemony. These men are no exception.

    So, what kind of culture are we talking about?

    Fundamentally, these people believe that wealth accrues naturally to those most deserving of possessing it and that its possession is therefore the hallmark of superior moral virtue: they deserve it, and people who haven't got it (the rest of us) don't. They believe that the existing order must be the only right one because it has put them where they are. So there's no question in their minds of changing it to their disadvantage. Because their organisations have acquired phenomonal wealth these men wield enormous power and influence and they will ruthlessly use it to resist to the last ditch any democratic attempt to change the system to their caste's disadvantage.

    Occasionally, one of them gives the game away. These words were uttered by Sir Josiah Stamp, Director, Bank of England, 1928-41 and reputed to be the second-richest man in England at the time:-

    "Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again...

    "Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a happier and better world to live in.

    "But if you want to continue to be slaves to the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit."

    If anyone knew what he was talking about, such a man as Stamp did. He (of course) put his finger unerringly on the single most important flaw in our entire financial system:- the fact that we have surrendered to the banks the power to create our money - nowadays more than 97% of it - in the form of interest-bearing debt. That is what fractional reserve banking means! Anyone who can read Stamp's words and not start wondering what Stamp was talking about hasn't even begun to understand the problem. And that includes RP.

    The answer is very simple, in principle:- outlaw fractional reserve banking and thereby return banking to the limited - and socially useful, non-corrupt - role it was originally conceived to fulfill. All other so-called remedies, such as those RP reports the Banking commission as flirting with, are just palliatives. They only tackle the symptoms not the underlying disease.

    That in a blog such as this such a glaring omission can be occurring beggars belief. Anyone posting here who hasn't informed himself about how our banking system actually functions doesn't know what he's talking about. A useful start would be to take a look at this:-
    http://www.bendyson.com/

  • Comment number 56.

    #10. Sasha Clarkson wrote:

    "It's worth remembering that Adam Smith thought that Joint Stock (limited liability) companies were a conspiracy against the public."

    And it's worth affirming that Adam Smith was absolutely right!

  • Comment number 57.

    #22. John_from_Hendon wrote:

    "Somehow we need to find a way, probably through regulation, interest rates and tax policy to change the power relationship between real wealth creators and main employers, and the banks."

    The end is right, the suggested means is not.

    The correct means is to take away from banks the power to create our money.

    That power belongs to us, and must be exercised on behalf of our society as a whole. In what way, specifically, it should be exercised at any given time is a political question and must be decided-upon democratically. But that does not affect the fundamental issue - which comes first in order - where ought the control over the issue of our money to be vested?

    At present, private corporations called banks have that power, as to 97% of our money. Can anyone, seriously, believe that to be right?

  • Comment number 58.

    #34. John_from_Hendon wrote:

    "Our Nation has to gain democratic control from the despotic banking oligarchs who are still working against the best interests of the British people and business".

    I rest my case. Abolish fractional reserve banking. Now!

  • Comment number 59.

    Thanks for this, Robert.

    And indeed, it's extremely depressing.

    But it's incredibly important that our UK government......OUR elected representatives.....show that they are more powerful than this global banking 'uber-class'.

    The bankers plan is to collude with their friends from around the world in telling all national governments that any new rules at all (..... 'apart from those we've decided ourselves in Basle'....) will almost certainly mean that 'we will have to move our bank elsewhere'.

    This should be seen for what it is - an enormous bluff, designed to keep all bankers in the manner in which, over the past couple of decades, they have become accustomed.

    The banks should be split up - no question about it.

    The process can be started very soon if the government starts to use the £50k guarantee to retail savers at each bank as an active tool of policy.

    Reduce this £50k level gradually down to nothing for the global universal banks (this makes sense given this £50k can effectively being hijacked by the bank for its operations in some other far-flung country), and then increase the £50k guarantee to a lot more - maybe £100k, may be more - for those banks, as you say, who are "simpler to understand, more transparent and easier to manage".

    You can bet ordinary consumers/savers will be moving their money pretty quick from one to the other, and the 'global elite' will be sweating.



  • Comment number 60.

    On the numbers side of the debate--- does anybody have a ratio that relates the size of the Icelandic economy to the liabilities of it's Banks at their maximum just before the crash?

    Does anyone have the same ratio for the UK economy to the size of our banks liabilities in August 2008---along with the same ratio as it stands now?

    I was just wondering..

    Seeing as how a bucketload of sewage has been poured on Iceland, and Icelanders, for being an uppity little country with a ludicrously over inflated, and over leveraged "Bookmaking and Gambling" sector that their tiny 'real' economy could never hope to support---- and also speaking as someone with a small company in the real economy I have to say my arms are getting a bit tired supporting the ample backsides of the people still troughing at the banquet on the high table ...

  • Comment number 61.

    CAn someone esplain the finer points of fiscal and monetary policy to me with regard to the following:

    How is deficit spending without borrowing different to QE, given the bleedingly obvious that deficit spending without borrowing is likely to have a bigger impact on the real economy than buying gilts off someone or some fund who are just as likely to use the money to buy more financial assets rather than spend it on goods and servvices

    I will accept answers from bankers on this occasion.

  • Comment number 62.

    As far as the UK economy goes at the moment the term `investment banker' is an oxymoron. The banks are not investing they are rebuilding their balance sheets after they happily drove them over a cliff secure in the knowledge that the taxpayer will provide the wherewithall.

    I am wholly in agreement with those who argue that we need to restructure the banks now without waiting for international agreement.

    The Basel III agreement illustrates the simple truth that those countries with economies not held to ransom by their banks will set their own criteria leaving the USA, the UK and Switzerland to stew in their own juice. I can understand that point of view as why should they cripple their own economies because we have been stupid?

    As it is we are going to have to wait a year before the new Banking Comission, or whatever it is called, of the great and good to come to their conclusions. I am trying to be hopeful that this will recommend a fundamental restructuring of the banking industry but as time passes I find myself becoming less optimistic.

    The seemingly tardy and blundering approach to economic reform in this country has become quite bothersome. Do we have the time to proceed at such a leisurely pace? I hope so but I do get the distinct sense that we have a privileged elite dragging its feet for fear of the future. In their shoes I would be fearing the wrath of God; but then their shoes would be too big for me even though I am size eleven.

  • Comment number 63.

    @55 torpare

    Thanks for the Ben Dyson link. He puts things much more credibly than the "Money as Debt" videos, which in my view don't get the facts right. I can't fault Dyson's general logic, though I would want so see the sources of his figures and calculations.

    I particular, I strongly recommend this page:

    http://www.bendyson.com/the-cause-of-the-financial-crisis/what-will-happen-if-we-dont-reform-the-system/

    His statement that "The Recession Is Unnecessary" and the reasons he gives echo exactly Keynes' arguments in the 20s and thirties. Keynes shied away from money reform, damning the more radical Clifford Hugh Douglas with faint praise. This is undestandable in the historic context, as Keynes had already "rocked the boat" considerably and probably wanted to maintain his hard-won influence on contemporary economic policy. However, as informed citizens of a democracy, it is for us to try to take the argument forward, and make the public aware of the facts.

  • Comment number 64.

    44. At 8:05pm on 25 Sep 2010, Slessac wrote:

    Followers of the brilliant 'More or Less' series that gets behind numbers in public debate will know the answer to the question 'What share of income tax in the UK is paid by the top 1% of earners?'. What's your guess? The figure is 21%. I reckon that many of those in the top 1% work in investment banks in London. So when I read posts like the following:

    ....................................

    You make an excellent point ... but the debate about hedge funds, bankers and investment funds and their payments to themselves is not just a question of income tax as ignoring other crucila issues:

    1) Who's money was used/put at risk in making the transactions/profits/bonuses?

    2) Are the transactions properly shown in the bank's accounts etc if e.g. a PLC?

    3) Were the personal rewards fair in terms of other bank employees and 'stakeholders'?

    4) Were the transactions in the national/public interest and what wa s the opportunity cost to the British economy of the bank's choice of investment

    5) What were the competition issues and outcomes?

    6) What additional systemmic and other risks were made as a result of the transactions

    7) What is the effect of the transactions on the UK money supply

    8) Etc ... The list is very long here ...

    The issue of bankers and their bonuses, skimming and other golden trough issues is a major constitutional issue that lies at th heart of the British economy/British nation.

    For what its worth, I think that the UK economy will not be properly managed and will not have direction and will not e.g. 'recover' and make progress in terms of trust and sustainability until this huge constitutional void is addressed ... until the 'big picture' is looked at and major reforms and other actions put in place.

    This is not left wing propaganda ... this will benefit the business community as much as anyone else and will give better understanding and visibility in terms of of fainess, incentives and personal rewards.

    Taxation of golden troughs just means that the gross size of the golden troughs gets bigger in order to pay for the taxation ... this also means new and transaparent accountancy systems need to be put in place.

  • Comment number 65.

    #64 nautonier
    "... until the 'big picture' is looked at and major reforms and other actions put in place."

    Only one problem.
    - The banks do not perceive themselves as a problem. -

    Not only that but they see any attempt at regulation as a challenge to be worked around. For the benefit of them and their shareholders.

  • Comment number 66.

    Slessac, its good to read your points and i too am against the bashing of "bankers" whatever and whoever bankers may be.

    With regard to the top 1% paying 24% of the paye revenue, this imo is accurate but highly misleading,the income ( including bonuses) of someone earning £1m will be over 33 times average earnings and i estimate around 100 times the wage of the 8% of the working population on minimum wages.

    Someone earning in the top 1% on average has wealth in excess of £2.6m, someone in the top 10% on average will amass wealth of £2.2m in a lifetime. The poorest 10% on average ammases a lifetimes wealth of £8k or less.

    I also suspect the top 1 % is tax payers, a high proportion of city bankers are non dom or use other avoidance methods.

    When all taxes are taken into account, the tax burden paid by the poor is even greater.

    I too would like to see an honest appraisal of the benefits of banks over the last 10 years, inc corporation tax, employment taxes estimates of tax paid by companies banks have supported etc, against the "bail out cost". I suspect it will be quite an eye opener to the "lets blame bankers for everything" brigade.

    I can't though accept any implication that the rich bear a larger burden of taxation than the poor

  • Comment number 67.

    #5 and #6 please note that bank profits are obscene.

    Your position seems to be founded on the premise that profit levels will remain the same but I am firmly of the opinion that sometime we have to come up with some way of limiting the ability of a corporation to milk it's customers to the max so that it can shovel it's customers' money into the pockets of shareholders and so-called custodians.

    The bets way is not to do this by legislation, but by competition. Set up a nationalised bank whose remit is something like... to offer banking at as near to cost as possible while remaining in profit. By requiring them to remain in profit they will not be a drain on the taxpayer like the nationalised industries of old and they cannot be accused of skewing the market unreasonably.

    And because they are nationalised the required level of profit can be set and reviewed by the government. Since other banks will have to compete or die, this is effectively a curb on bank profits using the market to control itself through it's own favourite medium: competition.

  • Comment number 68.

    I would imagine that they see their world as a part of 'The World', and that humans have done so much design work to date that effectively the present design is as immovable as the laws of physics. Perhaps that is part of why they scoff at even the suggestion of using the simplicity principle that is used by many designers/engineers in order to simplify maintenance, diagnostics, development and provide transparency. Sometimes this approach is a prerequisite for tackling more complex problems that do need more complex designs though - maybe they figure this is true of 'their' world? Different people value different environments, personally i just hope there is room for difference within their thinking and systems and that this is part of why they believe in their complexity.

  • Comment number 69.

    #63. Sasha Clarkson wrote:

    "However, as informed citizens of a democracy, it is for us to try to take the argument forward, and make the public aware of the facts."

    Very well said!

    But how many of "us" have actually taken the trouble to inform ourselves about the nature of the fundamental problem?

    To judge from the fact that he sedulously avoids ever even mentioning it, I question whether Robert Peston has, for a start.

    Almost everyone here is thinking "inside the box". "The box" in question is the existing banking system, so vividly described (by an eminent banker no less!) as "to be slaves to the banks and pay the cost of your own slavery". Most people are unprepared even to think about an alternative banking system.

    The rot set in with the chartering of the Bank of England in 1694, and the last nail was hammered into the coffin of honest banking by the House of Lords decision in Foley v. Hill and Others in 1848, by which the misapproriation by banks for their own use of depositors' money entrusted to their custody for safekeeping was (grotesquely) declared to be in fact a "loan" to the bank, thereby giving legal approval to embezzlement. But by then the embezzlement had already been going on for 150 years with full government approval!

    Instead of striking down this nefarious practice the judges sanctified it. Hardly surprising really:- how many of them depended for their own wealth upon the system of fractional reserve banking being perpetuated? It fell to Parliament - as it should - to put matters right, which the Peel administration determined to do. Tragically, they missed their aim because of an imperfect understanding of the way the scam is worked.

    Yet here are we making the selfsame tragic mistake all over again! Only the names have changed, the usual suspects - bankers feathering their own nests - remain always the same.

  • Comment number 70.

    torpare

    I think you are making a strong point here about the media generally.
    If what you and I and others believe is correct this is one of the most important stories in decades. Why is not covered in the mainstream media?

    Furthermore, RP has made a video explaining money to us but I do not believe he has answered the question, asked many times, of why he makes no mention of FRB.

    I am also amazed that there is not more anger amongst the people that do understand what's going on. An interlectual discussion about the pros and cons of changing the system seems to be as far as they want to go, ignoring the ramifications completely.

    I shudder to think of the real answers to these questions. Of course it may just be because a growing number of us are bonkers and the good old Beeb is still the last bastion of independent broadcasting.

    Choose your pill carefully.

  • Comment number 71.

    I don't know how much more punishment the bankers can take!

    It was reported today that HM Revenue & Customs suspects the Swiss office of HSBC of holding accounts of people liable for tax in Britain. HM Revenue & Customs has acquired the identities of the high-net-worth individuals through an ex-employee who leaked the details after fleeing to safety in France. It is investigating hundreds of people over possible large-scale tax evasion! I'm rubbing my hands with glee, obviously!

    But how come a London bank had this information and did not give it over to the government (why they were working against the British public interest)? How come we let the Swissies do this sort of thing with apparent impunity and why are well-off Britons risking all by doing large scale tax evasion? Are they so thick?

    If they don't give straight answers to these simple questions, we'll just have to break HSBC up and give the shareholders absolutely nothing.

  • Comment number 72.

    After the latest Basel edicts the BBC did actually post something up about reserve ratios. It wasn't Peston. And they got it wrong. AFAIKR it was comparing the bankers lending process to a house holders mortgage borrowing.
    They got it wrong.
    I was surprised, not that they got it wrong, but this was the first time they had even broached the subject.
    Revolutionary.
    But they did get it wrong...
    If I have the time I will try and find it again.

  • Comment number 73.

    Surely the proviso should now be NO BANK OR INSTITUTION IS TOO BIG TO FAIL and if they do fail the democratically elected peoples representatives should create the lucre on the taxpayers behalf just as they are doing in Argentina and other South American countries.

  • Comment number 74.

    70, Ahh, the old chestnut of "The evil FRB" rears its head once more. Essentially, your problem seems to be that banks lend more than they have on deposit, thereby creating the possiblity of bank failure if there is a run? So your solution would be to stop there being so much lending?

    What do you suppose would be the consequence? The consequence would be that the price of credit would skyrocket, as there is a lot less of it about. You think your mortgage is expensive now? You think small business has got a problem? And you want to talk about cutting the amount of available credit in the system?

    Cue Dempster, with his "regulation" spiel and how we need a state bank.

    OK, so we set up a state bank to do the excess lending on top of the retail banks. Where do we find ourselves? Well, given the demand for credit at the moment, retail banks will be lending at capacity pretty much all the time. Consequently, when you go into your bank to sort out a loan, the chances are there isn't going to be enough credit available. Either you have to then go to the state bank yourself, or ask your retail bank to do it for you.

    Result, the state bank is completely overwhelmed by requests for loans. Nevertheless, we set about processing them. How do we do that? Have a bank manager at the state bank individually check each one and approve or deny, and then field the calls from disappointed borrowers who were rejected? The words "neck" and "bottle" spring to mind, even with the most efficient system in the world (which a government is surely not).
    Alternatively, we could automatically approve or deny based on the data sent in by the retail bank or submitted by the borrower, which is tantamount to the system we have at the moment anyway.

    Result, you are essentially advocating a massive bottleneck of credit-checking at a single state-run institution which will force the price of loans sky-high, cause substantial delays to the process of obtaining credit and fail to remove the risk from the system anyway because the individuals at the state bank will be no better placed to make a decision on the nature of the borrower than the chap at the retail bank, probably less so.


    "Ahh", you cry, "but the guy at the state bank isn't packing a massive bonus, so he has no incentive to send out loans willy nilly".
    Agreed, but he does have an unbelievable amount of work, and he is getting an earful day in and day out from WOTW and Jacques Cartier because he didn't lend them the cash they needed for a mortgage on the grounds that they hadn't demonstrated any grasp of economic principles. On top of that, he doesn't really worry about his job security because he's unionised and the state lives in fear of all sources of credit drying up entirely if they go on strike, so he's got no incentive to worry about his decisions. And because the pay in this line of business is not so great, due to political funding issues, he's hardly the sharpest tool in the box anyway. So he does whatever gives him the easiest life, and approves whatever comes his way.
    Or perhaps we offshore the whole lot to Bangalore and you can try dealing with them when your application is rejected.

    And all because you wanted to avoid the risk of a bank run, which only really comes about when mischievous journalists looking to make a name for themselves start spreading rumours.


    I'm no die-hard advocate of FRB by any means, but it's simply not good enough for you lot to bang on about the evils of it without coming up with a credible and workable alternative. Answers on a postcard to Robert, please.....




  • Comment number 75.

    74. At 5:54pm on 26 Sep 2010, LePlonk wrote:
    I'm no die-hard advocate of FRB by any means, but it's simply not good enough for you lot to bang on about the evils of it without coming up with a credible and workable alternative. Answers on a postcard to Robert, please.....


    Wow. Thanks Plonk.

    Try this one. http://www.bankofenglandact.co.uk/

  • Comment number 76.

    71. At 5:01pm on 26 Sep 2010, Jacques Cartier

    I love the comment at the end of the article.

    "A spokesman for HSBC declined to comment."

    Go HMRC. Go !

  • Comment number 77.

    #74 LePlonk
    "credible and workable alternative."

    I did so. Here. Years ago.

    Individual banks to have individual reserve ratios.
    Those ratios to be set quarterly/monthly/weekly by adding up the total profit to shareholders and remuneration to staff and working out how profitable the bank is. The more profitable the bank is the higher the reserve ratio.

    Essentially the banks would self limit.

    And why it wouldn't work?
    Because it would be like Turkeys voting for christmas.
    The banks want the current system to carry on forever.
    They make loads of money this way.

  • Comment number 78.

    So the battle lines are draw between the banking commission, and us as the state, against the banksters. At least that makes it clear. THere is no doubt they will fight all the way to preserve there precious FRB banking system. What they fail to understand is they are killing the goose that laid the golden egg, ie our economy, so their fight is pointless and they will have little public support from us average joes.

  • Comment number 79.

    75: Thanks for that. Have you read it? In a nutshell, it involves limiting the credit creation process to an "investment pool" held at the BoE, which is created from 1) "investment accounts", ie cash deliberately posted for re-lending, 2) bank profits, and 3) borrowing from the BoE.

    Now, how does this avoid the massive squeeze on credit that I described above? With "current accounts" demarcated as 100% safe, the available funds to lend as credit for any given bank are substantially reduced from those at present. Given that the size of "investment accounts" is therefore significantly smaller than at present, in order to make up the difference the bank is going to have to lend out of either its own money or by borrowing from the BoE. In order to keep the former source of income at a sufficiently high level to permit lending, we have to force up the price of credit.
    Or the BoE takes exposure to our risk, which means that we presumably have to apply to them with details of the loan required.

    Suppose, in any case, that we adopt this system. Such is the demand for credit that we have lent to the maximum of our current capability. Now you come and ask for a mortgage. Where do I get the money to lend to you? I don't have that amount in my investment pool, I don't have an investment account which has magically appeared at the right time in order to grow my investment pool, and I don't have the profit about to come in. In the immediate term, for your loan, I have no alternative but to apply to the BoE. I can't give you an immediate answer, because I have to wait for this to be approved. Maybe I stack up the requests and submit them at the end of the day. Does the BoE review all of my requests, and all of the customers who intend to borrow, and decide how much to add to my pool? Or do they just give me the cash?
    In the former case, we are back to the bottleneck. In the latter, we are back to the automatic lending scenario that you so dislike.

    How is any of this any different from the exact scenario that I described above?

  • Comment number 80.

    77 - So how are these "profits" calculated? Simply in terms of dividend to shareholders and remuneration? Neither of these in any way tell the whole story about how profitable a bank is. It wouldn't have given you any warning about Lehman Bros, for instance. Nor Northern Rock.
    Not only that, but presumably you also intend that as the economy goes through a slow patch, for example, and banks become less profitable, they have to reduce their ratio and start calling in some loans? What's that going to do to the economy? Sounds like the start of a downward spiral to me. It would mean that credit is unavailable, because nobody is allowed to lend it, at precisely the time that business and individuals need it most, in order to ride out the rough times by paying it back when the good times return.


    Unless I have misunderstood...?

  • Comment number 81.

    Le Ponk, the whole point is that there needs to be less credit. Too many of the current activities (products) whatever you call them are useless non productive and produce nothing, create no real value or wealth or as a certain FSA person said socially useless. CDOs, forex, derivatives.

    The whole sub prime crisis would not have happened because the bottomless pool of funds would not have been available. Really do we need $4 trillion dollars a day for forex trading when it is a zero sum game, no wealth is created.

    The credit that is available needs to be directed and encouraged to real businesses that CREATE wealth. The casino (an easy name and generalisation I know) activities should be banned. Currency is NOT a commodity, why is it traded. No need.

  • Comment number 82.

    #80 LePlonk

    Lehmans and Northern Rock were simply caused by their greed and inexperience, stupidity.

    If the economy were to go through a slow patch and the banks profits were to go down then so would their reserve ratio. Leading to more credit becoming available. A bubble would be avoided by increasing the ratio as soon as higher profits were posted.

    All pie in the sky though since the banks could not be trusted to declare accurate profits. The sooner we realize that the banks are actually working against the majority the better.

  • Comment number 83.

    Kudospeter, thanks for your response.

    I'll say at the outset that I don't like the vast inequalities in pay, or the fact that there is no ethical basis to reward. But that applies to many professions and not just banking. I can't remember the numbers but I've previously seen estimates for the numbers of London based lawyers earning over £1m and it's a big number. And often their income strikes me as a real windfall. The government implements legislation like, say, TUPE and lo and behold businesses can no longer do what they used to do without engaging a team of lawyers. But back to the point.

    You said...

    'I can't though accept any implication that the rich bear a larger burden of taxation than the poor '

    I think the stats are against you here. It does depend what you mean by the rich. But the UK based investment bankers we are talking about are on the payroll of the large UK based banks and they work in the UK. So anything paid to them by a UK employer for work undertaken in the UK is charged PAYE just like the rest of us. I think there are far fewer non-doms than you might think, especially in investment banks. Eric Daniels, Fred Goodwin, Tom McKillop, Stephen Green, John Varley, Bob Diamond, Stuart Gulliver etc. Not a non-dom amongst them. Diamond worked in the UK for a time before going back to the US and wasn't a non-dom when he was here. For employees working in the UK on the payroll of a UK based employer it's a bit harder to avoid tax than you might think. But maybe a tax accountant could join the debate and confirm whether there really are lots of schemes in place.

    On another thread, Ben Dyson is interesting, but only as a view. Nobody should mistake his view for the truth. It's no more true than the views of Will Hutton, Roger Bootle, or dare I say it Stephen Green. I think Ben Dyson's analysis is interesting and in many ways attractive but I don't see in it a genuinely workable alternative to the benign, regulated capitalism with values that Hutton and Green advocate.

    I think it is impossible to argue against the fact that most of the tax revenues in the UK come from those regarded as highly paid - which is often a surprisingly low figure. But then most (including me) would say that is only fair and as it should be.

  • Comment number 84.

    81.

    Let's suppose BMW wants to build a new auto plant in the UK. As a global multinational, it finds that the cheapest loan it can get to finance the investment is in USD. However, the bulk of BMW's earnings come in EUR where the bulk of its sales volume arrives. As a result, BMW has two options. Borrow in EUR, and pay a higher price for it, or borrow in USD and risk movements in the exchange rate costing it massively.
    Surely the best solution would be to both borrow in USD AND avoid the exchange rate risk.
    Fortunately, an investment bank is on hand to offer a solution. For a small premium, the bank agrees to take on the exchange rate risk on behalf of BMW. It agrees to pay the USD loan repayments on the part of BMW, and BMW makes fixed payments in EUR to the bank. Result, BMW now knows the exact terms of its loan over 10 years, and all the cashflows associated with it, so can plan its sales strategy accordingly. It pays slightly more than it would have done had it just taken the USD loan, but it doesn't have the risk. It's paying for the loan in EUR, which it originally wanted, but at a lower price than just taking the loan direct.
    Meanwhile, the bank has taken on the exchange rate risk, paid for by the premium. In order to manage its exposure to this risk, the bank now needs to engage in currency trading to offset it.
    BMW could, of course, have done all of this trading itself, but they're a car company, not a bank. They focus on building cars, and the bank focuses on managing the risk associated with making the investment.

    Sound reasonably productive? Have they facilitated the creation of wealth at BMW? Or do you think BMW should have just paid more than they needed to, or taken on the risk themselves?






  • Comment number 85.

    #71 wrote "I don't know how much more punishment the bankers can take!

    It was reported today that HM Revenue & Customs suspects the Swiss office of HSBC of holding accounts of people liable for tax in Britain. HM Revenue & Customs has acquired the identities of the high-net-worth individuals through an ex-employee who leaked the details after fleeing to safety in France. It is investigating hundreds of people over possible large-scale tax evasion! I'm rubbing my hands with glee, obviously!

    But how come a London bank had this information and did not give it over to the government (why they were working against the British public interest)? How come we let the Swissies do this sort of thing with apparent impunity and why are well-off Britons risking all by doing large scale tax evasion? Are they so thick?

    If they don't give straight answers to these simple questions, we'll just have to break HSBC up and give the shareholders absolutely nothing."

    ====================

    I will try and give some straight answers

    1. The London bank did not have the information, the Swiss branch did and is obliged to comply with Swiss law which means they kept the information secret.

    2. "how come we let the Swisses do this sort of thing..." I guess this is a classic case of never let facts get in the way of a good rant. I assume you do know that Switzerland is a separate country from UK and therefore has a perfect right to pass laws that we do not agree with. How do you suggest we stop them doing that? With Afghanistan and Iraq I believe our armed forces are a bit stretched so invading them might have to wait.

    3. "why are well-off Britons risking all by doing large scale tax evasion? Are they so thick?". Yes people who decide to evade taxes by simply not declaring impact definitely fall into the stupid catagory. Makes no difference whether it is offshore bank accounts or working for cash on the side, they all run the risk of HMRC catching up with them.


    MInd you I thought we had laws about knowingly receiving and using stolen goods - obviously does not apply to HMRC

  • Comment number 86.

    84 reasonable points but ask porshe how they made some of their money and bought some of VW (to keep your car analogy going). They though it was easier making money this way than making cars.

    As you are probably well aware the vast majority of forex trading has nothing to do with the example you mention. Also of course some currency trading is required BUT my point was that the scale and nature of the trading. It is pure and simple speculation. No hiding behind anything else. $4 trillion dollars a day is traded in London alone. Think of the VALUE and wealth that could be created if a fraction of these funds were invested in real products / businesses.

    AS I said currency is NOT a commodity. It is a medium used to help an exchange of goods and services.

    Also I think BMW could do a fine job of sorting their own currency requirements out. And lets get real BMW will not be building any new plants here will they!!!


  • Comment number 87.

    82.

    Ah, ok. So as the economy goes through a slow patch, everybody realises that the reserve ratio has dropped, and so the demand for credit is now able to be satisfied. Presumably you would have to find some way of accounting for the fact that higher profits would immediately be posted, simply because banks are able to lend more, thereby doing more business and returning more interest payments. After all, you wouldn't want to immediately reverse the ratio decrease simply because of that.

    In addition, how do you decide what the ratio is going to be for one bank or another? Can one bank reach its limit while the others still have spare capacity? Sounds like a recipe for bumping up the price to me.
    Also, who actually decides what that ratio is? What you'll get is still a constant maxing out of the available credit; as soon as the ratio is reviewed and revised downward, all the applications for loans come in and not all of them are satisfied, even though they are perfectly good, because we have hit an artificially imposed limit. We're still limiting the availability of credit.


    Ultimately, the problem is this. Either you allow banks to lend more than they have on reserve (FRB) or you don't. If you don't, then who supplies the rest? Or is it just not supplied at all? If it isn't supplied at all, then you force the price up and restrict investment. If it is, then who supplies it, and how?
    Tinkering with the size of the reserve doesn't actually address this question, unless you mean that FRB is allowed when the economy is at its weakest (and banks at their most vulnerable, but the credit is most required), and not at other times?
    If you want to get rid of FRB, then you have to shrink the need for credit, and how to do that is the question that needs to be answered.

  • Comment number 88.

    86.

    It is simply your assertion that the vast majority of currency trading is speculation. And in any case, to what extent is speculation necessarily a bad thing? Let's assume there was nobody taking advantage of discrepancies in currency values. What you might find occurring is that one currency starts to drift out of line with another, such that the rates of exchange amongst groups of currencies no longer tie out. What will then happen is that there will start to become economic reasons for moving, say, one's manufacturing business to a foreign location simply because it seems to be cheaper. Then, when the discrepancy is spotted and the currencies correct themselves, you get bankruptcy all over the show.
    For example, you don't want a situation to arise where you can buy USD, exchange for GBP, exchange the GBP for AUD and then exchange the AUD back to USD and find that you have more than you started with. High frequency currency trading is exactly what prevents this from happening, because as soon as currencies start to move out of line, the opposite trades are executed which stabilise the price. Otherwise, you'll end up with inflation seemingly arising out of nowhere in random places across the globe, as people find that they don't know exactly what their currency is worth any more.
    Furthermore, it acts as an indicator to government about what the market thinks about the prospects of the economy.

    Now don't get me wrong, there is clearly the scope for abuse of the system, market manipulation and so on. But the solution isn't to abandon the concept, it's to find ways to stop the loopholes from being exploited, so that everybody can benefit from the upsides of using the system without being abused by the downsides.


    And, incidentally, BMW have no desire to get involved with currency trading. That's like saying they might as well get involved with ore mining, because they can do a fine job of sourcing their own aluminium, or oil refining because they know all about making plastic.
    Or, equally, investment banks might as well start making cars because they know about making currency swaps.
    The point of specialisation is that allows each company to concentrate on what it is best at and run that side more efficiently, whilst letting somebody else be more efficient at a different aspect. Teamwork.


  • Comment number 89.

    #87 LePlonk

    You are getting there. If the banks were to play within the rules then you could turn the supply of credit into a simple control scheme.
    The engineers here would no doubt be able to devise a simple three term, PID, scheme to control the participating banks.

    Over a period of time you could even adjust the banks to operate with higher and higher ratios. Approaching 1:1 even.

    The banks wouldn't like it one little bit.
    They would do everything in their power to fool the system.
    So nothing new there then!

  • Comment number 90.

    #74 LePlonk "And all because you wanted to avoid the risk of a bank run, which only really comes about when mischievous journalists looking to make a name for themselves start spreading rumours."

    In other words - shut your faces, we know best, we all knew the stories but we were determined to make sure somebody else paid the bill.

    Worked, didn't it?

  • Comment number 91.

    89.


    Getting there? I'm not even agreeing with you! If you're after reducing the amount of credit in the system, then I am asking you how the difference is to be made up? What happens when you ask for a mortgage and every bank has run out of available credit?

  • Comment number 92.

    90.

    Not at all. All I'm asking is that you come up with an alternative. Sitting on the sidelines and carping about it hasn't worked either, has it?

    Bank runs are, actually, fairly infrequent. And to be honest, even that was only a problem because of NRs decision to base so much of its finance on short-term borrowing.
    In my opinion, it should never have reached the stage that certain journalists were able to reward themselves with a "scoop" over NR, because there should have been sufficient auditory policies in place to ensure that, as a significant lender to the UK mortgage market, NR was able to finance its activities. The move from short to long term borrowing could have been brought about quietly, in the background, rather than with a queue of Joe Publics and journalists waiting outside the door. Surely that would have been the sensible move? Sounds to me, then, as though it's a failure of the auditory process. If you don't make the checks, you can't be surprised that you end up with problems.


    But then again, the government wanted to encourage massive lending on property, because it made everybody feel better and propped up the economy for 10 years, or at least as long as it took Gordon to become PM. Surely that can't have been the real point of the exercise? Do whatever you can to keep the economy looking good in order to satisfy your ambition? Nobody would do that, would they?


  • Comment number 93.

    65. At 3:22pm on 26 Sep 2010, prudeboy wrote:

    #64 nautonier
    "... until the 'big picture' is looked at and major reforms and other actions put in place."

    Only one problem.
    - The banks do not perceive themselves as a problem. -

    Not only that but they see any attempt at regulation as a challenge to be worked around. For the benefit of them and their shareholders.

    .....................

    Yes ... of course ... we need banks ... but its the way that they are being managed and operated that is the problem ... and the greedy bankers, hedge funds, spivs gamblers the vested interest section who think that they are untouchable ... are part of the establishment as including the main vested interest privileged, political class, multi national business interest etc ... this is all a variation of the 'new class war'.

    I'm not sure that many of the banks are even slightly concerned about anything more than their main core shareholders ... and they have most of them 'in their pockets'.

  • Comment number 94.

    Le Plonc one of my points is that currency should NOT be a commodity. It should only be used as a medium to help promote trade and services. We used to use shells or gold (lets not get started on fiat currency and the whole FRS though!!!)

    The other point is that investing in forex and the other (casino products) are not productive when compared to investing in something that is real. For example the BMW factory in the UK. The jobs both direct and indirect created and the taxes collected and social value generated is what we need to concentrate on.

    Compare that with forex trading. Yes one side wins but the other side loses so there is no new wealth created. Actually after the (fee) the wealth pot is less.

    So products that create wealth...good, lets encourage. Products (forex trading, synthetic CDos etc) bad.... let discourage.



    With the best will in the world stopping loop holes will not work.





  • Comment number 95.

    #91 LePlonk

    "What happens when you ask for a mortgage and every bank has run out of available credit?"

    What happens now?

    Perhaps the credit shouldn't be offered. At least in my scheme the supply of credit would be controlled. And over the years the role of banks could be curtailed.

  • Comment number 96.

    #74. LePlonk wrote:

    "I'm no die-hard advocate of FRB by any means, but it's simply not good enough for you lot to bang on about the evils of it without coming up with a credible and workable alternative. Answers on a postcard to Robert, please....."

    If you spent five minutes actually thinking about it - no, on second thoughts in your case it might take more like five weeks - you might conceivably realize that everything you've written is ill-informed rubbish.

    If you want to engage in some sort of debate about FRB you might stop insulting others' intelligence by doing some actual thinking about the subject first.

    You could try this for starters:-
    http://www.bendyson.com/
    and you could do yourself a favour by reading it with an open mind - if you can manage that.

    I don't think you can though because it's clear that without having put yourself to the trouble of actually digesting what has been put forward you've already appointed yourself competent to judge what is, and what is not "a credible and workable alternative" to FRB.

    But, as the old saying has it "where ignorance is bliss, 'tis folly to be wise".

  • Comment number 97.

    #91. LePlonk wrote:

    "What happens when you ask for a mortgage and every bank has run out of available credit?"

    Then you can't buy that (grossly over-valued, because of consecutive speculative house-price bubbles fuelled by stupidly easy credit and negative real interest-rates) house. Too bad.

    For years past while the country has been drowning in bank credit young couples wanting to start families couldn't get within a thousand miles of affording the mortgage on a starter-home, because prices had been driven into the stratosphere - by all that all-too-easy credit.

    There has to be a readjustment in the over-heated housing market anyway, regardless of FRB or not. Painful but necessary.

  • Comment number 98.

    @91 Le Plonk

    "What happens when you ask for a mortgage and every bank has run out of available credit?"

    No brainer. Market forces operate and prices come down. The price of property has always been related to the availability of credit. In the old days when the house price:average salary ratio was 3:1 ish we had affordable housing. But then mortgage lending was largely the preserve of the building societies. Once the banks, with their manufactured money, got in on the market ratios started to rocket and housing became far less affordable. Ok for the banks though, because huge percentages of household incomes became INTEREST.

    So, increased FR credit hasn't helped people buy houses, it has just pushed the limits of affordability and helped the banks cream off a bigger percentage of society's wealth and income. Compris?

  • Comment number 99.

    So here's some nice stats to muddy the water ( from Gov's BIS dept.)

    4.8 million businesses in the UK, turning over £3000m.
    99.9% of these are micro, small or medium enterprises (less than 250 employees).
    They employ 60% of the private workforce.
    They contribute 50.1% of the UK turnover.

    All they want from banks is:
    Account facilities
    An Overdraft.
    Loan facilities.
    A bit of foreign transaction work.

    However all the banks want to do is play money games on behalf of there fellow 0.1% large businesses in the country.

    Surely, capitalistic competition should mean that there are more options for 99.9% of the businesses in the UK, rather than just 4 large banks?

    I smell a rat.

  • Comment number 100.

    One more little factlet, on the 1% top earners contributing 24% tax revenue.

    Note that:
    1% = pay greater than 120K
    0.6% = pay over 150K
    figures are for PAYE only, not share bonus, self employed etc.

    So looking at the population wage spread, it seems that about 19% of tax take comes from 120K to 150K, and 5% from the investment banker folk and their ilk. (source HMRC).

    I don't have access to figures for the share bonuses etc, which may make the high, high earners contribute more, but it does point to the fact that we could loose a few high, high earners, without too much direct loss in taxes.

 

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