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Varley and Letwin negotiate truce between ministers and banks

Robert Peston | 08:24 UK time, Monday, 6 December 2010

The banker trying to negotiate some kind of lasting truce between the government and the banks is John Varley, the soon-to-depart chief executive of Barclays - who (by the way) is the front-runner (so I am told) to be the next chairman of Vodafone, the mobile phone giant.

 

Mr Varley's main interlocutor in this dialogue is Oliver Letwin, the cabinet office minister. And, according to their colleagues, the talks are about the wider questions of how the reputation of banks can be rehabilitated and how banks can make a greater contribution to the UK's economic recovery, and not just what can be done to improve the perception of the quantum of bankers' bonuses.

Now you might think that the boot is only on the foot of the cerebral Mr Letwin, rather than Mr Varley's. But that wouldn't be correct, because so much of what the government wants to achieve isn't possible without co-operation from the banks.

Economic recovery? Well that will be more insipid if banks aren't enthusiastic providers of finance to businesses, especially small businesses.

Shrinkage of an unsustainable deficit? Harder if banks don't recover and don't start making their disproportionately significant payments of corporation tax once again - and harder still if they relocate head offices to overseas financial centres.

Reduction in unemployment? As per the first two points.

Creation of a so-called "big society"? Again, that'll be easier if the banks are keen supporters of the Big Society Bank, which is to distribute the estimated £500m contents of dormant bank accounts to community groups and social enterprises - and which could have disproportionate oomph if banks put a bit more money into it and if it were staffed and managed by secondees from banks.

What does all of that mean? Well that the government - and to an extent the rest of us - needs the good will of the banks perhaps as much as the banks need the good will of government.

It shows that - for all the financial support given to banks in 2008 and 2009 to keep them afloat (equivalent to 90% of GDP at its peak) - the banks don't feel like pathetic debtors in their relationship with government.

I am not sure what that means in respect of how meaningful will be the pact that emerges from these talks.

It is likely that there will be a joint statement from the banks on how they'll make sure bonuses and big rewards only go to those bankers who genuinely make a superlative contribution to their profits - and that (as per new EU stipulations) only a fraction of these rewards will be upfront cash payments (as opposed to deferred payment in shares).

So there will be an implication that there will be a crackdown on the widespread practice of paying substantial sums to replaceable, so-so bankers - though it is very unclear how a return to what most would see as sanity in bankers' remuneration would be policed.

Also, and not for the first time since the great banking crisis of two years ago, there are bound to be pledges that adequate credit will be provided to the private sector - together with commitments on supporting the Big Society Bank, and on training and employment creation (which may look a bit odd coming on the heels of more than 40,000 job cuts by RBS and Lloyds since 2008).

In return, the banks say they want an end to ministers sniping at them and criticising them in public. Would that be a fair exchange? Over to you.

Comments

Page 1 of 2

  • Comment number 1.

    Where's the beef?

  • Comment number 2.

    Reading between the lines, it seems apparent who is running our country, the finance industry.

    Mr P makes very logical arguments, that it matters not what this industry does in terms of destabilising the national economy, forcing extreme austerity on generations of citizens and promoting ruinous greed, they are in fact untouchable, even when it comes to the so-called leaders of our country making derogatory comments in public.

    What hope do we (the public) have of regulation for the practises of the finance industry, when our elected rulers cannot make sustained comment on the obvious poor show displayed by them?

  • Comment number 3.

    These discussions are ultimately irrelevant: the world is paralysed by excessive debt and this can only be rectified once the finance industry is broken up and credit creation is tightly regulated.

    Eventually this will come to pass whether by agreement or natural death of the US-centric economy. What the finance industry needs to do is to work with the governments on their own dismantling.





  • Comment number 4.

    Robert,
    I think that your second to last paragraph sums it up. It's all just hot air, with the banks hoping that eventually the disgust that people have about their reckless activities will be forgotten.

  • Comment number 5.

    Bonus Battle ---- ?

    This SHOULD be a non-war!

    All we need is a National Maximum Income (set at David Cameron's favoured level of 20 times the lowest level - which is/should be the National Minimum Wage) enforced through tax, and hey presto, this battle and the war simply does not exist and what is more there is a definite impetus towards lessening the inequality in our society and thus our general level of happiness!

    There is absolutely no way that any agreement will ever moderate excess pay in the monopoly banking sector. There is no competition in the entire sector because everyone is regulated and that regulation provides an insurmountable barrier to entry (indeed it is designed to do so.)

  • Comment number 6.

    #3. Oblivion wrote:

    "the world is paralysed by excessive debt"

    Quite right!

    Debt deflation has to take place. Ireland has at least started (and that is why the finance market is being so harsh on it). The UK must also work at reducing debt in the UK. That is personal debt and most importantly secured debt of overpriced assets. We have to get our house prices down to Irish levels if we are ever to once again have a chance of being economically competitive [ I'll not repeat why this has to be done here - look back over my posting for an explanation if you do not follow the argument.] The UK is in a particularly bad position and indeed a worsening position as we simply have not started to address the issue. It is all very well Gordon Brown dismissing the bubble in a paragraph - but what he fails to recognise is the ongoing crippling burden of private debt that will crush the UK fro generations unless it is actively addressed. Furthermore this is also associated with the crippling of pensions funds, catastrophically low annuity rates and a negative incentive to save. So we need to raise interest rates, re-rescue the banks, house the repossessed by using QE to build council houses and encourage saving by making it financially beneficial again.

  • Comment number 7.

    Much a do about nothing. Little by little the original stand of 'sorting the banks out' has been discounted to a polite ahem would you mind etc. No sighting of Vince Cable in this. It is all the more extraordinary when you remember a large proportion of the UK (and other countries) banking is in the public sector. It reminds me of the old joke about the Iron Curtain - Why is Czechoslovakia the most neutral country in the world? A. because it does not even interfere in its own internal affairs.

  • Comment number 8.

    So, the tax-avoidance expert is going to be the next chairman of a tax avoider?.

    The best way to economic recovery is to neutralise the banks and their power to take a cut of everything. Surely the lesson is clear now? A strong finance industry is detrimental to the real economy. Iceland, which cut the banks loose, is doing better than Ireland, which guaranteed them. Banks are now sucking the lifeblood out of economies and societies, and they want more More MORE!

    Time for a stake through the heart. Tame the vampire squid!

    http://www.giantvampiresquid.org/

  • Comment number 9.

    We don't vote for the boards of banks and the banks run the world. If we allow this to continue we can (already have done?) kiss goodbye to democracy. We are currently suffering the latest abuse of the population by the banks so it is time for the government to be strong.

    Banks should only be allowed to operate in this country if they are majority owned by the government. Let's make it a mandatory 60%.

    The bankers only rule the roost because they own the money and have evolved quicker in a global sense than nation states. So lets also form global legal frameworks to control the global bankers.

    That should put them back in their boxes, belt and braces style; and still leave ample room for competition.

  • Comment number 10.

    I dont agree that regulation of bonuses is the answer, although clearly, there are people who are just plain jealous. What matters to most people is that bonuses (and salaries!) are earned in a manner that derives from real value. Recycling bad credit (e.g. sub-prime mortages) or organising takeovers harmful to the community (e.g. Cadbury, costing us £100m in tax pa and the loss of all the assets to Switzerland) do not cut the mustard . Lending money in a sustainable way and helping businesses to develop (and not overcharging!) and conducting business in a transparent way will persuade people that the bonuses have been 'earned'.

    Very few people begrudge the rich their wealth providing they have earned the money the right way and are generous in their ownership of it. The trouble with the banking industry is that it is perceived to earn its money in harmful ways (e.g. incautious lending in virtual assets) and gives too large rewards ( e.g. Freds pension).

    Over to you bankers!

  • Comment number 11.

    I wonder how many of these people went to school/university together or are associates in later life, so try to accomodate each other as friends. You can't tell me that the current Government (as well as the last) do anything in the best interests of the majority of the general public.
    People are beginning to wake up to the fact that we are having to pick up the tab for the reckless behaviour of those in the City, and when austerity measures really hit home, i can see it turning ugly. You only have to read the comments in the finance articles on the DT and the DM, to know it isn't just your usual radicals that are very upset by the current unbalanced situation.

  • Comment number 12.

    The current financial system created too much money and lent it out to those who had little hope or intention of re-paying it.

    And the plan is that the prudent will take over some of the failed promises to pay, and Great Uncle Mervyn will print the difference.

    So the prudent get hammered, and everyone else takes a bit of leathering via inflation.

    And it’ll probably work, because 99% haven’t got a clue what’s going on.

    They may bleat and moan about ‘Banker’s Bonuses’, when they should be realising that they’re being quietly given a right royal stuffing via inflation and increased taxation.


    So let us remind ourselves of the moral hazard in bailing out the banking industry:

    •The Bank of England prints money which causes inflation, which your income cannot keep up with.

    •The banking industry takes Government money to survive and the Government increases tax and cuts jobs to pay for this.

    •The increase in inflation/tax, and/or loss of your job means you can no longer keep up with your mortgage payments.

    •The banking industry then repossesses your house and petitions the court for your bankruptcy.


    ‘Credit’, where ‘credit’s’ due, there’s nothing like being well and truly stuffed just before Christmas.

  • Comment number 13.

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

  • Comment number 14.

    What has happened to the push to separate investment banking arms from mainstream operations, or shall I just assume this idea has been silently assassinated and swept under the carpet?

    This is the matter that most concerns me as a glaring example of the political sway the financial sector hold over government, as it makes sound regulatory sense in terms of securing the general public (and their finances) against any risk taking from banks, yet government wont legislate.

    Frankly, the distrust the public have in banks and the stick they are receiving (far less than they should) should continue for the lifetime of the generations that will be indebted by their excess, and beyond, in memory, so that people never forget what insatiable greed does.

  • Comment number 15.

    We have to move away from Banks being given so much credibility and assuming any negotiating position.

    - they owe a significant amount of debt to the nation; as a nation we therefore have control and ultimately, sovereignty;

    - restrictions on all banks operations will be applied in the US, China, India and in mainland Europe too - this is not just the UK wanting to apply restrictions in isolation as the banks would have us beleive. Where in the world will they relocate that has any mainstream value to them;

    - Banks only attract press coverage (and therefore politicians focus) if they are creating a negative story. When the banks stop - I guess the press (and the politicians) will go away. Should the government not change its tone with the banks a little?

    We should have a more robust approach to the banks and stop being paranoid about their ability to move somewhere else. They have no negotiating position.

  • Comment number 16.

    Shouldn't you also state who else Letwin works for, I think that makes the conversation a little more intriguing.

  • Comment number 17.

    9. At 09:45am on 06 Dec 2010, Bob Wallum wrote:
    ‘We don't vote for the boards of banks and the banks run the world. If we allow this to continue we can (already have done?) kiss goodbye to democracy’

    Good point:
    It is possible that Bob Wallum mentions potentially the biggest casualty of the financial crisis, namely ‘Democracy’.

    Because the plain truth is:
    If the state (which is us) does not control the creation of money, then the state (which is us) can only ever be at the mercy of those who do.
    http://www.positivemoney.org.uk/

  • Comment number 18.

    "5. At 09:26am on 06 Dec 2010, John_from_Hendon wrote: "

    Yes. I agree with that.

    "6. At 09:38am on 06 Dec 2010, John_from_Hendon wrote: "

    Yes. I have read many of your posts. I largely agree with your assessments and proposals.

    "12. At 09:48am on 06 Dec 2010, Dempster wrote: "

    Yes. I understand that is the political outcome. Those with power and control will try hard to never disadvantage themselves financially. So, what else is there but to attempt to apply pressure on policy makers to address these divisive, unfair and destabilising influences. That's all I can do. And I hold out no hope whatsoever that my cries of "Stop inflating, taxing, selling assets and transferring wealth to get yourselves out of the hole you're digging" will be heeded or acted upon, let alone heard. It hasn't happened yet. Ultimately, the only real force for change will be widespread social unrest. When people get hungry and tear gas supplies run low.

  • Comment number 19.

    Bob & Dempster - democracy is an illusion, and the bonus debate is just one of the distractions employed to keep the debate focused on areas of little real meaning.
    Ever thus

  • Comment number 20.

    10. At 09:46am on 06 Dec 2010, Peter Steele wrote:

    > I dont agree that regulation of bonuses is the answer, although clearly, there are
    > people who are just plain jealous.

    Indeed - City bankers are reputed to be the the most jealous, greedy people on the earth. I too think that regulation of bonuses is too lenient. They must have NO bonuses until the full costs of the crisis they generated have been paid back to us.

    Isn't Oliver Letwin a bank director? Isn't that a conflict?

  • Comment number 21.


    • 18. At 10:14am on 06 Dec 2010, Duxtungstu wrote:
    Yes. I understand that is the political outcome. Those with power and control will try hard to never disadvantage themselves financially. So, what else is there but to attempt to apply pressure on policy makers to address these divisive, unfair and destabilising influences. That's all I can do. And I hold out no hope whatsoever that my cries of "Stop inflating, taxing, selling assets and transferring wealth to get yourselves out of the hole you're digging" will be heeded or acted upon, let alone heard. It hasn't happened yet. Ultimately, the only real force for change will be widespread social unrest. When people get hungry and tear gas supplies run low.

    Well let’s hope it doesn’t come to that.

    But you’re probably right, the only lot I’ve come across that are attempting to do anything is the positive money group, and their chances of success are likely very slim. Still, I suppose if you don’t lend them your support, you can’t really complain if nothing changes.

  • Comment number 22.

    Methinks there are forces at work that are stronger than both governments and banks. I fully second Oblivion (comment #3) on this. All those discussions are about more or less maintaining a status quo that will be obliterated before long. Rethinking the whole system and the role of banks in society would be more fruitful.

  • Comment number 23.

    "Mr Varley's main interlocutor in this dialogue is Oliver Letwin, the cabinet office minister. And, according to their colleagues, the talks are about the wider questions of how the reputation of banks can be rehabilitated and how banks can make a greater contribution to the UK's economic recovery, and not just what can be done to improve the perception of the quantum of bankers' bonuses"

    So you have got one body of widely disrespected overpaid and privelidged people conversing to another body of widely disrespected overpaid and privelidged people about how to be better percieved by us public. Talk about the blind leading the blind.

  • Comment number 24.

    Here's a fair exchange: when all the bail-out money has been paid back with interest by the banking community as a whole, then bonuses can be paid with the exception of "profits" made by borrowing from the BOE @ 0.5% and then lending it back to HMG @ 3% which isn't actually a "profit", more an underhand way of being allowed to replenish depleted balance sheets. Until then, nothing.

  • Comment number 25.

    No. 12 Dempster wrote that the current financial SYSTEM (my CAPS) created too much money....

    Consider the word SYSTEM.

    Whilst I would not dispute that there was too much money creation (with the benefit of hindsight), I really do think it rich that the politicians claim any moral high ground here.

    One needs to distinguish between INDIVIDUAL BANKS and The BANKING SYSTEM.

    Individual Banks should look after Individual banks. Mistakes were made. I personally find Bank Bonuses difficult to swallow.

    The FSA and the BoE and ultimately politicians should look after the Banking SYSTEM. They did not. Not, NOT...NOT!

    The BBA should attack the politicians back. Answer riposte with riposte...and start to paint a more balanced picture of events...HOWEVER unpalatable that might be for the public and politicians to swallow.

    Mr Peston, your colleague Paul Mason maintained that there were three persons with particular responsibility for the architecture of the 'failed' tripartite system:
    Gordon Brown, Ed Balls, and Gus O'Donnell. ARE THEY NOT ALL STILL AROUND ?

    A fair truce being negotiated between banks and politicians Mr Peston ? Not Pygmalion likely !

  • Comment number 26.

    Retail banking has got be overhauled with a clear framework within which banks can operate. Governments and their populations should not be propping up failed commercial organisations/industries. This is my current experience of banks:-

    They have reduced my credit limit on credit cards
    The have increased the interest rate charged to 29% (although they can borrow money at 0.5%)
    They are increasing their banks charges
    No bank will let me open a small business account, even though I am not looking to borrow any money and my account will be cash positive from day 1.
    My property is decreasing in value, because banks will not lend and because people are nervous about proposed cuts (to pay for the financial crisis caused by the banks).
    Next year I will be paying higher taxes, to pay for their debts
    My public services will be cut back, to pay for their debts

    The claim is that these "highly talented" people will leave our shores if they are taxed too highly. Well let them go! Their achievements on their cvs will make very interesting reading; "increased the ratio of debt to GDP by 100%" and "brought a nation to its knees". As a future employer, these achievements will obviously be very attractive. Let them go!

    I believe in a free market, but it is apparent that it cannot work within the banking sector until there is a major overhaul, and a clear regulatory framework that stops nations becoming ultimately responsible for the debt created by their banks.

  • Comment number 27.

    Do I detect some support for the type of people JC castigated on the temple steps we seem to have semi nationalised part of the system yet this has made no difference to their modus operandi

  • Comment number 28.

    Robert re the Big Society (BS) bank (I'm sure BS means something else as well) anyway why secondees why not use the tens of thousands of bank staff who through no fault of their own have lost their jobs. Not the investment banker variety but the vast majority of bankers affected.

  • Comment number 29.

    If this was a union holding the country to ransom the police would be called in followed by troops and emergency legislation to brake them. But its the banks and the government is bought and paid for by the banks . Democracy is dead in this country

  • Comment number 30.


    "In return, the banks say they want an end to ministers sniping at them and criticising them in public"
    A case of the pot calling the kettle black! Some MPs are complaining that they are all considered cheats over the expenses when some of them did nothing wrong. We are concerned about bankers' bonuses but a lot of the poor bloody infantry get next to nothing. We just hate the lot of them.

    Stop criticising Vodaphone. It's about time people realised that if you can get away with saving some tax legally you do so - we all do so if we can even down to using ISAs which avoids tax on the paltry interest the banks so generously give. (0.10%)

    Tax avoidance is a responsibility, tax evasion is illegal just like David Chaytor's expenses.

    If tax avoidance is too great the government needs to legislate. If bank bonuses are too great the government needs to tax the recipients.
    So the "statement" you refer to Robert is more "stalemate" because the government
    doesn't have the confidence of its own convictions.
    All this proves is that the bankers, whatever you may think about them, are much cleverer than the politicians.

  • Comment number 31.

    The authorities should stop supporting the banks. Cancel the £50,000 guarantee to depositors and make it clear that any bank will be allowed to go bust rather than be supported by taxpayers' money.

  • Comment number 32.

    #25

    I have said that before as well. The politicians, however, have managed to blame all the ills and shortcomings of the country on "banks needed bailing out". If only life were so simple. From the start, if politicians had kept their noses out and let those that were weak fail, then the market would have sorted itself out by now

    But then they would have had no-one for the public to focus the anger upon other than the politicians....

  • Comment number 33.

    Thanks, Robert, for publishing part 45,165 of your long running saga on the idiotic activities of greedy, boring, jealous, stupid bankers and the smirking, sycophantic little politicians who prop them up. If bankers want to look good in public, then they have to start behaving well.

    Can anyone really see that happening? No chance, so they have to get used to being pariahs, and quit having these little chats with our ministers.

  • Comment number 34.

    It would appear the Mr Letwin gave up his N M Rothschild & Sons directorship on the 31st December last year.

    http://www.guardian.co.uk/politics/person/3095/oliver-letwin

  • Comment number 35.

    Wake up RP. The big banks are taking the freshly printed money - QE cheap money - and what do you think they are they doing with all this money? Nothing productive from an economic standpoint. Instead of lending the money to entrepreneurs, business projects, and venture capital initiatives which actually create jobs and foster much needed economic growth, the big banks are just taking this cheap money and pouring it into commodities like crude oil, copper and silver and gold, cotton, grain etc.

    The only deal they will make with our government is one where the banks end up with even more power, not less. It can not be any other way. The banks have all the power. The government by their own admission, - Banks can't fail - will always be the weak negotiator.

    Both here in the Eurozone and in the states, all this inflation of commodities is pushing up inflation in the emerging economies and as a result these economies are putting in place restrictions on growth to control inflation and obviously damaging our own economies by restriction out exports as these markets contract.

    Oh yes. Bonuses. What small fry.

  • Comment number 36.

    If the investment bank is seperated from the retail bank, the problem as far as bonuses, go away. The investment bankers who gamble and win can get their bonuses and the ones that gamble and loose, need not be bailed out by the taxpayer. The losses will be borne by the investment bank and ultimately by the investment banks' shareholder. I see no problem in this.

    The retail bank can lend as normal for mortgages, SME, etc. The cash for their lending will be from deposits and/or raised in the wholesale market, at market rates and this will be reflected in the interest rates of the loans. I see no problem in this either and is a truely market solution.

    So why are the bankers so keen on keeping the investment arm and the retail arm as a unit. I see the selfish benifits they can get; ie. the risks they take in the investment bank is underwritten by the taxpayer.

    Having said this, is there a clear case for retaining the dual function of the banks? I am no banker. So, please explain.
    Felix

  • Comment number 37.

    In my view over the longer term the UK needs to reduce the importance of the banks to the economy. That said it is clear that as at today they play a vital role.

    The banks are as much to blame for the country's current financial position as Gordon Brown. The difference is people have been able to give Gordon a good kicking and get rid of him. They can't get rid of the banks but they do not feel the bankers have been given a good kicking.

    If the banks and the Government get this wrong they will simply ensure that Labour and (some at least) LibDems continued bashing of the bankers will receive public support. Moreover the Government's "we are all in this together" rhetoric will be blown out of the water. Everytime there is a harsh cut the answer from opponents will be - "but what about the bankers - you just protect your mates/donors".

    In my view the key components of any "deal" should at the very least include:

    1. Statements of contrition - "we got it wrong - we are sorry". I would want to be getting a statement from each of the banks that things went wrong and a clear acknowledgement that certain (specified) matters need to be fixed. Perhaps the banks could release a "Reform Agenda" setting out those problems they acknowledge need to be addressed in forthcoming banking review.

    2. A clear demonstration that significant bonuses are paid only to those that have created long term wealth rather than short term speculative profits. The headline cash payment needs to be substantially reduced.

    3. Binding (and enforceable) commitments of lending to small and medium size business, reducing bank fees and cutting the number of complaints to the banking ombudsman. With penalties if targets are not met.

    4. Binding commitments of time and money to worthy/charitable causes and support for the big society bank. Can't we get some of these "Masters/Mistresses of the Universe" providing their expertise free of charge to the charitable sector. Again a certain number of hours should be a requirement for anyone paid over (say) £250,000.

    5. Clear statements of intent regarding the amount of tax (broken down by type) the Banks expect to pay over the life of this parliament. I would also suggest the banks provide in kind support (secondees/know how etc.) to Treasury to increase the tax take by reducing the scope for tax avoidance.

    6. I also think the British Banking Association needs a change in its public peresona given we are now in very diffferent times. How about appointing Sir Bob Geldoff as the new CEO - I am only half kidding.

    The banks will of course pretend they have a strong hand but their vocation requires that they can play a weak hand well. The banks need to understand that it is only the government that stands between them and the angry mob (both here and in Europe) so they had better learn to 'play ball'.

  • Comment number 38.

    It was a conspiracy between Big Government and Big Business that got us into this mess but somehow I can't see more of the same getting us out of this mess.

    The simple truth is that the public just don't trust the banks and the people who run them and that was before the banks blew up the entire economy. Now the banks are held in complete contempt.

    The financial services industry are subsidised by the taxpayer and until such a time they are not then no bonuses should be paid whatsoever.

  • Comment number 39.

    Was anyone else listening to Radio 4's Today programme this morning when James Naughtie mis-introduced the Culture Sectretary - Jeremy Hunt?

    It was the funniest thing I have ever listened to on live radio. If Radio 4 re-post the programme on 'Listen gain', it occurs at just before 8.00am.

    James Naughtie blames Dr Spooner after renaming Jeremy Hunt
    http://www.guardian.co.uk/media/2010/dec/06/james-naughtie-today-jeremy-hunt

  • Comment number 40.

    The moral of this story is, as #2 above observes that Government is not running the banks. Banks are running the Government. I also stand with oblivion at #3 when he says that recovery can only start when we start to address this.

    Plan A is not working. It was to give so much money to the banks and bond markets that they can secure their liquidity, restore confidence and return to growth. It seems to me that it is not working because it is simply adding to the burgeoning level of sovereign debt – and that debt too will have to be paid off: and there is the next round of the crisis waiting to happen.

    Is there a Plan B? There are a lot of people who post on here that know more than I do, and several have said things along the following lines. With all due deference, I offer this as Plan B and ask you all, as and when we get into the next round of the financial crisis (the sovereign debt round) what would happen if our elected representatives had the guts to do the following:

    (a) Those banks that are effectively already nationalised should be fully nationalised: as should be the Bank of England. We could even call the merged entity the Bank of England. It would have two functions. The first would be to re-introduce the rather staid retail banking that went out of fashion in the 1980s: offering savers a reasonable return (with a Government guarantee of all deposits) and offering loans at reasonable interest rates. They could focus on domestic mortgages (as the Building Societies once did) and loans to small businesses. If anyone were to complain that this would be anti-competitive because people would prefer this service to that offered by the big banks I would reply, “quite!”

    (b) The second, would be to manage the money supply along the following lines. Since we will probably be doing QE again anyway, it should be structured such that the BoE purchase all outstanding Government bonds held by other banks at market prices. (This idea has been posted by others and I rather like it).

    - The independent banks are thereby recapitalised and have replenished cash reserves. However, it they want to be retail banks they are in future required to lend against these reserves to a conservative gearing (say 20%). A sort of Glass-Steagall mark two.)

    - Banks will no longer get capital by lending to Governments. Governments need no longer issue bonds. Instead, the new BoE will lend money to banks that wish to increase their reserves so as to build their business – at rates that are better than they currently get on the money markets. Thus rather than Governments paying banks interest, it’s the banks that pay us.

    - This way, Governments regain control of the money supply.


    (c) I rather like the idea of extending this to the ECB. If the ECB were to buy up all Government debts of the Euro Countries, it could then hold them to term and be repaid by Governments no longer beholden to the markets. Governments who want to borrow more money thereafter would do so at market rates and market risk …..

    (d) Further thoughts occur.

    o in terms of responsible mortgage lending, under, there could be a legal requirement that people have a reasonable deposit and only borrow a reasonable multiple of their current earnings. What is reasonable? I don’t know – but this would be a way of preventing unrestrained house price inflation being fuelled by lenders prepared to take risks. You can argue that this is interfering with the market and that traders should be able to take the risk – but the fact is that they aren’t willing to do so. They’re passing it on to us.

    o The securitisation of mortgages could also be constrained by requiring that any loan (and any loans derived from it) can only be recorded as an asset in the books of one bank. The unique character of banking means that loans secured against other loans are also assets – creating a feedback loop in which the nature and ownership of risk is confused. Whoever records the first loan as an asset should hold all the risk in that loan. They can sell it, in which case ownership and risk pass, but they should only borrow against the security of their own business.

    o Another consequence of the fractional reserve/fiat currency system is that people can borrow huge sums of money to bet on or against currencies and/or bonds. Nothing wrong with that in principle – but now the sums involved are so large that the bet itself may determine the outcome. This is open to abuse – and suggests the need for regulation (perhaps something analogous to a suspension in trading in shares when the market is acting up).

    Some people will argue against this on the basis that we can only act if every other country in the World does too. I would be curious to know why? Will the markets punish us in some way? And what would happen if Europe goes down this road with, say China and the other BRICs (perhaps setting up a new global reserve currency along the way)? What happens the if, say, the US goes on throwing good money (well funny money actually) at its banks and we call a halt?

    Some will probably say that it will lead to devaluation/inflation (if so, by how much more than the current QE – and surely this would be a one-off step change?)

    Some will argue that it will result in a collapse of the money supply as banks will stop lending. To which I would answer, it was reckless lending that brought us to this pass - and anyway, by how much would lending fall and what is there to stop the Government picking up the slack through the national bank?

    I’m ready to be convinced that this won’t work.

    But, in any event if this is a sovereign debt crisis then the clue is in the name. Sovereignty is the ultimate power and Governments can control markets. A point may come where the consequences of not doing so outweigh the consequences of doing so.

  • Comment number 41.

    As the UK Uncut protests showed this weekend, democracy is not completely dead in the UK. People who choose to act can make a difference:

    http://www.ukuncut.org.uk/

    This morning I made a donation to the 38 degrees tax-dodger campaign:

    http://38degrees.org.uk/

    My personal campaign against the power of the Beast!

    http://www.livemind.co.uk/wupert/

  • Comment number 42.

    Agree with the Swede. This is a diversion.
    Nationalise them, then government can drop the excuse that the Big Society needs the parasites.

  • Comment number 43.

    I have been saying for a while that the financial sector has to step up and play its part, you provide some good suggestions as to what they can do. But it isn't negotiatable, this is an obligation that they must accept.

    When we the citizens see them pulling their weight, we might stop complaining quite so much about their greed. But right now the ball is in their court...

  • Comment number 44.

    The massive sums paid as salaries may not be so harmful as the reckless activities these payments encourage. We could probably tolerate these crazy payments provided those bankers promise not to do anything : do absolutely nothing in the office. They are said to be irreplaceable. They can be paid for their 'talent' under the promise that they won't use it. Because, when they use it it seems to bring disasters.

  • Comment number 45.

    When will the penny drop? As large scale providers of credit the banks are broken and will remain so for a long time.

    Politicians should not be trying to restore the functionality of banks to what it was before the crunch. To do so would be to recreate the conditions that caused the crunch.

    Instead they should be adapting the economy to work well with much less credit. Businesses must retain more profit, so that they need less credit. But first they must be able to make those profits and the government's austerity programme is not helping. Full recovery will only be possible when it is reversed.

    If speculators try to make a fortune by selling sterling denominated bonds short, it will be easy for the BoE to punish them by buying up bonds to force up the prices. The Eurozone crisis could have been controlled, if the ECB had been allowed to do this promptly on the behalf of Greece and Ireland.

  • Comment number 46.

    Hi Robert,

    Quote "Shrinkage of an unsustainable deficit? Harder if banks don't recover and don't start making their disproportionately significant payments of corporation tax once again"

    I think you've been listening to the banks own PR machine here, if you listen to the recent podcast from the BBCs excellent "More or Less" programme where they investigated the Corporation Tax paid by banks and other financial institutions and found that they paid no more (in fact I think from what I remember they paid less) than proportionatly correct.

    More or Less looks at the actual statistics behind news items and if more people listened to it we would have a better and more informed debate.

    http://news.bbc.co.uk/1/hi/programmes/more_or_less/default.stm

    Excellent column as usual, don't mean to be negative :-)

    A.

  • Comment number 47.

    41. At 11:41am on 06 Dec 2010, Sasha Clarkson wrote:
    'My personal campaign against the power of the Beast!

    http://www.livemind.co.uk/wupert/ '

    Keep up the good work

  • Comment number 48.

    Why don't HMG set up a national state bank that lends money at 3% fixed forever.
    We get cheap loans at a rate that will not vary,
    The government gets a return on all loans
    We all know where we stand
    And the private banks who got us into this mess will be forced to reduce their rates to compete ha ha ha

    But of course this will never happen because of all the Tory ministers, lords and mp's who sit on the board of directors of said banks.

  • Comment number 49.

    #40 Tfoth - I'd vote for you as Supreme Financial Controller.

    Do you think the sovereign governments have the requisite capital to enact such a plan ?

  • Comment number 50.

    Looks like the 'rebalancing' has started!

    http://www.bbc.co.uk/news/business-11921894

    but firms are struggling to find enough skilled workers

  • Comment number 51.

    If they were not so concerned with re-election they would take the consequences on the chin and sort the banks out properly.

    What they need to do is to have a state-run bank that competes with other banks with various models possible.

    Bearing in mind that human nature makes public servants naturally lazy when there is no profit incentive...

    (1) Well the non-profit route is still an option, since they would not be nationalising all banks but having a nationlaised bank competing in the marketplace on an equal footing in order to put checks and balances in place in a real-world sense. And...

    (2) They could be allowed to make profits with a (limited) bonus being available based on the bank's performance so that they were incentivised.

    (3) The excess profits would be diverted to the Treasury to explicitly reduce the tax burden.

    Other banks would of course be up in arms since they should in theory find it almost impossible to compete with a non-profit bank, but a combination of all three above would be fair market competition I believe and would regulate the free market by having as a player an institution with a remit to put the customer first rather than shareholders.

    I'm sure this basic idea could be made into something that would work.

  • Comment number 52.

    It is only in recent years that the British have forgiven the perpetrators of World War 2.

    I cannot see that the UK public, especially taxpayers and the unemployed, will either FORGET or FORGIVE the Banks OR the Finance industries for the "horrendous carnage" wreaked on the UK's economy any time soon, so I am puzzled by this article and John Varley's approach to Oliver Letwin.

    It must be remembered that many parts of the financial sector, banks especially, through negligence, mismanagement or downright "criminal-like gambling" lost enormous somes of money that was not ultimately theirs to "gamble with"!

    For someone of John Varley's stature, to be seen to be appealing to Mr Letwin and the Government to be treated "kindly", I'm sure, will to many people, be seen as "weak" and ineffective and UTTERLY CONTEMPTIBLE!

    Do the banks ever deserve to be forgiven? Why?

    If the Bankers want to be treated with respect, FIRST they should RESPECT their customers, who's deposits they DIDNT respect through "taking unwarranted risks"
    then they should do what anyone else who has a job, WORK TO EARN RESPECT!

    Ask the newly unemployed what they have to offer their families, their wives and children following bankers misguided decisions?

    Ask if the unemployed can afford their ever increasing heating bills, while bankers, such as Mr Varley, demand to be "understood" and "have their reputations" repaired and the public "to understand that they DESERVE their bonuses"!

    A fraction of the bonuses paid out, would PAY for EVERY UNEMPLOYED PERSONS HEATING BILL this Winter!

    You publish some good pieces Robert, some I avidly disagree with.

    This has made me laugh at the cynical bitter twists and irony in the situation.

    No bank, Barclays or otherwise has been entirely "squeaky" clean in this whole "credit crunch crisis".

    The economic well-being of UK PLC has been decimated by mismanagement and greed, causing perhaps more pain for future generations, financially, than any previous War.

    I doubt the public perception will change, irrespective of Mr Varley's appeal to Parliament.

  • Comment number 53.

    Last week I witnessed around a hundred riot police, wearing full body armour, helmets, wielding batons and shields, with dogs, sent in to deal with the same amount of protesting school children last week in Brighton. I emphasise the word children because that's exactly what they were.

    It seemed like every Orwellian nightmare cliche come true.

    This Saturday the high street was flooded by the same force again, dealing with a small handful of anti-tax avoidance protesters who had glued themselves to the window of Topshop.

    The police stood guard outside the banks. Very much like a paramilitary occupation force.

    The protests are not going to go away like the establishment hopes they will, it is not a fad or a trend that makes people take to the streets, they will keep building as the people realise they have no other option left because the government has abandoned them to the sharks.
    So get used to the sight of riot police on your local high street, it is going to be a more and more common occurrence. They are not there to protect the people from the banks. They will be protecting the banks from the people.

    If you willingly accept a society where riot police are sent in against your own children you have already lost any decent claim to democracy. I believe you have lost the right to civilization as well.

    The country you once knew and thought you understood is dead. Get it into your head. Stolen from right under your nose because you were too sedentary or stupid to want to do anything about it. You didn't want to make a fuss, or cause a stir. We are in new territory now. A whole new world. Not a brave one unfortunately, but one as ugly and corrupt and lacking in moral justice as can be.

    You are now living in a third world banana republic. What are you going to do about it?

  • Comment number 54.

    Robert,

    The entire banking sector psyche is built on "my bonus is bigger than yours" and the banks have demonstrated 100% disregard of public sentiment. Despite the FSA's mealy-mouthed (secret) report on RBS, the bankers had the gold (pre-crash) and they made / adjusted the lending rules and bigger bonuses drove the machine.

    The rules should now be very simple and applied as follows. UK shareholders have taken a massive financial bath both in terms of capital loss and dividends. The bankers were in charge. The system should therefore only allow cash bonuses to be paid when the banks restart paying cash dividends to mangled shareholders.

  • Comment number 55.

    There must be a better way to make money than banking.

    The problem is that banking and finance makes a lot of money for the people who work in it. And the UK has become dependent on it.

    I'm now going to bore everyone (well anyone who bothers to read what I write). Manufacturing doesn't make a lot of money, unless you're very good at it. But it makes a lot of wealth and keeps the country where it takes place out of debt.

  • Comment number 56.

    #49 essexITman

    Thanks for the encouragement.

    Governments would have the necessary capital, if only because they can print the money. They are doing this today through QE. It is an idle, but interesting speculation that on current policies they might well print enough money to do what I am suggesting while achieving absolutely nothing (except the devaluation that inevitably flows from printing money).


  • Comment number 57.

    "Economic recovery? Well that will be more insipid if banks aren't enthusiastic providers of finance to businesses, especially small businesses."

    THIS IS AND ALWAYS HAS BEEN SOME SORT OF JOKE!

  • Comment number 58.

    So that's why there's no FSA investigation and no banker is going to finish up in the dock, just taxpayers having to pay for it all. Bravo.
    Regards, etc.

  • Comment number 59.

    53 warwick - nicely done

  • Comment number 60.

    Robert - I dont quite understand the sweeping generalisation - "for all the financial support given to banks in 2008 and 2009 to keep them afloat (equivalent to 90% of GDP at its peak) - the banks don't feel like pathetic debtors in their relationship with government". Perhaps you'd care to bring some context to which bank Mr. Varley represents and what support his bank leaned on from the UK government.

  • Comment number 61.

    Let me see if I understand the gist of this properly.

    Mr Varley wants the UK Government to give him and other bankers forgiveness.

    Sounds more like "hug a hoodie", except that it was never inferred that all hoodies had done anything wrong.

    In simplistic terms a business is allowed to take money from anyone, by legal definition and a crook is not - even though both may "declare a profit".

    A bank is a business and its interesting to note, that it makes its profits by "using" money that is NOT their own!

    Banks and financiers have been trusted once. That's all it takes.

    One mistake, as in politics and you're out.

    Repairing reputations? What to?

    After profiteering in risky investments, with money that is not legally their own, surely they can't want to be remembered as crooks can they?

  • Comment number 62.

    60 Amol Karve - I understand you're point, but that's not really the issue.
    Firstly Varley is representing his industry, which came cap in hand en masse.
    Secondly, his bank surrendered a great deal of corporate sovereignty to the middle east in order to avoid the more embarassing tax payer support, but this does not represent good governance on his part.
    Thirdly, he himself is only mildly less of a pariah because he was in direct competition with Fred Goodwin for ABN and was never going to win that race of hubris in extremis.
    Ulitmately it is not one bank, however, individual or bonus that is the issue. The debate is firmly entrenched on a convenient us & them premise, which keeps us all from doing what we should be doing, which is taking the country back

  • Comment number 63.

    37. At 11:05am on 06 Dec 2010, Cassandra wrote:

    > They can't get rid of the banks but they do not feel the bankers
    > have been given a good kicking.

    So far, we've just jostled them around a bit to show them who is boss. We're still waiting for the kicking to start.

    > If the banks and the Government get this wrong they will simply ensure
    > that Labour and (some at least) LibDems continued bashing of the
    > bankers will receive public support.

    Too right. The next election will be won be the party that bashes the banks the most.

    > 1. Statements of contrition

    I'm very much in favour of abject humility from bankers, but it must be accompanied by large pay cuts.

    > The headline cash payment needs to be substantially reduced.

    Too right – down to nil in most/all cases.

    > penalties if targets are not met.

    Penalties against individual bankers.

    > a certain number of hours should be a requirement for anyone paid
    > over (say) £250,000.

    Well, there'll be very few of those in future, of course.

    > Clear statements of intent regarding the amount of tax (broken down by type)
    Yes, and they need to pay willingly, or get shut down.

    > 6. I also think the British Banking Association needs a change in its public peresona

    Yes – Angela Knight is last.

    > The banks need to understand that it is only the government that stands
    > between them and the angry mob (both here and in Europe) so they had
    > better learn to 'play ball'.
    No – they must be made to pay ball. The harsher we treat them, the harder they will toil.

  • Comment number 64.

    # 41 Sasha Clarkson wrote:

    As the UK Uncut protests showed this weekend, democracy is not completely dead in the UK. People who choose to act can make a difference:

    http://www.ukuncut.org.uk/

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

    ...and for their new found political activism they are now spied on by the Metropolitan Police's undercover - Forward Intelligence Team (not only an oxymoron but a crummy acronymn to boot).

    http://www.guardian.co.uk/uk/2010/dec/03/uk-uncut-protests-undercover-police

  • Comment number 65.

    don't forget everybody - tomorrow Dec 7th is Eric Cantona day!!

    I'll be taking (some of!) my money out of the bank. This is not to "irresponably crash the banks" as some of the media, banks and politicians like to say, but it's about reminding the banks, and the politicians, who the boss is!

  • Comment number 66.

    Don't forget tomorrow...

    Draw your own money out on Tuesday...that's all, it doesn't matter how much.

    http://www.guardian.co.uk/world/2010/dec/05/france-eric-cantona-cashpoint-withdrawal

  • Comment number 67.

    "60. At 13:48pm on 06 Dec 2010, Amol Karve wrote:
    Robert - I dont quite understand the sweeping generalisation - "for all the financial support given to banks in 2008 and 2009 to keep them afloat (equivalent to 90% of GDP at its peak) - the banks don't feel like pathetic debtors in their relationship with government". Perhaps you'd care to bring some context to which bank Mr. Varley represents and what support his bank leaned on from the UK government."

    what a nonsensical comment! you need to wake up - or take time off from Barclays PR dept.

    by propping up some of the banks the taxpayer saved the whole UK banking system. How long do you think Barclays would have lasted if RBS and HBOS, were let go?

    if the govt. withdrew their support or sold their shares in the nationalised banks tomorrow what do you think would happen to ALL the banks?

    there's your context!

  • Comment number 68.

    #61.sanity4all wrote:

    "Mr Varley wants the UK Government to give him and other bankers forgiveness."

    John Varley is a (excessively?) religious man so he places considerable value on 'forgiveness'. (Didn't he also go to the same school as Ian Hislop in Sussex?) The problem with excessively religious people is that when you forgive some error they feel absolutely no impediment against repeating the transgression.

    There can be no forgiveness for bankers until a just retribution (and restitution) is extracted.

  • Comment number 69.

    In my view there is no possibility that the Banks or the finance industry in general can ever be rehabilitated in the eyes of the electorate. We see today and every day contracts that, in my view, are deliberately obscure and intentionally disadvantage the consumer without their knowledge and show that the industry still has no remorse and would do it all again. This Industry now appears to be no different to the one that flooded the market with overvalued paper and left a trail of lost jobs and ruined lives. It would have been better if some of this paper had nothing written on it, at least it could have been used in the toilet. In my view this was a crime and one of such proportions that it can never be forgotten. I consider that no Nation can ever again put taxpayers funds at the extreme risk that the banking and finance industry as a whole represents because, based on past events, they can never be trusted again. What I see is a situation where the taxpayer has been blackmailed, with the connivance of politicians, with the threat that the economy will collapse if we did not hand out large amounts of taxpayers funds to people, who, in my personal opinion, should not just be in prison but be barred from any involvement in finance ever again.

  • Comment number 70.

    As long as the banks don't do things that are politically difficult for the Government (i.e. whopping great bonuses when we're supposed to be all in this together - especially when many of them have been bailed out by taxpayers), this Government was always going to cosy up to them. I hope someone will be keeping track of what goes on with the Big Society Bank (yuck!) - costs/benefits - not just lolly doled out, but what it delivers in sustainable improvements.

  • Comment number 71.

    Oliver Letwin. Another old Etonian lining the pockets of himself and his friends.

  • Comment number 72.

    71. At 15:10pm on 06 Dec 2010, PacketRat wrote:
    Oliver Letwin. Another old Etonian lining the pockets of himself and his friends.
    ---------------------------------------------------------------

    Those that can, can.
    Those that can't go into politics to help out there betters.

  • Comment number 73.

    John form Hendon., since you're on-line, I would welcome and respect your views on the ideas I put up @ #40 above. Maybe they're daft and maybe not - but if they are then I'd really like to know why.

    Dempster too if you're out there - and good old WOTW (I can't help thinking War of the Worlds when I use the acronym but you know who I mean.)

    Please, if you have the time....

  • Comment number 74.

    never has a blog been so united in its overall summation of the "special" treatment UK and US banks received in the wake of 2008 financial crisis.
    when is Vince going to sort out this set of monstrously selfish individuals?
    they all received a 'get out of jail free' card, the pound was devalued and everyone else in the UK has had to cough up (why wasn't QE referred to as devaluation....ok subtle differences etc but the end result is the same).
    where are Gavyn Davies, Fred Goodwin, Andy Hornby et al now, not worrying about possible repossession of their one house each that is for sure.
    so the banks would like to be rehabilitated into the 'big society'.....
    MORE RESPONSIBLE LENDING
    PROPER SALARIES FOR THE BANK STAFF THE PUBLIC ACTUALLY DEAL WITH SO THEY DON'T HAVE TO RELY ON COMMISSION SELLING INAPPROPRIATE FINANCIAL PRODUCTS.
    PROPERLY FUNDED HELP AND ADVICE FOR CUSTOMERS AND BUSINESSES WHO ARE IN FINANCIAL DIFFICULTIES DUE TO BANKS OVEREXTENSION OF CREDIT.
    A RISE IN CAPITAL GAINS TAX TO RETURN LONDON STOCK MARKETS TO STABILITY AND REAL GROWTH.
    the list could continue, but I fear that any mention of the above would raise LOUD GUFFAWS from the masters of the universe as they continue to line their pockets at the expense of ordinary decent people.

  • Comment number 75.

    It seems to me we already have the banks on our side. There is no need to cosy up to them because we own them. OK we don't own Barclays but if they don't like it they can leave and see, if they can get the protection they recieved here, anywhere else in the world. Just ban all bonuss for the next 5 years no need for debate.
    Tell the bankers when there is a reallignment of pay between rich and poor the government will consider reinstating bonuss.

  • Comment number 76.

    Hopefully any discussions between government and the banks will be with real bankers- very few left- they were being systematically exterminated by the retail gurus who have run the banks for the last two decades.
    That is the principal reason why banks cannot extend credit- they lack experienced operators who can firstly represent customers and secondly credit sanctioners who may even have met a customer.

  • Comment number 77.

    Robert,
    A much tougher line on banks would be to remove the ability to write off bad debts, if bonuses over say a figure of £50,000 had been paid on these transactions, was imposed.It strikes me that given desire to minimise tax then a situation where paying high bonuses led to higher tax would be an interesting challenge for boards

  • Comment number 78.

    73. At 15:22pm on 06 Dec 2010, tFoth wrote:
    re #40
    a small detail: I believe that you will find that the Bank of England was nationalised in 1947.

  • Comment number 79.

    #1 'Where's the beef?'

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

    It's probably under the tiny dollop of horseradish sauce!

    Well horse something!

  • Comment number 80.

    #78 Noted. Ta!

  • Comment number 81.

    Afternoon Robert,
    I see you have been associating with your chums in banking again.
    Would you elicit some comment from the government and the banks who have recently held a select committee meeting on bank lending to SMEs?
    As I remember it, the conclusion of the committee (advised by the banks) was that SMEs didn't want to borrow although banks had made plenty of money available to them!
    "According to research from Sycap, banks margins on loans to SMEs increased from 3.53% (Aug 2009) to 3.84% (Aug 2010). This means that the cost of borrowing for SMEs went up by 8.8%. These figures tell their own story, that falling demand and increased supply of lending would lead to smaller, not bigger lending margins."
    Could you not ask your chums in Government to recall the committe that was not told the truth by the banks to explain themselves?
    I would have thought that fibbing to a select committee was a serious offence but perhaps Mr Letwin could explain the problem here.

    As for apologists here who claim that bonus payments are necessary and only small in the grand scheme of things, may I point out that they plan to divi up £7 Billion in bonuses and that is equal to the cuts made to social budgets affecting thousands of people.
    Banks on State life-support should not pay taxpayers money to these pariahs!

    I had to laugh today when Mr Bernake stated that QE did NOT involve printing money! The interviewer didn't follow up this question so I assume that the financial smokescreen works very well.

    I'm all set for my Dec 7th protest.

  • Comment number 82.

    I'm sure Varley is quaking in his boots having to negotiate with Oliver Letwin -

    see this from the Telegraph May 2009 :
    http://www.telegraph.co.uk/news/newstopics/mps-expenses/5305385/Oliver-Letwins-tennis-court-repairs-MPs-expenses.html

    "Oliver Letwin, the senior Conservative charged with drawing up the party’s policies for the next general election, claimed more than £2,000 for a leaking pipe to be replaced under his tennis court.

    Mr Letwin, who was an adviser to Margaret Thatcher, is thought to be independently affluent; he has continued working part-time for a top City investment bank despite being a member of the shadow cabinet.

    Since 2004, he has claimed more than £80,000 of expenses for a cottage in Somerset close to his Dorset constituency. The property is in an isolated area and Mr Letwin claims for the cost of heating fuel and emptying the septic tank."

  • Comment number 83.

    40. At 11:38am on 06 Dec 2010, tFoth wrote:
    A very long blog:

    The Bank of England is actually nationalised.
    Which means we are currently paying ourselves interest on our own debt.
    Imagine if we defaulted, we’d have to have a row with ourselves about it.

    Re: a)
    We already have an NHS why not an NBS (National Banking Service)
    As Bob Rocket points out, we used to have Giro Bank.

    Re: b) You’re putting a lot of money into the system, and you’d pay for it with very high inflation

    Re: other ideas, try the site noted below:
    http://www.positivemoney.org.uk/

    The positive money lot are currently endeavouring via an act of parliament introduced by Douglas Carswell to change the current debt based money system.

    Have a look at the site and you should get a good idea of how it all works.

  • Comment number 84.

    No joint statement will change peoples views. The damage has been done because the majority of people have long since lost trust that those in a position of power and influence will make the right decisions for the rest of us.

    The perception of our 'elite' will only change when we see hard evidence that the burden is being shared, and those with the broadest shoulders are doing the most.

    Even in the boom years there was widespread disquiet about massive bank/corporate profits and also CEOs walking away with millions after companies were broken on thier watch.

    There has been a sense that for years the people at the top have been accelerating away from the rest of us during good times and bad and that somehow we have been continually getting a raw deal. The current crisis has just put these underlying issues into sharp focus by categorically confirming this, and it has highlighted our impotence to institute real change.

    In the end the gravy train will just roll on and on and our votes will just influence what goes on at the margins.

  • Comment number 85.

    Banks won't change and the government is protecting them.

    Unlikely, but I hope Cantona plan succeeds tomorrow.

  • Comment number 86.

    Everyone should learn to make greed and ungratefulness their nature.

  • Comment number 87.

    The £7bn the bankers are due to award themselves for "good performance" is equivalent to the ENTIRE GDP OF JAMAICA going to a handful of men in grey suits.]

    And remember, this is a BONUS, on top of their multi-million pound salaries!

    All this at a time when we, the ordinary taxpayers, are being made redundant, having wage cuts, increased taxes, pensions hit, VAT increase.....

    This is a MASS REDISTRIBUTION OF WEALTH FROM THE RICH TO THE POOR!

    I, along with thousands of others, will be removing the contents of my bank account tomorrow in protest. We are all in this together, apparently.

  • Comment number 88.

    '14. At 09:57am on 06 Dec 2010, Turbulent_Times wrote:
    What has happened to the push to separate investment banking arms from mainstream operations, or shall I just assume this idea has been silently assassinated and swept under the carpet?'

    Dunno 'cos Wikileaks hasn't released those documents yet!

  • Comment number 89.

    '51. At 12:43pm on 06 Dec 2010, chris911t wrote:
    If they were not so concerned with re-election they would take the consequences on the chin and sort the banks out properly.

    What they need to do is to have a state-run bank that competes with other banks with various models possible.

    Bearing in mind that human nature makes public servants naturally lazy when there is no profit incentive...'

    Now there is an assumption! Good grief! Evidence?

  • Comment number 90.

    +++"26. At 10:42am on 06 Dec 2010, factual_reporting wrote:
    Retail banking has got be overhauled with a clear framework within which banks can operate. Governments and their populations should not be propping up failed commercial organisations/industries. This is my current experience of banks:-

    They have reduced my credit limit on credit cards
    The have increased the interest rate charged to 29% (although they can borrow money at 0.5%)
    They are increasing their banks charges
    No bank will let me open a small business account, even though I am not looking to borrow any money and my account will be cash positive from day 1.
    My property is decreasing in value, because banks will not lend and because people are nervous about proposed cuts (to pay for the financial crisis caused by the banks).
    Next year I will be paying higher taxes, to pay for their debts
    My public services will be cut back, to pay for their debts

    The claim is that these "highly talented" people will leave our shores if they are taxed too highly. Well let them go! Their achievements on their cvs will make very interesting reading; "increased the ratio of debt to GDP by 100%" and "brought a nation to its knees". As a future employer, these achievements will obviously be very attractive. Let them go!

    I believe in a free market, but it is apparent that it cannot work within the banking sector until there is a major overhaul, and a clear regulatory framework that stops nations becoming ultimately responsible for the debt created by their banks.
    "++++

    I don’t entirely agree

    Public sector borrowing in 2006, considered to be the height of the 'Boom' was 30 billion in the UK. Other countries were being equally profligate (some of whom weren’t involved in any wars). The Credit Crunch caused money to be printed (although as you’ll be aware that there was a lot more Guaranteeing than paying out) most of the monetary effects of this are contained and finite there’s not much going out and a lot coming back

    But two things occurred
    1 : EVERYONE suddenly recognised RISK which made money extremely tight.
    2 : people started to lose jobs because everyone realised that they and/or their client base were overexposed and spending had to stop… Cheap money times had gone.

    This meant that government borrowing became more expensive just when tax receipts took a nose dive (there must have been sighs of relief in Milbank when labour lost the last election) that’s why the government borrowing requirement estimate leapt from 60billion to 130billion. To allow us to borrow the money we needed just to tick over, we had to prove to the international community that is was a blip and we were taking measures to make ensure that it wouldn’t need to continue thus, we’re getting CUTs in government spending. The reason we’re having cuts is that the government of Gordon “Prudent” Brown was using the borrowing to support and expand everyday spending rather than solely for capital projects
    (a bit like paying the mortgage with your credit card)

    The banking crisis highlighted the government’s dependence on borrowing, but didn’t cause it (that would have taken a decade of mismanagement, thank you GB)

    The credit card companies are B*stards (the non-retail bank cards tend to be more expensive than the retail bank based ones) and an opportunity was missed in the early 2000’s( when the average card was charging about 12%) of capping the amount of interest that can be charged – which would have taken lenders OUT of the market and reduced spending by limiting personal credit availability – which, lets face it, would have improved our balance of payments and our total all indebtedness.
    BUT that didn’t happen
    I’m surprised that you’re having difficulty opening a bank account without an overdraft facility? (I really am)

    As with people going abroad, if they’re taxed out, well let them go, after all, enough jobs have been sent that way… the only real problem with this premise is that banking is a knowledge based industry and it would be like shipping all the British Aerospace factories abroad (only a lot lot easier)

    Britain won’t collapse…. but why make things harder

  • Comment number 91.

    All you need to do to understand the present and predict the future, is answer one question - Politicians or Bankers, who's winning?

  • Comment number 92.

    '53. At 12:48pm on 06 Dec 2010, warwick '

    Well said.

    Just wait, we'll be seeing this kind of shennanigans in the UK soon enough.


    The info from 64. At 14:02pm on 06 Dec 2010, DebtJuggler is just the beginning. They identify the 'key leaders' and then at a later time, those 'leaders' are tracked in the demonstration crowds and lifted. If that doesn't work, they'll be lifted the night before!

    http://www.youtube.com/watch?v=nNOV_W6UnbE (if you've not got six minutes, start at 2:36

    The kettling can and does escalate: http://www.youtube.com/watch?v=aohGLp00MmU
    Imagine your kids, your relatives, your gran even being intimidated in such a way!

    But hey, it's all for the benefit of the financial industry, right? Well, we have this little gem - they even try to make money out of protests!

    'GOP Bought Insurance for St. Paul to Cover Police Misconduct Lawsuits
    The Associated Press reports taxpayers in St. Paul should be off the hook for any damages stemming from claims of police misconduct related to the Republican National Convention. As part of a deal with the city, the Republican Party’s host committee bought insurance covering up to $10 million in damages and unlimited legal costs for lawsuits against the police. In St. Paul, some critics say the agreement only encouraged police to use aggressive tactics knowing they won’t have to pay damages.'

    So what do we do?
    Take your money out of the bank (tomorrow, the 7th), get demonstrating and get a fine lawyer to win you massive payouts for those kettles and whacks if you want to change the world!

  • Comment number 93.

    Buy physical silver and bust them

  • Comment number 94.

    The banks will keep their word in words only. e.g. A bonus will become profit shares or future dividends. In other words, it's all a boring game of semantics.
    To tell you the truth, I don't care whether the repitation of investment banks "too big to fail" are rehabilitated or not.
    What I care about is 'THE" SPLIT"
    - investment banks from
    - commercial banks.
    I don't care what investment banks do: Let them gamble, let them speculate, just as long as they have no possibility of messing with my little personal account.
    The split is what banks can do for the economy; this plus a taxation on all foreign exchange transactions. This tax will have little impact on the commercial banks since they will be primarily local, but it will raise millions (maybe even billions) from the investment banks who live off of foreign exchange rates and foreign wagers. (They really like betting against sovereign debt!)
    I don't care if investment banks give bonuses, but if they fail...NO MORE BAIL-OUTS. These huge sponges are on their own. The huge investment banks have little to no interest in commercial lending - where's the money in that?
    Commercial banks will have lots of business - local business. The investment banks will have their tax - huge amounts of foreign transaction taxation, and I don't care if they go belly-up. Maybe the tax will slow down their front-end loading, computer-trading and speculation. I sure hope so.
    Investment banks are not keen supporters of the Big Society Bank, except its own and its profit. And who says that Big Soceity Banks are a good thing anyway?
    It's the commercial bank that wants to see, and benefits from, community funancial health & growth.
    Investment banks are pathetic debtors. What have they done for the little people. They don't even lend much. Essentially their too busy with speculation and gambling, making mega-bucks to care about the financial needs of little people.
    Split the banks.
    Let investment speculators go their own way. The country will get its transaction tax anyway.
    Police investment bank remuneration? There ain't a financial wizard in the world that could ever keep up to the nefarious geniouses that keep whipping out the nefarious financial instuments of investment banks. Buyer beware.
    Meanwhile, I'll lend my money from the little bank at the corner, please and thanks.

  • Comment number 95.

    #73 & #40. tFoth

    "Plan A" (see #40 for explanation of Plan A)

    Is Plan A working? How can we tell? Well none of the UK banks has gone bust in the last couple of years and I suppose that is what Plan A was/is about. True we are being sold Plan A as the cure fro the economy - but it never could be or could have been that. We have avoided any major bankruptcy for two years. But we have not actually fixed anything. The banks are still full to the brim with loans that are secured on assets that are grossly overvalued (and secondary instruments - Consolidated Obligations and Default Swaps etc. - based on these loans both in the UK and abroad) and absolutely nothing has been done about that (and until it is the economy is only a one way bet!)

    By the way are you surprised that Plan A failed (on the terms it was sold to the public)? I'm not.

    "Plan B"

    There is of course no Plan B as to admit that there is, is the death knell for Plan A. Remember everything is about confidence!

    "Sovereign Debt Round" - I'm not really sure that there really is a sovereign debt problem at all - it is just that the volume of trading in the casino banks causes Nations to appear to have problems. The banks (and please read the banks to include the non-banking financial sector as included with the name banks) have far too much money - partly as a result of being refinanced by QE and they gamble with it as they have no incentive to do anything else as interest rates are far too low. In the Govenrment bond market they can get very much larger and safer returns by forcing down the price of bands (and thus upping the returns) so why would they do anything else? The so called Sovereign Debt Crisis is an inevitable consequence, in my view of the banks having too much money with which to gamble and returns in the rest of the market being so poor. Essentially I believe what we are seeing is the second stage of the beginning of a long depression. Where there is too much cash chasing too few (non-government) investments and that they pay too low a return compared to government bonds.

    I pt this Sovereign Debt Crisis firmly at the door of the central bankers (BoE especially) themselves as it is an inevitable result of the interest rate policy. When money is priced near Zero and the price of money vanishingly small - and historically never been smaller in the last 300 years the whole system is unstable.

    I an not at all sure that nationalizing the banks will make much difference. As I see it the UK is 'blessed' with international banks - that make much of their profits (and losses) outside the UK. We are not an island in banking. Nationalising them would only work if it was combined with the reintroduction of exchange control.

    Banks will lend money to business that have a viable business plan and as the World's economy is 'teetering on the brink' the downside risks are just too high - hence all the government bond gambling. If a business is profitable it will make money and be able to finance its own expansion. If it is doing this then a banks may help a bit in the short term. Long term finance for business should come in the from of equity and preference bonds and shares.

    (One of the reasons that businesses are still uncompetitive is related to comparative wage levels and these levels in turn relate to the minimum required by workers to gain access to the basics as I have outlined previously elsewhere.)

    I do not approve of banks focussing on domestic mortgages unless they are restricted to rational multiples of income as this unbridled growth in lending to this sector was the main cause of the bubble and collapse (including the secondary related debt instruments) and in the UK we have yet to see the necessary collapse in prices so lending to this business sector is asking, nay demanding, severe trouble.

    The problem with many of your suggestions is that we are dealing with globalised banks in the UK and taking RBS for example their international activities crippled the bank far more than their UK activities.

    QE. Printing money, deficit financing, investing in?

    The key is investing in what? Historically this type of Keynesian deficit financing has only worked at all when the finance does NOT re-inflate the bubble that caused the crash. You will note that this is NOT the case today.

    The QE we have spent in the UK (and the USA and Europe) is to prop up the failed system. This is impossible. What is needed is to spend money in such a way that will produce assets with a long term benefit for the country - above all no more to the banks. See 1930s america and read up how the money was spent. Also see the Marshall plan for the reconstruction of Europe after the last war.

    To my mind we need to issue more Euro bonds and use the money to build nationally and European valuable infrastructure and preferably do so also using a largish workforce. Housing in cities to limit commuting; railways and high speed railways (we could reasonably easily re-open many of Dr Beechings cuts). Presently there is, for example, only one railway line beyond Exeter (when there were three) - and the one railway line is in danger of being washed into the sea. What about a bridge to the Isle of Wight? And a proper south coast motorway? Even a new above sea Channel crossing as was promised in the Margaret Thatcher's initial agreement? We need to build national assets not bail out busted banks! Our sewers are rather crap (oops pun alarm!) and many need replacing too.

    I do not think that the government can regain control of money - all they can do is to influence the price and by influencing the price regain control as actual control would require exchange control. In short if there is too much ash about raise the price and put downwards pressure on it. That is after all what used to be done for most of the last century and I don't see why it would not work. Of course we will have to rescue the banks again, but I do not see anyway out of that!

    I think the only way we could control bankers would be by introduce conscription if then fail to act as we wish! (not really serious!) The only mechanism we have is the price of money and in the end this mechanism must be used to control bankers. If they create too much credit force up the price of credit - banks crate credit because it is too cheap to do so - so we must make it far more expensive for them to do so. The mechanism we have is interest rates - all of these proposals fro a Tobin tax are just far too complicated!

    tFoth - I have read most of #40 and the above are my reactions. I could criticise my own reactions as being too market based, but we are where we are. I do however think that QE is being and has been wasted. I think your complex schemes are too complex when there exists a simple mechanism that we know to work and that is to increase the price of money.

  • Comment number 96.

    ...Bring back the "one off bonus tax".. having relocated last year to Switzerland, it will be great to be joined by a lot of fomer colleagues!!

    Why pay 90% marginal tax (you do the maths..) on the income you've worked your butt off for? London is dying as a financial centre. It will become what Rotterdam has become for commerical trading - once lost it never comes back. (if you doubt me just look at where the trading of Bunds occurs)

    What else has the UK got ot offer??? I think Gordon Brown trumpted the boiler making industry!!

    haha, its so tragic it makes me laugh or cry for you....
    With the excpetion of defence (which is about to get hit with stupid laws stopping the UK competing on a level field) there is NOTHING WORLD CLASS ABOUT THE UK.

    come to Switzerland. the Door is open, and you get to keep what you earn.

    Its all a scam- the UK government is blaming bankers as a diversion for its own incompetence!! AGAIN-DO THE MATHS. bailing out banks is not the reason for austerity cuts...ITS THE CRIMINAL OVERSPENDING OF POLITICANS WANTING TO BE RE-ELECECTED. think about it....POLITICANS ON 4-5 YEAR ELECTRAL CYCLES ARE ONE OF THE ROOT CAUSES

  • Comment number 97.

    "Economic recovery? Well that will be more insipid if banks aren't enthusiastic providers of finance to businesses, especially small businesses.

    Shrinkage of an unsustainable deficit? Harder if banks don't recover and don't start making their disproportionately significant payments of corporation tax once again - and harder still if they relocate head offices to overseas financial centres."

    Robert, have you learned NOTHING from the last few years.... The banks are not in any form a generator of WEALTH for the economy. If they are to be viewed just as a tax gatherer then they can be bypassed and that taxation taken from where the wealth ACTUALLY originates (i.e. corporations and individuals). The banks don't need to be in that chain, taking off a very large slice for themselves.

    Bypass them, sideline them and let the REAL economy do its thing. This is the road to recovery. You have simply described the creation of yet another credit driven bubble.

    "no more boom and bust"

  • Comment number 98.

    Lord Acton - Historian, 1834 to 1902:

    1 "All power corrupts and absolute power corrupts absolutely"
    2 "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."

  • Comment number 99.

    I wonder if they had their cosy little chat at their club or on the golf course?

    Silly me. It has been a tad inclement at the golf course so I suppose they had a few snifters before tucking into a well earned 3 course luncheon.

    Don't worry. We paid for it.

  • Comment number 100.

    I thought people joined this blog because they respected Robert's views. But it seems here that most people have either trashed his views or not bothered to read them. He said 'so much of what the government wants to achieve isn't possible without co-operation from the banks'.

    People seem to think that bankrupting the banks, causing chaos by emptying cash dispensers, or 'kicking' bankers until they leave the country would somehow help the economic recovery. And yet Robert's assessment is that these would hurt the UK.

    I completely agree with all the comments about the appallingly unfair distribution of wealth in the UK and that this needs to be tackled. But doesn't somebody need to suggest a realistic and sustainable way of getting from where we are today to where we want to be without making things worse? Without taxing all high earners so much that we start a brain drain of lawyers, doctors, businessmen, lecturers, accountants, inventors, etc.

    Does anybody know how Sweden does it?

 

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