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Turner's 'radical' changes at the banks

Robert Peston | 10:53 UK time, Tuesday, 1 March 2011

While I was away for a few days, Lord Turner gave a remarkable speech, which seems - curiously - to have been almost universally ignored.

Lord Turner

 

The address given by the influential chairman of the City watchdog, the Financial Services Authority, was called "Reforming Finance: are we being radical enough?"

His answer seems to be "probably not".

I am going to focus on two aspects of what he said, that the new capital ratios imposed on banks, especially on big banks, remain too low, and that reforms to the way that bankers are paid may have the effect of actually increasing their total remuneration.

Actually he made a third striking related point: that the underlying problem may be that banks are excessively profitable, that much of their frenetic activity adds little to general economic growth and is designed to extract "rent" or income from the rest of us in a way that increases social inequality. One of his conclusions: that the optimum way to address this problem of rent extraction may be through new taxes on financial activities or direct state intervention.

First, here is what he says on the recent agreement by international regulators to increase the ratio of loss absorbing equity or core capital to assets from 2% to (in effect) 7% - an agreement that goes by the moniker (as if you didn't know) of Basel lll:

"Basel lll is a major step forward, but in an ideal world equity ratios would be set much higher".

How much higher? Well at least double, or even perhaps treble that 7%.

But for regulators like Turner, all is not lost. Top of this year's agenda for the global rule-setting bodies for banks, the Basel Committee and the Financial Stability Board, is what extra capital requirements may need to be imposed on mega banks, or Systemically Important Financial Institutions (SIFIs) - banks like Barclays, HSBC, RBS, Deutsche Bank, JP Morgan, Citigroup, UBS and so on.

Now Turner makes clear that he believes they need to hold a good deal more equity, because he sees that as by far the most efficient form of capital for absorbing losses, and thus protecting taxpayers from future crises.

Interestingly, he is sceptical that forcing banks to hold new-fangled instruments, bonds that convert into equity when capital ratios slip below comfortable levels, or Cocos, will be of much use in the long term - because he is persuaded that investors as a breed will systematically ignore the risk of conversion, and the bonds will therefore end up being owned by institutions unable to tolerate the equity losses as and when they materialise.

So, as I have pointed out before, our biggest banks - and their shareholders - probably need to brace themselves in the coming months for new rules forcing them to significantly increase the amount of capital they will have to hold relative to the loans and investments they make (so the arguments made yesterday by HSBC have already fallen on deaf ears).

Oh, and by the way, he and Paul Tucker - the deputy governor of the Bank of England who responded to Turner's address - pointed to a second priority for the Basel committee this year: a fundamental review of the capital requirements for banks' trading books; and if that doesn't lead to increased capital requirements for the likes of Barclays Capital, the investment banking arms of universal banks, I will eat any number of hats.

And what about bankers' pay? Well Turner makes the compelling point that the trend to defer bonuses and award them in shares will almost certainly lead to an increase in bankers' pay in the long term, unless the profitability of banks were to fall dramatically.

How so? Well with bonuses paid in shares and subject to clawback, the risk of non-payment increases - which is precisely why heads of G20 governments demanded those pay reforms (to better align bankers' pay with banks' long term performance).

But if the risks of non-payment rise, bankers will demand extra potential rewards by way of compensation. And they will get that extra reward, says Turner, unless there is a significant reduction in the long-term profitability of banks.

Which links to perhaps the heart of Turner's argument, which is that a significant proportion of the explosive growth of financial activity over the past 15 years is in a sense fatuous: it has generated no increase in the size of the economic cake for the rest of us.

He gives four examples of how banks simply extract rent from the rest of us, with no net economic gain - and arguably some social loss.

First he points to the banks' "tax management activities, which benefit the financial service sector's clients, but also, through fees earned, the industry itself" (some of you, I am sure, will at this point be saying a big hello to Barclays).

Turner adds: "a depressingly large proportion of what is labelled 'innovative product structuring' is based on tax management activities".

Then there is rent extraction via ferociously complicated products that obscure the risks for investors - both retail investors and astonishingly gullible financial institutions (such as UBS, which loaded up its balance sheet with AAA rate CDOs that turned out to be poison).

Third, there is all that financial innovation that claims to offer protection but actually increases market volatility, thus creating the demand for yet further financial protection (much of the growth in the OTC and exchange-based derivatives markets may have been otiose in that sense).

Finally there are the super-normal returns which accrue to those "dominant" market makers that are perceived by investors to be the loci of liquidity.

Where does all this lead?

Well to the conclusion that bankers' bonuses will only fall if the potential for banks to extract rent from the rest of us is tackled.

Has that happened?

No.

How could it happen? Turner says: neither taxation nor state provision should be excluded from the policies considered".

He repeats that financial activity taxes, Tobin taxes, may be justifiable.

And he adds: "in retail financial services we should be open to the possibility that the state could sometimes be a more efficient provider of some services, removing the churn and excess cost which pure private competition can create".

Or to put it another way, if the UK's banks think that the anything-goes world of the years before the crash will return any time soon, the senior City regulator would beg to differ.

Comments

Page 1 of 3

  • Comment number 1.

    Good luck to him, then

  • Comment number 2.

    I love the way that these banks and financial services people think that the money they have to play with is 'theirs'.

    Sorry to disillusion them.....they are playing with someone else's money. Quite often hard working people's pensions.

    Sometime in the future those hard working people are going to want their money back.

  • Comment number 3.

    At last a regulator who is saying the things the rest of us ie non-bankers have known for some time. The banks exist to make profits for themselves and do not enrich the wider economy instead they distort the market so that real productive businesses suffer. The sooner the banks are regulated properly the better for the economy as a whole. This means that we shouldn't cave in at the threat of an exodus, instead we should welcome it as the distorting influences leave and we are left with financial institutions (and lets not forget building societies) who lend to business and individuals on a fair basis and to the benefit of all.

  • Comment number 4.

    So the man who failed at regulating the banks is trying to rewrite history.

    The whole article reads like the Labour Party manifesto going into the election. Hardly surprising since Turner was a Labour appointee who was carrying out Gordon's scorched Earth strategy.

  • Comment number 5.

    "in retail financial services we should be open to the possibility that the state could sometimes be a more efficient provider of some services, removing the churn and excess cost which pure private competition can create". Well this is pretty sensational common sense coming from poacher tuned militant game keeper. The UK is in an excellent position when a major group (RBS) is largely state owned and could become the exemplar provider of utility retail and commercial banking and related financial services. The government should remove its underwriting of savings from all the SIFI's apart from the state bank and smaller retail banks and mutuals on the basis that this will added to the force of competition and the reduction of margins. Mega-Bonuses are a reflection of the ease of manipulating and controlling customers in a poorly competitive market to produce exceptional margins on what is often a simple product need.

  • Comment number 6.

    He gives four examples of how banks simply extract rent from the rest of us, with no net economic gain - and arguably some social loss.
    ====================================

    He forgot to mention the implicit £100 billion a year subsidy from the BoE.

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/12/how_to_curb_bonuses.html

  • Comment number 7.

    Well I, Fred Asquith, feel Lord Turner is a man of great wise and we should lsiten to him. Look what happened when we didn't in 2008.

  • Comment number 8.

    Despite being labelled 'radical' everything discussed here still sounds like tinkering with a broken system. Only fundamental reform of the type proposed by http://www.positivemoney.org.uk / http://www.onegoodcut.org can get us out of the mess.

  • Comment number 9.

    Ex-German Defence Minister Karl-Theodor zu Guttenberg seems the ideal candidate for a decent job in one of our large banks given the way he packaged his PhD thesis!

  • Comment number 10.

    Totally agree with Lord Turner and the Tobin Tax supporters.

    When the big banks pay a premium to the exchanges to get data a fraction of a second faster than their competitors so they can take profit from the market at the expense of 'normal' market participants, then something is very very wrong.

    Likewise when our brigtest university graduates are offered huge financial incentives to spend their careers developing tax avoidance structures and complex products that will line the pockets of their employers but offer poor investment returns or add costs to 'real' businesses, then we need fundamental change.

    Businesses and banks will want to locate in the UK for as long as we have strong laws, fairness and sensible regulation.

    The UK should not strive to be a friendly tax haven for the megga rich banking community at the expense of 'real' businesses adding real value and solving the challenges the world faces as oil and other commodities become scarcer.

  • Comment number 11.

    4. At 11:56am on 1st Mar 2011, Max wrote:
    So the man who failed at regulating the banks is trying to rewrite history.

    The whole article reads like the Labour Party manifesto going into the election. Hardly surprising since Turner was a Labour appointee who was carrying out Gordon's scorched Earth strategy.
    ============================

    And pray tell, what is your opinion on the causes of the financial system collapse and how it can be prevented from recurring?

    I can guess, it was all Gordon's fault.

  • Comment number 12.

    If you were really going to try to rebalance the economy, extracting some of the £bns from the unproductive quasi-gambling of the finance sector through some form of taxation & using it to support start-ups, training, manufacturing would seem logical. As would following more of the German route of making it harder for foreign companies to buy British firms & then close places down - like Pfizer in Sandwich. After nearly 30 years of allowing the markets free rein, perhaps it's time we went in for a bit mor einterventionist mercantilism.

  • Comment number 13.

    Agree with the excessive profit point.
    In any competitive capitalist market, competition improves the service and lowers the price as buyers hunt around for the best offer and suppliers vie for market share.

    Apart from Banking, which seems to defy the rules of competition and actively engage in pass-the-parcel games of ever more complicated instruments tossed between each other and everyone taking a hefty slice of profit in the process.

    Win Win Win all round.... until the music stopped, someone unwrapped the parcel and found it was empty.

    Its like:
    Tesco selling a basket of beans, tomatoes and apples (cost price, £2) to Morrison for £3, trousering a nice return;
    Morrison repackaging it as Apples, Tomatoes and Beans and selling this on to Sainsburys for £4, trousering a nice return;
    Sainsburys repackaging it as Tomatoes, Apples and Beans and selling it on to Waitrose for £5, trousering a nice return;
    Waitrose repackaging it as Tomatoes, Beans and Apples and selling it on to Asda for £6, trousering a nice return.

    Our £2 parcel of food has realised at least £4 in profit for shareholders and the bonus pool, but when Asda open the parcel they find the Apple and Tomatoes have gone off and the beans are in a dented tin, so they're barely worth the original £2.

    And none of it has gone on to feed anyone so there has been no benefit from the whole charade to anyone other than the colluding Ban... Supermarkets!

    Mr Turner - Banking shouldn't be such a complicated business that none of us understand it. We all have a vested interest in it working properly for the greater good. I hope you remain tough on them.


  • Comment number 14.

    Bankers bonuses should be heavily curtailed and the nonsense that staff will leave is self defeating where will these staff go..

    No bankers need to learn that they are not masters of the universe any more and if they threaten to PULL OUT of the UK let them... They will find they have not many places that want them or their spoiled brat tantrums.

  • Comment number 15.

    The problem with his thesis is that pointing to one element of the total costs of capital within an economic system as a "rent" is just another means of labelling an "excess profit". It boils down to some deus ex machina deciding when a "fair profit" becomes a "rent". The touchstone of regulation has been the anti-trust/monopolies rules which are based on the presumption that the mechanisms of supply and demand and many market players will operate to eliminate excessive returns. This has nothing to do with making banks secure and there is a great danger that the two problems are getting conflated - for they require very different approaches.

    The difficulty with bank regulation, apart from differential rules being applied in different jurisdictions, is the question of when a "bank" is not a "bank" and so on (e.g. to what degree do consumer finance operations of retailers make them banks etc. etc.). Capital can always find a way to maximise its returns by transforming itself legalistically and avoiding the impact of the rules intended to confine it.


    The difficulty with measuring excess profits is the division of total returns to the totality of providers of capital in the delivery of consumption or public goods. If those organisations we characterise as banks are extracting more, then other corporations, such as retailers or manufacturers are taking less. For the owner of capital in all of them, it is just a question of allocating the nominal amounts of capital to the most efficient (from his point of view) method of extracting the value. Shift the value from bank to manufacturer and he just shifts the portfolio structure - its just a question of legalistic structures and their exploitation.

  • Comment number 16.

    The money the banks are playing with has been created by them out of thin air thanks to fractional reserve lending. Why is this never explained to the general public on the media by Robert Peston and the like ?

  • Comment number 17.

    Banks should be allowed to borrow as much as they want as per any other industry..

    But when they fail, NO bailout should be given..

    If it's the case that parts of the failed bank are to important to fail , then these parts need identifying now and ring fenced .

    Split the banks , borrowing costs will rise on the risky investments accordance to risk and thus super profits on parts of the banking business that are currently bank rolled by the tax payer will disappear.

    The current situation where the taxpayer insures the industry to the tune of £100 billion a year is unsustainable , once this "Risk" is transferred back into the financial industry , the tax payer will be far safer and bonuses will only be paid when true added value is created.

  • Comment number 18.

    And what about breaking the investment arm of banks away from the retail side? Still too little, still too late. As mentioned earlier, GB's stooge taking no responsibility for his lack of action in the past.

  • Comment number 19.

    Why do these comments come as no surprise.
    We all appreciate that banks and associated financial institutions are 'force multipliers' when it comes to the wider economy and the cash assets circulating within it. But it seems that previously no one associated with the industry, in public, has voiced an opinion that there is a limit to the beneficial re-circulation of those cash assets.
    As for the banks etc 'extracting' more and more icing from the cake to the detriment of the cake itself, welcome to the linkage between regulatory bodies who are responsible to those who borrow too much and those who supply the borrowed cash, allegedly ;)
    Seriously though, the banking institutions have increased their profitability way beyond the capacity of the health of the broader economy to sustain it.

  • Comment number 20.

    So are you reporting that this gentleman is saying that the banks stopped being essential parts of our economy, and instead have become parasites on the rest of us, threatening to kill their host? Welcome to the real world, Robert!

  • Comment number 21.

    This is more of a question for Robert, really. Whenever the banking sector is discussed on the radio, we're told that it contributes £x billion squillion to the UK economy. The number varies, but it's always dauntingly large. The implication is that if all the investment banks went away we'd be eating grass and living in mud huts.

    What I'm trying to work out is whether this is really true. If a bank sells financial products to French customers and makes a billion profit, I'd accept that as generating £1 billion for the UK economy. If a bank sells the same products to UK citizens and makes a billion profit, I'd say that it generated £nil for the UK economy - it's just moving money around and taking a slice. All that's happening in the 2nd case is a concentration of assets into a limited number of pockets - from the many to the few.

    So, Robert, my question is this : which of these 2 extremes is closest to the truth? Is the City leading a wonderful export drive, selling services overseas, or is it predominantly recycling money which was already in the UK economy?

    Do tell.

  • Comment number 22.

    "Turner's 'radical' changes at the banks" is the title of Robert Peston's blog.

    So is Lord Turner speaking common-sense? In essence - investment arms of banks, have used their retail/consumer cash-flow (or rent as Robert may imply) to fund speculation that caused the global banking collapse - allegedly?

    So, in other words ... you have no formal investments with your bank or trading investments - but your salary paid into your current account and your basic savings accounts - may, perhaps, have been used by the investment arm of your bank to speculate without your knowledge? Equally, your regular insurance payments on your home/life is also an important cash flow vehicle too?

    Perhaps Lord Turner may have hinted at the above? I don't know.

    But there is a hope that Lord Turner may be suggesting that capital held by banks from their savers and depositors should always be held and exceed speculation as a basic fiscal responsibility required by corporate and moral law.

    Consumers cannot exceed what they are unable to repay to banks under a contract without penalties and a bad record ... therefore, why should banks be able to 'borrow' from consumers basic bank accounts .... and tax-payers without penalties?

  • Comment number 23.

    Robert, lets just put this into everyday speak.

    Basel accords 1 & 2 didn't work because the regulatory bodies were incompetent and did not understand WHAT those accords meant, therefore took no action. The accords were ignored on a massive scale by the banking sector. So what is different about Basel 3? If mass disobedience of the first two accords took place, and no-one brought to book, then I need some convincing that ver 3.0 will work. It's also worth noting that these accords are passed into law, and voted on in the commons, few MPs understand what it is they vote for. So we are stuffed form two angles, a third dimension is that we we all too greedy during the party years.

    Couple this to the fact that the same top people who crafted our economic demise are still very much in control. Although contractually correct, I feel it immoral that bonuses are paid to those same people that failed on a massive scale. Yet the we are expected to allow these fat snouts into the trough while the rest go without. If a banker threatens to quit if he or she is not paid a bonus, then let them go, there is plenty of young blood in the system ready to take up the challenge. I say give them a go.

    We might want to look at the situation in the Middle East. Egypt, Tunisia, Libya. The people in these countries are no on a Jihad, they are not wanting to make war with the rest of the world, although they don't all love the west. What they are doing, is throwing out corrupt heads of state, and corrupt establishments that has ripped the people off for decades. I see some similarities in the behaviour of our financial institutions in the west that can be liked to those corrupt regimes in the middle east. It might all well be legal, but that does not make it right. If a fat snout cant see what is moral behaviour, then that person is not fit to manage my money.

    Did you know that I can still borrow money, 0% and reinvest to the same bank and make money on the deal. We can pontificate all we like about Basel 1, 2, or 3, the rot has not been purged, and until that happens, nothing else matters.

    Regards

  • Comment number 24.

    Everybody, including the bankers, knows that what the bankers are doing is madness and unsustainable.
    This merely encourages the bankers.
    They know that there is nothing that can be done to suppress their greed.
    All that can be done is think up new words to describe their greed. Exuberance is just one.
    Meanwhile the bankers carry on as usual.
    It's what they do.
    They know they will get away with their unsocial behavior.
    They'll keep on going until the end of time.
    Heck. Who will stop them?

  • Comment number 25.

    Your quote "that the underlying problem may be that banks are excessively profitable, that much of their frenetic activity adds little to general economic growth and is designed to extract "rent" or income from the rest of us" rings a bell with a discussion I was having regarding the UK's property asset bubble. Do mortgages take up a much higher % of our life time earnings now? As a result are banks taking a larger chunk of the money from the average consumers spending? If true then surely that means less spending for the rest of the ecomony. Does this cause significant difficulties for economic growth/recovery? Robert - your thoughts would be welcome.

  • Comment number 26.

    Remind me isn't Lord Turner out of a job soon? If he wants to be 'radical' now why didn't he do anything about the problem over the last decade?

    The banks have to be entirely reformatted along with the economy. Banking is there to provide lubrication for the trading activities of business and people - it is not there to suck the lifeblood out of the patient.

    Hence: International Global Banks must be terminated or have their ability to damage the global business World ASAP. We need local banks with arms length and transparent agreements between them and their counterparts. In the UK we should look at regional or county banks again and in London borough banks. so that roughly the 60 million population has 40 banks with roughly equal customer bases so a bank for every 1.5 million people - 5 or 6 local banks in London. Bank leverage needs to be no higher than 20 times (capital base to lending). All trading between banks and all tradeable instruments MUST be made public via an exchange. (no over-the-counter trading) That should terrify the sock of em all for now!

    Oh... and the Bank of England needs to be reformed with an entirely new bunch of economists and management.

  • Comment number 27.

    These people are still trousering the real money and leaving us with dodgy speadsheets. The Goverment seem to be doing very little if anything about it. I have a philosopy in life, and that is if a goverenment, or anyone for that matter, does nothing to address an issue; it suits them. What happened to all the big talk about sorting them out?

  • Comment number 28.

    From RP above:

    "Actually he made a third striking related point: that the underlying problem may be that banks are excessively profitable, that much of their frenetic activity adds little to general economic growth and is designed to extract "rent" or income from the rest of us in a way that increases social inequality."

    This is a crucial point. These profits transfer money away from ordinary bank customers (average wealth) to shareholders (above average wealth) and through the more excessive bonuses to the already super wealthy.

    What is the real benefit to our economy here? Why is it thought that money is better in the hands of the more wealthy than the less wealthy - in this case it really has no connection with true endeavour or entrepeneurship.

    OK taxation may result in the "destroying" of money (to use that horribly fashionable phrase), but if the threat of it helps to stop profiteering then it can be a force for good.

  • Comment number 29.

    3. At 11:53am on 1st Mar 2011, yorkist63 wrote:
    At last a regulator who is saying the things the rest of us ie non-bankers have known for some time. The banks exist to make profits for themselves and do not enrich the wider economy.

    - So businesses are set up to make profits for themselves. Hold the front page!

  • Comment number 30.

    By the way Robert,

    You or Steph should be writing a blog on sex discrimination ruling on insurance products, including annuities. Can of worms with potentially major implications on personal finances, especially pensions.

  • Comment number 31.

    Ok! He’s talked the talk and spelled out the spiel but where is acting out the action?

    He knows the risk takers, he as files:

    “Turner defended the actions of the regulator on the BBC's Andrew Marr show on 15 February 2009. His comments were that other regulatory bodies throughout the world, which had a variety of different structures and which are perceived either as heavy touch or light touch also failed to predict the economic collapse. According to Turner, in line with the other regulators, the FSA had failed intellectually by focusing too much on processes and procedures rather than looking at the bigger economic picture. In response as to why Sir James Crosby had been appointed deputy chairman when his bank HBOS had been highlighted by the FSA as using risky lending practises, Lord Turner said that they had files on almost every financial institution indicating a degree of risk.” http://en.wikipedia.org/wiki/Adair_Turner,_Baron_Turner_of_Ecchinswell

    So were is the action?

    Who’s faced the Judge?

    What proceeding have been instagated?

    Another round of political words me thinks!

  • Comment number 32.

    Robert wrote "While I was away for a few days, Lord Turner gave a remarkable speech, which seems - curiously - to have been almost universally ignored."

    Funny that, it seems that mainstream media has ignored 'Inside Job' winning best documentary at the Oscars. Could it be Director, Charles Fergusons acceptance speech beginning "Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail, and that's wrong." has ruffled a few feathers.

    BBC news last night only touched on the fact that the film about Banksy (ironic really) failed to win best documentary, but did not say who did.

  • Comment number 33.

    26. At 12:45pm on 1st Mar 2011, John_from_Hendon wrote:
    ================================

    Seconded. And I would further suggest that banks/hedge funds that want to play the casino should have their limited liability revoked and become partnerships.

  • Comment number 34.

    Thankfully Turner has enough presence of mind to realise the fundamental objective for our future prosperity is a root and branch reform the financial system. It has shown itself at best to be patently not fit for purpose, and at worst a shabby system of rent extraction on the economy as a whole.

    That Turner's proposals are labelled 'radical' beggars belief, and in some part reflects the ground that has been won by the bank's hugely funded PR offensive.
    Even the UK government has bought the line that business should just return to normal since we are no longer at the brink of financial meltdown.
    presumably encouraged by large donations from financial companies into Conservative Party coffers.

    Its not about 'Bashing Bankers'.... Its about reforming a shabby system where the vast majority of us are financially battered by the Banks. Good to see Turner is willing to clearly identify exactly who has been doing the 'Bashing' these last few decades, and how to call an end to this systemic abuse.

  • Comment number 35.

    How do banks extract "rent"? The main method is by their ability to create money from nothing and charge a percentage. This, in effect, levies a private tax upon a large part of the economy.

    But also gambling on the various markets, stock, commodity, etc, by banks, hedge funds, insurance companies, pension funds etc, generates regular income and commissions for a parasite class of individuals and companies.

    As Keynes said: "Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity ... there is no such thing as liquidity of investment for the community as a whole. .... . It is though a farmer ... could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week. ... ...it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks."

    Speculation must be squeezed out of the system. We need punitive taxes on short term capital gains.

  • Comment number 36.

    29. At 13:02pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "So businesses are set up to make profits for themselves. Hold the front page!"

    ...it's a shame the front page is where you get 'held' - if you bothered to read further you will see the consequences of businesses acting in pure self interest - I mean climate change, wasted resources, reducing workers wages (as we have already established), tax avoidance (legal...but also self destructive in the long term)

    ...all of these are long term problems and businesses pursuing self interest will be complaining they cannot do business in the future with:

    1) Lack of insurance provision due to increasingly common adverse weather conditions
    2) Taxes which will have to be applied to prevent environmental collapse (land fill tax for example)
    3) Reduced workers wages leading to recessions (didn't anyone mention that workers are also consumers?? - I forget that Capitalists live in bubbles and assume they are 2 different people)
    4) Increased cost of security, uneducated and unhealthy workforce, poor transport provision pushing up costs etc. - all of which are provided by the Government with the taxes paid - no taxes, no provision.

    You see businesses working for short term success are in fact laying the bed of long term failure.

    This is what happens when everything is valued by it's monetary value. Businesses like capitalists will ignore the long term problems until they can no longer avoid them - at which point they will panic and scream "someone should have done something" and conveniently forget all those years they decided to actively create these problems in order to pander to their own short-term goals.

    I have put this point to you several times and in several different ways and each time you choose not to comment.

    Clearly this is a real problem for you as it undermines your belief that people following their own self interest will contribute to the greater good.

  • Comment number 37.

    The banks are being allowed to siphon off the profits of this country and are no different to the Gaddaffi's and Mubarak's of this world.

    The link between the middle east crisis and the economic crisis is so obvious I wish people would stop focusing on single banks, or single countries and look at the global picture. Tinkering around at the edges is not going to solve anything and until there is a worldwide clampdown on excessive profits and bonuses the banks will just continue what they are doing.

    Have you noticed how the regimes in Saudi Arabia, Bahrain, Egypt and even Libya have offered every family in their countries money ranging from $250 to $3000 in the hope the protests will stop, and it has had no effect whatsoever. This proves three things...

    1) The wealth of the people at the top is so excessive they could always afford to redistrubute it more fairly, but chose not to because they are greedy by nature.

    2) Only when the threat of losing power and wealth hit them did they decide to try and redress the balance.

    3) The people at the bottom are not greedy, they cannot be bought off with a one off payment and just want to live and work in a system that is fair.

    In the UK (and US/Europe) we are in exactly the same situation, we just haven't done anything about point 2 yet. We are still allowing the dictatorial banks to push us around but as the leaders of the middle east have found out, you can only push people so far.

    Tick tock tick tock....

  • Comment number 38.

    'remarkable' speeches don't get ignored.

    G

  • Comment number 39.

    11. At 12:14pm on 1st Mar 2011, Reticent_Trader wrote:

    "I can guess, it was all Gordon's fault."

    ...are you trying to win that £5 back?

  • Comment number 40.

    I don't know why we bother worrying about the banks anymore.

    We all know that regardless of what we say or think or rant about we'll never develop a Siemens or an Audi or a Mercedes or an Apple or a Microsoft or indeed any new real industrial might that's actually worth a damn because none of these twirps in the City could care less about the rest of the economy.

  • Comment number 41.

    What a load of nonsense!
    1) Increasing the capital adequacy ratios for the banks will mean that the easiest way for the banks to comply is to reduce lending. I thought we wanted them to lend more, especially to small businesses?
    2) Every time money changes hands there is an opportunity for the government to collect tax. It doesn't have to be at a high rate, in fact it is better if it isn't because you don't want to dissuade people from carrying out the transactions. Tax little, but tax often; that's how you fill the coffers. So "Tobin" taxes are potentially a good idea, as long as they don't get silly.
    3) The reason the banks make such huge profits is lack of competition. They operate what is, essentially, an oligopoly. But it is very difficult for new players to enter the market when barriers to entry are so high, for example the capital adequacy requirements. Increasing the ratios will deter competition even more and lead to even bigger profits for the existing players. Is that really what we want?
    4) Lehmann Bros led the way in paying bonuses in shares rather than cash and look what happened to them! I'm afraid it is no guarantee of stability or probity.
    5) Virtually all the public hostility to bankers' remuneration is based on nothing more than sheer envy. What business is it of the government's, or anyone else's, if two parties freely enter into a contract as a result of which one of them benefits enormously, because he has fulfilled his side of it? You can dress it up in all the righteous moral indignation you like, but it is just sanctmoniousness; the poilitics of envy, of class war. Mr Turner seems to be no exception to this. Then again, what else would you expect from a dyed-in-the-wool leftie? If we want to drive the City into relocating to Paris or Frankfurt I have no doubt that he is the man for the job.
    6) The government taking a more active role in banking? Heaven help us. British Leyland, British Rail, British Steel, the NCB (I could go on); the record of the state as provider must be one of the most dismal litanies in our nation's history. Never again, never again!

  • Comment number 42.

    Here's a recipe for fixing British banking.

    Allow any UK-based institution to do as much casino banking as it wishes, but make it a criminal offence to sell such products to UK citizens

    Define a set of financial products which are legal for use in the UK, and enforce the law vigorously.

    If there's profit to be made out of foreign investors, then we should welcome the world's bankers to spend their dosh in London. We just shouldn't allow them to pass their risks on to UK investors

  • Comment number 43.

    • 33. At 13:11pm on 1st Mar 2011, Reticent_Trader wrote:
    26. At 12:45pm on 1st Mar 2011, John_from_Hendon wrote:
    ================================

    Seconded. And I would further suggest that banks/hedge funds that want to play the casino should have their limited liability revoked and become partnerships.

    - So the banks wouldn't be traded on a stock exchange. Would you allow them to be a LLP?

  • Comment number 44.

    Bravo, I had mentioned this a few weeks back on a post response.

    The issue is that the investment banks are too profitable

    1. Part of the reason is the implicit state guarantee that they benefit from, and one of the rating agencies (S&P or Moodys) recently published what they think the ratings would be without state support - Goldman would move down a notch, Citi move down 3 notches etc. There was also a separate study by Bank of England which calculated the price that all such banks should be paying the government (and the taxpayer) for such suppport. Why isnt more being done on this - it is a legitimate cost to impose.

    2. Lack of competition in this sector. Think the Competition Commission/ some other agency is looking at this. It is a fact that the same investment banks get paid far less in APAC/ India/ China than they get paid here for a similar deal. The state should encourage more competition.

  • Comment number 45.

    Why on earth listen to Lordy, Lordy Turner?

    He and the whole of the FSA should have resigned long ago for their total inability to get ahead of any of the scams in Britains financial services sector.
    Bring in someone with some commercial/ Legal brains that are not in the pockets of Big Money.

    This is utter nonsense and the usual platitudes after the proverbial horse has bolted. same as with Equitable life, With profits scams, Credit card rate jacking, Ponzi schemes and coming soon equity release schemes. Until we have a finincial watchdog that can get ahead of the curve and stop problems before they become endemic then it will be business as usual for the Muppets in the banks and other financial institutions.

    Sack him and start again!

  • Comment number 46.

    I'm not savvy like all you other posters, or an economic genius either, and the news is hobby for me so I don't get to read it all - but from reading the press and watching tv, I seem to have formed the following opinions, can somebody explain where I may have gone wrong in my opinion / simple analysis?
    1) The banks caused a 'bit of a problem' with the worlds finances through some very dodgy dealings
    2) The result of this has toppled Governments, brought countries to their knees, caused havoc in industry, and left the bulk of the general population worse off
    3) It came to light that while the bankers were causing this mess they were paying themselves huge bonuses and generally having a good time of it
    4) The IMF or something like it, somewhat led by our Mr Gordon Brown and other leaders at the time, decided to act to fix the problem and pumped huge amounts of tax payers money into the banks to prop them (and the economy) up
    5) Mr Gordon Brown loses his job (by being voted out) for being an incompetent, uncaring, bully or something like that, and because the public are faced with huge tax rises to cover the cost of the fix
    6) Mr David Cameron takes over and increases taxes, reduces expenditure more than Mr Gordon Brown was proposing to do before he was dumped, and says it was all Mr Gordon Browns fault anyway, and it's a good job he's here to fix it for us..
    7) The banks are recovering and starting to make huge profits again, and still paying themselves bonuses

    So a couple of questions:-
    1) Once all the money is paid back, will VAT drop back to 17.5%, and will all the public sector people get their jobs back?
    2) Will any individuals from the banks be held accountable for what happened (a bit like an MD is held responsible when one of his employers is injured or maimed due to bad health and safety practices etc.) and face a custodial sentence for almost destroying some (not so small) countries. (A bit like what happened to Nick Leeson, but he only brought down a bank)
    3) Will David Cameron resign if his recovery plan does not work, or will he blame it on Nick Clegg, the opposition, his cabinet or the world in general and will he then get a job in a bank perhaps?


    Phil

  • Comment number 47.

    One cannot say that the crisis was caused only by exotic credit derivatives (CDOs etc). They certainly played thier part, but the source of all this bad debt was deliberate risky lending on a historically massive scale in the states, which was actively encouraged by Clinton and Bush. That this debt spread through the financial system was due to the new (and hence unregulated) practice of slicing and dicing debt and the chronic misunderstanding of those instruments by banks governments and rating agencies. In the UK, we too benefited from a steady supply of cheap money (i.e. low retail interest rates) in part because of these activities. Therefore anyone who bought a bigger house banking on cheap money, or went on a splurge with a credit card banking on cheap money was also taking advantage of this. Although of course they were not the ones to grow rich as a result.

  • Comment number 48.

    Robert;
    You missed the biggest rental cost of all. even thought banks and fellow speakers of the finance language call it interest, it is just rent.

    It's exactly the same as if I 'borrowed' a 10,00sqft office building and paid the landlord rent to use it. If I borrow £10,000 in money from the bank I pay interest\rent on it. At the end of the agreed lease I hand back the keys, at the end of the agreed loan I hand back the original money.

    Except most banks can't wait that long and insist I start paying some of it back immediately.

    Where do banks get there money from? by renting it from us. OK they call it deposit or savings accounts etc.. The Banks trick is always to make sure they charge more than they are paying. I believe this is called margin...

    So in fact the banks are sub-letting our own money back to us at an increased rental.


  • Comment number 49.

    "all of which are provided by the Government with the taxes paid - no taxes, no provision."

    That's not true. Government provides social goods with real resources in the economy. There are five million individuals stood idle at present which our government could mobilise if it chose to which would inject a large number of new consumers into the rest of the economy.

    It's difficult to understand why any economy has real resources stood idle. It's not as though you can save up hours for use in the future. Any hours not worked today are lost forever.

  • Comment number 50.

    37. At 13:29pm on 1st Mar 2011, stennylfc wrote:
    In the UK (and US/Europe) we are in exactly the same situation, we just haven't done anything about point 2 yet. We are still allowing the dictatorial banks to push us around but as the leaders of the middle east have found out, you can only push people so far.
    =================================

    Stenny, I think as long as people in the west are under the illusion of democracy and want to guard their relative wealth over the eastern peoples then they will put up with growing inequality at home. Hence I more fear the rise populist fascism in the west as we try to cling on to what we have.

    It is only when the wealth of the middle class has been reduced to the levels of that of China / Asia will they rise up. And it will come but will take 20 years and some very hard times in the meanwhile.

  • Comment number 51.

    It is disgusting that Banks make a profit. They provide nothing of any value, I bought my house with cash. It was difficult having to wheel it about in me 'barrow but anything is better than giving money to a bank.

    We need regulation now which flies in the face of liberal democracy but ensures that from now on all banks are run with no mind to making a profit. They obviously won't be allowed to lend as that encourages debt and also will be forced to lend to small businesses. Small businesses also will be banned from making a profit.

    It's obvious that we are on the way to revolution as England is just like Libya. Libyans are protesting because they live in a brutal dictatorship and are suffering high food prices (90% of their income) which is the same in England where bread costs £2,000 a loaf.

    Every member of the Bank of England must also be replaced. And interest rates increased to 1000% to reduce oil prices.

  • Comment number 52.

    Why can't the banks be regulated in a very similar manner to every other seller of a consumer product:

    - They produce product specifications for everything they sell
    - Perhaps as part of this specification they must state the ratio of lending to capital that they will maintain when selling the product
    - This specification receives a standards test to ensure they are fit for sale (similar to a CE mark)
    - In many cases the products are designed by third parties
    - After sale data must be provided to ensure the product is performing to specified standards, if not then it must be withdrawn and re-designed
    - Like many businesses their consumer and business sales are kept separate
    - Banks who offer conventional banking (to businesses and consumers) must have all their product specifications tested

    When everyone buys products from a supermarket or other retailer you have a certain amount of reassurance that the product isn't harmful, and has been tested to an appropriate standard.

    In a supermarket if a product is harmful then it is usually withdrawn immediately and those affected are generally compensated.

    Supermarkets are still very large, they make alot of profit, they employ alot of people and are very competitive and the consumer still seems to get a good deal out it.

    Why can't financial institutions can't work in the same way?

  • Comment number 53.

    36. At 13:25pm on 1st Mar 2011, writingsonthewall wrote:
    This is what happens when everything is valued by it's monetary value. Businesses like capitalists will ignore the long term problems until they can no longer avoid them - at which point they will panic and scream "someone should have done something" and conveniently forget all those years they decided to actively create these problems in order to pander to their own short-term goals.

    I have put this point to you several times and in several different ways and each time you choose not to comment.

    Clearly this is a real problem for you as it undermines your belief that people following their own self interest will contribute to the greater good.

    - The profit motive will mean that we will find solutions to these challenges. Can you never any innovation that has come out of an anarchical/communist/Venus Project (we'll get robots to do everything!) society? Bear in mind that China COPIES capitalist innovation. Not that this is necessarily a bad approach (Coke, Microsoft, McDonalds are all imitators not innovators) but you do need the initial innovator so you can have immitators.

  • Comment number 54.

    "Reforming Finance: are we being radical enough?" What we have done in the way of reform is like a snow flake's preparation to enter Hades.
    1. The new capital ratios imposed on banks, especially on big banks that deal in derivatives/CDS are far too low. Why? Because we can't know without unbundling and examining the derivative content what exactly is within the bundle & its true worth. Therefore the derivative should be examined priore to setting capital risk. It might be AAA, or it might be DDD.
    2. Bankers - bonuses, shares, gifts, delayed golden handshake - I mean these guys can replace "bonus" with any number of things by any number of names; after all, these are the same guys that created derivatives and CDS, and literally, magically created money - TRILLIONS OF DOLLARS - where there was sometimes not one good penny to begin with.
    3. The underlying problem is that banks are excessively profitable - not for the common person - but for the the bonused bunch. "Economic growth is designed to extract "rent" from the rest of us in a way that increases social inequality."
    Conclusions: For the health of the overall economy, this problem of rent extraction needs a good shot of a new tax on financial activities.
    As I type, The EU is writing procedures for a new TAX ON FINANCIAL ACTIVITES. Come the summer, watch who bocks, watch who squirms...these will be your financial very fat worms.
    Turner: "Basel lll is a major step forward, but in an ideal world equity ratios would be set much higher". Yep because of all those, TRILLIONS OF DOLLARS WORTH OF ESSENTIALLY WORTHLESS DERIVATIVES, which so badly need disinfecting.
    Equity rations hw much higher?
    In my opinion equal to the volume of derivatives that a financial institution is holding, unless that bank is willing to strip the bundle, examine and clarify true worth. Otherwise derivative capital should be trerated as dirt.
    Indeed, I would like to see all big banks too big to fail, strip their derivatives in full and establish valid worth. All these systemically Important Financial Institutions (SIFIs) - banks like Barclays, HSBC, RBS, Deutsche Bank, JP Morgan, Citigroup, UBS and so on: strip your derivatives. Show us what you got!
    I believe, like Turner, that these SIFIS need to hold a good deal more equity, because ANYTHING THEY HOLD IN DERIVATIVES IS quite possibly a product of magic - turning paper into real money.
    Show me the money!
    Show me the value!!
    I share Turner's scepticism that forcing banks to hold new-fangled instruments, bonds that convert into equity when capital ratios slip below comfortable levels will be of much use in the long term. Why? Because derivatives were once new-fangled instruments themselves, the CDS was once a new-fangled instrument. New-fangled instruments counts on financial ignorance.
    So, as I have pointed out before, our biggest banks - and their shareholders - probably need to brace themselves in the coming months for new rules that I would like to see as:
    1. strip derivatives and establish true worth (likely AAAA to DDDD). Clean the accounts of bad debts and write-offs.
    2. as derivatives prove worthless, increase the amount of capital relative to the loans and investments
    3. For all SIFIs - an audit of the banks' trading books, and also what has been left all the books, otherwise known as deferred instruments. Not hard to find if you know what you're looking for.
    4. Bonuses paid in deferred mechanisms & therefore subject to adjustment or cancellation when finacial systems blow up.
    I repeat, along with Turner (and former PM Brown who said this long ago): a Tobin tax may be justifiable.
    So when the EU tables its Financial Activities Tax around June, where will Britain stand - against the EU just to be against the EU...or on the side of the EU because the banks need an audit trail and clear transparency, as well as to pay their fair share for what they have done to we - the little poeple.

  • Comment number 55.

    41. At 13:35pm on 1st Mar 2011, Damon in Horsham wrote:
    What a load of nonsense!
    ......The government taking a more active role in banking? Heaven help us. British Leyland, British Rail, British Steel, the NCB (I could go on); the record of the state as provider must be one of the most dismal litanies in our nation's history. Never again, never again!

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

    Your omission of Girobank from the list is odd in this context, and what about NS&I?

  • Comment number 56.

    43. At 13:38pm on 1st Mar 2011, Lindsay_from_Hendon wrote:
    • 33. At 13:11pm on 1st Mar 2011, Reticent_Trader wrote:
    26. At 12:45pm on 1st Mar 2011, John_from_Hendon wrote:
    ================================

    Seconded. And I would further suggest that banks/hedge funds that want to play the casino should have their limited liability revoked and become partnerships.

    - So the banks wouldn't be traded on a stock exchange. Would you allow them to be a LLP?
    ==================================

    Nope. If they want to gamble then they can lose more than their initial stake, like anyone else. And don't forget not all banks are/were listed. The vampire squid gave up it's partnership status only about ten years ago.

  • Comment number 57.

    So nothing has been done to discourage casino banking and nothing has been done to remove the tax funded safety net? Tell us something we don't know.

  • Comment number 58.

    Turner has it absolutely right.

    'Much of their frenetic activity adds little to general economic growth and is designed to extract "rent" or income from the rest of us in a way that increases social inequality'.

    Whether you look at increases in unit trust annual charges, increased bankers bonuses and salaries, increased interest spread on credit card, higher mortgage rates and the inverse reduced interest rates on savings, all these costs become a simple transfer of wealth from savers to the financial industry. Its becoming a self-serving corrupt system, where the more times you re-cycle credit, the more 'rent' you can cream off the top. Instead, the credit should be invested and be generating wealth for the savers rather than wealth for the favoured few in financial services.

    I dont agree that taxes are the way to solve it. Taxing cigarettes does not make smoking right and taxing arms sales does not make sales to dictators right. However, until we solve this problem, the basic unfairness of the system will not allow the UK 'Big Society' to take off.

  • Comment number 59.

    If in nothing else, Gordon Brown was right in recognizing the need for a Tobin Tax. Whether we will ever get one I rather doubt.

  • Comment number 60.

    All these are peripheral matters serving only to detract attention from the root of the main financial problem, excess borrowing by politicians on behalf of their voters who then prefer not to repay their debts when bills become due.

    Yes the banks take money out of the system as ‘rent’, as Turner says, but so what? The large amount of ‘rent’ is due simply to the volume of business that people in the ’real economy’ elect to do with banks. It’s called ‘supply and demand’.

    Arguing that banking ‘rent’ slows growth is also true but it is trivial. One can make exactly the same argument of many sectors in relation to the remainder. Tax takes money out of the system; foreign holidays take money out the local system and of course imports take money out of the system without adding to local growth. The list of growth slowers is legion and will include a Tobin tax one is implemented.

    If people don’t want a financial system making lots of money then they only have to stop using it and it will vanish. If people don’t borrow money then the lending banks would shut tomorrow. If people don’t punt on investments then the investment banks would shut today. Once again, it’s called ‘supply and demand’.

    The current tensions over banks are being driven by politicians trying to supply their voters with the impossible scenario of positive growth but at a zero cost and a zero risk.

    All these are political delaying tactics designed to disguise the underlying failure of the real economy to compete on a global stage with the East. Shooting bankers will not stop the East competing for UK jobs.

  • Comment number 61.

    ------------------------------------------
    41. At 13:35pm on 1st Mar 2011, Damon in Horsham wrote:
    What a load of nonsense!
    1) Increasing the capital adequacy ratios for the banks will mean that the easiest way for the banks to comply is to reduce lending. I thought we wanted them to lend more, especially to small businesses?
    ------------------------------------------

    A lot of the rest of your post I completely agree with, but this point seems to beggar the question - "If the banks are back to record profits they can surely afford instead of profiting to sure up their capital reserves AND lend more.

    How can any bank making reocrd profits say it is unable to spare any more money?

  • Comment number 62.

    "37. At 13:29pm on 1st Mar 2011, stennylfc wrote:
    The banks are being allowed to siphon off the profits of this country and are no different to the Gaddaffi's and Mubarak's of this world.

    In the UK (and US/Europe) we are in exactly the same situation, we just haven't done anything about point 2 yet. We are still allowing the dictatorial banks to push us around but as the leaders of the middle east have found out, you can only push people so far.

    Tick tock tick tock...."

    100% agree - We should take a leaf out of the Egyptians book and put the head of the army in charge until we've put all the corrupt politicans and financiers on trial and bring in some real democracy and justice.

  • Comment number 63.

    i think one of the bank chiefs made the point last year (we dont know which one because of chatham house rules)

    he said that bankers benefited from the fact that they were an authorised oligopoly and therefore could pass any cost increases directly onto the client. this is why there do not appear to be any advantages from the competition that supposedly exists in the banking system

  • Comment number 64.

    Time for a shareholder rebellion I think. Have you seen what the market thinks of HSBC's statement that the share earnings ratio will have to decline to meet the Basel lll requitements? If there is to be more banker pain then it should be more evenly spread. Perhaps pitiful dividends = pitiful bonuses would be the way to go.
    Regards, etc.

  • Comment number 65.

    51. At 13:58pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    It's obvious that we are on the way to revolution as England is just like Libya. Libyans are protesting because they live in a brutal dictatorship and are suffering high food prices (90% of their income) which is the same in England where bread costs £2,000 a loaf.
    =======================================================
    It seems clear that the fabulous educational qualifications you like to boast about don't include anything to do with arithmetic. Or perhaps you think average family income in the UK is well over £2000 per day, to allow the purchase of a daily loaf?

    To be effective, irony has to be clever. I'm afraid your repeated attempts at irony just come across as a bit thick. Sorry.

  • Comment number 66.

    @KMac: Yes, but if you rent your own money then you are a bit silly. If you have excess money and are not silly, you rent that money to the bank. You put it in a high interest rate account or some such product and YOU earn a high rate of interest. They then take your money and lend it some one ELSE who pays excess interest on the debt as a result. This monetary tennant thereby pays the bank and YOU. One function of a bank is exactly to allow people with excess money to rent it to people without enough money. The bank takes a cut (they are not going to do it for free are they?).
    And BTW, interest rates are necessary because spending power (what you can but per £) naturally tends to decrease if you have high employment (because resources are nearly fully used). Therefore the currency must be propped up. Furthermore, if you lend me money so that I can either a) be stupid and go a buy a new TV that I cant afford or b) be sensible and invest on some interesting business idea I have had, you are going to expect me to pay you for the opportunity cost to you of not being able to do a) or b). One of the wider problems is that as a society we have chosen to use loose fiscal policy to do too much of a) and not enough of b).

  • Comment number 67.

    Bank management need to understand far better than they do now that they have 1 responsibility and that is to their shareholders not themselves.

    To serve shareholders the banks need to deliver mortgages that are fixed for the long term, this also benefits the economy. At the sametime Banks must start delivering value to their customers this they fail to do across the piece with expensive credit cars, loans and failing pension and investment products.

    It is the only market where competition fails to reduce prices or drive out incompetence. The reason being that all banks are seen as equally incompetent and uncompetitive so there is no clear option of who to move to.

    The commonality of pricing and incompetence is endemic in the UK spreading across energy, telcos and utilities. When will the regulators or government effectively regulate these incompetent expensive behemoths to deliver shareholder and customer value above personal management agrandisement and greed? My guess never.

  • Comment number 68.

    @BluesBerry: So tell us how you price a derivative? And if all derivatives a 'worthless', then we should scrap all options. So goodbye stop-losses on your pension fund then.

  • Comment number 69.

    #37

    Some very good points.

    The new govt in Eire has indicated its wants to re-negotiate its bail -out package.
    How long before the Greeks decide they want the same?
    If these start to unravel, someone will be taking a haircut and what then, the house of cards, falls

  • Comment number 70.

    #53
    The profit motive will mean that we will find solutions to these challenges.

    So tell me which capitalist was it saved the banking system from total collapse.Oh yes I forgot, there wasn't any profit in all those dodgy deals. It was left to the taxpayer to pick up the bill.

  • Comment number 71.

    "King Abdullah, who is 86, has just returned to Saudi Arabia after medical treatment and announced $37bn (£22bn) in benefits to lower and middle income Saudis. The package includes pay rises, unemployment benefit and affordable housing."

    If this is whats happening in certain parts of the world to stem the tide of protest; one can clearly see the reason for the on going issues with the banks. If they don't take action here could we in the same situation?

  • Comment number 72.

    Lord Turner has nothing to tell bankers, the government or the electorate. He has been in a position for over a decade to make changes and did absolutely nothing. Now he is about to leave he remarkably has found his footing?? This is so vile and disrespectful to the country. Robert, you should not be giving this man space on the BBC which is funded by licence fee payers to air his foul thoughts, and i'm really sad you did.

    To #42 deceangli, so which country deserve to receive "casino banking" from UK banks? Maybe Iraq, or Afghanistan which we have crumpled to pieces, and if so what justice do we get? The world has moved on from colonial times where we maltreated other nations and got away with it. It was wrong then, its wrong now, and will always be wrong.

    we need the banks to function like any other good business which provide products that are tangible to the consumer, this should be the priority

  • Comment number 73.

    • 42. At 13:36pm on 1st Mar 2011, deceangli wrote:
    Here's a recipe for fixing British banking.

    Allow any UK-based institution to do as much casino banking as it wishes, but make it a criminal offence to sell such products to UK citizens

    - Fixed rate mortgages to be made illegal!

  • Comment number 74.

    • 48. At 13:53pm on 1st Mar 2011, KMac wrote:
    So in fact the banks are sub-letting our own money back to us at an increased rental.

    - So you have £10k in the bank and then you borrow £10k from them. Fascinating. Oh wait, you mean you borrow £10k of someone else's money so the banks provide the social function of matching borrowers to lenders and operating all the admin behind that. And they keep it secure from thieves? Wow, they sound essential.

  • Comment number 75.

    Banks grew by taking advantage of the UK's notoriously light, "principle-based" regulations. Maybe we should look to India which has a financial policy mostly protected by strong government regulation.

  • Comment number 76.

    How come banks make so much profit and how do I get to be part of it?

    Oh, and can "we" have our money back please now that "you" don't appear to need it, as we'd like some more schools, colleges, trains and hospitals (don't even start on aircraft carriers, benefits and foreign aid!).

  • Comment number 77.

    I am an economic simpleton;don't understand anything about the subject.What I do know is,people that take the biggest slices of the cake with cunning deception are generally thought of as greedy and selfish.It seems these are acceptable features of the bankers persona,since their indescribable wealth apparently causes them no sleepless nights;it is their victims lot to suffer the insomnia of the hard done by.

  • Comment number 78.

    41. At 13:35pm on 1st Mar 2011, Damon in Horsham wrote:

    6) The government taking a more active role in banking? Heaven help us. British Leyland, British Rail, British Steel, the NCB (I could go on); the record of the state as provider must be one of the most dismal litanies in our nation's history. Never again, never again!

    Would a state bank be any worse than the private banks, who have inflated house prices to fantastic levels with their excessive lending, caused massive debt, boom then bust, and hold the rest of the economy, and society to ransom ? Banks are mainly parasites, and the loss of their activities from the City would in the end be very good for the UK as we would have to do something productive and useful, although it would be very painful in the short term as we are so dependent on 'financial services'. As Turner says, the banks make huge profits at the expense of the rest of the economy. They are similar to some commercial landlords who sit back and do no work, but profit from the hard labour of others.

  • Comment number 79.

    • 65. At 14:38pm on 1st Mar 2011, haufdeed wrote:
    51. At 13:58pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    It's obvious that we are on the way to revolution as England is just like Libya. Libyans are protesting because they live in a brutal dictatorship and are suffering high food prices (90% of their income) which is the same in England where bread costs £2,000 a loaf.
    =======================================================
    It seems clear that the fabulous educational qualifications you like to boast about don't include anything to do with arithmetic. Or perhaps you think average family income in the UK is well over £2000 per day, to allow the purchase of a daily loaf?

    To be effective, irony has to be clever. I'm afraid your repeated attempts at irony just come across as a bit thick. Sorry.

    - You buy a loaf of bread a day? Don't apologise for your gluttony, rather turn over a new leaf and start exercising.

    All I did was mutliply the rough price for a loaf (£2) by a thousand. I disagree that commedy has to correctly apportion Libyian average incomes and bread cost (allowing for the weight of bread) to average English incomes and bread cost.

    You don't have to be super maths brained to be a good ACA, it's more to do with understanding double entry. We only have to be able to do the normal functions (addition, subtraction, multiplication, division).

  • Comment number 80.

    • 52. At 14:03pm on 1st Mar 2011, Me From Scotland wrote:
    Why can't the banks be regulated in a very similar manner to every other seller of a consumer product:
    Xxxxx

    There is! (well in the main), One of the problems as been political will, the FSA as always had teeth but it as never been given the political will to use these teeth, the other is common law! Many judges will bypass newer or current legislation and use common law in favour of the banks (same bridge club, chambers etc) and therefore appeal after appeal until they find a common law judge (they don’t have to look too far!).


    Blueberry I thought you had refrained from discussing derivatives? Not as I am complaining because I am with you.

    And what the %^$% is rent and compensation? Lets get back to interest and pay – changing the words is an attempt to devalue the meaning!!!

  • Comment number 81.

    69. At 14:48pm on 1st Mar 2011, creditunionhero wrote:
    #37

    Some very good points.

    The new govt in Eire has indicated its wants to re-negotiate its bail -out package.
    How long before the Greeks decide they want the same?
    If these start to unravel, someone will be taking a haircut and what then, the house of cards, falls
    ==================================

    Believe me, any renegotiation done by the Irish government will be mere window dressing. They were not elected on a mandate to enforce haircuts or anything else material, unfortunately.

    BTW it is Ireland not Eire.

  • Comment number 82.

    #50. At 13:58pm on 1st Mar 2011, Reticent_Trader wrote:

    It is only when the wealth of the middle class has been reduced to the levels of that of China / Asia will they rise up. And it will come but will take 20 years and some very hard times in the meanwhile.

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

    I fear the British will never rise up, after all we're all good honest devoted mortgage payers. If we stormed the banks and destroyed them who would we pay our mortgages to? Hang on, I think I've sussed something here.............


  • Comment number 83.

    74. At 15:05pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "So you have £10k in the bank and then you borrow £10k from them. Fascinating. Oh wait, you mean you borrow £10k of someone else's money so the banks provide the social function of matching borrowers to lenders and operating all the admin behind that. And they keep it secure from thieves? Wow, they sound essential."

    Social function? - so why do they CHARGE INTEREST!

    Once again, the capitalist is confused about Capitalism, you see the idea is banks don't do things from a social point of view - which is why they should be allowed to fail when they run out of money....alternatively they provide a social function - BUT DON'T CHARGE.

    Clearly this situation is not a good one, the Capitalists now think they are providing social services for profit!

    I love the idea that there is 'admin' - is this you lining up to justify the charge?

    So what do you have to say about this?

    http://uk.zopa.com/ZopaWeb/

    ...and more importantly - why haven't banks done it already? (and you cannot use the words 'collusion' or 'cartel' or 'conspiracy')

    it seems the capitalist lies are unravelling - see how the market fails to force efficiency - instead they retain teh status quo as it's more profitable...

  • Comment number 84.



    Well I’m sure Lord Turner means well.
    But the ONS has now confirmed what many bloggers on this website had already feared.

    All money is created as debt bearing interest, and the amount of money (debt) must forever increase to satisfy the repayment of the debt + interest.

    But there’s a catch, if consumers are unwilling to become increasingly indebted, the amount of new money generation inside the economy will slow and the spending power of the consumer will be eroded by interest payments on existing debt.

    According to Credit Action:
    Total UK personal debt at the end of December 2010 stood at £1,452bn.
    The twelve-month growth rate was unchanged at 0.7%

    The growth in personal debt (money) is therefore substantially less than the average interest rate on that debt. Contraction of consumer spending is therefore inevitable.

    The economy of this country has been controlled, distorted and manipulated by the uncontrolled fractional reserve banking system.

    The end product for many is a decline in living standards, and for some unemployment and destitution.

    Last year Douglas Carswell MP & Steve Baker MP introduced a private members bill on banking reform. Largely unreported in the mainstream media it identifies the primary problems and proposes a solution.

    For anyone out there that doesn’t understand how it the banking system works and the price you have to pay there are some links below:

    Money as Debt
    http://www.bbc5.tv/eyeplayer/video/money-debt
    Promises unleashed
    http://www.bbc5.tv/eyeplayer/video/money-debt-ii
    And ‘The Secret of OZ’
    http://www.bbc5.tv/eyeplayer/video/secret-oz
    And ‘Collapse’
    http://www.bbc5.tv/eyeplayer/video/collapse
    And ‘Quantitative easing explained’
    http://www.bbc5.tv/eyeplayer/video/quantitative-easing-explained
    And explanation of fractional reserve banking
    http://www.bbc5.tv/eyeplayer/video/calling
    One good cut from positivemoney
    http://www.onegoodcut.org/

    The ONS data is unlikely to improve, inflation will continue, jobs will be lost, bankruptcies and destitution rise.

    And all this to protect one industry that rewards itself with very large bonuses. Perhaps the size of the bonus has a correlation with the decimation wreaked on the economy.

  • Comment number 85.

    74. At 15:05pm on 1st Mar 2011, Lindsay_from_Hendon wrote:
    • 48. At 13:53pm on 1st Mar 2011, KMac wrote:
    So in fact the banks are sub-letting our own money back to us at an increased rental.

    - So you have £10k in the bank and then you borrow £10k from them. Fascinating. Oh wait, you mean you borrow £10k of someone else's money so the banks provide the social function of matching borrowers to lenders and operating all the admin behind that. And they keep it secure from thieves? Wow, they sound essential.

    Problem is they did not correctly match borrowers to lenders, especially Northern Rock and Halifax, when they went from being solid Building Societies which performed a valuable task, to 'risky' banks. Peer to peer movement of money between parties could be done electronically these days without having a bank intermediary. The banks still do this utility function because they have evolved from the days when only cash and cheques were used, and they have the privilege of lending out users current accounts.

  • Comment number 86.

    70. At 14:53pm on 1st Mar 2011, creditunionhero wrote:
    #53
    The profit motive will mean that we will find solutions to these challenges.

    So tell me which capitalist was it saved the banking system from total collapse.Oh yes I forgot, there wasn't any profit in all those dodgy deals. It was left to the taxpayer to pick up the bill.

    - The profit motive means the reason why people do things is the attempt to make a profit, it doesn't mean you'll always make a profit! That's where the skill comes in.

    There was lots of profit in those "dodgy deals", you were just on the losing side.

    Now about this free fountain pen, can I deposit one pound and then immediately withdraw it?

  • Comment number 87.

    53. At 14:04pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "The profit motive will mean that we will find solutions to these challenges."

    ....when it's too late - yes, like I said. Tell me which market is forward looking? - They all seem to be looking backwards....or at best reacting to the current situation (I mean the markets didn't crash until after Lehmans / NR went bust and the LIBOR went through the roof)

    "Can you never any innovation that has come out of an anarchical/communist/Venus Project (we'll get robots to do everything!) society?"

    ...breaking down...not making sense anymore Lyndsay..?!?!?

    No you're right, the cosmonaught programme which was driven from central Government was in fact outsourced to "cosmonaight inc." wasn't it?

    Invention doesn't come from profit motive - most inventors die broke - the entrepenuers die rich and without having invented anything (except re-inventing ways of selling - or mis-selling inventions)

    I'm sure when the power runs out you'll sit around in the dark waiting for someone to offer profit before you invent a new light source - I however will be busy inventing it for the NEED that has arisen. I guess that's the difference between people - those who sit around in the dark and those who get off their backsides and innovate.

    "Bear in mind that China COPIES capitalist innovation."

    Innovation? - you're confusing invention and innovation with Capitalist entrepeneurship. Capitalists don't innovate or invent, they merely market other people's ideas. This is why we have 'inventions' which are basically useless or unecessary - but millions are sold every day (like the Snuggie)

    "Not that this is necessarily a bad approach (Coke, Microsoft, McDonalds are all imitators not innovators) but you do need the initial innovator so you can have immitators."

    ...all cases of the original invention being taken up and marketed by an entrepenuer - what a shame the man who invented Dos for Microsoft never received his true value - maybe then he could have taught others how to invent operating systems - rather than dying broke.

    ...still, if anyone had realised that QDOS stands for "Quick and Dirty Operating System" - which is what it was - then maybe we could understand why Windows crashed so often.....

    ...still that's marketing in Capitalism for you - the world was sold a Lemon, but luckily as there isn't much to compare it to then nobody knows any better......except of course Mac users and UNIX users who laughed at the 50 reboots a day a windows machine needed.

    The efficiency of Capitalism - produced the biggest lemon seller in the world and ensured it remained 'in power' thanks to it's grand wealth.

    Hardly free market is it?

  • Comment number 88.

    77. At 15:11pm on 1st Mar 2011, dave wrote:
    I am an economic simpleton;don't understand anything about the subject.

    - Gordon, is that you?

  • Comment number 89.

    51. At 13:58pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "It's obvious that we are on the way to revolution as England is just like Libya. Libyans are protesting because they live in a brutal dictatorship and are suffering high food prices (90% of their income) which is the same in England where bread costs £2,000 a loaf."

    ...oh how the Hendonites underestimate the 'threshold' of the UK people. When the population can no longer buy Ipods and drive their cars to work the riots will begin.

    ...and you're 'bread price' is a nonsense anyway as flour and the other main ingredients of bread are not imported, bread can be made here (unlike Lybia where I think some ingredients are imported) - however the price of fruit and some meats is another matter. I wonder how the hospitals will cope with scurvy!

    "Every member of the Bank of England must also be replaced. And interest rates increased to 1000% to reduce oil prices."

    Raising the rate will have little effect on oil prices - for they are driven by FEAR - the same cold fear which is gripping you...the fear of fear itself.

  • Comment number 90.

    82. At 15:39pm on 1st Mar 2011, NorthSeaHalibut wrote:

    "I fear the British will never rise up, after all we're all good honest devoted mortgage payers."

    a) They're already rising up - I can't keep up with the barricading of local council offices at budget meetings and the blocking of banks on the weekends. Independent and 'leaderless' protests - I call it Anarchy. It's interesting because this has also been the theme in the middle east - you can tell because the media are desperately hunting for a 'spokesman' or a 'leader' to interview - but all they can find is 'people' who share the same ideals! I even hear that Banghazi has set up a commune - like Paris in 1871!

    b) There are a lot less mortgage payers than there used to be...

  • Comment number 91.

    I like being able to buy what I want when I want. But I also like the idea that everyone should be treated equally.

    So which is best; Lindsay_from_Hendon or writingsonthewall? There's only one way to find out..............FIGHT!!!

    I'll get my coat.

  • Comment number 92.

    There is a simple solution to all this. The problem is Fractional Reserve Lending (FRL). Suppose as a thought experiment we do not allow banks to indulge in fractional reserve lending but ONLY allow one institution, the National Bank to do so, we would then see how efficient and effective the financial services firms are!

    The way this would work is that the only institution that could undertake FRL would be the National Bank which would offer loans to other institutions at a given rate. It would also allow other institutions to deposit cash at a rate, say 2% below the lending rate. Only this National bank will be allowed to do FRL. Any profits from the National Bank will go into the Exchequer.

    So any financial company must have its lending covered either by its own cash or deposits with the National Bank. So the ratio is not 7%, 11% but 100%! In this way, we can ensure that financial institutions are adequately provisioned. Financial companies will then have to make profits through operational performance and not through the privilege of FRL. Also, the contribution to the Treasury would significantly impact on tax!

    The only down-side of course is that the Bankers would hate this. Now, this is what I would call a radical change!

  • Comment number 93.

    For all those who are worried about their mortgage should a bank go bust!

    Here is just one dilemma:

    The bank that owns the paper side of your mortgage goes bump, Now; for your mortgage to be sold on all parties that have an interest must be in agreement (i.e. sign). The money side of your mortgage is owned by ‘n’ number of unknown origins and all of these must sign. (it is happening in the US as we speak). Therefore the bank cannot be allowed to go bump because of this? Obviously it would end up in court but I cannot see even a common law judge getting around this one.

    Start taking notice of what BlueBerry is saying because if ever this picks up momentum then when it hits ‘it hits big’

  • Comment number 94.

    85. At 16:06pm on 1st Mar 2011, simondav

    ...and I'd question whether they 'keep it from thieves' - seems to be a bank robbery once a week these days!
    In fact, it's the good old "Publically funded police force" who try to do this job - but with cuts facing us.....who knows who can keep it all safe...

    ...but don't worry - all these good points will be brushed aside with the next piece of 'sarcasm' which escapes from the mind of the desperate capitalist...

    This is becoming too easy - in the early days there was a challenge - 3 years into the crisis and the challenge has all but gone. Look at the arguments being presented - I even had one capitalist this morning basically saying that 'procreation is a choice afforded to the wealthy' - which may be true, but there's no need to suggest this is a good thing!

    The more deluded the capitalist - the more absurd the argument, of course with the 'get out clause' of "I was being sarcastic" lined up in preparation for when the claim is torpedoed.

  • Comment number 95.

    83. At 15:59pm on 1st Mar 2011, writingsonthewall wrote:
    alternatively they provide a social function - BUT DON'T CHARGE.

    - There are lots of public sector activities that charge. I think you can provide a social function and charge. Pubs charge and many bemoan their loss, espeically in the country, when they close.

    I love the idea that there is 'admin' - is this you lining up to justify the charge?

    - You don't think that banks incurr admin costs? How do they pay for the rent, rates, utilities, salaries etc.?

    So what do you have to say about this?

    http://uk.zopa.com/ZopaWeb/

    - I've used them in the past but I prefer ETCs.

    ...and more importantly - why haven't banks done it already? (and you cannot use the words 'collusion' or 'cartel' or 'conspiracy')

    - Done what?

  • Comment number 96.

    88. At 16:13pm on 1st Mar 2011, Lindsay_from_Hendon wrote:
    77. At 15:11pm on 1st Mar 2011, dave wrote:
    I am an economic simpleton;don't understand anything about the subject.

    - Gordon, is that you?
    -----------------------------------------------------------------------------

    Err no, it would be Dave, it's in the title. How many high profile politicians do we know called "Dave"

  • Comment number 97.

    70. At 14:53pm on 1st Mar 2011, creditunionhero wrote:

    "So tell me which capitalist was it saved the banking system from total collapse.Oh yes I forgot, there wasn't any profit in all those dodgy deals. It was left to the taxpayer to pick up the bill."


    The markets were not given a chance to sort themselves out as government stepped in. Otherwise you would have had banks stepping in to pick up the pieces of other banks in the same manner that Barclays picked up bits of Lehman Bros

  • Comment number 98.

    86. At 16:11pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "The profit motive means the reason why people do things is the attempt to make a profit, it doesn't mean you'll always make a profit! That's where the skill comes in."

    Skill? - so when a bank is on the brink of bankruptcy - this is merely a sign of that 'skill'?
    See how the capitalist justifies his earnings without effort by claiming there is a 'skill' involved. EXACTLY like the horse race betting addict who claims his 'system' has been devised and that his winnings are down to skill - until they lose and it's then 'bad luck' - but capitalists don't know about losing do they?

    "There was lots of profit in those "dodgy deals", you were just on the losing side."

    WRONG - the banks were on the losing side, and they were bailed out by the public sector - this is a bad mistake - totally inaccurate and misleading.

    Keep going Lindsay - I can tell you're not busy...

  • Comment number 99.

    88. At 16:13pm on 1st Mar 2011, Lindsay_from_Hendon wrote:

    "77. At 15:11pm on 1st Mar 2011, dave wrote:
    I am an economic simpleton;don't understand anything about the subject.

    - Gordon, is that you?"

    Dave may call himself an economic simpleton - but he's already worked out more about economics than you ever will!

    That's the difference between learning for yourself and simply regurgitating what others have written...

    Exams = memory test. Good memory does not a good thinker make...

  • Comment number 100.

    #91. At 16:31pm on 1st Mar 2011, lookingforit35 wrote:

    Brilliant, made me laugh anyway.

 

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