Time to hug a banker?
Are we in danger of cutting off our noses (in an economic sense) to spite our ugly mugs?
Or, to be more explicit, is there a risk that we could do irrevocable harm to one of the few industries - financial services, the City of London - which has a significant competitive and comparative advantage?
This matters.
Because if we are entering a sustained period of low global growth - if there was a bubble element to the prosperity of the past few years that won't return - then we're going to need the odd world-class industry more than ever, to generate overseas earnings, to pay our way in the world.
For the past couple of hundred years or so, we could point to our banks, insurers, lawyers, accountants and related business as among the best in the world.
And even where the firms based in London weren't British in a strict legal sense, they provided employment and tax revenues to the benefit of the UK.
However right now, it's fashionable - and many would say reasonable - to loathe banks and bankers.
The wholly plausible argument is that top bankers' greed and inability to control the risks they were running has brought the economy to its knees and is causing misery to millions.
The pricking of a credit bubble - which they pumped up - is now devastating manufacturing industry from South China, to Japan, Germany and the British East Midlands.
In fact, there's evidence that the financial services industry, whose excesses have caused (to a large extent) the first global recession for more than 60 years, will suffer less than businesses which make solid, real stuff for export.
It's an argument for another time whether most opproprium should fall on lenders who provided dangerously cheap credit or borrowers who used that credit to construct surplus manufacturing capacity - which is now being painfully written off.
But it does add insult to our injury that some of those bankers responsible for our woes are still receiving hefty bonuses (even if payment at Royal Bank of Scotland, for example, is being deferred) and others have retired with lavish nest eggs or on fat pensions.
It just doesn't seem fair, does it?
Can you blame President Obama for lashing out at AIG - which wouldn't be alive today without almost $200bn of support from American taxpayers - for paying bonuses to bankers whose crazy deals almost killed the giant insurer?
Isn't it understandable that in Britain Sir Fred Goodwin's pension pot of more than £16m turned him into a lightning rod for public ire about the boom-to-bust journey of the banks?
But here's the terrible truth: we need banks and bankers, to secure our own future prosperity.
And though we might want to shame all decent people into choosing any career but one in the City, that would not be very smart.
We can perhaps all agree that the UK became too dependent on growth generated from the City.
During the past few years, when 10% of economic output, a third of growth and many tens of billions in tax revenues were generated by financial services, we did have far too many of our eggs in one basket.
Many would say our dependence on the City was the culmination of decades of failure to broaden the base of our economy: an indictment of the industrial policies of successive governments.
But to say that the City became relatively too big and important does not mean we should shrink it to nothing.
That would be a fast route, almost certainly, to penury.
The City, obviously, has to change.
Banks have to get better at measuring and containing financial risk.
They have to help us, in general, to borrow less and save more.
They have to vastly improve the services and products they provide to households and businesses for the generation of sustainable wealth.
Also - and importantly - they will probably have to do all this for less remuneration and rewards that are more closely aligned to the interests of their customers and owners.
But if the City can change its spots, then the onus would probably be on us to forge a new entente, a new compact, with banks and bankers - for their good and ours.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~05~RS~)
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Britain had a trade surplus in banking and insurance - our exports of invisible services were greater than our imports.
"The UK traditionally counterbalances its shortfall in trade in goods with a surplus in the supply of services, such as transport, banking, and insurance, to the rest of the world." source - BBC
With our financial industry on the back foot, sterling has fallen against all world currencies.
What else can we export?
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Hug a banker!
Myners offers a grudging respect to Sir Fred for his "dexterity" in forgoing his salary....of 1.5m whilst securing his pension pot of 16m!
It is this "honour among thieves" that sickens me.
What a cunning fox.
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Robert,
Why today post a banal blog entry on the general macro-economic benefit of banking in society ?
There are so many shenanigans going on out there right now, with bigger than huge sums of money being splashed around by Government, and with various entities creaming off 0.25% of it here and 1% here, that our economy and wealth distribution is changing irreversibly. This follows the slightly smaller scale but longer-term shenanigans of previous years.
And then there's the rapid devaluation and future taxation-at-slavery-levels of Mr UK Average.
As a journalist, you have the chance to point out and highlight a small part of these ongoing shenanigans !!
And yet you keep silent, instead posting bland comment !!!
Ouch !!
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Robert,
Your suggestions are predicated on the assumption that banking generates wealth. I get a sense that the last 20 or 30 years of "prosperity" created by the financial sector was a mirage. High Finance (especially derivatives) merely transfer wealth, not create it.
We were not more productive as a nation, or even through globalisation. Getting low cost labour to make things for us is not "innovative". We need a profound champion of sound economic principles, not the obfuscation of finance.
To paraphrase Von Mises: A man should not delude himself that he has found an innovative way to heat his house, by burning all his furniture.
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Well this government virtually said only the financial sector mattered, and the rest could could be glorified tourism not too long back.
We're now reaping the consequences of having some sectors grossly outsize others, rather than having a balanced economic base from which to rest the economy of.
The UK has been like an unbalanced see-saw, the massive the public sector liabilities on one side, everything other than the financial sector on the other, with the financial sector being the moving fulcrum to try and balance it all out.
As for bubbles, we're seeing the wisdom now of managing boom and bust in the Thatcherite way, rather than maintaining the boom through debt like the Brownite way.
All systems fail at some point, but Browns has been catastrophic, and the snivelling and spinning liar still tries to wriggle out of all responsibility.
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Because I want my money back from the greedy, sociopath Knights it doesn't mean I want an end to banking until the end of time.
Why link these two things in the same blog? Weird.
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The onus is not on us at all Robert, it is up to these people proving to us that they can be what they should be.
lets think about this one,
has any other industry plunged us into this much debt before ? no
has any other industry made the money for its employees like this one before ? no
have the public lost more out of this industry than any other before ? yes
the profits generated by the city over the last ten years has been wiped out, the rich poor gap is growing, how in Gods name do we have to be in any way forgiving for this ??
What about concentrating on the positives, the institutions who have acted and operated like proper banks and building societies ??
Yes we need a banking service, but we dont need the millstone that we have now.
Lets face it what do our financial experts have left to peddle, there is no money out there and many of the businesses are pot less anyway, having gone from progit centres to borrowing to feed the monster that is shareholders and directors bonuses
It wasnt the UK who became dependant on the City's rate of growth it was the government past and present, rather than having a balanced outlook they saw the city as the place to be.
So you can keep banging on about how its the publics fault, and everyone borrowed too much and how the city whizzkids are gods etc etc etc.
People do not want the boom bust cycle of the past 100 years, and it is now when it cant get much worse that the system is changed,
otherwise in a few years time, we will have another boom for a minority of the population, whilst the rest suffer, and then we will get to pick up the pieces of the next boom
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Better layout Bob!
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So all the money pumped in to the banks will be paid back by the banks so that our children and grandchildren will not be lumbered. I think not.
Had we have let the banks go it is Johnny foreigner who would have picked up the tab, not my children and grandchildren.
We are one the last legs of a failed system the quicker everyone realises the better.
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PIRACY HAS A PROUD TRADITION IN ENGLAND but you go too far this time!
for the next few years the British govt (whether Lab or Tory) would be wise to tone it all down and at least pretend to properly regulate the City; otherwise the UK will be risking severe sanction from both the US and EU
and let's not forget that the meltdown began at 1 Curzon Street, Mayfair, where AIG ran their big CDS operation; the SKULL AND CROSS-BONES STILL FLIES THERE
and that RBS execs may be sued in the US
and that London is a major hub of the tax avoidance and off-shore tax haven industry in the Caymans, Channel Islands etc etc
for the next few years it would be best to just separate investment banking from the High St banks
the City will become a dull place, much as it was up until 1986; just regular banking
as for the general wealth and well-being of the UK people like Robert should read The Spirit Level, the new book about the harm that inequality is doing to EVERYBODY in the UK and US; rein back on the City bonus culture and we will have gone a long way to create a better country
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This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
I don't loathe bankers, they're just doing their jobs. It's the foolish politicians I despise, who were (and probably still are) obsessed with the glamour and glitz of the city and fooled the bulk of us into thinking that, through low interest rates and light-touch regulation, we were somehow all 'rich' because of house price inflation. Until there's some sanity in the housing market, decent security for tenants (and proper safeguards for landlords), and a recognition that if your house goes 'up' in value by a few quid it doesn't mean you can spend the difference!
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'there's evidence that the financial services industry, whose excesses have caused (to a large extent) the first global recession for more than 60 years, will suffer less than businesses which make solid, real stuff for export.'
Only because the Government has determined as much - many banks would be and should be bankrupt without such taxpayer generosity.
The tone of your article once again suggests that the UK is 'good' at banking - that we have a large number of highly skilled operators. CLEARLY WE DON'T and the rest of us will be paying dearly for that misconception for some years to come.
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Robert,
You quite rightly state that there was a bubble element to growth over the last few years.
You also state that financial services had too much of UK economic output.
So how much of the UK's growth has been purely illusory?
Rebalancing the economy will not just mean hugging a banker and hoping they've learnt some lessons, it will also have grave consequences for public spending. So maybe we're going to have to like each other a lot more and be prepared to provide the support to those less fortunate.
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Robert. You know perfectly well that a Leopard never changes its spots.
It also has teeth and claws for as long as it lives.
It has a huge appetite and needs to often kill and devour its prey in order to maintain itself. Rarely
does any prey escape this awesome predator but
if it does, that prey is maimed for life.
The only harmless Leopard is a dead Leopard.
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Too big to loath?
I don't think so.
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Can I just say that I really DETEST these super-wide columns !!!
This is not a book, it is a blog, and one should be able to read each line with a sweep of the eye - reading it like a news paper column - we are reading this on laptops and wide screen, not those flippin' kindle things.
Please, change it back, because this format stinks very much indeed.
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Bob,
I don't think you`ll find many bleeding hearts around when it comes to the banks and financial services. This industry has gotten away with the biggest fraud in history over the past decade and many men and women have become richer than beyond their wildest dreams. And for all of that what do we as a society have to show for it??? Sure they have created great wealth on paper amongst things that don't really exist.
It sounds like you are asking us to put our faith in this lot again. Enough is enough Bob!
http://creditcrunchedoutinuk.blogspot.com/
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The banks that cannot fail" should be split up into smaller units which CAN be allowed to fail. Investment and retail banking should also be separated so that retail is virtually risk-free and investment banking is riskier, but offers much greater rewards or losses. Retail banking should not involve ANY bonuses at all. ALL banking products should all have to pass a stiff regulatory test BEFORE they can be introduced. ALL banking risk models should be published openly.
ALL company directors should be obliged to put their assets (principally homes) at risk if they fail to act honestly, honourably and in the interests of shareholders. Yes, directors may choose to go abroad - (oh yes, they will all go (NOT)) but there are plenty of candidates who could replace them and perhaps the old boys club would then be broken for good. I have no problem with directors earning big rewards for good performance, but too often there are great rewards for failure or at best modest performance which any passing mug (with half a brain) in the street could have achieved. Small company directors wanting a loan are currently being asked to put their houses on the line by banks - this ensures that the reason for the loan MUST be convincing at least to that director. PLC directors take no such risk currently and yet reap vast rewards for success AND FAILURE - this is totally wrong and MUST be stopped.
Performance MUST be measured and be rigourously checked before any bonus is paid and it must be over at least a 5 year period (even after they have left the company). This would stop the bright spark who works for 2-3 years as a director, causes mayhem, gets bonuses, then jumps ship before the proverbial hits the fan! Directors also should be forced to undertake recognised and meaningful qualifications in their field. There are far too many duffers out there in bsiness AND POLITICS and its about time they were stopped in their tracks.
So, how wouldl the above affect entrepreneurs? well it wouldn't, these proposed measures would only come into force when a company had reached a certain size at which point it would be reasonable to enforce the new rules.
The ability of large companies to simply swallow up other companies by taking on vast amounts of debt should be regulated.
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It's a shame we could not comment on Robert (son of Lord) Peston's comments on Jon Stewart's slaying of Jim Cramer on the Daily Show; "BBC business editor Robert Peston said that he did not feel UK financial journalists could be accused of being too easy on financial institutions." He would say that, wouldn't he? Being a "UK financial journalist" and all.
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It is true that with most of the world's financial services institutions on their knees, there is a great opportunity for those which are able to recover quickly and start working effectively.
But the lessons of history must be learned, if UK institutions are to lead the field. One of the most striking is that none of the top executives in RBS and HBOS had any formal qualification in banking. It has become clear that they also had little understanding of the calculation of risk or of what was liable to happen when the asset bubbles started to burst.
The promotion and recruitment processes of these and other large companies must be reformed to ensure that only those who have a really thorough understanding of the business they are to run, get to the top. The promotion of favourites and skilled greasy pole climbers should be stopped.
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Hmmmm. So you would like us to forgive and forget?
These 'sharks' also want forgiveness - does this ring a bell?
They are after all only 'money changers' they want to blame us for taking on too much credit, we didn't regulate them enough, their shareholders have and are losing money, they want us to bail them out and then so like a doting parent - it's ok all is forgiven - on yer bike!
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We should blame it all on Wall Street - they invented all those glittering derivatives that the City bought. In the old days, when the City was populated by chaps, there was a chance that the phrase 'Timeo Wall Street et dona ferentes' would have sprung to mind. Not with the new breed of investment banker. They were dazzled by the sleight of hand of Wall Street's most accomplished card players. And the promise of out-bonusing their mates, and acquiring Lambos and yachts and gallons of Krug. We need them, perhaps, but - like my dog - they need to be on a strong leash.
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It would be stupid to throw the baby out with the bath water but anyone who has dealt with banks, in better times, as I have when running a small business, will not forget their smug arrogance. Yes the banks do need to be better controlled and remuneration packages must be brought in line with the real world, but how do they change their culture? Maybe by weeding out the fat cats and introducing professionals who really understand their business, would be a good start. If that was followed by treating small businesses as customers and not second-rate servants, then that would be a transformation in the banking sector that would be welcome. However, I am not sure how you achieve such a fundamental change in culture in organisations that know from experience that if they fail, the government will bail them out!
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"10% of economic output, a third of growth and many tens of billions in tax revenues were generated by financial services"
But all these figures need to be re-assessed because they were not correct they were flawed it was figures on a piece of paper not real money...
The manufacturing industry, thats the one we have sold off to slave labour in the east is whats required,or a world war..and with russia and china both posturing i hope we can get some of our manufacturing industry back.
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Robert, this is a flawed argument. You are effectively peddling the now discredited 'Porter thesis' on competitive advantage. It's not about kicking the banks. It's about making sure that our economy is not damaged by them. We had a large financial sector because we were dealing in dodgy securities. Furthermore, given the current state of the stock market and other asset values out there any gains from the so called competitive advantage of our financial system have been lost. That competitive edge has shown itself to be an illusion, a fiction, nothing more. Like it or not we simply cannot afford not to bash the banks. Otherwise we will miss the opportunity to restructure UK plc. We simply cannot afford to be overly reliant on the chancers in the city ever again.
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You state that there is a "terrible truth" that we NEED banks and bankers. Why? The people running these banks, such as Fred Goodwin are hapless fools. Any randomly selected hapless fool could have made equally awful decisions which led to economic meltdown. We do not need THESE bankers. Get rid of the failures that are still in place. Fine the failures who have been kicked out due to the mess they have caused.
The banks themselves are hopelessly lost in their own smoke and mirrors game and have institutionalised the very problems against which we now rail. We do not need THESE banks!
We need new ideas, not continuing reliance on the same old ideas that got us in this mess in the first place.
Innovate!
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Robert,
Let me comment on your first 'low hanging fruit':
'comparative and competitive advantage'
Surely you are saying London's Financial entities ability to lose vast sums of money whilst filling their own boots with the aid of cheap/underpriced and mainly foreign loans?
Finally one question that has been nagging me is this:
How much tax was paid by fred goodwin/RBS when his pension pot was increased by £8 million or more?
Surely a significant tax liability was immediately raised?
The tax books I have breezed through do not give an answer, could a blogger please help and let us all see if in fact the £8 million was in fact a nearer £13 million uplift (based on 40% tax).
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"But if the City can change its spots ........"
This is the crucial one Robert. Not without much public humiliation and a truth and reconciliation commission I think. For a century at least, the city has existed to cream off wealth created by others, not to create that wealth. Look at the wild daily fluctuations in share prices. The Economy's real prospects do not fluctuate daily like this. Some institutions are clearly still gambling with other peoples money, creating commissions, fees etc. These people do not create wealth - they are parasites and should be regulated/taxed to reduce their numbers and make sure that, as far as possible, "investment" is for long term creation of real wealth, not a euphemism for betting other people's money and newly created debt on the market casinos.
The culture of adulation of city institutions needs to stop. Is it, as the news media would suggest, always a good thing when share prices go up? Looking at history, clearly not. Too many politicians and journalists are still communicant members of the church of Mammon!
An interesting article is this:
http://us.ft.com/ftgateway/superpage.ft?news_id=fto101020081710215595
- an article by Lord Myners last October, full of adulation for Goldman Sachs. He does mention their past spectacular failures, but as if they don't matter. In fact, the collateral damage at the time was huge. These people are human and if anything more fallible and with less conscience than the rest of us.
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This is a good article, but it doesn't really go into the underlying issue. Too many people make a fetish out of manufacturing - as if the only valuable things in life are physical possessions. Not so!
We get more value, throughout our day-to-day lives, from human interaction, knowledge, and other services than from the physical objects around us. What's more, the whole point of the modern economy is that managing the marketing, financing and delivery of products and services is a critical part of making sure they happen effectively. Expertise in doing this is just as valuable - or more so - than being the people whose hands weld the objects together and put them in boxes.
I keep seeing this myth coming up, and Robert has made a good start at dispelling it. More is needed please! For example to argue against the guy discussed in the following article:
http://www.knowingandmaking.com/2008/12/economic-misconceptions.html
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Ah well. Here we go. Robert Peston is now leading the vanguard to rehabilitate the City and restore bankers and others to what they believe is their rightful place in society which is essentially at the top of the British establishment.
We would be foolish in the extreme if we let this happen.
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Time to hug a banker? No, not quite yet, Mr Preston.
Others also make vital contributions to the economy. And charge far less.
These same "others" receive precious little in the way of help or understanding from bankers themselves.
Well, now the shoe is on the other foot.
Now banks can see how all the effort they failed to put into building excellent relationships with average clients (As used to be the norm) translates into considerable ill-will -- deserved, indeed earned, by many bankers.
Ultimately, banks are buildings & institutions; bankers are people. We need the institutions and perhaps some of the buildings. But people who failed to grasp the very basics of "customer support" deserve to lose their jobs, their careers, and their reputations/
Let them do what some others have had to resort to do, to survive. Today the BBC Front Page even seems to be advocating "prostitution to make ends meet," based on New Zealand's social experiment. As a woman and a mother of a lovely young girl who will struggle to find honest work thanks to these bankers (as I have), I am APPALLED. It has com to this: to urging women to debase themselves gratifying perfect strangers to make ends meet: and yet you ask em to "hug a banker."
Well, what has the banker done for me, lately? Charged usurious penalties and fees, engaged in outright lies and even thrift of money from my account (Wells Fargo, and they admitted it, and kept the money), repossessed my only vehicle 8 years ago (on a 45-day late payment, even after I brought it current with all kinds of extra fees on top of that; and we have all five been walking ever since), and denied me even the measliest credit to sustain my business.
I shall keep you posted if the situation changes. (On the other hand, I will gladly hug you, Wise One, any day.)
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No, not yet.
The government should rush through NEW LEGISLATION, where, if a company is saved from certain bankruptcy by HMG, all contracts with all staff can be re-negociated (salary, bonuses and pensions).
The Americans should do the same.
These incompetent "executives" are laughing at us and making fools of the government.
It's not rocket science.
HMG needs to ACT, not waffle.
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AIG is being excoriarted for paying bonuses with taxpayer money; Robert, any chance you will ask the recipient banks whether they will do likewise?
If they had any sense at all, THEY would pay for the AIG bonuses, a slight offset to the PR mess they rightly fnd themselves in.
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The fact that banking services became the corner-stone of British survival should make people look to an alternative, rather than build it up only to see it fall again.
Service industries in general and especially banking services are shaky, as there will always be someone somewhere in the world willing to do it for less. It's not like it requires any specialist knowledge or skill, just a stable political situation.
It's far better to be dealing with the inelastic demands like agriculture, construction etc.
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This comment was removed because the moderators found it broke the House Rules.
A vast majority of bankers doesn't need to be hugged, they need to be strictly controlled and taxed like any other profession, maybe even more so because of the huge sums involved. Fast and easy money corrupts, any time.
Please read more at:
http://globalinsights.wordpress.com/
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I imagine it's not easy moderating these blogs but I have to say, someone has to beef-up the moderation process. There's hardly any chance of commenting on other blog entries etc. at the moment. Is anyone listening?
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The FSA is going to cap mortgages to 3 times a person`s salary. No more 100% mortgages on offer from your banker friends Robert.
"FSA To Cap Mortgages to Three Times Salaries"
http://creditcrunchedoutinuk.blogspot.com/
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There are many important industries in this country, not just financials.
But it's funny how the financial industry is the only one that pays itself in lottery jackpots.
That's because it's the only one that has access to everyone elses' money.
This has to stop, regardless of how important the industry is.
There is undeniable public anger.
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we certainly need bankers - of course - but what exactly should they be permitted to do, given how vital it is that they stay afloat and healthy ?
Most pertinently, should retail banks be allowed to pursue investment bank strategies ? This seems to lie at the core of the banking story of the hour, namely Barclays travails. Their keenness to continue operating BarCap in the manner of the last few years is seemingly forcing them into all manner of contortions.
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[Unsuitable/Broken URL removed by Moderator][Unsuitable/Broken URL removed by Moderator]In the last few days we have heard rhetoric about putting ethics back into economics, the need to help the global poor and the need for a fundamental reform of the international regulatory system. Thoughts become actions. And we need a quantum change in economic thinking. With the G20 approaching it is time for unified action. A more positive and resilient economic mindset is required. [Unsuitable/Broken URL removed by Moderator]
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The bonus solution should be quite easy to solve - Pay none of them - globally.
In the current situation, it’s an extremely feeble argument..."We must maintain a high level of bonus to retain the best people".
Cobblers!
All of the worlds financial districts are in pretty much the same position, so if half a dozen Governments lay down the law and no bonus is paid in, say, London, New York, Paris, Frankfurt and Tokyo, where would the "Rats leaving a sinking ship" hot shot bankers turn up? Delhi? Sydney? Moscow?
I don’t think so. Because if they left the golden zones now, there might not be such an easy route back in the future when other NEW bums are on THEIR old seats.
Tell them all "NO". Call the big global bluff.
Most thinking people are abhorred by the scale of these payouts, so few within and none without the industry would dare complain. Two of the biggest players/victims/felons - the UK and US - could have led the way by agreeing not to pay. Simply dismiss any legal argument and if they want to fight for the money - let them. The public would surely be solidly behind any and all Governments taking this course of action to save PUBLIC money.
In general, I believe we have been FAR FAR FAR to easy on the people - and companies - responsible. A number of CEO's/COO's and Chair people should currently be serving 6-12 months and about half a dozen banks shouldn't actually exist right now.
No deterrent has been demonstrated to future individuals. In fact, were doing the opposite by allowing reward for incompetence and folly.
Sadly, this WILL happen again.
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I don't mind they are rich if they pay tax honestly, otherwise I don't see any difference between them and the new age travellers.
And why Fred is still 'Sir' if he treats Britain like this? I thought 'Sir' is for honest characters that contribute to the country, not opposite in every possible way.
I am very surprise that we rely on financial services that much and not on R & D to push our economy.
To me, one of the biggest mistakes this country has made is not to push renewable technology early enough and let other european countries to grab the market. I firmly believe Britain easily has the skill, brain and the talents and this country is well suited for high skill manufacturing. We can't keep worry about those little factories in the villages and keep counting down how many have close down.
We need to push the big picture ahead to create more jobs than worrying to lose them.
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Robert, you can't honestly mean it?
hug a banker?
With the outrage, emotional sentiment and anger in this country, mainly amongst the unemployed who have now been told they will be long term unemployed because bankers had their fingers in the tills, they should be grateful they still have jobs and haven't been lynched.
And we should all be grateful we don't have suicide bombers here.
That could end up bein a very nasty hug!
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"A golden oppertunity"
As far as the public is concerned, the banks are the second most powerful institution in the land. The first is the law, which has the power to lock you away. The banks have the power of bankruptcy or repossesion.
The banks can bankrupt, or reposses, just then when things are going wrong. Thats the cause of animosity, but when things go wrong; job loss etc, there is no one else to turn to, and the banks rightly say we must cover our exposure.
There is within the system of banking no fall back position for the borrower!
Transparency and trust: The banks are certainly not transparent; the credit rating of an individual has become in the computer age an art form. For example a late payment on a credit card has a negative effect on a persons credit rating- is that fair? What else plays a role, how are we to find out what effects our credit ratings? Are we supposed to become model citizens?
The banks are not perfect:How often at the end of a banking day is there too much or to little cash in the branch office, because a bank teller has miscounted?
Can I trust my bank? I think a lot of people don't trust their banks- maybe on a day to day basis yes.
Can I trust my bank with matters which go on in the city of London. After your report from yesterday about Credit Default Swaps- a form of betting? And the reluctance of AIG to name and shame, trust and tranparency does not exist at the top levels.
Golden oppertunity: Trust must be regained, and a lender of last resort would be useful for individuals and businesses facing unexpected financial problems.
If the bank lends me an umbrella when the sun is shining, it cannot be allowed to take it back when it rains, or atleast there must be a way of finding another umbrella when it does rain: Boom or bust!
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Oh by the way Robert, any thoughts on Darling's caving-in to the banking lobby on on banking regulation? His 'lets do more voluntary stuff' attitude? The rot is setting in. This government is just doing what it does best, promising lots and delivering little. We need laws not voluntary codes of conduct.
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Yes, we do need bankers and, although they are a convenient scape goat at the moment, some deservedly so, we should also remember that no one forced us to borrow to excess and that non of us were decrying large gains in our "investments" and house prices were we? The blame for this unholy mess lies with ALL of us, not just politicians and bankers. We should all have the courage to admit our part in it all and stop looking for someone else to blame, or to demand a meaningless apology from.It would be a lot better if we concentrated on getting out of the mess and leave the inquest till later.
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As someone who has spent his career in banks (now at a hedge fund), I think a reduced reliance on The City in this country will ultimately be a postive thing for society. Although the vast majority of people who work in these places had nothing to do with the excess leverage they built up (despite constant media nonsense tarring them all with the same brush), the fact remains that earnings in many of these roles are excessive a) relative to the value they add and b) relative to other careers. Most people in the The City can't seem to grasp that a trader can only make $100m a year for his bank if he is given a lot of capital. How much would that same trader earn if he worked for himself at home? Answer - not very much. The bulk of the rewards should have gone to the providers of that capital - i.e. the shareholders. Instead, boards plundered these businesses on behalf of employees. A hedge fund typically charges a 20% performance fee. Investment Banks charge their shareholders 50%! (typical compensation ratio).
Secondly, most of the returns made are a function of market conditions, not skill. There has never been an attempt to place hurdle rates on performance in these banks.
Finally, I am glad earnings will be lower in The City. A lot of my friends did other careers - Military, Doctors, Lawyers, Media, etc. Twenty years ago these would have been good enough to send their kids to private school (a basic benchmark for upper-middle class aspirations). Today, unless you work in The City, you have no chance. What a dull society it will be if finance is the only career you can do to get the moeny to do right for your kids.
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Maybe I am losing critical faculties in my old age, Robert, but I find it hard not to agree with every word you have written. I am a net saver and rely on income from my savings to supplement my pension. The savings income has been destroyed. Bank bashing is not going to restore it. Getting the banks run sensibly will and we will need good people - not testosterone poisoned salesmen to run them
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Financial Services has a list of 'scams', from Front End Loading of Pensions, through Misselling based on the 'Commission Principal' to what is in effect Insider Dealing in the City where the Pensions funds lend shares for short selling and allow Bankers to pocket mouth watering sums, and all their power comes from the plebs pension money. As for Government, that too is corrupt, the sleaze in parliament aside, Myners , the man who paid the Piper on our behalf didn't even have a tune to call, and then claims he couldn't have called it even if he did. Bankers, the City and Politicians all need to be sorted out, the sad thing is that the Lib-Lab-Cons are, to all intents and purposes, the same party, so a vote for any of them is a vote for the status quo. Where is Guy Fawkes when you need him?
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The peculiar harrassed expression on the faces of the MPs questioning Lord Myners worry me.
The idea is afoot that we cannot legally reclaim the benefits these bankers have accrued.Harriet Harman only made matters worse by wading in threatening legal redress without checking her facts.
Here is something that can be done today;
Set up a new tax band of 90 % for all PENSION income over 100K per annum.
That would leave Fred with 120,000 per annum ( slightly less than a prime ministers wage). It would give back the taxpayer 580 k per annum.
Cancel all FURB's pension arrangements. These unapproved schemes are just a scam to redirect profits over and above legal pension plans.
Obviously tax planners will look for another loophole to exploit but in the meantime we will sleep peacefully knowing that Fred and co are not able to escape the tax.
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Bankers are a sideline, it's the lack of effective regulation that allowed incompetent greedy people at the top of the banking muck heap to get away with their swag.
My finger of loathing is not pointing at my excellent demoralized female banker who truly deserves a hug,
or even the sacrificial public scapegoat Fred Goodwin, but instead poked directly at the people in charge of our financial system for 11 years up to and during the point of meltdown... crash Gordon and co.
Loveeeee this new blog, clean and simple.
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Robert,
Let us not forget that UK banks (other than RBS THAT HAVE GIVEN UP THEIR TAX LOSSES) will be able to pay no corporation tax due to their very high losses n 2008 so the government will not be getting much tax out of them for some time.
Also the, as Vince Cable, said 'limp wristed' AD announcement of volunary self regulation as to tax avoidance it appears to me that the government wishes to rewind the clock back to the casino days of 2005/6 as quickly as possible so that labour can govern for another four years as, to paraphrase GB he knows the answer to UK's problems!
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Perhaps we do need bankers, but we don't need people like Fred Goodwin, who have done unimaginable harm to the economy and to the lives of millions of ordinary people but don't have the decency to acknowledge and take responsibility for what they have done.
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I was entitled to a bonus contractually last year c.10% of my salary - I have not taken this although I still hope to once our cash flow allows. I have no equity stake in my business. I just want my business to survive.
The bankers/AIG on the other hand have taken the bonuses they are contractually entitled to. Their attitude being - is in my contract.
At the same time our government/US Govt has kept these companies afloat because we 'need them'.
This may or may not be the case but until the individuals within the banks start acting responsibly and as if they care about the rest of the country then the rest of us have no other natural reaction than to go on loathing them and also mistrusting them to ever put their house in order.
I now quote from your article
'The City, obviously, has to change.
Banks have to get better at measuring and containing financial risk.
They have to help us, in general, to borrow less and save more.
They have to vastly improve the services and products they provide to households and businesses for the generation of sustainable wealth.
Also - and importantly - they will probably have to do all this for less remuneration and rewards that are more closely aligned to the interests of their customers and owners.'
I do not believe that any of the above will happen UNLESS a new competitor is set up that is big enough to do all the things above but without the greed - this will take all he business away from the big banks and force them to commercially change their attitude. The 'Peoples Bank' is needed to be the catalyst to change the 'City banks' for the better.
The leopards in the City now are the same leopards with the same spots - once the jungle returns back to normal so will they - we need a new animal in the jungle to force them to change and I'm sorry but I don't think this is Lord and Lady FSA who lunch and dinner with Lord and Lady Bank.
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THOSE WHO ARE SUPPOSED TO BE "LOOKING AFTER" OUR MONEY HAVE BEEN "HELPING THEMSELVES" TO IT.
That is the widespread public view, and it seems is not far from the truth.
Are we all slaves?
Are we all flogging our guts out evey day just to keep 50,000 top financial people supplied with mansions, ferraris and Carribean villas?
Do we have to pick up a TRILLION pound bill for this incompetent lot every ten years?
Reform, reform, massive reform.
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Good God man, look over your shoulder at what is really going on, you continualy go on about the banks as if they are the countrys wealth creators, THEY ARE NOT, when they have finished creaming off cash for themselves not a great deal is left for either their shareholders or the country at large.
Their purpose is to look after the wealth created by others, they use financial illusions to appear as wealth creators and when, as now the funny money dissapears the real wealth creators are left to pay the bill.
The Government will also find their supply of funny money will have to be removed from the balance sheet sooner or later and it will again be the real wealth creators who pick up that bill, albeit with a new "Fat Controller" in charge.
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"The pricking of a credit bubble - which they [the banks] pumped up - is now devastating manufacturing industry"
How can you in all conscience continue to place prime responsibility with 'the banks' when it has become clear that monetary policy failed in its task of securing financial stability and when it has been admitted that the FSA's supervision of individual banks was inadequate? Mr Brown was the author of all this and let there be no doubt about that.
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An interesting theme for once.
I do worry about what the reaction will be as a result of this mess. sadly, I think we'll go to a position of hyper-regulation. However, the SEC have shown quite clearly that increasing the number of tick boxes, forms to be filled and hoops to jump through doesn't work. It just means people don't appy common sense.
We need a regulator who can act as a proper policeman. Someone with commercial nouse, experience and above all some common sense (ie not another Lord Myners.) They need to have proper power and be well paid.
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Tens of billions in tax revenue, hundreds of billions to bail out. Net debt rather than in credit. Declare RBS bankrupt and Nationalise it, that would sort out all fat cat pensions. Make Boards finacially liable for irresposible pay and pension packages and common sense pay may take place. To pay people for non existant profits is shear stupidity.
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Robert,
Why is the government in such a pickle over Shred's pension and the decision made by the RBS Board?
As I understand it, the directors of a company are personally liable for all decisions they make when a company is insolvent or obviously about to be so. If they are seen to be stripping the company for their own gain, these decisions can be overturned by the liquidators and all assets retrieved.
RBS was effectively bankrupt and salvaged by the govt/taxpayers. Therefore, the board is collectively and individually liable. I would love to see the looks on the faces of the other directors if they were ordered to repay the £17m personally.
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What is Brownsianism?
The Government's actions are an entirely one-sided implementation of Keynesianism, applied with an assumption the economy is already “mixed”. That is to say “y” million bankers are required because there is no need to change the current “mix”. This is an entirely new form of Keynesianism, which would be better called “Brownianism”. It effectively represents a “freezing” of our comparative trade advantage for the medium term, since in “one fell swoop” the government has committed all its credit worthiness to no planned changes of “human capital” or “skill sets”. If financial services were a special type of cheese, we are now committed to selling our cheese to the world, no matter what the future demand for it.
While the UK will continue to abide by the most important foreign policy directives from the United States, certain changes must now occur to establish ourselves as a more independent provider of financial services. Some divergences in the foreign policy of the UK and the United States will be attributed to the new president’s impact. However such divergences are going to become driven by our need to sell a special type of cheese! The second consequence is that the UK population employed in any sector outside of the financial services sector (except in the export of some goods) is going to face long-term economic hardship.
The “freezing” of our comparative trade advantage under “Brownianism” means the possibilities of Keynesianism to use subsidies to begin the export of new products are limited. The underlying Keynesianism management theory, that global trade is pursued along the principles of “mixed economy” so skills from the labour market are optimised, is lost. As Government investment can be only be directed into export advice for existing visible good manufacturers, there is an urgent need to increase the export of existing digital (especially security) products. Anything that exploits new opportunities from the probable divergence between the foreign policy of the UK and the United States. These divergences will occur in tandem with the need to secure and enhance the external demand for our financial services, which will grow fastest around new export markets.
However any divergence between the foreign policy objectives between the United States and the UK could escalate to the level of distrust prevalent in the 1970s before the “special relationship” was established by Prime Minister Thatcher. The great unknown, like the new American president Barak Obama, is whether those two forces will be self-cancelling (negate each other) or less likely (but more dangerously) combining towards greater instability. In that case Brownianism could result in a hyper-divergence of UK foreign policy from the United States and a significant shift of the UK’s export of financial services marketplace to Chinese investment.
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Amusingly provocative Robert. But NO, ... sorry ... it just isn't true that the financial industry in the form that it took from 1986 to 2008 confers a net benefit to the rest of society. By and large the bankers are playing a zero-sum game against the rest of us. And winning.
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This blog is drivel. The state we are in could not have happened without fractional reserve lending, yet you never mention it.
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YES WE NEED BANKS AND BANKERS --- BUT NOT THE ONES WE'RE SADDLED WITH AT THE MOMENT!
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Most of the bankers I have met are barely talented or competent.
They may know the rules of their own arcane game and seem to re-write them as they wish; so perhaps appear to be highly skilled and essential. But that is a deception. They are over-paid, selfish and have been for the past 20+ years, very dangerous.
The unholy alliance they made with the Blair/Brown governments to give them the freedom to wreak havoc and steal the booty, should never be forgotten.
We owe them nothing................
they should not be allowed to forget that they are our servants.
We don't need to nationalise them, just take over the remuneration committees and stamp on them every now and again.
Nevertheless-
Regards,
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Sympathy for the Devil, Robert?
I don't think so.
This isn't about shaming decent people out of banking. There aren't many decent people left _in_ banking -- it's been a magnet for greedy, fraudulent scum for far too long. As it currently exists, the industry is toxic.
It needs to be inoculated against profiteers and fools whose only interest is getting rich. That means rewards have to be controlled from outside -- you don't trust the fox to run your hen-house.
If what remains can be world-class, great. If not, we're far better off with no world-class industry at all than with an industry that's world-class at destroying our society's foundations. And if that means we have to shave a bit off our noses (and our belts), then it's well worth it for a more sustainable, fairer life.
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Nobody could stop the “Roller Coaster”
I believe that human behaviour led naturally to the current “crisis” - once controls previously in place were relaxed.
With the continuing loss of mass production industries, successive governments (in the USA and UK particularly) looked more and more to Wall Street and the City to “save” the economy. All our short-termist governments could see was tax revenues! Nobody dared look ahead. Nobody in power that is! Plenty of doom-mongers were ringing warning bells decades ago. (this is a matter of public record). The mass-media went along for the ride as usual, and doom and gloom (and realistic prognoses) were derided, proponents sidelined and castigated, and so the party continued!
Who in power could pull the plug? Who could say “NO” to the vast streams of revenue (which were irreplaceable)? Who would do this - and get thrown out of office for being such a “party pooper”? Nobody.
Now that we are in this mess, who or what can pull us out? I believe that a complete restructuring of capitalism is not only necessary, but inevitable. It will take leadership of the highest calibre and guts to enable society to redefine our National Goals. For a start we have none, and almost never had had, except short term goals (like win the World Cup or some such nonsense). The longer the powers that be keep trying to reinstate a defunct system the longer it will take to restructure and the more pain we will all suffer.
The Victorians had some great institutions. Their society wasn't perfect but perfection appears to have been the goal! The Quaker industries produced their mini welfare states for employees, the Building Societies were instituted for ordinary workers for their mutual benefit, and the country prospered! Was this coincidence? Unbridled capitalism has resulted in unbridled greed and disaster. A disaster whose extent has barely been glimpsed as yet, I believe. But a necessary disaster and out of which can grow a new society, not Capitalism, Communism, Consumerism or even Socialism, but Cooperativeism! Something else the Victorians came up with.
Lest you think I wish a return to 1900 values let me assure you that that is not the case! We have achieved a lot since then, the Internet, religious freedom, racial, gender and sexual equality (these are not total I know). Capitalism has brought many wonderful things, but at the expense of human dignity – people are still expendable – second in importance to money and property. This will be the change - the new paradigm. As to growth? Sustainable use of the planet is the only way forward, oil, gas, coal even uranium – all will be gone in a very few years.
Unbridled greed is also threatening social freedoms and leading to mass psychotic dependence on sex, drugs, alcohol, shopping etc etc. George Orwell and Aldous Huxley were remarkably accurate in their respective works. Is the world for money or for people? Is it for all or for a few? The next few years are going to be interesting, to say the least!
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It seems to me that one of the problems is that Senior Management across the board in finincial institutions worldwide saw their employment as some kind of Dynasty-making excercise - trying to create a legacy for generations of their family to come, through short-termism and no thought for the institution employing them.
Goodwin, unless you had forgotten, you were 'employed' by the bank to serve as an employee, not abuse that positon to hoard as much personal wealth as possible.
I suppose this more of a damning indictment of attitudes to personal service in general and the responsibility, both social and corportate people should carry when gaining such positions - this is sadly lacking.
'In it for the Money' of course we all are, but as a Global society, shouldn't we aspire to more than just this?
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Robert,
I don't have 'a new entente' with my greengrocer. I don't have 'a new compact' with my newsagent. Why on earth do I need to worry about the feelings of bankers? Are these the same bankers who, when offered the opportunity of state underwriting for the toxic assets on their balance sheets, say they are 'happy to negotiate'? Negotiate? Pull them down, I say.
The domestic market for financial services is clearly top heavy, under-regulated, and run by risk-loving twenty year olds at one end and small-brained board directors at the other - for whom 'customer' equals 'prey'. After bringing down the financial system on which we all depend (for our pensions, our savings, out investments, and even for the jobs our businesses create) they deserve nothing less than harsh treatment so that this NEVER NEVER happens again. There could be a competitive advantage, even, in having a 'boring' banking regime and firm but reasonable regulation.
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IT WASN'T "US" - THE UK - THAT PUT ALL OUR EGGS IN ONE BASKET. IT WAS GERRYMANDERING BROWN'S FLAWED MODEL THAT BOOSTED HIS CLIENT STATE WITH OVERPAID, GOLD PLATED PENSIONED PUBLIC SECTOR NON-JOBS AND OVER-REWARDED THRIFTLESS BENEFIT CHEATS AND THEN PAID FOR IT ALL WITH A CORRUPT FINANCIAL SECTOR BUBBLE!
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# 34 - stevewo
Just what I said yesterday.
Only chiming in again today, because a momentum needs to build before the next outrage.
Other than that, a "truth and reconciliation commission" (#30 - sashaclarkson) could possibly help.
So too could the idea that ill-gotten bonuses stay with the recipient, but have to be invested in risky but worthy green technology.
As far as I'm concerned, they could keep a ten-fold return on such investments if, e.g., it brought us all solar cells which convert more than a small percentage of sunlight into usable energy (current ones are very inefficient in that regard).
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No, not time to hug a banker.
Juggling numbers around to make bigger numbers, throwing ever more into the air until it's impossible to keep them all up, that's not productive. It's all a massive, consensual illusion.
We need to decouple the wider economy from the risk-taking jokers. If that means sacrificing some of their potential profits coming into the UK in the form of tax, so be it. Their actions should never be allowed to have such an impact on the rest of the economy.
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PS Web designers, opinions seem to differ on the new format. I'm not commenting other than to say that it simply doesn't work for me - there's a massive white space between comment #2 and comment #3.
Anyone else got that problem?
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Nobody complains that we need financiaol services and yes they should be competitive.
BUT
The rewards are so much greater that any other worthwhile career that no wonder 50% of our science graduates went into the city.
Fees and rewards need to be inline with other industries if we ever to solve this issue.
If we dont - then we will only have our-selves to blame
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Hug a Banker (sure, whilst I dip his pocket).
Sneaky McSneak from McSeaksville.
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What hog wash! Bankers are there to support industry and commerce. Even the Swiss understand this. Starting with Margaret Thatcher successive governments have written off the manufacturing industry encouraging instead to put all our eggs in one basket thus over relying on the financial sector for our prosperity. It is blatantly obvious that bankers will always remain greedy, regulators will remain incapable of supervising them and governments will cosy up to the bankers for their own political ends. These banks but for the idiotic generosity of the taxpayer are actually bankrupt. Nothing world class about that. Banks should never be allowed to grow to such an extent that they become too big to fail. Indeed if they had not been allowed to grow so big we probably would not have been in the mess that we are now in.
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Totally agree RP, Despite the greed of a relative few, London does have a highly skilled workforce in Finance. It is important to emphasis what is good about the city and to show the errors of the past will not be repeated
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Funnily enough every day I feel like hugging a banker by the throat.
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Robert,
Regretably accurate.
As a country we export little else except services and the city provides by far the largest proportion of those exports.
Anyone with a basic understaniding of portfolio theory would know that allowing the nations economy to go in such a direction whilst offering potential higher returns, vastly increases the risk exposure.
Something the successive governments seem to have ignored due to the short term objectives inherent in our political system.
It is however noteworthy that different elements of the financial service industry make considerably different contributions to the nations wealth.
Some "oil the wheels" internally, some are more outward facing.
The issue in much of this is the lack of barriers between the various elements and the resultant multiplication of risk and the inability to compartmentalise the impact of issues in one area.
Its also not just down to the bankers, the illusary NuLab "economic miracle" was based on over inflated asset prices fueled by debt and encouraging spending off the back of these unrealised gains.
Its not just that the governement didn't do enough to prevent the situation, it actually sought to encourage it and to profit from the resultant short term feelgood factor.
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Surely you meant to ask "is it time to mug a banker".
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Hmmmm - I wonder what type of work most of the readers of Mr Peston's blog do?
Banks do have to take a level of blame, but anyone sitting on a house and worring about the reduction of value - when they've been bleeding the equity dry constantly remortaging - only have themselves to blame.
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The simple reality is that the bankers were allowed to run riot by a government that was mesmerised by the idea of money for nothing from nothing. Anyone with real experience of life knew this was nonsense.
This is not just a case that we were all let down by the banks, but also the reality that we were let down by government as well. The only people capable of stopping the feeeding frenzy was the political class and they just joined the struggle for the trough. In my view they are more culpable.
Yes, we are people who have been betrayed. I do not blame the bankers as a group. There were some who were out of order and who could still come under the scrutiny of the courts in one way or another and rightly so. There needs to be a culture change in banking and it will happen for the simple reason it has to. What they need, and never had since 1997, is effective regulation rather than the over-bearing regulation which is likely to happen now.
We need to remodel our economy so that manufacturing industry, research and development, scientific research and investment in wealth producing and employment sustaining enterprises are at least as important as the City. This is the lesson to be learned.
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This blog sounds like the gambler telling the balliffs that he will win it all back.
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Great new design!
Almost designed to be read through a small applet while "at work", as most of us are!
Far better than Twitter in that respect - lol!
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Banks need to show real contrition by action. Free up capital from taxpayers into our SME sector. There is a paucity of credit in this vital area right now. It is real and painful and will create massive unemployment in the UK if not immediately addressed.
The SME sector is in effect subsidising the consumer (via lower mortgage rates than commercial lending rates). This is not right. Consumers consume. SME's create goods and services that we consume. Why is our government so weak on enforcing this basic issue of our economy.
Probably because our career politicians (with notable exceptions like Clarke and Cable) have no idea how the private sector actually works. They just grab the tax pounds and waste many of them. That at least is a consistent in these turbulent times.
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For all those who have fleeced the rest of us, I'd just wish your current UK home address's get posted over the internet and get kept up to date. I'm praying for what goes around comes around for anyone who has finacially benefited from these crimes.
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Some excellent responses here but there's a particular topic in your article I would pick up on, Robert.
"During the past few years, when 10% of economic output, a third of growth and many tens of billions in tax revenues were generated by financial services, we did have far too many of our eggs in one basket."
Too right. At the same time, we were being told 'we don't make anything any more'; 'manufacturing is finished'; everything's made overseas, now'; and no-one wanted to get into 'dirty-fingernail stuff'. While all this talk of 'not making anything' was going on - and being repeated by the media ad nauseam; I don't recall you contradicting it, Robert, but I'm open to correction - the 'declining' manufacturing sector was responsible for 18 per cent of GDP - that's nearly twice as much as financial services. It understates the contrbution, too, as 'manufacturing' essentially means the engineering sector as construction, oil&gas, chemicals and pharmaceuticals have their own indices.
At no time did manufacturing threaten to bring down the economy by its out-of-control behaviour. The finanical services sector's losses in the past year are eye-watering; RBS alone, with £28 billion loss in 2008, wiped out all its supposed 'profits' for the past few years. Add in the government's guarantees of its at-risk 'credits' (dodgy deals and weird, weird loans) and the loss adds up to MORE than RBS and its constituent banks, like Williams & Glynns, National Provincial, Westminster Bank, etc have made in profits since they were FOUNDED.
The wonderful '10% of GDP' and all the taxes on all the so-called profits are illusory. It was very much the Emperor's New Clothes - those who had the temerity to suggest that it was meaningless, that trading money for its own sake was not an added-value activity, that lack of control was leading to ever-more dangerous behaviour, were dismissed: we 'didn't understand modern banking' - just as the tailors said only the very intelligent and tasteful could appreciate the beauty and cut of the New Clothes.
What rubbish and how clear it all now is.
It is costing us far, far more than the supposed contributions to GDP and the Exchequer - which are now being rapidly reversed.
Wasn't the writing very clearly on the wall when Barings went down? The senior executives then confessed they had no idea what the derivatives were. Didn't the writing become clearer when two whizz-men from the City took over at GEC, got out of its longstanding main business (defence, which only offered 8 per cent returns) and turned a £3 billion cash mountain into bankruptcy and obliteration in less than two years? Surely a new record for either profilgacy or incompetence - and, equally surely, a clear indication that these guys simply don't understand a real business?
Yes, we do need a banking sector, unfortunately; but no, it is not yet time to hug a banker. A lot more contrition and humility will have to be shown - and a lot more sense in dealing with businesses that have the potential to generate the wealth to get us out of the mess - before it will be time even for a consoling pat on the elbow.
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Robert
It's not just the banks that need reform. Tomorrow we await the FSA's promised new tough regulatory regime. Is the FSA up to the task and fit for purpose? History might give some indicators.
When he was merely the Chief Secretary to the Treasury, current Chancellor Alistair Darling told Parliament what would be delivered by the new banking sector regulator, the FSA, when he introduced the Second reading of the Bank of England Bill over eleven years ago.
“Through the Bill and other measures, we are setting in place a system of accountability that, frankly, has not existed until now,“ he claimed (Official Report, 11 Nov. 1997 : Column 711et seq).
He went on to state “With the transfer of banking supervision to the new Financial Services Authority, there is an opportunity to look at the overall impact on the financial sector of charges. We want to ensure not only that regulation is effective but that the costs are fully justified. For that reason, we are consulting on the cash ratio deposit scheme during the passage of the Bill. I want to make it clear that the intention is that the overall cost to the financial sector should be no greater than before, and preferably less. Both the Bank of England and the FSA will bear down on the costs to the industry, and therefore on the costs that have to be borne by the public."
Justifying the measures, he said boldly said as a a hostage to fortune” The previous Government talked about cutting red tape; we are doing it.”
He ended with a flourish ”In the week in which the new FSA came into existence, recognising the fact that the industry transcends political and geographic boundaries, it signed a memorandum of understanding with the Securities and Exchange Commission and the Commodity Futures Trading Commission in the United States. …”
"Regulatory reform was inevitable and, indeed, it is what the industry and the public want. The old system was far too fragmented," he concluded, and it was “very costly, whereas the new system will deliver better regulation. The unprecedented scope of the powers of the FSA will, of course, ensure a better co-ordinated approach. …We are making the tough decisions and putting in place the institutions to deliver economic stability and growth, so that everyone can share in higher living standards and greater job opportunities in future.”
(http://www.publications.parliament.uk/pa/cm199798/cmhansrd/vo971111/debtext/71111-06.htm)
Indeed?
Dr David Lowry,
Stoneleigh
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Hug a Banker, but watch his hands carefully and never trust him.
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If the argument for bonuses "it retains the best staff" is true - And, as we're being led to believe, these huge salaries and bonuses are a thing of the past, then surely it won't be a case of hugging an existing banker, as they'll have walked?
We need to focus on the next generation of bankers (those middle managers still working their way up) and get them thinking straight.
Those still clinging on are tainted, won't do the same work for less, so will be gone soon enough! Good riddance!
Stupid, greedy idiots to a nan!
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Robert, perhaps what you really meant to say was that what we actually need are gifted, qualified financiers in management and directorships. Not the old boy's network of pass the job around - and clueless non-execs.
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there are planty of things i'd like to do to bankers.....hugging's not on the list!
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No Robert. Pie(shop) in the sky stuff. We still haven't got to the bottom of all this and really should be more on the case about it. We know the banks have got to lift their game, manage risk, lend better and so on. What we need to hear is the "how", the carrots and sticks, they're also the tools to get to the bottom of it all. We need to drum it into them so conclusively that it don't happen again. The only way you're going tackle short-termism is to punish the perpetrators, and if that seems too much like harsh work, we're sorry, we're just not going to sit back and take it while they go about looting, or they're just going to keep getting away with it. Not pretty but there it is. Transparency is all you need, the same rules and regulations that got jetisoned years ago. I wouldn't think it's too difficult to administer globally, much like the crime authorities do now. Now there's a start.
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Robert, your no doubt heart felt defence of the Uk banking industry raises so many questions, i doubt i have the ability to create a coherent and cogent arguement against.
I will try however, as many contributors have already mentioned, this gold standard industry, this money maker we call the city was in fact not making any money at all.
Not for people like me , oh im sure lots of city execs were living high on the hog and home owners felt richer but as we all know now it was an illusion.
So you are in fact suggesting that we should support and in fact worship, (as in your eyes it would appear it can do no wrong) an industry that does not benefit the majority of the Uk, and industry that in its stupidity and greed has gone close to bankrupting the state and an industry that produces nothing, has no morals and is as vacuous as a bag of WAGS.
Im beginning to see why the Labour party loved the city so much as it represents so many of their core values and attributes, and im sure if it was up to our beloved leader we would quitly forget and forgive after thirty years of penury and hardship.
Unfortunately Robert i dont beleive the British public are quite as stupid as all that, so as much as you and Gordon would like life to go back to normal in the city. I think The poor ol' bankers may be in for some hard times themselves.
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Bob,
STILL WORSHIPPING AT THE ALTER OF MAMMON!
You just don't geddit...do you!
After all that's happened over the past 18 months or so...you're still so easily impressed by the mandarins of the filthy lucre.
I heard you on Radio 4 this morning, explaining in your usual agonising way, how important the City is to the prospects of this country...rof laughing!
When will you learn that there is no real 'value added' in shuffling bits of paper around in circles. You have to make something REAL and tangible, of benefit to society, in order to add REAL value. The only problem for the City is that you have to do some REAL work in order to achieve it.
WE NEED TO REDEVELOP OUR MANUFACTURING BASE.
Yes, I just mentioned the dirty M word (as far as the city is concerned).
The city should be serving society, not the other way round.
We don't need the spivs and the sharks in the City any more. They hold no allegiance to this country or its morals. In fact they are amoral, as has been consistently shown over the past 25 years or so.
Please, please, please don't refer to financial services as an industry....it's an oxymoron.
Have you EVER met anyone from real industry? You know!...the place where honest, moral, hard working people make and do USEFUL things? I think not.
Still, I suppose what else should I expect from the privileged son of Labour peer.
PS - I know you've only posted this for a bit of a laugh, just to see how vehement the responses will be.
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82. At 12:21pm on 17 Mar 2009, Kudospeter wrote:
Totally agree RP, Despite the greed of a relative few, London does have a highly skilled workforce in Finance. It is important to emphasis what is good about the city and to show the errors of the past will not be repeated
LOL MATE Ha Ha Ha Ha!
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18 - I too hate this new blog layout. I agree you need short lines to take in everything without having to scan left to right - very tiring,
Of course,
LIKE AC,
We CAN,
insert hard
RETURNS
to force
SHORTER LINES.
Also, you want to access the comments after reading the reporter's blog - not have to return to the top of the blog first.
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Robert,
I have been a reader of your blog for a while now so thought I would try posting a comment :-)
'Time to hug a banker' - An interesting title which is bound to annoy as many as it make's chuckle. I think were you, or anybody for that matter, to attempt to hug a banker you would be met with a mixture of hesitation and confusion, as the banker in question would be stood thinking one of two things "Is this gentleman a sign that not all people feel a aggrieved by my assumed reckless behaviour” OR “Is this man simply going to knife me in the back as soon as he gets his arms around me”.
The banker would be right to think either of these things because their position in society has been so marred by political indecisiveness. It is no longer clear whether they are being punished for failing to acknowledge the inherent risks in their line of business or whether they are being asked to continue business as usual, through continuation of long established banking practices, to help the government borrow our way out of the economic downturn. You raise the point in this blog entry Robert that we may be biting off our nose to spite our face, a comment you have made in other forms in past blogs – can you give with one hand and take with the other – can we penalise and reward simultaneously? The answer I believe to these is; yes and no, respectively.
There is no doubt we have a bias towards financial services as a contributor to our GDP, but punishing this sector without a clear line as to when the punishment will end and where the lost revenue from this sector will originate from is foolish. Likewise pumping money into its equity and claiming that it will come good in time is an oxymoron. Alastair Darling continually tells us there are going to be severe changes to the system within which financial services operate, largely to minimise the exposure to risk, which in turn will minimise the likelihood of exuberant reward. Meaning that if banks are to be prohibited from engaging in highly risky dealings even at the smallest scale, they cannot possibly generate the profits that they have been doing, so the equity that the taxpayer has ‘invested’ in will never be as valuable, certainly not for a long time, as what we were used to only two years ago.
Simply put, Mr. Darling and the government need to establish a much clearer set of goal posts for the banks to be aiming at. A decision must be made with regards to ‘best interests’ of the public.
This continuing game of bailing out a bank and endowing said individuals with the responsibility to right their wrongs, Mr. Darling would have us believe he has done because he believes it their way of making up for their mistakes. However, what seems to be coming to light is that he has made this decision because he believes they are the only ones capable of getting us out of it, something which an intelligent banker will know and not hesitate to exploit; the bankers still hold more cards than the government is letting on.
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80
Javaman
Not before he'd picked YOUR pocket twice
Once to steal your wallet and secondly to recover his.
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Reaper of souls (post 85)
"As a country we export little else except services and the city provides by far the largest proportion of those exports."
Wrong on both counts. Manufacturing, pharma, chemicals contribute far, far more to exports than financial services ever did. Yes, there is a negative gap, which services seemed to help to partially bridge (although we now know better). But please don't confuse throughflow of money - in which the City is, indeed, the world leader and the amounts are in the trillions - with either income or wealth generation. All it does is dip in a teaspoon as the gravy train speeds by.
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I do like the new design.......however a blog has to be more than pretty...one needs to be able to react quickly to comments people make, pre moderation, at times totally non existent, is a bar to spontaneity....can we not move to post moderation? As to hugging a banker, make sure you check your wallet is still there afterwards!
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re my previous comment at #108
i just noticed the following.....
"All new members are pre-moderated initially, which means that there will be a short delay between when you post your comment and when it appears while one of our moderators checks it."..... well i am not a new member, and what is "a short delay" .... sometimes this runs to hours!
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#57 grimupnorth
Thoroughly agree!!
Yes, we need a new type of bank - a reconstructed bank - call it say, "The New Foundation Bank" or something similar. I feel the Peoples' Bank sounds a bit like Socialism, which I'm sure it's not.
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Silly me
I bet a few of RPs banking mates have said he has been bashing them too much and if he does not get a balance no more briefings and no more lunches.
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I think Bob's just realised he's done himself out of a career.
'You're too late to salvage it now Bob...you're just too late!'
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Your comment "We can perhaps all agree that the UK became too dependent on growth generated from the City." is far from accurate. Us in manufacturing are the creators of wealth, developing & manufacturing goods, in our case lean manufacturing solutions. As for a comparision, we work harder, deliver far more than the hugely over paid solicitors & particularly Bankers & City Traders who actually contribute nothing to our economy. It is about time the tables were turned around. Engineering leading the economy with the Bankers & Solicitors as service support to them.
Nick
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Robert, I'm sorry I used to have a lot of time for you but you are increasingly writing meaningless drivel. The big problems in the world now were created by our "world class" financial sector, along with that of the US. To pretend that we have a "good" financial sector is nonsense. That 10% of GDP contributed will be next to zero soon and the sector is taking the rest of the country soon. I laughed at the treasury's forecast of around 2% fall in GDP this year with a move out of recession this autumn. That was at best an absurd forecast. I predict annual falls of 5-6% for the next 3-4 years.
No-one, not even you will admit to the obvious: the West is broke and there is no way of refinancing ourselves without going cap in hand to China, the oil rich countries. I predict that not only are we seeing a economic collapse unprecendented since the Great Depression but also a social and democratic collapse.
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"...they will probably have to do all this for less remuneration..."
Oh the poor darlings. My heart utterly bleeds. Surely I can sell a kidney or something to raise cash for these poor unfortunate souls?
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106,
Too true but with the help of Labour and Gormless Gordon!
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18 months ago i would have been mortified if i had to default on my personal loan. now i would not bat an eyelid. perhaps they do deserve a hug from me because i now have no stresses what so ever concerning debt.
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Are you certain that it should be 'hug a banker'. Perhaps it would be more appropriate to mug a banker.
For many years banks have mugged the public with their extortionate charges.Why should the public support a system that supports the few (bankers) at the enormous expense of the many. Unless of course the banking system became more egalitarian and actually did what it claimed to do and responsibly support its customers. Not encourage them to take loans, mortgages and credit cards etc that they knew were beyond their clients means to pay. The banks may survive their toxic debt but their customers future looks far less sanguine. Support the bankers? Not until there is a fundamental change in how they conduct their business.
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Punishing bankers and restoring the city are not alternatives or contradictions. Why would I trust the city to manage my money when I believe it is run by crooks who act like they were above the law? One reason why foreigners from less developed countries invest in the UK and/or US is because they believe our system is more trustworthy than their own.
Similarly if these guys paid themselves normal salary levels perhaps their companies would be a bit more competitive and actually do more business? I suspect one of the reasons that banks make so many stupid mistakes is that their staff time is so expensive they can't afford to do due diligence.
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One point that strikes me, in particular in all the debate about bonuses, are all the claims that if, basically, the circus isn't managed the way it was in the past years, all the "top talent" will fly away. To which many people answer that the current mess doesn't prove much talent. It's obvious that banks are required. But I'm not sure that getting rid of self-proclaimed talent would hurt much. Whenever you look at history, you have always seen talent emerging from nowhere (more precisely from junior ranks) when needed. U.S. Grant was a rather improbable leader, as much as that obscure artillery officer, Bonaparte. Or that no less obscure MP, Cromwell. Nature doesn't like void. Perhaps it's time not to hug bankers, but to hug banks, flog bankers, and let meritocracy work.
PS. I'm just an IT consultant, not a banker!
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There has been so much ludicrous behaviour by so many...
People who thought they would always be able to re-mortgage at low rates
People who thought that property prices always rise (1990-1994 isn't that long ago)
People who thought they could shuffle debt from one place to another
Credit card companies offering 0% deals only to find that customers moved from one deal to the next
Banks that offered 125% loans
Builders that offered cash back to inflate the prices sold and consumers that didn't reduce the debt with the cash
Loony leverage (personal, corporate, bankers, governments)
Committing long and borrowing short (all those 2 year deals fall into this category)
Off balance sheet nonsense and special purpose vehicles
Extensive government spending based on borrowing and flawed estimates of ongoing revenue
A belief that the fees paid for arranging mortgages would always continue
Artificially low interest rates
False pictures of price increases
Pathetic regulation with the regulator now run by someone that managed the wholesale market division of the FSA since 2004 and the ex vice chair of Merrill Lynch Europe
Jobs for the boys
Sponsorship of events and teams by some of the biggest culprits
Debt fuelled acquisitions
Failure to restructure tired old businesses
0% finance deals for anything from cars to sofas
Snouts in troughs
Total inability to say 'what if' or 'what could the consequences be'at every level from individual to prime minister
A belief that individuals can and will make the same decisions for the short term as the long, that gratification today will be put off for gratification tomorrow
A belief that competition will always yield the best results for the consumer long run
Overiding competition rules
Endless tinkering
Misplaced senses of entitlement
I think I might go and hug the nearest person I can find that is capable of asking
if interest rates went up by 2%, could I still eat
how would I manage, if I lost my job or my pay went down
If bankers, regulators and governments had used slightly more sophisticated versions of these questions, we might be in a different place.
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Robert,
By writing "It's an argument for another time whether most opproprium should fall on lenders who provided dangerously cheap credit or borrowers who used that credit to construct surplus manufacturing capacity - which is now being painfully written off", you have finally brought some balance to your writing.
You have been (one of) the cheerleader in posting articles about banker excesses and criticizing them. While I am not necessarily saying that was untrue, i would probably say, it was not always the whole truth. At times, to make your point, you exaggerated about the gravity of the situation.
I read that you had mentioned that Jon Stewart would look like an idiot if he tried his rant against CNBC, on business commentators here. That sounds a bit smug, surely you never wrote about anything macroeconomic or warning the public about the banking industry until Northern Rock (Which was well into the crisis). Most of your writing is, at best reactive as opposed to offering any insight on the industry. So perhaps a similar comment here would not be inappropriate.
A third comment here, re your post on the day Barclays posted its results, that derivatives on its balance sheet was more than the GDP of Britian. That was such a populist comment without bothering to explain to the public that the number did not represent the amount 'at risk'. IFRS accounting standards result in the balance sheet getting grossed up(on both sides) and that does not represent the risk.
Anyway, it is a refreshing change to see your post today where you are providing a more well balanced view to your reading public. Along with providing your view, even if you do not agree to the opposite view, atleast present the facts to the reading public and let them decide.
Thanks
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A responsible banker is one you should hug--the kind that sits with customers and asks, 'Now, what are the goals here, and is borrowed money the best way to get there?'
Once it's clear that there truly is a plan in place, and that the transaction can benefit everyone...this is what good bankers do.
Very few left, and a real need to grow a crop of them.
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Bit late to feel sorry for the bankers when your 'scoops' have done so much to burn the share prices of our banks, Robert, and endanger their jobs!
BTW, just what is 'oppropium'?
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The British surplus in services (like the holdings overseas) was an effect of the Empire...a post-imperial afterglow.
As for 'liking bankers' ... and needing them...
I have heard people talk about the 'skills' of the relationship banker 'really understanding' the companies he/she lends to; what rubbish...how much skill does it take to look at ablance sheet ..? Look at keypoints in accounts and decide the company has been around awhile, is basically solid and the MD and COO are quite nice people. Why would a Banker 'see' anymore than that...because he's also a Telecoms expert, or media expert??
The Bankers we will like will be these straightforward 'new breed' of people using those 'skills' and being remunerated accordingly.
All the 'incredibley clever whizzy two-brains stuff' was NOT incredibley clever & whizzy ..but close to criminal, required people we remunerated far beyond reason (because we THOUGHT that THEY understood it).
They didn't understand it and took the money under false pretences...that is a definition of behaviour that can often be tried under the Law in Criminal Courts.
We WILL love the new bankers, properly paid for doing a proper job....we need never love the old ones.....who greedily paid themselves far too much for imposting in a job (Prudent guardians of wealth and safe investments etcetc).
Basically I suppose my point is that I don't get why 'banking' is somehow so highly paid...especially now.... when the skills are available in virtually every SME, and larger company, I have ever been into.
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#110, explorer63 & #57, grimupnorth . . .
Maybe some hope after all?
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It is perhaps expected that the government will bail out the banks to whatever is needed. After all (and despite protestations above) we have experienced a quantum shift in economic growth sources from manufacturing to service, namely financial services. We have niche manufacturing in specialist and up market goods but on the whole we cannot compete with the far eastern and other low cost geographies for manufacturing in price competitive markets.
The large volume car manufacturers are all non-UK owned and financed a such (though some are claiming subsidy and threatening to leave UK if they don't get it)and for other retail service sectors to provide we need to spend with them... hence back to the need for banks.
Hug a banker? well we need bankers but i don't want to hug them. They are simply a necessity of life and as such part of the basis for our continued ability to trade with the rest of the word
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Exactly what I've been thinking for a while. More people have to buy British, whether this is overseas or at home. How we sell this is to ensure that British product is top-spec, yet affordable. Businesses that achieve that will survive, while the rest run the risk of failing. I've got the common sense. Giz a job?
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117
Walking away from debts is EXACTLY what caused this crisis.
The fact idiotic bankers lent too much to people who could not afford it, on negligible security, is secondary to the problem of non payment.
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I'm getting a bit fed up of all this nonsense about how much the financial sector contributes to GDP. Its losses are such that it may yet drag the rest of us down with it. In all other walks of business, many of the financial practices coming to light are legally defined as fraud. How much average annual profit have the various banks actually made over the last ten years - I'll bet it's close to zero !
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Bobby - would you care to speculate as to whether you feel we would be quite so dependent on the city if we had retained, say, our ability to produce coal, steel, ships and so on. As I recall, these industries would have required significantly less investment, in real terms, from the tax payer in terms of subsidies than we are currently providing to the banking industry. Your argument that we need bankers because we 'ain't got owt' else is, therefore, the crystalisation of 25 years of deregulation, privatisation and free marketeering. It makes it doubly poignant given that this is also the 25th anniversary of the beginning of the downfall of Britain's industrial heritage in the miner's strike.
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"They have to vastly improve the services and products they provide to households and businesses for the generation of sustainable wealth."
I am loving the humour Robert, and a quick skim of the replies allows me a broader smile. There is absolutely no change on the horizon.... Bankers are bankers through and through, they see money as the measure of everything. Thankfully they are now being bought down a peg or two..... yet nowhere near enough for any new stability in future. The UK Government should have let them all go to the wall.
I have waited for over three years for my Bank to call me and "perform" their intended review of my accounts. They are useless, one and all. Every time I call them they tell me that they need the information.... poppycock!!
You should all know by now that there is no such thing, never has been, as SUSTAINABLE WEALTH. Thanks for lightening my day though, however unintended.
Now can you get on with announcing the plan that the IMF lends money to "everyone" to balance the books? That will be interesting. The CIA Factbook will be turning on its head. Normal service resumed I assume. You may have worked out that I think Bankers have a pungent odour .... I won't be hugging one anytime soon. :-)
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nonsense - the shadowy side of banking has always involved mass fraud - fraud that was overlooked (and even encouraged) by politicians and journalists alike. Now that fraud is falling apart the same people are desperately trying to keep the plates spinning, despite it being one giant Ponzi scheme. Shame on the media for not reporting what is a crisis that could of, and had been, predicted over 10 years ago. Hug a banker? hang a banker more like, we don't need them and never did.
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121 Mrs Bloggs
Structured Investment vehicles were and are only a cover for dirty dealing.
The true acronym is special purpose investment vehicles stupid.
As we all now know.
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Sorry Robert but I'm in no mood to hug a banker. Real people are currently losing their jobs and unlike the selfish and greedy bankers they don't have multi-million pound pension pots to fall back on. Possibly millions of Britons can also look forward to retirements spent in grinding poverty because their private pensions are now virtually worthless. The real problem with the bankers is that they played casino with our money whilst ensuring that they themselves could never lose. In fact that they would walk away with millions if they lost our billions. This encouraged those same bankers to take greater and greater risks for higher and higher rewards. Every time that you and other commentators bleat that the law of contract applies to these snake oil salesmen the same as it does to every one else I react by thinking and what could I look forward to if I lost my employer tens of thousands of pounds far less tens of billions? The sack for gross misconduct and sweet FA would be my reward. Why do the same standards not apply to these grossly ignorant and overpaid masters of the universe?
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Like others here I don't really see the point of this..Despite the anarchists who don't actually grasp what 'Collapse of The Banking System' would mean for the world and assume that the bankruptcy of HBOS, RBS, Citigroup(god forbid) UBS, Etc Etc would have the same effect as Woolies and MFI closing down, most people here understand the chaos and economic meltdown around the world that would follow if a whole series of retail banks go under.
In fact this has been discussed ad nauseam for several months..What is more pressing now are things like
Just HOW close to bankruptcy is GM? (Those of you who don't give a toss will get a rude awakening when/if this happens)
Have the Markets found a bottom and will some stability arise in the near future?
A discussion of exactly how much bank lending is supposed to have contracted, I read a quote somewhere that said that banks are open for business and ready to lend..only just not on the same terms as before. Yet today we read that self certified 'Liars' Mortgages are still accounting for 20 percent of new business..
All of this is much more interesting than 'hug a banker'...
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I can honestly say that the "City" has done far less for us than say, teachers, the care staff and nurses in all our hospitals, the thousands of unpaid carers, firefighters, heart surgeons, etc etc.
The only reason we've become so dependent is because we all bought into the Thatcherite myth, which landed us in the last recession and spawned the many bankers who today brought the city to its knees.
Perhaps if we invested more in our manufacturing industries when they were about, we'd not need to worry about the fate of the banks. But instead we laid off thousands, putting them out of work and giving rise to more middle-class oriented careers. I'd gladly see the back of the big banks. We need more cooperatives anyway.
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124 re opprobrium
Its the delerium that comes from opportunism taking you for a sucker.
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'However right now, it's fashionable - and many would say reasonable - to loathe banks and bankers.'
The Goldman infallibity myth
Clawing back Sir Fred's pension
25 critical blogs in february
Couldn't face going back any futher
Enough already Robert
How about something about the chemicals industry or pharmaceuticals or even construction or retail
You could even do a nice little piece about the retail businesses that went into liquidation only to resurface having lost the debt on the way
You could do a nice little piece about the so-called entrepreneurs that borrowed loadsamoney to buy businesses that couldn't afford the debt
You could still do a piece about UK companies overseas operations
Go on.....
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When people become freemasons they agree to never discuss fractional reserve banking in public .
FRB is the right of the privelidged to remunerration in the form of interest from the creation of fiat currency backed by nothing other than the promice to repay backed by a security of increasingly much lesser value due to leverage
What is in effect created from thin air[fiat currency] is lent out at interest ,which in turn is converted to bonus payments
FRB is the modern term used by financial cheffs to practice ancient saucery [the no longer forbidden AAA'rts]
will seesir Freddie avoid the nightmare on ehlman street and get thrown from his giant FRB hampster wheel onto a feather bed povided by the quacks in the system, whos pay review body needed a GOOD WIN TO CONTINUE THEIR PAYOUTS to those with their fingers in the pie in the sky still running the show .
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No - I'm not going to hug any bankers (knowingly).
But credit where credit is due, I will applaud the banking industry as and when it puts its house in order, is subject to proper scrutiny and regulation, is appropriately professionalised and, most importantly, it learns to put people before "paper" profit.
And - one last one - when the people in the industry who seek to act in cowboy and maverick ways are risking their own professional futures, their own salaries and their own pensions.
When those are in place, I'll be first in the queue to say, "well done chaps - now people can start to believe and trust in your industry again".
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Mr. Peston,
You wrote:
"But here's the terrible truth: we need banks and bankers, to secure our own future prosperity."
Could you please tell us clearly what you mean by "prosperity?" Only then can we know whether or not to agree with your "truth."
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"we need banks and bankers, to secure our own future prosperity".
Maybe, but not these bankers and (arguably) not these banks. Would anyone really trust them to behave themselves when things improve?
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The return to normal begins?
Banking is only one sector, and whilst it is quietly killing off those things that do make items wouldn't you be better off lifting your eyes to the UK economy?...and where will they be when no one needs a bank account in this country?
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Dear Robert,
I enjoy reading most of your articles and I think you have some good ideas. For example, your version of "quantitative easing" whereby the BOE buys shares in medium to large businesses. But I found this to be one of your more irritating posts. I don't mean that as a criticism of you or the article, rather it acted as a seed for the crystallisation my anger at what's happened. Anger probably not a strong enough word, rage would nearer the mark. What's happened is bad enough, but the way it's being handled or mis-handled that fills me with dismay and dread.
You say "one of the few industries - financial services, the City of London - which has a significant competitive and comparative advantage", don't you mean "which HAD a significant competitive and comparative advantage"? You're absolutely right to highlight the decades of failure to broaden the base of our economy, but I don't agree that companies in general have acquired surplus manufacturing capacity. What we see now is banks so risk-averse that they won't even lend to companies that have become compititative due to the low pound and have full order books.
We need a new Banking Order, that much most would agree with. What I can't understand is how that can happen if no bank can be allowed to fail. It's virtually become a taboo to even mention such a thing. The health of any population can be maintained only if the least fit are allowed to die. Gordon Brown says we're witnessing the birth panngs of a new financial system, but can that happen if he continues to prop up the old corrupt failed system?
You say that banks have to help us to borrow less and save more, whether that's true or not, isn't it ironic that the BOE is trying to encourage the opposite? Of course, for every borrower, there's a lender, so to encourage lending/borrowing, i.e. unjamming the economy, surely interest rates have to be right (not too high, not too low) for both side don't they?
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Time to hug a banker - no
Time to hang a banker - yes
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You are losing your nerve Mr Peston. Yes we need world class banks and bankers but those in charge now have been criminally inept and must be eliminated from the banking world. If we leave things as they stand you are advocating that we put our faith in a bunch of self centred petty crminals.
The banks must be reformed so that we can trust them again or are you really advocating that we go back to the bad old times with the same old cronies?
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Unless we all decide to keep our money under the mattress we obviously need Banking to continue. What we don't need are greedy, parasitic, Bankers
who are apparently oblivious of the fact that we are in this together--of course they are happy to aknowledge this fact (albeit fleetingly ) when they need digigng out of the holes they dig. Perhaps they should take note of the fate of the French and Russian families when the plebs had had enough of them !
Yes Gordon we do need strong regulation --but I am afraid that talk, talk, talk won't cut the mustard- let's see some decisive action NOW not in a year or two when you have wasted yet more of our money on commitees and quangos.
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or how about an article about an article
http://www.nytimes.com/aponline/2009/03/17/business/AP-Housing-Starts.html?_r=1
title...New-Home Construction Logs Unexpected Gain
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Ho dear Robert you have tried to knock the banks down and now trying to build them back up again. Personally speaking from the perspective of the manufacturing sector we have always under stud that the
Bankers, lawyers, accountants, insurers, was the cherished puppies of the government of the day, fed with the best food and sucker understandably as most of the house of commons comes from that sector anyway, , wears the manufacturing sector was always pushed to the corner and ignored or worse. So like most well fed spoilt puppies one day they grow up to be Rottweilers and devour there owners.
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or we could go on to revile a regulator in daily articles - I'd go for that
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> Or, to be more explicit, is there a risk that we could do irrevocable harm to one of the few industries - financial services, the City of London - which has a significant competitive and comparative advantage?
The milk is already spilt, Robert. Who would want to buy financial services from either the US or the UK? A used car, possibly -- after all, if you buy an inadequate car, you can get away with just some embarassment and a moderate loss. But if you buy serious insurance from a financial capital that's already shown itself reckless and greedy -- well --
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Well, if Britain is to have financial services then they will have to be properly regulated from the highest City Ivory Tower to the murkiest investment dark pool.......
I'm looking forward to some spectacular thunderstorms this summer.
Have to get my old Camera out.
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Robert
Just says bankers are great, many will follow you, months after having broken it all you will have fixed it all!
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Brown and Darling still claim that they oversaw 10 years of sustainable growth.
Sir Fred and RBS were at the heart of that financial "sustainability" and we should not deny the monkey it's promised peanuts.
It is the corrupt and stupid organ grinders who must feel our wrath, but they are allowed to put off their own day of judgement, at the polling-booth of public opinion, for as long as possible.
No doubt they still cling to some hope that they will be able to "fool all of the people all of the time" for one more time.
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Robert,
Two points really.
1) "For the past couple of hundred years or so, we could point to our banks, insurers, lawyers, accountants and related business as among the best in the world". Well however much that was true at some point in the past, it really has gone right out the window in recent years. Most people view them as somewhere between of dubious integrity and out-and-out criminal. Yes, I can remember years ago when bank managers were seen as upright, ethical, respectable members of society - but not nowadays.
2) "But here's the terrible truth: we need banks and bankers, to secure our own future prosperity". - Well, perhaps we do - at least to some extent - in the short and the medium term, but I'm less sure that will continue into the longer term. My guess is that if, at some point in the future, we still have things called banks and bankers at all, then they will be far removed from the things that currently have those names.
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We need bank that's for sure, we wll know this, just not the ones we have at the moment.
Suddenly there is a mushrooming of Credit Union. Ethical will probably become the order of the days quite soon.
So that's London out of the picture
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Sorry to say this, Robert, but this smells like a Labour leak via your good offices to soften everyone up for accepting quite pathetic levels of increased regulation in the City.
No. The priority in the country right now is to make the money system the servant of the people - and never for as long as possible allow it to be the other way round.
Ever since biblical times we've had a problem with the money-changers, and we certainly need to throw a few of them out again now (and not let them retire.....) and reform things big-time.
Do you make any connection between the growth of the City of London over the past 30 years as a world financial centre, and the weakness of the UK in technology based industries?
I'm not obsessed with manufacturing but I do think the UK's abdication from the world stage as a technology leader is a direct result of the easy well paid jobs that have been on offer in the City for the last decade or two (that we know now to have largely been pushing bits of paper around pointlessly), which have hoovered up a lot of able, smart people (even if they are mostly now looking for employment elsewhere).
We must arrange that "financial services" are only very averagely remunerated in future, for the good of these other industries, and also for the good of those people who save money for their retirements etc - this adds up to the good of the whole country in fact.
Last years Royal Society of Arts study into pensions, that you have mentioned yourself in the past, has pointed out that most fund managers in the city do absolutely nothing whatsoever to enhance the performance of these funds, but simply cost them huge amounts in charges, and the City very effectively colludes together to keep these charges outrageously high. The study found that it is actually the size of these charges that are the only real determinant of what size pension you will get. In other words it's pretty simple what's happening here - the anti-competitive, closed shop type, collusion in the City, conspiring to set charges high for everyone = many poor pensioners + a few rich bankers in the city of London, while in a different world that had boring, averagely remunerated no frills banking and fund management = most pensioners in the country much better off + a number of less well paid bankers.
One other major issue that the City has to grapple with that you have not covered in this piece is the fact that the UK is a small country with it's own currency. We surely can't let systemically important banks in the UK grow completely unchecked if we want to be able to support them when things go pear shaped, without threatening our currency (...... again)?
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We need Banks. We need responsible institutions that take deposits and make loans. The problem is Bankers forgot all of that and instead wasted our money on ficticious financial products. In doing so they rendered themselves useless - as a result we no longer need them.
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Sorry, but for me the whole edifice of British banking is rotten to the core. I believe the only wealth they created over the last decade ended up in their own pockets as bonuses paid for by the tax-payer. The rest has just vanished into thin air via the capital depreciation of house prices.
The last thing we should be doing is defending the current system and believing that it can somehow get us out of our enourmous debt mountain. Those in banking, apart from the retail staff, should be re-employed doing something actually productive and at a wage comparable to the rest of us.
What hope is there for us when the bankers, regulators and politicians all have their snouts in the same trough? I have no plans to hug any bankers in the near future, thank you.
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To Phil - post 118
My word what a complete load of rubbish. Stick to the Daily Mail board.
....loans people can't pay back are not completely the fault of a bank or any institution that lends money. The problem with todays society is no one will take responsibility for there actions.
I took out a mortgatge far bigger than I wanted to because I wanted a home. I'm still paying this and if the worst happens and I lose my job I'd probably lose my home. What I haven't done is re-mortgage to buy a bigger car or take the family to the other side of the world.
If you have taken out a loan that you can't pay back or maxed out a credit card and got another one and then remortaged the house to pay it all back - who is at fault?? I know lets all blame someone else!
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I'll hug a banker any time ..... just to pin his arms to his sides whilst my mates rifle through his pockets
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This article seems highly politicised, not a report on business.
What's going on Peston ? Who told you to write it ?
If the government wants people to forget the crimes of the bankers, they need to dole out the punishment. Punish the guilty, then we can all move forwards. After all, the "Court of Public Opinion" has given its verdict.
Trying to fob off the public with "be nice to the bankers or its going to get much worse" isn't going to go down too well with anyone. Except those hoping not to get a windfall tax on million pound bonuses. And there's comparitively fewer (or is it less) of them.
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#88 stanilic "The simple reality is that the bankers were allowed to run riot by a government that was mesmerised by the idea of money for nothing from nothing."
True - for the last couple of governments, and for a large section of the British public who gambled on either (i) perpetual house price increases or (ii) selling out and downsizing before the crash.
#136 citygambler "..Despite the anarchists who don't actually grasp what 'Collapse of The Banking System' would mean for the world and assume that the bankruptcy of HBOS, RBS, Citigroup(god forbid)..etc" City types have been great proponents of the free market, rewards to the strong, the weakest to the wall etc.
Now Bankers are the weakest, they don't want to go to the wall. They also don't want the law to apply to them. Who ARE the anarchists really?
Either the free market applies, and bankers are allowed to fail and lose everything like any other private enterprise, OR they become civil servants, highly regulated and accountable to the state and the public.
In the meantime Robert, as many bloggers are suggesting, please write SOMETHING about what's happening in the real economy to real people. How is this crisis affecting wages, and what effect will that have on deflation?
Rather than finance the banks to "lend", cut out the middleman. There ARE historical examples of where printing money worked, because it was done proportionately and in moderation. Galbraith cites, amongst others, the examples of Maryland and Pennsylvania in the mid-eighteenth century. Money is merely an entitlement to consume goods and services. If money is to be printed for "fiscal stimulus", why not give everyone spendable tax credit vouchers - tapered towards the poor who will actually spend it. And/or give British manufacturers a tax rebate in proportion to their output - this might help redress some of the current public/private imbalance.
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It just goes to show you can't be too careful.
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Well if Old Bah Humbug hasn't seen the ghost of Christmas Future..... After a year of beating young Bob Cratchit (or is that Diamond) suddenly Scrouge has woken up to see the future....... With no city of London.... No juicy stories and ...... Oh no!.... What has he seen..... The ghosts of all those business editors and journalists.... washed up with nothing to write about!!
About time we started to see something more positve.... More carrot less stick
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What an extraordinary view, and set of comments. First my banks, neither RBS or HBOS (now LLoyds; I hate Lloyds to paraphase Mr Rooney who is paid as much as a banker)or Alliance and Leicester, have stolen my money. (and Northern Rock did not do so before them.) Nat West have not foreclosed my mortgage. My shares have taken a beating but that has happened before. In fact HBOS have lent me £3K so far on a interest free credit card (which I have backed by my assett to pay it off. None of my property is worth less than when I bought it to enjoy. My state pension will be up next month as will by public sector pension (I would have prefered not to retire. I was actually given another six months work.) I am sure all this applies to 80% of the propulation are in similar circumstances.
I do agree that important bank services to individuals and real economy organisation should be protected. Did you know RBS is a very large player in letter of credits which have underpinned since the 18th Century the movement of good round the world. I do think business men should be weaned off overdrafts and on to loans. I do think total credit card limits should be regulated (after all there are only two credit two major operators), and I do think only licensed special institutions should be permitted to operate in high risk management areas (Hedge Funds etc) and that Private Equity tax priviledges should end, and highly levraged buy outs restricted. Finally we should end the myth that shareholders own companies. They don't in any real sense.
We should stop wanting something for nothing.... from financial products and buying at the lowest price without regard to risk. If anyone as any evidence that banks have done anything unlawful they should inform the Regulator and the and the Fraud Police, and stop throwing wild accusations around.
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New Layout, same old reporting....
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I share the views of many other posters who question the value added by this entry - whoever thought we could survve without banking at all? UK undoubtedly needs some world class export industries - just hat banking must not be the only one and it must not be allowed to be inimical to the survival of other key sectors.
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None are more hopelessly enslaved than those who falsely believe they are free.
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Don't blame the bankers alone - blame the regulators. (and fire them NOW)
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I might be persuaded to hug a banker if they would stop their tellers from trying to sell me something everytime I visit the branch.
They even have the audacity to have their "performance to target" charts visible to all and sundry in my local Lloyds.
Insurance, loansB, LoansP, (presumably business and personal), mortgages,etc,etc.
"Anything else I can help you with" is heard far more than "Thank you for your custom".
Leopards and spots springs to mind.
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I completely agree.
We have been whipping the bankers for the last year now. They made a mistake, we have paid dearly for it, we have all learned our lesson. Now let go and move on. Moaning about it for another 6 months gets us nowhere.
Banks are essential and we do banking better than most, it's transformed London into the financial capital of Europe, a title that could just as easily gone to Frankfurt or Paris.
Strengthen the FSA and give them enough teeth to make sure no one forgets this lesson in a hurry.
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Hug a banker?
I don't think so, Robert. Worst thing we could ever do.
Why would we ever wish to trust them again?
More importantly, why do we need them when things get back to "normal"?
Wasn't it the last "normal" that got us into this mess in the first place?
Fingers in the till and gambling our money away, whilst accruing jaw-dropping pension benefits.
No Robert, a hug is too good and repeating the sentiments already posted:
"mug a banker maybe, but better to fire them and their regulators."
If any of us abused our positions of office, we would be shown the door promptly without a pretty pension!
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#134 sosraboc
yes jiggery pokery with smokesceen
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Re the FSA
Have anyone checked the emails of the Food Standard Agency in case they received all the wrong emails?
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Hahaha...
Invest few trillions in space program and human race will walk on Moon, Mars and Jupiter's satellites.
Invest it in banking sector and than blame the rest for not doing better...
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Robert, have no fear. The financial WMDs have already been detonated.
Name one country where the bankers and financiers can be trusted and competent? You see, we are no worse off.
The financiers and bankers have more to lose be FAR worse off than most of us if they plunge the world into a financial abyss.
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Bob,
I don't think it's appropriate time to ask this question and imply that we need to forgive the Bankers.
Quote from the film "The Outlaw Josey Wales" - "Don't p.ss down my back and tell me it's raining"
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Yes, I will just go get my spiky suit and go find a banker to hug.
Banks perform some very useful functions but increasingly the functions they have provided have been detrimental to society as a whole. It is unacceptable to comparatively beggar large sections of the rest of society along the way nor will it be acceptable to have banking be the only driver of our countries success.
Pensioners now and in the future are paying for bankings profligacy - any pensioner who has to convert to an annuity now will be paying the price for the rest of their lives.
We will be paying for these actions for the forseeable future in tax increases. The only prospect that we will not is frankly either if we let them do it again (only next time the crash will be monumental) or high inflation makes the debt meaningless (and beggars more people along the way).
Our Mate Dave makes it clear that hard decisions will be made at the next election - things we have come to expect will go - some will be waste we won't miss but some will be valuable services which we will either have to pay for or go without. We can then look forward to the cycle of deteriorating public buildings and services that will result and the large rise in structural unemployment from surplus public sector workers.
Thus far short of a few platitudes nothing is in place or changed to ensure that this cannot happen again. The reticence and self restraint caused by the banking situation now quite simply won't last and any solution which ends up as it's OK they won't do it again becuase of what happened last time just won't wash. The current or a new generation will do it again for just the same reason - not one of them has lost anything they cannot do without (e.g. liberty, ability earn a living, contents of the offshore accounts etc.) so the risk/reward balance remains skewed.
However I have just about given up any expectation that anything will actually be done, for just the reasons in the piece. Banking was the horse UK plc bet on and now the glue factory is closed the only thing to do is continue to ride it.
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Why, oh why, do people insist on tarring everyone with the same brush ?? It is not the financial industry that has failed. It is the various banks, building societies and insurance companies, etc. that have failed. However, there are still some that *HAVE NOT FAILED* !!
Do we now throw the baby out with the bath-water ?? Will we go back to bartering two days' work for one chicken ??
Answers on the back of a postage stamp, please !!
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Robert Robert Robert. . .
You just don't get it do you?
The City Snake Oil Salesmen had their day and their blew it like Hiroshima. They choked us on their smoke and then smashed their own mirrors just for the hell of it. Their stupid system is about as dead as can be. And still. . . you have to fawn at their cloven feet.
Banking does not create wealth. It creates an illusion of it. Instead it funnels wealth, it syphons it, away from the people who actually create it into the hands of a tiny elite who do not.
If the Square Mile was vaporised overnight it would be no bad thing.
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From the BBC site......
* Pre-moderation - every single message is checked before it appears on the board. All of the BBC's children's message boards are supervised in this way.
* Post-moderation - all messages appear on the board first and are checked afterwards. Most BBC message boards are supervised in this way.
* Reactive moderation - messages are only checked if a complaint is made about them. This approach is only used on boards for adults.
So pestons,blog is classed as a childrens blog.......Come on move to "post moderation" to give this blog some spontaneity!
While the redesign was going on didnt anyone think to make the pound sterling sign visible in a UK economic blog...£ $ € ????
when i look at the preview it is ok.........£££££££££
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94 RuariJM, 97 apollo_Mcqueen 101 Thegrimcrim 102 Bankslickerminusther 103 javaman1984 119 tom-edinburgh 156 sutara They all get it...so how is it Alistair Darling and Gordon Brown don't.
"It" being you CAN fool all of the people some of the time...but time's up now, sorry!
We won't get fooled again....(heard THAT somewhere before!)
And (serious point follows) the North Staffs Hospital does have a direct line attached to Goodwin's pension....it runs from stupid amoral governance, through spin, through pointless motion masquerading as purposed action, to an utter lack of commonsense...ending in Greed.
How much were the four highest executives paid at the Hospital's governing authority?
That's why all this matters..there is a real world out here and the government seems about as aware of the reality of the disasters starting to happen to the people they represent as the last few Nazis in the bunker were aware of what they'd done.
It's too harsh a simile I know!---- Brown's no Nazi and Darling's no Hitler...but it's the disconnect from the situation I am trying to highlight----- it's the stream of directives that are just inept that is the really worrying thing...
"The hole is deep enough guys..... it's already going to take 10 years to fill...please, at least put down the shovels, and come up here and see what it looks like before you dig any more"
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SEEMS FOR ALL THAT "GROWTH" WE NOW HAVE A BILL WHICH WILL TAKE 25 YEARS
PLUS TO PAY.
SO WHAT PRICE GROWTH??
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After listening to the forthright comment today from the Parliamentary committee member to Lord Myners. "Are you scratching each others backs" I feel that they most certainly all are.
Robert Peston is not the man for the job of doing financial journalistic reporting on these matters. He is I feel in with the 'Back scratcher' Never any forthright questioning or condemnation comes from his lips. I feel that he is a sop to the bankers from the BBC.
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This is not journalism.
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I like the idea of Fred Goodwin as a lightning rod.
It conjures up very pleasing images.
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Community bank finds paranoid a smart bet
http://boston.bizjournals.com/boston/stories/2009/03/16/story3.html
They are punishing a bank for not lending and being a good bank. Should we really hug the bankers which are often found moving their insiders into the regulators system? What good is having a regulator of finance when they all worked for Goldman Sachs, Citi and so forth years before and probably years after their public service.
We are being robbed. The jobs will be lost and the wages will fall yet all we seem to care about is saving the scum at the top instead of simply making a minor cushon for those at the bottom.
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The fact is we do not need bankers not as we know them we only need bankers as they have evolved to retain the model that has brought us to this catastrophe
The whole lot are emotionally fiscally and mentally detached from society have no concept of how wealth is generated or life enhanced other than by creation of false facts, false figures, false market and manipulation of inflation.
I have been in business since 1969 my father started in business in 1920 my grandfather set up his first business in 1898 from all the first hand stories of all those years and all the business experiences I can not recall any that would show or prove bankers to be of any real asset but dozens to the contrary.
Now don’t get me wrong one of my fathers best friends and companion was a banker I had a retired bank manager work for ten years with me in one business he and his family were great people helpful to the community fine pillars of society great charity and church supporters lovely kind concerned genuine people.
But in terms of supporting or helping society achieve anything through their services as bankers useless the great things they did for people and community were not because of banking in the main they were in spite of it.
Banking is not necessary to society banks make money by sucking it out of society the systems and the process they operate and design are all geared to do that they ensure that a little sticks from everything that passes their nose from someone elses endeavour or enterprise. The sooner that is realised the better banks make money by taking it not giving it and they earn money without providing a service in fact they provide a disservice made by smoke and mirrors to look like a service
Yes there is a place for some of the services that banks are perceived to provide but these are not at the centre of our economic needs and they certainly are not at the sharp end where they have been for 20years its out of proportion to the social economic needs of any of us.
So what are we doing we are desperately pumping billions into a black hole to reinstate banking as it was. Ten to fifteen years down the road we will be facing an even bigger version of this mess
It is time to change in case you missed that - it is time to change and we can and we should though I doubt that we will because no one has the vision to see it differently.
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Robert:
Are we in danger of cutting off our noses (in an economic sense) to spite our ugly mugs?
Yes, I think that we are in danger in the economic sense of cutting the nose....
~Dennis Junior~
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Robert Preston:
Or, to be more explicit, is there a risk that we could do irrevocable harm to one of the few industries - financial services, the City of London - which has a significant competitive and comparative advantage?
Yes, i think that the risk of harming the industries of financial services are there....
~Dennis Junior~
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You state "And even where the firms based in London weren't British in a strict legal sense, they provided employment and tax revenues to the benefit of the UK".
City firms have whole departments set up to help employees avoid paying tax on there bonuses and salaries.
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Building an economy on financial gambling is the problem that has gotten this country into a terrible mess. It is NOT an option for the future. It may be appropriate for countries like Monaco or Liechtenstein, but not for one of 60 million people. So it is not the nose we're cutting off but the ugly and useless wart on it.
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The BROWN BEAR market has already given the bankerrs a good ugh !followed by an AAAIR BUG
Now that they are well red ,what the Sirprized conucopian vissionaaairys need is a bull market to suitably reward their AAA,s holes with the horn of plenty ,or to have their globals articulated by the laaap dancing POLLAR BLEAR working for JP after his roadmap to damaaascaaas conversion
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This pest is aaawaiting moderation. Explane
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Hug a Banker?
If it's a pythin doing the hugging, I have no objections.
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129
employment can never be guarenteed so any loan has a risk. i have insurance for a year so take my responsibilities seriously hope the building trade has reopened this time next year or i am afraid default is the only option .
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"we need banks and bankers, to secure our own future prosperity"
Why do you assume that we need these bankers? They have proved their professional incompetence and should be prosecuted for professionsl negligence, and hopefully never allowed to work in the financial sector again. And now we supposed to just let them back in?
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I have listened to your broadcasts, read your articles and then had my faith shattered in anything you have said by finding out you are a 'Common Purpose' graduate, the left wing Masons, who only wish to work with "like minded" people.
Explain how we can trust now you're independence?
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#31 inocom
Good analysis - I agree that large parts of our service industries; legal, financial and otherwise, continue to be held in high esteem, provide employment and are essential for our balance of payments, but I am surprised that someone who is so interested in the psychology of it all should fail to understand that large numbers of young men valued the jobs that heavy industry provided - these jobs involved physical skills which gave them status - good for their mental and physical wellbeing - good for their girlfriends/wives, children, and ultimately good for their communities.
As far as bankers are concerned , we need them , but only the huggable ones.
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Haven't we always owned the banks in one way or another - anyone with a personal pension has always likely owned a chunk of the bank - why didn't the good folks administering those over the years raise the question of the bonus?
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This isn't about trade surpluses, banker incentives or the rest.
Bankers drove their own companies into bankruptcy. It's plain and simple. There were many factors, but the main one seems to have been 'poor practice' as opposed to 'good practice' - some might say 'commonsense'. So no, we do NOT need hot-shot bankers. We actually need mundane bankers, who remember what their business is supposed to be about.
Personally, I'd have let them go into receivership - this is the proper method for resolving these total failures, starting with dismissals of the Boards, investigations into whether misleading statements were made in the Annual accounts etc, commitments entered into that were no more than gambles but hashed up as 'swaps' and so on. The bonus scandal is just symptomatic of the continuation of this cozy internal view of the world that deceives 'unintentionally'.
Everything else is just smoke-n-mirrors, a 'bankruptcy' playing itself out by pretending not to be a bankruptcy. As a result, the cathartic processes that a real bankruptcy imposes are not in evidence, and we get these 'bonus' stupidities instead.
The finance industry might be 'in surplus', but we know who is now funding that 'surplus'. The greatest harm to this industry has already been caused - greed and dishonesty have done that already. But no real recognition of this, no cleansing, no starting afresh.
"Don't rock the boat" is still alive and kicking.
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I also read about your comment about jon stewart and thought it incredibly smug. Since i have started watching the daily show and colbert report i have been desperately hoping for something similar on uk tv, but there is nothing. Do you really believe that the UK media is not guilty of sensationalising stories without getting to the substance, or capable of partisan hackery? The British media control access to political stories but are never criticised themselves. God i hope jon stewart comes here.
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If anything the current crisis has reminded us how critical banks and bankers are to our lives. The issue is not whether we can dispense with them- it is how do we re-establish a banking industry that sustainably serves the broader economic interests of all.
The revelation of how acutely self serving the culture of bankers and banking has become has come as a shock to many. However having worked my whole life in the city I know that the majority of those I have worked with understood they were there to extract as much money as they could for themselves as quickly as possible. We knew we offered less to society than a surgeon or an architect. We even new we offered pretty low value for money to shareholders and clients- but that was never the point- Even though we did work hard, loosely structured performance related remuneration allowed us to secure frankly ridiculous amounts of money to do pretty average work. I have always found it surprising that people ever lapped up the idea that we should receive extra money for just doing our job properly. Also, as we all knew, superior returns were more often than not based on a)good fortune, b)under pricing of risk and c)simply being around during one of the longest periods of economic growth in global history. Find me those superior returns now that risk is being repriced and we have global recession- perhaps revealingly we are now left solely reliant on our skill and good fortune, and its not a pretty picture.
What is perhaps more astounding is that it has only been since the government has arrived as a majority shareholder that anyone has thought to challenge the idea that we should keep getting healthy bonuses even if we are losing money on a grand scale. It very much illustrates how shareholders have totally lost control of the companies they own to their executives. As new governmental owners make moves to re-establish shareholder control the range of bizarre executives responses have only gone to reveal just how over-extended their collective sense of entitlement has become. Frighteningly -if anything- the media underplays the level of hubris amongst mid to upper management. It is not a secret that some very well remunerated managers in government bailed out banks have been threatening to walk while actively leave chaos in their wake, unless they get a substantial bonus. The argument being that these remuneration levels are low relative to the sums at stake. I think in Chicago they used to call this kind of racket a 'Shake-down'.
The sooner this disastrously damaging culture is broken, and errant managers and executives are brought to heal or shown the door, the sooner we might feel more optimistic about a achieving a banking industry that serves our broader economic interest. Tighter regulation will help restrain the worst excesses, however it will never establish a change of attitude. Besides the city is rightly confident it will always manage to be a couple of steps ahead of the regulators. Ironically Thatcher very clearly showed us what needs to be done when those working within a whole economic sector form a self interested cabal that threatens our wider economic interests.
- You make it very clear to them that if they do not quickly adjust to the new status quo they will not survive.
- Encourage the introduction of new entrants who offer better value for money, and a more sympathetic business culture.
- Help re-establish strong active shareholder control.
It will then just be up to individual bankers to decide whether they really do just want to walk away. I would suggest our banking industry would be well rid of those who do.
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This is a fairly uniquely depressing combination of lightweight journalism and being treated to some more insights from doctor-gloom (# 27)...
The accumulation of the more pernicious of the "dodgy securities" mostly took place I think over the last decade; even before then, the sector was a substantial, and for the most part profitable, contributor to the UK economy. Unfortunately the losses from, and the scale of, those bets have eclipsed the rest of the sector, where many areas were and continue to be highly profitable. It might make sense to at least keep the good bits. Then again, it's obviously all a conspiracy to enrich the evil bankers, so why detract from the much more enjoyable witch hunt mentality?
Although I do agree that the moderation department could be beefed up a bit.
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Post 205, I would be somewhat surprised if you did indeed work in an investment banking firm as the argumentation contained in your post, notwithstanding some true statements about our overpay, is not entirely convincing.
"Encourage the introduction of new entrants who offer better value for money". This is a somewhat inane statement and I don't think it's really applicable in many profitable areas of banking. I'm one of the evil bankers, and work in mergers and acquisitions at a US firm. If an investment banking client wants to save money, they can boot us out and go straight to any one of dozens of 2nd or 3rd tier firms and get advisory services for a tenth of what we charge them. They don't. The reason they don't isn't because of a grand conspiracy, it's because, as unglamorous as our work is, it is also extremely grueling and demanding to do reasonably well
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AIG traders should get paid big bonuses!! There, I've said it ...
Robert,
Good to see you've thrown in the old chestnut about the outrageous nature of AIG's bonuses, convincingly backing it up with an eloquently-worded "whose crazy deals almost killed the giant insurer".
How about showing some independence of thought and acknowledging the lack of certainty here? Maybe paying those bonuses was a good idea? Maybe it was a bad idea? I've read the disclosure, heard the views of highly placed folks in the US and I don't think it's clear cut. But it's good to see you've come to an authoritative conclusion.
Some of those well paid traders at AIG were said to have been hired away relatively recently from top tier banks to help unwind the derivative positions at AIG. They didn't create the mess at AIG. Some of them are said to have done a good job at profitably unwinding trades in the energy sector for AIG. The only reason they would have joined AIG is if they were being paid well. I understand that promises were repeatedly made by AIG's CEO during last year that contracts would be honored. So it is strange that he now claims to find the bonuses "distasteful".
If it is genuinely difficult to unwind derivative trades, then perhaps it's better to pay some folks US$160mm and try and minimize the potential losses involved with a trillion dollars of assets?
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