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Barclays: does the buck stop anywhere?

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Robin Lustig | 14:58 UK time, Friday, 6 July 2012

I don't know about you, but I'm glad I wasn't the Barclays buck this week.

That's buck as in "The buck stops here."

On Monday, there it was, sitting on the desk of Barclays chairman Marcus Agius. This is where the buck stops, he said, so he quit.

Twenty-four hours later, that same little buck had bounced all the way to the desk of chief executive Bob Diamond. Actually, he said, on reflection, I think this is where the buck stops -- so he quit.

At which point, although I can't be sure, I think the buck bounced back to the desk of Mr Agius, who decided to de-resign, and take back the job that he had just quit, plus the job that Mr Diamond had just quit -- so maybe there are now two bucks on his desk.

The question is: will they stop there? Or will they soon be bouncing out of the building, and along to the Financial Services Authority? Or the Bank of England? Maybe the Treasury?

Perhaps in the world of modern banking, bucks don't stop anywhere. Perhaps by a mysterious process of metamorphosis, they turn into hot potatoes -- bouncing around in a political and financial limbo, condemned never to find a resting place.

In the court of public opinion, Mr Diamond is toast. Earning something in the region of £100 million over the past five years probably doesn't help his cause much -- and if he was hoping for some understanding from MPs on the Treasury select committee, maybe someone should have whispered in his ear that addressing them familiarly by their first names was not a good career move.

(Some people have suggested it was because he's American and not attuned to quaint old British parliamentary etiquette. So I checked with a US financial journalist: would he have used first names at a Congressional committee inquiry on Capitol Hill? Answer: You must be kidding.)

As for the verdict from the financial pages of our leading newspapers, well, let's say Mr Diamond is not over-blessed with friends at the moment.

Philip Stephens in the Financial Times: "The trading in the complex financial instruments central to the crash is now seen for what it is - a socially useless and financially dangerous way for small groups of people to make themselves absurdly rich ... Mr Diamond was the unacceptable face of banking. His departure is welcome and necessary for the health to be restored to Britain's financial industry. "

Jeremy Warner in the Daily Telegraph: "There is no defence against what Barclays has been accused of, which strays way beyond the incompetence, hubris and recklessness of the banking crisis into outright deception, falsification and fraud ... What useful social purpose do investment banking goliaths such as Barclays Capital serve, and how do you change them so that they are not just money-making machines for themselves?"

OK, so we get the message. Mr Diamond is no saint, and the kind of banking that he has come to epitomise ("casino banking" to its critics) does no good -- and a lot of harm -- to the health of the nation.

But here's what I want to know: how did we get here? It's not as if they were making their squillions in secret, hiding their cash under mattresses and at the back of cupboards. In those far-off days before it all went belly-up, bankers behaving badly were regular fodder for the gossip columns.

It is, after all, 25 years since Tom Wolfe published "The Bonfire of the Vanities" in which he laid bare the excesses of Wall Street. Come to that, it's also 25 years since Oliver Stone's film "Wall Street", in which Michael Douglas portrayed the loveable Gordon ("Greed is good") Gekko.

M'lud, I make no accusations at this point, but you may wish to consider the following article from The Times, published on 9 December 2009:

"Speaking to a gathering of top financiers, the Conservative leader [Mr David Cameron] told them: 'My father was a stockbroker, my grandfather was a stockbroker, my great-grandfather was a stockbroker.' The City, he assured them, was in his blood. Those present, who included Bob Diamond, president of Barclays, and Richard Gnodde, the co-chief executive of Goldman Sachs in London, purred their approval."

No, I don't say the buck should end up on Mr Cameron's desk. Or on Gordon Brown's, or Ed Balls's, or Shriti Vadera's.

But maybe we should consider why over a period of two decades or more, successive political leaders and financial regulators have observed Mr Diamond and friends in action and happily cheered them on.

Matthew Norman, writing in The Independent on Wednesday, claimed that Vince Cable, now the business secretary, has been a lone voice, crying in the wilderness, warning of the cataclysm to come. "He warned about unsustainable cheap credit ... He pinpointed the structural weakness at Northern Rock and called for its nationalisation ... For inadvertently declaring war against a Murdoch media stranglehold, he was ridiculed ... By then, he had already spoken about casino banking in general, and Bob Diamond's appointment as Barclay's CEO in particular."

If he's right -- and you can be the judge of that -- it might be interesting to ask why St Vince was apparently such a lone voice. More interesting, I suspect, than observing the antics of Messrs Osborne and Balls in the Commons yesterday afternoon, which I did on your behalf.

I won't describe the scenes, because I know you are of a sensitive disposition. Let's just put it this way: they made bare-knuckle boxing look like a Women's Institute needlepoint awayday.

Comments

  • Comment number 1.

    "But maybe we should consider why over a period of two decades or more, successive political leaders and financial regulators have observed Mr Diamond and friends in action and happily cheered them on."

    “The bank hath benefit of interest on all moneys which it creates out of nothing.” William Paterson, founder of the Bank of England in 1694, then a privately owned bank.

  • Comment number 2.

    What is the most efficient way to drastically reduce the size and scope of the financial system down to that which helps business, trade and personal money handling?

    We really should consider a National Maximum Income (at 20x the National Minimum Wage). This will force the effective closure of the robbers. At the same time enforce exchange control so that they can't abscond with the proceeds of their crimes.

    Re-establish a National Saving Bank and expand it to provide cheque, debit card and small overdrafts. Create a National Investment Bank offering longer term loans and longer term savings products.

    I do not think that the housing market will completely collapse with wholesale repossessions as many many borrowers have been paying down their loans and those that haven't have only themselves to blame!

    Capital tax on property sales above £1 million at the marginal rate of tax (see National Maximum Income above where marginal rate will be 100%)

    What ever happens we can't go on as we are either through our own choice or through market pressure. It is completely unacceptable to dither and hope our ship comes in a Micawberish way - it will not work and we cannot afford to waste the economic output of the millions of unemployed for the twenty or thirty more years it will take.

    The Bank of England needs to be rebuilt from top to bottom sacking the entire MPC and all the directors and most importantly the Governor. The Bank must be charged with regulating the supply of money to prevent another credit bubble. This was the omission that cause the bubble and the crash - almost any competent banker would have told us this (except of course those educated at the Harvard school of la la economics that is.)

    None of the commentators seem to have truly grasped the financial enormity of the problem, yet the facts are there for some to see.* The banks have a couple of trillion pounds of debt to wipe out instanta, and the BoE's derisory £0.4tn of QE will have no possible impact. The banking dodgy debt is bigger that the UK GDP! The size of the sums mean there is absolutely no way that sitting on our hands (see la la above) is going to fix anything within a generation or two and that is far far too long to wait.

    We have to act. The only action available is to jack up interest rates. This action is, by no chance whatsoever, the exact opposite of the action that created the capital / debt bubble. We must do it or we will edge very close to the very direst of consequences becoming unavoidable.

    * I suspect the reason that none of the commentators have grasped the reality is that they are afraid of sums or possible can't do them - strong of rhetoric but weak on numeric comprehension or perhaps they lack the intestinal fortitude.

  • Comment number 3.

    Nothing like getting proxies to say stuff on your behalf..

    'bouncing around in a political and financial limbo'

    And media too, don't forget...

    http://www.bbc.co.uk/ariel/17549109 - Non-exec not wanted

    Have to say it was refreshing to see an answer (of sorts) at least to questions asked of powers less used to being on the receiving end.

  • Comment number 4.

  • Comment number 5.

    Why Is Libor Scandal So Critically Important to YOU?
    Libor scandal is biggest financial scam in world history. Former CEO of Barclays said banks across the world were fixing interest rates IN THE RUN-UP TO FINANCIAL CRISIS .
    The scandal effects an $800 TRILLION dollar market – 10 times size of entire world GDP.
    Where do YOU come in? Homeowners, credit card holders, student-lenders, small businesses - virtually everyone has been impacted by gross manipulation.
    Libor scandal has revealed that global capitalism functions not AS A FREE MARKET, but as rigged market controlled by cartels & multi-billionaire speculators. Sums are staggering: The most conservative estimate of the money accrued to world’s top banks = £48B ($75B), & SFO investigation has just begun.
    Libor & Euribor are 2 crucial mechanisms for setting interest rates. Libor is the largest, most variable rate, covering ten currencies. It even helps determine RATE OF US DOLLAR.
    SFO will show us how deeply, hurtfully WE HAVE BEEN TAKEN by the financial sharks!

  • Comment number 6.

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

  • Comment number 7.

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

  • Comment number 8.

    5...7 BluesBerry I disagree with you about the harm done by fiddling libor.

    I tend to think that rates have been kept artificially low - so the cost will be to the saver not the borrower.

    The real tragedy is the idiocy of the regulators in permitting the uncontrolled expansion of credit - not the cost of that credit.

    I hope you will support my proposals for regulatory action to directly reduce inequality (see 2 above) - we have to get a firm grip of the delicate parts of event bankers anatomy and squeeze as that is exactly what they have been doing to the rest of us. We need restorative justice!

  • Comment number 9.

    J_f_H

    "I tend to think that rates have been kept artificially low - so the cost will be to the saver not the borrower."

    High Street banks make the most money when rates are low.

    --Savers get lower interest AND the the spread between borrowing and lending can be increased without the borrower complaining too much.

    In such a situation as this (insecurity) -- the % spreads are massive.

    --again arises the question whether the ´free market´increases competition or collusion and price fixing --with banking, the latter.

  • Comment number 10.

    9. quietoaktree wrote: "´free market´increases competition or collusion and price fixing --with banking, the latter."

    Banking is NOT a 'free market' there is a huge regulatory barrier to entry and highly protected membership - that is not a free market by any rational definition! The anti-money laundering and identity proof requirements are an enormous anticompetitive barrier.

  • Comment number 11.

    #10 J_f_H

    -- That was why ´free market´ --sarcasm was intended --but failed ?

  • Comment number 12.

    Here are latest results from a ´Spiegel´ survey.

    (3 photos of the results)

    http://www.spiegel.de/fotostrecke/spiegel-online-survey-on-attitudes-to-euro-crisis-fotostrecke-84563.html

    -- it is dangerous for both the Euro and EU -- and for countries still hoping to escape austerity with German payments.

    The text--

    http://www.spiegel.de/international/germany/spiegel-online-survey-germans-opposed-to-further-euro-bailouts-a-843000.html

    --describes the divisions between the electorate of the political parties.

  • Comment number 13.

    8. John_from_Hendon wrote:
    "5...7 BluesBerry I disagree with you about the harm done by fiddling libor."
    I'm trying hard to see your points, which I thought were well put.
    1. Of course, interest rates have been kept artificially low. Now, the question becomes why. Here I break down; I cannot understand that this is being done "so the cost will be to the saver not the borrower". There are very few borrowers because the banks are not lending; therefore, few borrowers are affected, and savers surely aren't making any money on their savings' accounts. The low interest rate(s) are for the banks to lend (not SMEs or individuals); banks borrow to remove toxic debt from their balance sheets - An impossible task by the way.
    2. I couldn't agree more: The real tragedy is the idiocy of the regulators...but that's as far as I can go, and what's more, I don't think is "idiocy" is the right word as much as "collusion". The uncontrolled expansion of credit originated in the US, is Anglo/American. The start was sub-prime lending, i.e. began with worthless derivatives, worthless loans, and was just plain worthless, like cancer - worthless, but easily metastasized till the entire organism is dying.
    3. I will support you in regulatory reform for the sake of fixing an otherwise broken system; I will support you in tightening regulation because investment banks to big to fail need to be reigned in, monitored like small children with too much money.
    And yes absolutely, John: we have to get a firm grip on the delicate parts of event bankers' anatomy and squeeze these delicate parts for that is exactly what they have been doing to the rest of us. We need restorative justice!
    Amen!

  • Comment number 14.

    quietoaktree wrote:
    "Here are latest results from a ´Spiegel´ survey."
    Though I found these links interesting, I could not understand how any of them responded to the Q. Barclays: does the buck stop anywhere?
    Maybe, I'm just a little dim-witted this morning, need more coffee.
    Are you saying Barclays in some way is connected with German frustration, Euribor as ell as Libor. If the latter, I think (maybe) I begin to see your point.

  • Comment number 15.

    13. BluesBerry wrote: "interest rates have been kept artificially low"

    Let me be more specific: since about 1997 and for the whole of the noughties and now more so. Money is commodity like any other commodity. The supply was allowed to expand without control and in consequence the price of assets also did so - that was inevitable - asset price inflation was (and still is!) seen as a good thing - when the reverse is the reality. The price of money should have been raised to limit the expansion of credit - as credit volume limits can no longer be enforced. This is the true insanity and the Bank of England. An entirely predictable bubble economy followed by an entirely predictable (and predicted) crash.

  • Comment number 16.

    The prosperity and impending crash trend has become so predictable in the hands of such superficial policy makers that even forex systems can predict how much time the economy's left with.

  • Comment number 17.

     
    "But for now, Europe's financial disintegration seems to be moving faster than the forces of financial integration."

    According to this.

  • Comment number 18.

    John_from_Hendon wrote:
    13. BluesBerry wrote: "interest rates have been kept artificially low"
    Let me also be more specific: since about 1997 & up to current date money as a commodity has not been exposed to capitalism i.e. supply and demand. The supply was allowed to expand by the printing press - mainly US and UK - and usually tied to Q.E. There was an odd relationship between demand and supply, the supply going to the banks who sopped it up for the purpose of fixing the books (derivatives and toxic debt). Asset price inflation was (and still is) seen as a good thing, but it's not a good thing because the usual pattern is asset price deflation, as the asset ages. So asset inflation is a thing to cause eyebrows to raise and bells to go off. The price of money could not be raised because too much money was rolling off the printing presses = money devaluation. There is so much insanity in what is happening in the financial sector industry - most it riding on the back of derivatives & derivative offshoots, which due to a lack of proper paperwork are all but worthless. The BoE has lost control, or maybe just doesn't know what to do. So, I see it as a good think that this Parliamentary inquiry has bounced up to the SFO. The entire financial edifice is cracking...and I haven't even mentioned the useless use of platform trading which keeps stock markets afloat and looking far healthier than they are.

  • Comment number 19.

    #14 BB

    -- I am attempting to see this picture as a ´whole´ and not only in parts. The most important player in both the EU and Eurozone is Germany --they will ´make´or break´both. Every bit of ´bad news´ is dragging the German tax payer further into negative territory --in more ways than one.

    The propaganda is increasing on both sides of the Atlantic -- some important --some not.

    http://www.marketplace.org/topics/business/after-libor-scandal-london-fears-losing-financial-crown

    A ´Lord Haw Haw´ and similar are reporting in the USA (NPR--nothing new) -- and with respect to Greece and the other problems -- objectivity is often lacking -- and with an anti-German tilt.

    Whether the Bank of England colluded or not, we will probably never know for sure -- but one thing is clear -- it was in the interest of the UK if it did --and to the detriment of others. It is likely that this was an international banking ´effort´. Germans will be even more angry if their own banks are involved and will further weaken Merkel´s pro-European hand.

    http://www.spiegel.de/international/germany/german-president-joachim-gauck-criticizes-merkel-on-euro-policies-a-843340.html

    http://www.bbc.co.uk/news/world-europe-18780948

  • Comment number 20.

    Spiegel-Online on Libor

    http://www.spiegel.de/international/business/barclays-affair-rocks-european-banking-industry-a-843525.html

    The German ´Supreme Court´ says it could take 3 MONTHS to decide on ESM and Fiscal Packet -- more uncertainty. ( original in German)

  • Comment number 21.

    Re. #20

    The English translation of the article is now available.

    http://www.spiegel.de/international/europe/german-court-may-take-longer-to-rule-on-euro-measures-a-843560.html

    This complicates the issue -- but makes clear Germany´s dominant role within Europe --not by choice --but by the rolling of loaded dice that others have attempted to use.

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_06/07/2012_450863


    "Cypriot banks that owned Greek sovereign bonds lost about 80 or 81 percent of their total investment, which in actual terms amounts to 4.2 billion euros,» he said, underlining that that amount to 24 percent of economic output.

    "The real problem stems from that particular investment. If you ask me whether this was a fair way to deal with it, I would say no, this was not a fair way of dealing with it."

    Instead the minister argued that 100-billion-euro writedown of Greece's government debt - a process that has still not restored the country to debt-sustainability - should have been portioned out the basis of the size of euro zone economies.

    That would have meant Germany paying the most - around 27 percent of the total - and Cyprus just 0.2 percent.

    "What we should have done is share that loss fairly, on a level playing field, as the Europeans do, in a manner of solidarity,» the finance minister said.

  • Comment number 22.

    Various reporters began reporting about bank manipulation in 2007; this likely means that manipulation itself went back much, much further further. One 1980 trader said that he saw some pretty odd ratings. The rule was, if you don’t actually nail it down, the banks will find a way to take it.
    The real point is this: Given that homeowners, students, credit card holders, & other borrowers pay more when rates are higher, the banks appear to have stolen from customers for 10 years (or more) leading up to the financial crisis.
    Therefore, I can predict that lawyers will soon be launching class action lawsuits; in other words, lawyers may (at last) accomplish what regulators & politicians have colluded not to do: strip banks of ill gotten gains & bring their lying/cheating CEOs & their nefarious & complex products (like derivatives) to a reckoning: SOON.

  • Comment number 23.

    And then there is gold. You know when you cannot trust rates or paper-money; INVEST IN GOLD!
    Well, if you do some homework, you will find that big bullion dealers & ETFs (Exchange Traded Funds) don’t have NEARLY as much as physical bullion as they claim. Should several investors in gold demand physical delivery at the same time, it could cause a panic in the gold market which would cause a huge run up in gold prices.
    What's going on?
    I don't really know - not enough homework yet, but it seems some banks do not have the gold on hand that they should have. This is called "allocated gold" = your gold; so why is your gold not where you put it?

  • Comment number 24.

    #24 BB

    -- There is also "allocated silver" -- as far as I know it is ´real´-- only not specific bars in your name, but still physically stored in a vault.

  • Comment number 25.

    #24 Correction

    -- "un-allocated´silver was meant.

  • Comment number 26.

    18. BluesBerry asserted that in the last 15 years "The price of money could not be raised"

    You are entirely wrong - it both could have, and should have, been raised. All the signs of rampant run-away inflation were there for everyone to see (who wanted to!)

    The economic crime is and was that asset price inflation is a good thing. It is in many ways far more damaging that general price inflation.

    This goes to the very heart of the flaw in modern economics. The places like, but not exclusively, Harvard taught a perverted and incorrect from of economics that hoped that markets will self correct. They were (and to a lesser extent are) wrong. There deliberate perversion of the combined experience and evidence of history is the reason we had the crash. I am truly ashamed that one of my remote ancestors gave Harvard land and a house to get started.

    Indeed the ONLY action that can possibly fix the global economic malaise is to force interest rates up. The question is: do we wait till the markets do this? Or do we take proactive action. Economic history provides the answer: unless we force the issue the depression will be more destructive and far longer.

    But just like the 1930s the fools in change do the wrong thing for many years before it dawns on them that they must do the opposite. We have had the best part of a decade of dramatic increases in the money supply which has destroyed the UK (and much of the World's) economy. We must rebalance asset prices with the economically productive value of the assets.[ I'll expand on this if anyone indicates they do not understand.]

  • Comment number 27.

    I recommend to your readers a debate between William K Black, former financial regulator during the S&L crisis of the eighties and Richard Wellings of a City of London think tank on Cross Talk (RT). Moderator Peter Lavelle is one of the sharpest debators on the internet and never fails to put on a lively informative debate on the most important subjects. The debate is called "LIBOR or lie-more?" and deals in very incisive views and broad ranging discussion over financial markets and whether regulation has failed in both the City of London and Wall Street.

 

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