It is rare to find civic figures taking more flak than the government—especially a Tory government, as seen from Scotland—but, this week, the bankers managed it. And it wasn’t just the one in the limelight, Barclays. It was the whole wunch of ’em. Labour is quite right to insist (today’s Hootsmon) that a parliamentary inquiry is inadequate to deal with the scale of what’s been going on: only a Levenson-style examination under all stones—no matter how sacrosanct or odious—can clear the air.
In truth, they have been living dangerously ever since the house of cards loosely described as junk mortgages collapsed in 2007, blowing great holes in what were deemed as assets, triggering a reflex slamming-on of brakes in liquidity. Such a major spanner thrown into the global banking works tripped Northern Rock, Lehman Bros, Landisbanki and other overexposed international operations into insolvency, brought the two major ‘Scottish’ banks RBS & HBOS within hours of the same and cast huge doubt over the wisdom of recent inflated deals—such as RBS’s takeover of the Dutch ABN-AMRO.
Many sensible commentators, such as the Hootsmon’s redoubtable Bill Jamieson, had been saying the emperor had no clothes for some time. Ever since 1988’s ‘big bang’ of deregulation in the City, normally staid commercial high street banks had been in thrall to their investment arms that created and invested in “financial derivatives”. In the long stock market run prior to 2007, banks as well as developers, investors and outright speculators had not been content with simply investing in shares or bricks and mortar.
Starting with stock options, various ‘instruments’ were then marketed as ‘products’, each more speculative than the other. Any associated element of risk, as with most things in life, carried with it a premium. But that meant that Icelandic bonds or say, packaged junk mortgages, paid better interest. The trick was to keep the whole merry-go-round of faith going, even though this broke almost every principle of staid commercial banking being used as the stuffy ‘front’ for the bunch of financial cowboys running the investment arms.
And because those investment arms made the money, their managers were the ones promoted to run the whole operation, hence why Bob Diamond now runs Barclays, Fred the Shred got the top job at RBS. Such people were pilloried in the aftermath of 2007 as they retained their bloated bonuses even as their shares (supposedly ‘safe’ investments) lost 90% of their value.
Worse than that, small businesses, equally hammered by the sudden business chill found their bankers preferred to sit on the public cash they had been given to stay liquid and snub opportunities to make loans they once would have peddled tirelessly. Banks moved from being a pillar of local business to the pariah, especially when few heads rolled over the debacle they helped create and money appeared to still flow freely only in top salaries and bonuses (although explanations what exactly the latter were for became hazy).
This week’s ‘Libor’ scandal comes on top of all this. It appears that the same ‘masters of the universe’ in financial centres like Canary Wharf were also manipulating the rates at which banks loan money to one another, mostly overnight. Such arcane matters have no direct effect and hold little interest to those outside the business itself. But the manipulation meant that key investment bankers could make that bit more for their firm and, by extension, for their own bonuses. Barclay’s is the first to be caught with its hands in the till but they won’t be the last.
The shocking part though is two-fold: first, this was discovered by the banks themselves as far back as the 2007 debacle and is only now being revealed; second that the same FSA asleep at the wheel then but who should have prevented speculation in worthless ‘instruments’ (but was ordered to move with ‘a light touch’ by Chancellor Irn Broon) was informed fairly promptly and still has not brought any of its own investigations to a conclusion. Talk about toothless, of not complicit!
Bob Diamond may have settled a £260m deal to get regulators off Barclay’s back and thrown his Chairman Marcus Agius to the wolves but nobody thinks Barclay’s is alone in guilt for such actions. Coming on top of Diamond now falling on his own sword today, after pulling down a cool £100m since the debacle, ordinary punters have had enough. They’ve suffered serious financial squeeze; major banks like RBS pared IT staff and moving operations to India for ‘efficiency’ to find collapsing ‘legacy’ computer systems unable to reliably make customer transactions; their pitchforks and burning torches are now well and truly out for banks.
It all makes for sordid and distasteful stuff, especially since the greed, avarice and self-centred behaviour repeatedly evidenced sits poorly with any ‘all in this together’ spirit that Cameron’s Coalition has tried (and failed) to foster. They are not quite getting the spirit of it themselves: last night Tories down Labour’s amendment to stop 14,000 millionaires getting a £40,000 tax cut by 315 votes to 233. And with impeccable timing the Department of Health appoints a Warclays banker to run the National Health Service.
So, what’s to be done? How do we clean Augean Stables on this massive scale, especially restoring the faith in dour-but-competent banks that the present set of spivs have so cheerfully gambled away for their own ends? Campaigner Andy Wightman has some constructive things to say in his recent blog. He quotes a recent speech from Swinney:
“If we are to learn the lessons of the boom years, the banking collapse of 2008 and scandals like this one at Barclays must become an opportunity to build a better banking system.”
Well, duh! And just what would that look like, John? Well, as Andy rightly argues, monetary reform is a prerequisite. And if Scotland is to use Sterling after independence, that means, quite apart from anything else, reform of the Bank of England. Biggest problem with this is that big bankers, their buddies in the English Establishment and its subset the Bank of England itself have a slew of long sharp talons dug into Lord Snooty and his chums on the Tory front bench, so don’t hold your breath.
Positive Money has written a useful article on how power has shifted from parliament to the banking sector and given some thought how to shift it back. To help this along, they have even drafted a Bill for reforming the Bank of England. Whatever Scotland does in the next few years, it should take the ideas in both to heart if it is to establish a reputation for its own financial culture that echoes the probity for which we were once famous.
Visible on the same page as the article on the on-line Hootsmon site, the results of the reader survey on whether Jimmy Carr was morally wrong for getting creative with his taxes was much closer than you would expect from a public with its moral dander up: 56% thought him wrong while 44% disagreed—a mere +12% moral edge. Perhaps we get the bankers we deserve?