As the Guardian reports:
Britain's banks were given the go-ahead tonight to pay unlimited bonuses, drawing to a close a two-year political battle to rein in the City.
After months in which a series of government ministers of all parties have threatened a toughening in the stance over City bonuses, Downing Street said the government did not intend to intervene in the pay of the UK's top bankers.
It's one of many, many U turns the government will be making, but that's not the issue.
The issue is that this means that the government has backed down on any attempt to regulate financial services. On the talismanic issue of bonuses, which is of such importance in public perception, they have given way. From now on the City knows it can do what they like, and that is the fundamental problem. We now have a country divided between an elite who think they are beyond regulation, and the rest who suffer the consequence of their abuse. That is the critical issue which will have to be addressed in the future. This is a gift to Labour, but it's a disaster for the country.
Finance should be the servant of the economy, in which role it is absolutely fundamentally important. But when finance rules an economy that economy is virtually bound to fail. Aristotle was right: you can't make money out of money and that game will surely fail, again. it is just a matter of when.
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On the Isle of Man (Jersey and Guernsey) financial services are not regulated and fund managers can do whatever they like. And these islands are also divided between an elite who think they are beyond regulation, and the rest who suffer the consequence of their abuse.
Finance rules their economy and everything else is subservient to it. Ask any of those who were unfortunate to believe the claims published by the directors of the Premier Low Risk Fund plc.
U turns or not the UK remains a far, far safer place to employ “financial services”.
“Finance should be the servant of the economy, in which role it is absolutely fundamentally important. But when finance rules an economy that economy is virtually bound to fail. Aristotle was right: you can’t make money out of money and that game will surely fail, again. it is just a matter of when.”
Exactly. Are there any right wingers reading this blog who’d like to explain why, when their philosophy is that people should stand on their own two feet, not expect benefits from the state, and obey the rule of law, none of this applies to the bankers?
Not only is this economically unsustainable, it also makes a mockery of democracy. What is the point of voting if, as an ordinary person, the politicians refuse to hold to account those responsible for bringing the economy to it’s knees, and instead dump the cost onto you?
Welcome to the bankocracy of Britain.
Surely one important issue is that large numbers of banks – HSBC and Barclays being the most obvious – did not want or require any state support. If a company wants to pay its staff very well, it is hard to see who can object apart from the shareholders.
I would say there are 2 specific problems that you should concern yourself with;
1) RBS is 83% owned by the UK government, and it therefore can control remuneration there;
2) The UK banking market doesn’t offer that much choice, which limits the ability of customers to “vote with their feet”.
I would also add that a myth has been created whereby investment (“casino”) banking is being blamed for the losses the bank suffered. But it misses the obvious and uncomfortable truth that in the UK, it was the small, regional, ex-building societies that needed bailing out: it wasn’t Barclays Capital that blew up but Northern Rock.
@mad foetus
I sorry to say that I think it is you who is perpetrating a myth
These banks did receive support. The failure of the banking system was systemic, and they did receive guarantees as well as the protection of their counterparties in Lloyds and RBS. to say that they did not receive support is just wrong
Likewise, the shadow banking system had a massive impact upon the failure of many of the banks that went to the wall, in so many ways. Securitisation took place offshore insignificant quan, and the opacity that gave rise to the problems within banking were closely related to that process
You cannot get off the hook
I wouldn’t call myself a right winger (however i’m definitely not hard left!) but with regard to your questions, which laws do not apply to bankers? As far as I’m aware i’ve not seen any bankers break the law, but would be happy to be proven wrong.
@Greg
You may not be a right-winger, but you most certainly provide grossly misleading answers to questions and I am inclined to let reason to block your future contributions to this site as they are almost always negative
This is a case in point. Bankers do not need to break the law to abuse the law. The opportunities for international arbitrage that they exploit may be legal, but that does not mean that they are compliant, a fact that you well know, I am sure.
You may, of course, apologise for abuse, but not here.
You have been warned
@Richard Murphy
Well if sickoftaxdodgers didnt actually mean break the law, but instead meant as you describe, then why limit things to bankers? Let’s face it, accountants and lawyers are just as heavily to blame yet everyone focuses on bankers. In reality most of the banking that takes place in the UK is well within the law.
@Greg
Again, respectfully, a not very helpful comment
Of course most banking is, most of the time, compliant. If it was not then we would have no banks left. We’re not worried about the mainstream that is compliant. What we are worried about is the margins which may be not, and if they are material (and some think they might be) then that is enough in itself to be an issue.
But I stress, compliant may be legal, but unacceptable.
Although I expect you know that
@Richard Murphy
Richard, i’m sorry if you perceive these comments to be unhelpful. What I am getting at is there is a huge backlash in general (sickoftaxdodgers post is a perfect example) towards bankers which results in inaccurate statements. His/her post implies that bankers seem not to obey the law, which I believe is hugely incorrect. As you state, most banking is legally compliant (both technically and within the spirit of the law).
And as for Aristotle’s theory, surely one can make money out of money by lending that money to someone else and charging interest?
@Greg
In most cultures throughout history usury (that’s lending at interest, not just excessive interest) has been considered abusive
And like it or not there is good reason for that, because as we see time and again, it is abused
On a technical point, Barclays may not have taken any government cash as equit, nor did they insure any of their assets in the Asset protection Scheme, but they did take an emergency loan when their funding position looked uncertain.
History cannot be changed … but if Lloyds and RBS had been allowed to fail and the taxpayer/account holders bailed out instead then the bill would have been a lot less.
What banking regulation that actually happens is being enacted at a European rather than a national level and in a climate which is less pro banking than in the UK. The world needs proper and effective regulation of all financial services; let’s start with those three wretched islands …
@Premier Shareholder Group
It that on this one I entirely disagree with you
We saw just one major banks fail, in the form of Lehman, and it was catastrophic
If RBS had been allowed to fail in October 2008 then we would have needed troops on the streets to control the mass panic that would have broken out, and the probable failure of the monetary system
I am absolutely sure that the judgement to save these banks was correct, but that the cost of doing so has been wholly inappropriately allocated
@Greg
To reiterate;
“Are there any right wingers reading this blog who’d like to explain why, when their philosophy is that people should stand on their own two feet, not expect benefits from the state, and obey the rule of law, none of this applies to the bankers?”
My point, in the face of the behaviour of the bankers, was to ask how people who push the right wing economic and social doctrines noted above react to the fact that the tenets they subscribe to have been completely ignored and disregarded by the banks. They have not stood on their own two feet, they’ve received mind boggling amounts of taxpayer subsidy, and even if they haven’t technically broken any laws (and given the opacity of the tax havens they use can we ever be sure they haven’t), some of their behaviour e.g the selling of toxic mortgage debt as AAA rated investments, is still dishonest.
I’m sure you’re correct though that bankers aren’t the only guilty parties in this, some accountants and lawyers are also heavily involved. And by the way, I’m not taking a SWP “smash capitalism” stance on this, since my own political instincts are social democratic, but the truth is that the people who threaten our prosperity and democracy are the libertarian neoliberal ‘market fundamentalist right, not the left.
@sickoftaxdodgers
The SWP is as unwelcome here as the far right
And being a social democrat does, I think, mean questioning the neoliberal construct, which is very, very far removed from it, so your basis of questioning is entirely fair and has nothing to do with “smashing capitalism” and a lot more to creating a viable model in which markets can work. The neoliberal model is so far removed from reality that it could never support a system that works, and that is why the attempt to use it to predict behaviour was so dramatically unsuccessful
@sickoftaxdodgers
Thanks for the clarification. Some of your “own two feet” point is very valid. But I do question the legality part of your post. Using your example re the AAA nature of CMO’s, it was the rating agencies (and not the banks) who rated these things so badly. Most bankers/traders were unable to realise that putting 100 sub-investment grade issues together does not make a AAA security!
I do find it odd that Osborne et al are too stupid to realise that (a) a bit of banker bashing would please the general public and (b) a “bit” of banker bashing isn’t going to cause all the banks to jump ship. I don’t believe there is any conspiracy going on though…just that Osborne is a bit dim.
@Richard Murphy
In the wider view the PSG agrees that (regardless of eventual cost) allowing banks to fail would lead to dire social repercussions – and the entire UK economy benefited from the policy of keeping them afloat.
Meanwhile Barclays boast that the bank “never failed a stress test, or put the financial system at risk and never took a single penny from any taxpayer around the world.” But Barclays fail to say that if UK government had not bailed out RBS and Lloyds then it would also have gone tits up in the ensuing, spontaneous melt down.
Still it is gratifying to contemplate wiping that smug look off those bankers faces — no matter how unrealistic or impracticable this fantasy!
http://www.huffingtonpost.com/simon-johnson/bill-daley-obama-chief-of-staff_b_806341.html
I think there’s a longer-term problem here and it’s a very dangerous one. If Bob Diamond is in any way representative of the mentality of the banking industry, senior bankers are now back to the mindset that 2008 never happened. Coupled with the almost complete failure to impose any more stringent or effective regulatory structures on banking, this means that we are now into what John Kay calls the “4th leg” of the systemic crisis of capitalism (the first three legs being: 1. the Asian crisis of 1997-98; 2. the dot com crash of 2000; and 3. the credit crunch.) And this leg will, most likely, be terminal.
Why? Because if another bubble inflates and the banking system collapses again there is going to be no political will to repair it this time. Politicians used up the electorates’ goodwill some time ago. There is a very real chance of the collapse of the economic system and the social fabric this time round. Which will probably excite Trotskyists and the libertarian right alike – but for the rest of us, I fear terror is in store.
@Howard
For once I hope you are wrong….
But there are good reasons to be worried
And not just for the odd intellectual
@Richard Murphy
If interest wasn’t charged you wouldn’t get many people lending – and you wouldn’t get much economic growth. There is no difference between not charging interest on a loan and not charging rent when you have a lodger, or not being paid for when working. You are basically giving something away for free – and that is inefficient (in the sense it won’t improve living standards).
Of course you can make money out of money – that is what the history of civilisation has been about since the Industrial Revolution. Before that, you had virtually no improvements in living standards for centuries; after that you had the most incredible, sustained increase in incomes and living standards the world has ever seen (and which still continues). You can tell which age Aristotle was living in.
Watching / reading the coverage of this issue, it strikes me that a lot of it is missing the point. Bonuses are a symptom of the problem, maybe, but in themselves they’re not the problem. So bonuses are not what we should be getting worked up about. Our real complaint, surely, is over how the money was earned in the first place. After all, if a company makes a lot of money legitimately, without the use of transfer pricing, tax havens, dodgy derivatives etc etc, why shouldn’t it pay bonuses to its people?
In no particular order:
1. The foolhardy actions of the banks have cost us the taxpayers a lot of money. It’s really quite simple – we want it back, with interest. I noticed recently that the US government has just disposed of the last of its shares in Citigroup. It made a profit of $12bn. Nice one. http://online.wsj.com/article/SB10001424052748704405704576063752597419370.html
2. The banks must be split up to separate the “boring, High Street” parts from the casino parts. Ignore the arguments the banks put up against this, and just do it. Then allow the casino parts to fail. I can’t help thinking that that by itself would to do more than anything to curb the dodgy activity. What banker would want to have on his CV a bank that had failed on his watch?
3. I am NOT saying that the casino banks should not be properly regulated. As Richard so rightly pointed out, Lehman – hardly a High Street bank – failed and we almost had a banking implosion. But the casino banks must, ultimately, be allowed to fail. I’m sure in my own mind that, with the right changes to the banking system, this can be done safely, but it’s up to people more expert than me in these things to specify the details. I know it can be done, but equally I know that at the moment there isn’t the political will.
We are where we are – at least in part – because we (the people) don’t employ lobbyists the way the banks do. Maybe it’s time we did. After all, MP’s are too often a waste of space. Richard and others do a lot of good work on this, but somehow it isn’t the same as professional lobbyists.
Just a thought.
I think that the term ‘interest’ is misconstrued. When you lend you, in effect, charge an agreed sum as insurance against default and for the service provided. As a borrower you expect to retain purchasing power. There is nothing immoral in this in principle.