I did a tweet or two on bankers yesterday, and my twitter timeline got rather busy. People don't like bankers.
Now instinctively I do not feel uncomfortable with any group in society being picked upon; everyone has their merits, so in that case this herd instinct has to be justified. And as a group (but not as individuals) I think it can be.
You see, whilst High Street bankers very clearly add value to society by holding our money, providing liquidity and processing transactions, the same cannot be said for the bankers who attract ire and high salaries in equal amount. They, unlike their High Street colleagues, are not engaged in a process of value added. They are engaged in rent seeking.
Rent seeking is variously defined by economists depending upon political view, but broadly speaking it is the process of seeking to capture value created by others for your own personal gain. And that's what the investment banking community so clearly does. Because it handles vast amounts of money, and because it has created the means to generate vastly greater financial flows through the invention of derivatives, swaps and so many other essentially socially useless financial products, it has given itself the right to extract a small margin from each transaction it manages, whether of value or not. And those flows from which it extracts value are of other people's money at the end of the day, with the bankers taking their part without adding real benefit (as is all too obvious).
Rent seeking has always happened in society. It has always been resented, and with reason. And when rent seekers have displayed excessive zeal societies have always reacted against them. As we are now against bankers.
So people don't like bankers, with reason. And until bankers realise that they have to change their behaviour society will react against them, and the politicians who defend them. The Tories should take note. Defending the City right now is not a wide move when people instinctively but rightly realise that the game of abuse it plays has to end.
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Richard
Just a suggestion
there is a great cartoon on Paul Krugman’s blog today. It’s called Tomorrow has arrived. I wonder if you could borrow it or signpost it?
Ian
Very good yes – but risk of copyright infringement
I’ve no doubt that the fact that many people now see through the dubious value (except to a minority) of much of contemporary banking plays a role, Richard. But what I pick up from the many people I come into contact with is that people are very angry and uncomfortable with the fact that so very few – indeed none, as far as most people can see – of the people involved in the various banking scandals and indeed the banking crash itself have ever been punished, much less named and shamed.
Now I know that those of us interested in this stuff can point to employees who’ve been dismissed and obviously the occasional high profile person whose been forced to fall on their sword. But let’s be absolutely clear about this. Given the scale of the damage done to millions of people’s economic and social wellbeing through the banking crash and the subsequent mass socialisation of the cost of maintaining a corrupted system, this degree of ‘punishment’ is simply nowhere near appropriate. The response is, basically, the most explicit demonstration of the contempt that one small sector of society and their political supporters holds the mass of society in. And a graphic example of there being one law for the rich and another for everyone else. That’s the primary reason why people hate bankers.
We need a rational response to bankers rather than an emotional one (although the latter is a useful start )education about the fundamentals of banking is clearly needed.
Banks have been allowed to create money out of nothing, other forms of counterfeiting,like printing your own bank notes has long been outlawed,but the banks have abused this “privilege” to such an extent that money created to support mortgages, grossly inflating house prices,and money drafted into the financial sector to support gambling, I’d include PPI here, grossly outweigh the resources allocated to productive activities in both the public and private sector to the detriment of the vast majority of the population.
It is time that money creation, a crucial economic lever was taken out of the hands of private business and directed to constructive uses. Money created without debt would have an immediate and continuing impact on reducing the country’s deficit,and halt the specious funneling of assets to a very small economic elite. Obviously the banks would have to borrow like everyone else, which might encourage them to sharpen up their business model.
I would recommend Positive Money info@positivemoney.org.uk who to my mind make an irrefutable case for monetary reform at the same time highlighting and explaining the banking abuses which are rightly making people so angry.
This would be fine if High Street bankers were whiter than white. But they aren’t. PPI mis-selling and forcing small businesses to buy complex derivative products were both done by High Street bankers, not investment bankers. And High Street mis-selling goes back much further. Mortgage endowments, pensions, NINJA mortgages, mortgages with LTVs over 100%….all of those were done by High Street bankers, not investment banks. I’m not exonerating investment bankers, but this “investment bank bad, High Street good” misinformation really has to end. It doesn’t do ordinary people any favours at all to give them the impression that banks that have lost humungous amounts of money on risky property investments and defrauded their retail customers through heaps of commission-driven mis-selling are “safe”.
That was a top down directive though to be fair
The culture at the top was to blame
Very true. I’m merely pointing out that High Street banking was (is?) as rotten as investment banking and for the same reasons. The culture at the top affects both.
So you feel comfortable picking on groups in society? Per: “Now instinctively I do not feel uncomfortable with any group in society being picked upon;”
Sorry – earl morning error!
What do we actually need banks to do? Do they have legitimate functions beyond:
1. Keeping money safe and processing payments.
2. Extending a line of credit to individuals and business.
3. Buying foreign exchange for use (rather than speculation).
Those are really simple functions so why do we allow them to cream off so much profit? We certainly should not permit them to have control of the money supply as at present.
Am I over simplifying things?
They also manage government debt
And controversially create 97% of all money in the form of credit
I don’t remember this being mentioned in economics classes, although lots of stuff about different Ms (confess didn’t take it all in anyway – and a lot of it needed not to be taken in – ‘taken in’ probably sums it up quite well) but now everyone who knows anything about economics knows the ‘money out of thin air’ fact. But why on earth, when govts are looking for new sources of revenue, and also seeking to exercise a bit of control of things financial, do they not simply insist on a fee for this money creation? Has anyone dared to put the question plain and simple to those supposed to be in charge?
Unlike many on here I really welcomed austerity, largely because I didn’t like what the alternative had done to my country.
Unfortunately, I’m getting the increasing feeling that Dave & George neither understood what was wanted or were capable, in any way, of delivering it, while Nick & Vince possibly understood but were far too absurdly timorous to deliver anything in the teeth of Tory opposition.
I’d like to see us behaving a lot less like some stupid banana republic like Singapore or Ireland (which is, TBBH, as much a kleptocracy as anywhere in sub-saharan africa) & a lot more like a sensible country like Germany.
Credit should go to business
No credit for buying homes unless you can produce at least 30% deposit
No credit cards for anyone with provable wealth < £100k pa
In both the above cases, if a bank extends credit to someone obviously lacking these criteria, the debt shall be un-enforceable in law.
Either people that buy shares should be allowed to deduct finance costs, or people that buy houses shouldn't. my personal preference is the latter but the mismatch is the real killer in our legislation.
I presume you favour landlordism – the original rent-seeking behaviour. Only the very comfortably off (mostly inheritors) will own their own homes. How otherwise do you think that young people will be able to save a 30% deposit whilst paying ever increasing rents (which is the current trend because people can’t afford to buy)?
To clarify, because I don’t think my previous msg was clear;
If you accrue interest from savings you can’t set interest costs against that for your tax bill.
If you earn dividends from shares you can’t set interest costs against that for your tax bill.
But if you accrue rent from a house you can set interest cost against that for your tax bill.
This is why people, although a better word would be despicable, grasping vermin, are becoming BTL landlords.
I think there is a strong argument, for making banking a service/product provided by the government. It seems too important a function to leave in the hands of private concerns.
I increasingly agree