I'm angry that the Co-op group is in a mess.
As a member I have been let down.
As a customer of the bank they've failed me.
As a believer in the co-op approach to business I am disappointed that flagship co-op has failed so many other successful co-ops by its actions.
I am annoyed that an individual can be allowed to do so much harm.
But let's be clear about what I'm most annoyed about, and that's that the Co-op Group let itself be used.
It was used to save the Britannia.
It let the government use it to try to solve the problem of Lloyds branches.
It let itself be used by bondholders who it should have avoided (surely Northern Rock taught that).
It should have known better.
It should have stuck with a cooperative banking model.
It should have shied away from the financing deals that meant it used tax havens (and it has).
It should have been content to take lower risk.
It should have delivered what its members wanted, and no more.
And if there is to be an investigation that should be the focus. It had a job to do, which was to serve its members, and it tried to do more. It got out of its depth when it did so. It was corrupted in the process. It did not do what it could do best. Corporatism and not cooperation got the better of it.
The lesson is a simple one: principles matter and sticking to areas of competence is vital.
That's the lesson here.
I hope it's learned. And if the Co-op Bank has to be sold to achieve the aim, so be it. And if the rest of the co-op movement has to turn on the Co-op Group, so be it. It will be annoying. But that's life.
What it's not is the issue David Cameron is pretending it is. But what is of concern is the role of his government in making the crisis what it has become. For that he has questions to answer.
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What the co-op story makes totally clear is that the “system” has been totally captured by political interests. The co-op is the story of a labour official bullying himself into a position for which he was not qualified and then drinking deeply from the trough. It is always funnier when it is a left wing politico involved because everyone likes to see the “holier than thou/2 jags” approach brought down to earth.
But nobody should be fooled that the same thing doesn’t happen on the right wing either. We have built a society – and in Ed Miliband, Nick Clegg and David Cameron we have the clearest examples possible – where all that matters is your birth and your contacts. Your political convictions and abilities count for very little – if you have connections to the existing political classes, of whatever hue, you will prosper.
The sad thing is that co-operatives are revealed to be as supine as corporations in the face of the overwhelming power of the political class.
Well put, Roger. Though how we break out of this continuing spiral into an incestuous and corrupted political system and class, ultimately “owned” by a corporate elite, is not something that seems likely anytime soon.
“It should have stuck with a cooperative banking model.”
It’s been a Ltd since 1971. Are you saying that’s when the rot set in?
Function doesn’t *have* to follow form Tim – you can still try to embrace the principles even from within a different corporate vehicle. The problem is all the ‘social’ options [in the UK, and certainly in 1971] expose the ‘owners’ to unlimited liability, so a vehicle which is inappropriate from a governance perspective is the only option from a financial survival aspect. At least some people are starting to look at the alternatives a bit more now – mutuals, B Corps etc.
“At least some people are starting to look at the alternatives a bit more now — mutuals, B Corps etc.”
I’m entirely in favour of alternative forms. I’ve said so often enough over at the ASI. Communes, kibbutz (what is the plural there?) partnerships, worker co ops (Mondragon for example), customer co ops (The Co Op itself) whatever floats your boat. As a free marketeer I’m entirely happy with a free market in methods and forms of organisation. We’ll thus end up with the appropriate form for a specific purpose. It’s probably (not certainly, but probably) true that a vast capital consuming enterprise like power generation cannot be run as a workers’ co op. But the accounting partnership that our host used to run, Murphy Deeks Nolan, is pretty much a workers’ co op and that seems to be an excellent form of organisation for that activity.
I’ve no animosity to any form of organisation that anyone wants to try.
I think ‘was’, not ‘is’ might be right
But RM likes exposing owners to unlimited liability whether the underlying principle is Social or not!
Not a month goes by without him threatening to withdraw limited liability for something or other!
Only when limited liability is abused
Your argument is fatuous
Yes; ‘was’ would be closer than ‘is’. On that theme, there’s a report out on Monday looking at the issue: http://www.tomorrowscompany.com/launching-tomorrows-business-forms#-Programme
How did that pair get to be appointed to head up the bank? How & why were they sponsored into office? As an ordinary inactive member i’d like to know whether my own ignorance/inaction on this contributed at all to the corruption of governance in the bank that i trusted not to get into this position. Or was the intervention of Osborne to solve the Lloyds problem the worm in the applle?
That’s worth finding out
Is a government enquiry needed to answer that question?
Clearly not
I admire your clarity on whether an enquiry is needed or not!………Other lesser mortals may want all the details and some investigation but not you……….you can merely look and be certain!…..Enquiry here, no enquiry there….
As you say, it is all part of protecting democracy…..apparently….
I’m all for enquiries when it’s appropriate
But when it’s a minor failing without public cost in a non-public entity with only a minor public stake where there’s little evidence that the individual caused the failing?
Tell me why this is the right use of funds?
Have you suddenly forgotten the value of taxpayer money?
So why did it? Why did it ALLOW these things to happen – why did it ALLOW such lax control at the top to force it down such short-termist paths? Its image of `caring superiority` jarred with actual practice. The reason why people are conflating this issue with Labour is because it lent Labour millions at a very good interest rate (still unpaid) and have cllrs who are labour coop. It’s as if they arrogantly assume that only they have the keys to care and compassion and are above other people.
I note the comment about taking over Lloyds branches, but to be honest Lloyds-TSB only ended up in that position because directors of that bank chose to go ahead with the purchase of HBOS. It was a decision that looked extremely foolish at the time and a decision that should have been blocked by the FSA, but it was actively encouraged by the Labour government of the day.
And because the government encouraged them that exonerated Lloyds?
“It let the government use it to try to solve the problem of Lloyds branches.”
“But what is of concern is the role of his government in making the crisis what it has become. For that he has questions to answer.”
Are you quite sure you’re not just trying to throw a false trail here? The sale of Lloyds branches never happened and has nothing to do with the Co-op’s problems. Similarly the strategic decisions that have brought down the bank were all taken before the last election.
But by all means, it’ your blog, go ahead and make your case.
The government had 30 meetings to support the Lloyds case
And Osborne intervened in Europe for it
You think that is irrelevant?
I don’t
But I don’t think it needs and enquiry either
I believe we need to learn lessons from this alleged affair, draw a line under it and move on.
Absolutely, the “Right” are making far too much of this and turning it into a “s*** storm”!
Why?
What’s the purpose of this distraction?
“You think that is irrelevant?”
To the bank’s failure? Yes, utterly irrelevant.
So what exactly is “role of his government in making the crisis what it has become”? I don’t see any role at all. But as i say, go ahead.
I’m a customer of the Co op Bank?
Are you?
Why is it that I watch the 1 o’clock news on the BBC and see a story about about a silly weak banker who spends £300 on drugs but don’t see a story about another banker who oversaw a bank that laundered billions of pounds, some for drug cartels.
Osborne leaned on EU to ease rules for Co-op: “His intervention provides further evidence that Tory politicians — as well as Labour — pulled out the stops to help what was seen as a bastion of banking respectability that they hoped could bolster competition in retail banking.”
http://www.ft.com/cms/s/0/2f62d41e-520d-11e3-8c42-00144feabdc0.html?siteedition=uk#axzz2kxCPnfZz
I didn’t use it
Thanks for doing so
“It let itself be used by bondholders who it should have avoided”
Could you please elaborate on what you think the Co-op should have done with its bondholders.
Are you saying the bank should not have issued bonds at all?
Or are you saying that the bank’s obligations to the bondholders should have been somehow avoided? If so, how? And why would you recommend a bank walking away from its contractual obligations?
I am saying they should have avoided the bondholder model of raising capital
Mutuals should not have gone down that route
They can’t issue stock, obviously. And if they can’t issue bonds then the only source of capital is retained earnings. I just want to clarify that that’s what you mean. That mutuals should only ever use retained earnings as their source of capital: something that’s most certainly going to restrain their growth.
There are also, of course, depositor funds
Those can be share accounts
And yes such funding may limit growth
I am suggesting that may well have been a very good thing
1. It wasn’t and isn’t a mutual.
2. In light of your belief that banks create money, why would it ever need bondholders?
You’re right re a) – it was owned by mutuals
b) You tell me
a)it doesn’t matter whether the owner was a mutual; it wasn’t. It cannot be expected to behave like an organisation its owner decided 40 years ago it didn’t want it to be. b) Meaning, if they could create money as you argue then they simply wouldn’t need to borrow from bondholders would it. But it did need to borrow, it can’t just cancel its debtors current account when the debt goes bad and maybe, just maybe someone is wrong. c) so what was the government’s role in the crisis? Because the Lloyds TSB is indeed irrelevent isn’t it.
If you wish to argue on the basis of something that’s not true that makes you a good neoliberal
And irrelevant
With respect, that is my very point: banks cannot create money “out of thin air” as you and others have argued they do. So they need to raise capital and, when loans go bad, they run into trouble. Not neoliberal; just fact.
And the government’s role? You could just acknowledge it didn’t play a role.
Not fact: bondholders secure their debts on loans made out of thin air
The system is designed to limit the capacity t make loans out of thin air
“bondholders secure their debts on loans made out of thin air”
If you can make loans out of thin air, why do you need the debt? Why do you need bondholders? And how does a bank run into trouble? Yes, at the precise moment of makin the loan it might be “thin air”. Come 4pm though, the finance is required, just like any other business.
Regulatory requirements that do not understand that
Aah. So it’s not thAt they do; it’s that they could.
There are followers of this and other blogs just don’t realise that this is what you meant.
And I have not a clue what you mean
That may be so. However, the point is very simple: commercial banks – for that what the Co-op Bank is – cannot ‘create’ money. They are simply money-lenders, just like the Banchieri. If they could ‘create’ money they wouldn’t need to borrow money, wouldn’t need bondholders. Really very straightforward.
And as I have explained, you have your causality entirely wrong