I found it quite staggering that the FT could report this today:
Barclays has agreed to buy US personal loan business Best Egg for $800mn in a move that will help expand its consumer lending and give it access to more loans to package up and sell to investment bank clients.
The 2008 global financial crisis happened in no small part because US banks sold portfolios of debt that they had issued to US consumers to investment bank clients who did not understand the risk in those portfolios, and subsequently discovered that the supposed AAA debt they had acquired was nothing of the sort, and banking balance sheets collapsed as a result all over the world.
Admittedly, in 2008, it was mortgage rather than consumer debt that was being repackaged, but consumer debt is even riskier. And Barclays is deliberately buying a company so it can repackage its debt as if it is an asset of worth when, around the world, alarm bells are ringing almost everywhere about the unsustainable levels of personal financial debt, leading to the widespread belief that the edifice might collapse soon.
But Barclays clearly thinks "it is different this time". Bankers always tell themselves that. And it never has been to date. The crash, almost inevitably, comes around again, usually on about 15-year cycles, meaning we're now well and truly due one, since it has been 17 years since 2008.
Staggeringly, Barclays is now heading the queue to end up with egg on its face, no doubt sure in the belief that the UK government will bail it out all over again (and I do know the whole story of what happened in Barclays post 2008, so don't bother to relate it in the comments).
Why, oh why, are people who are capable of such massive misjudgement allowed to run public companies? I wish I could answer that.
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Given what happened in 2007/8 isnt it time to end the securitisation of debt?
It seems to me that it has created all sorts of ‘moral hazard’ for the lender
In the early 1980s i was living in California and opened an account with a bank called Crocker. It was the most useless and incompetent bank I have ever experienced and shortly afterwards changed banks. Not much later, came the announcement that Crocker had been acquired by a British bank (I think it was Midland but could be mistaken off top of head) for a huge price tag. A couple of years later, Midland disposed of it at a huge loss. I wondered then what kind of due diligence and on the ground fact finding these banksters engage in. And why heads rarely seem to roll afterwards.
Yesterday I read an article about First Brands, a US auto parts supply chain that had aggressively expanded with the aid of private credit, that has collapsed with losses that could reach around USD 10 billion. Mind boggling. Casino capitalism in a nutshell https://www.racket.news/p/first-brands-are-the-cockroaches
Thank you, John.
It was Midland. That led to a secret bail out by the Bank of England and HSBC and eventual take over by HSBC.
There were secret bail outs of NatWest, a former employer, in the mid-1970s and Lloyd’s a decade later. Citi was also bailed out alongside Lloyd’s in the early 1980s and 2008.
Goldman Sachs got a secret bail out in the early 1990s.
UBS has lost money on First Brands. That has yet to play out.
The banksters refuse to learn. The likes of me aren’t welcome in these leadership circles.
Once upon a time I was invited to banks to talk. No more….
And it’s worth repeating, it’s just fine to spend billions bailing them out at the public’s expense, so they can carry on as before, paying themselves beyond the dreams of avarice. But they’d scream blue murder if it was suggested that others, individuals or businesses be bailed out.
For today’s banks, its all about fee based businesses and trading. They have no interest in helping to build businesses, genuine investments for the longer term. And it all goes back to the 80s and Big Bang when their fundamental model and ethos changed. Watched it happen first hand during the 90s when the rot really set in
Barclays are already in for a minimum of £20bn liability on the USA company asset finance debacle that is unfolding. In this US market there $1trn at stake.
There are also some serious allegations floating around of miss selling or misrepresentation of the true state of affairs of the “lenders”.
The financial roundabout is slowing down rapidly.
Barclays must be desperate to think that repackaging ZZZ rated debt as AAA is going to work now.
Expect a banking crash and wails for another bailout.
Rachel must stop the payment of interest payments on the banks regulatory accounts immediately.
Some £20bn towards the impending bail out fund in the hand pretty quickly?
Thank you, Richard.
I worked for Barclays a decade ago, implementing the post-crisis reforms, and have even met and worked with some members* of the founding family. *Nice people.
As I read your post, I didn’t know whether to laugh or cry.
At the turn of the century, I was part of the HSBC team involved with the proposed acquisition and integration of Household Finance Corporation.
HSBC planned to buy a bank or banks to capture the remittances from Latin Americans working in the US. It failed to get any of the targets, so thought this consumer credit business could be converted into a payments business. That did not work.
There was a three way call between Household, HSBC and the FSA. The British sides could not understand the capital set up of the business, but hoped for the best. Some years later, the acquisition led to major credit losses and a huge capital raise.
The only persons to make money from Household were the sellers and CEO and investment banking advisers to the parties. I still remember the CEO’s Lincoln. That extravagance put the HSBC leadership at some unease.
Around the same time, HSBC set up a joint venture with Merrill Lynch. The plan was for the eventual acquisition of Merrill Lynch. I had the misfortune to work with Merrill Lynch. Merrill was a bad cultural fit for what remains an Asian trade bank. That cultural mismatch was largely the cause of the planned merger to be abandoned and the joint venture dissolved. HSBC escaped a disaster.
There are few people left in the City, Bank of England and Whitehall who remember the above type of detail that led to 2008. Even without the US subprime crisis, there would have been a crisis in the UK.
On wonders what the Bank of England thinks of this acquisition.
Let me go and short Barclays. I may short Lloyd’s, too, as it’s increasing its exposure to the US, data centres and private equity.
Aside: I will write to Mike and you privately.
Thans.
I hope the break was good.
And re Barclays – it was a Quaker bank. Hard to beieve now. I might make a video…
Thank you, Richard.
It was wonderful out with my parents.
Continental public transport, public spaces and amenities have a lot of lessons for Blighty.
I am pleased.
If you do make a video Richard, it’s not just Barclays. It sometimes seems to me that nearly all the great names in 19th-20th century British business were Quakers – Barclays and Lloyds in banking, Clarks shoes, Wedgwood pottery, Bryant & May, Huntley & Palmer – and don’t even talk to me about chocolate – Frys, Terrys, Cadburys and Rowntrees – were ALL Quakers. George Cadbury once worked for John Rowntree !
In my own old specialism, co-operative and social enterprise, Quakers were also key – notably Scott Bader, who gave his business to its employees and played a central role in the old Industrial Common Ownership Movement. But even the more conventional Quaker businesses were ethical compared with multinational capitalism now – a contrast made clear by Deborah Cadbury in her book The Chocolate Wars – essentially the story of a 186 year old business built on altruism, passing via the amorality of modern financial markets, until it was swallowed up by American globalised capital.
There are good histories on this, I know. I own several. I was also a founder and on tof the first trutees of the Quakers and Business Group.
Good to see you commenting again Colonel. Your insights are always fascinating and illuminating.
There is so much to learn from the many and varied commenters on this site.
Thank you, Helen.
As usual great points. I was particularly taken with the point about institutional memory (who remembers 2008 & the events leading up to it) I’d suggest this extends to many other areas – where loss of knowledge and experience is widespread. How, exactly were state-owned companies operated? If water is taken back into public ownership – what does the org look like? How to run an intergated rail system? BR knew how to do it in 1989 – is there anybody around with the knowledge now? Moving back to the 2008 crash – if this even taught as a subject in economics?
I think that an essential point as well.
I enjoyed talking to Larry Elliott yesterday – the key point being we both have 50 years of memory to bring in to play. And there is real value in that.
Thank you and well said, Mike.
I doubt that the run up to 2008 is taught. Haldane and I have talked about it.
Little institutional memory is left. Few, even during the crisis, were interested.
It was suggested that I help at London Business School, but I think I put them off.
I forgot to add:
A member of the Barclays family and I were invited from the audience to sit with Philip Augar as he launched his book about the bank. I doubt the book is widely read in the City, let alone Barclays. It’s well worth a read.
Andy Haldane and I have lamented the ignorance of history in the City.
Barclays is desperate, having sold BGI to BlackRock and withdrawn from Africa. It has tried, on the quiet, to reverse both, but these ships have sailed.
The investment bankers, especially the Americans, have ruined the bank.
Just recently the CEO of Barclays said that the Government should cut the wages of public sector employees rather than increase taxes on banks.
They are a completely shameless organisation.
We have the standard ‘2008 Answer’ for this don’t we?
The answer to your question is that stupidity rules in banking because they know they will get bailed out.
Honestly now – is there any other answer?
I do not think so.
PSR says –
‘The answer to your question is that stupidity rules in banking because they know they will get bailed out.’
This is true, and it makes me angry. Why must public money bail out private banks that are basically re-doing the same risky strategies that caused the global 2008 crash? Why can they always just do whatever they want, and get away with it? The government must be ‘fiscally responsible’ and ‘balance the books’ within fantasy ‘rules’, but the banks can’t just say f* it, just take any risk at all?
The government should be protecting the public from the reckless greed inherent in this situation. It’s not as if the banks are going to gift any gains back to the public.
Heads the banks win, tails the public loses.
It’s a shite system the needs changing.
These are the people to get angry about, not some poor immigrant that just wants a decent life, with a job and a home for their family.
On a totally different note, your videos have hopefully reached an audience that wouldn’t maybe be reading your blogs. To reach further, to people who have no interest in political economy but do (rightly) have an interest in their own (and hopefully society’s) wellbeing, there possibly needs to be some simple question they can ask themselves (that they sort of feel hasn’t been ‘pushed’ upon them) that breaks the public debt/household myth analogy, that then gets them saying ‘hold on but…’ This could then lead to all your excellent work. I just feel there’s a lot of opposing opinions and many people are thinking any of them could be right, who knows, maybe RM is right, maybe he’s wrong, I’ve never heard of him, I just want a better life.
I hope this ramble makes sense.
Thank you, PSR.
You’re correct.
The banksters know the taxpayer will pay. By the time, the adventure ends badly, the leaders responsible will have retired. They won’t be held to account.
This smells a bit like the HSBC/Household fiasco. In 2004 HSBC bought the US mortgage lender that in April 2007 announced a huge loss that signalled the start of the mortgage crisis in the US.
Barclays trades at 70% of book value (versus NatWest at 1.2x and Lloyds at 1.1x)…. the market knows that Barclays’s assets are flaky.
As a footnote, when the Household loss was announced I recall saying to my colleague “note this day in your diary – today the party ended”. I shorted US stocks and the market kept going up for six months – cost me a fortune. So, you can see why I am always a bit worried when you call a market top… “markets can remain irrational longer than you can remain solvent”.
I won’t short this market….. but I am hunkered down in boring safe assets without FOMO.
Not only are the big banks doing it, but smaller debt collection companies regularly buy debt, off councils, utility companies and mortgagors.
If there is an anomaly with the debt (the wrong name or address – because of fraud – or the debt has already been paid or cancelled or quashed in court) that information doesn’t always follow the debt sale, and the new owner of the alleged debt proceeds to harass the supposed debtor for payment. The victim may succeed in getting one collection company off their back but when their debt book is sold on (usually for a fraction of its “real” value) yet again the information about the error doesn’t get passed along, so the victim is harrassed again by the new collection company and they have to fight all over again.
Only those who have had to deal with over-enthusiastic bailiffs (and I have – long story) will fully appreciate how distressing this can be.
The debt collector may be chasing a £1,000 debt they bought for £100, so they have an incentive to persist and bend the law. Again, I have experienced this personally. I won in the end, but will never forget the trauma.
I have a friend who right now is going through this trauma -a debtor she has never heard of, fraudulently using her address and it has damaged her mental health – nearly 2 years now, and still no resolution.
I am aware of this – and the hassle as I heav seen it – and helped. Vultures like this are appropriately named.
“Why, oh why, are people who are capable of such massive misjudgement allowed to run public companies?”
They operate within a bubble – which tends to define what they hear and what they think. This is not just companies – any large orgs & govs’
Russia, Putin, let’s invade Ukraine. Yes men surrounded Putin and told him what he wanted to hear – Ukraine would fold.
Barclays: “its different this time”. oh dear.
Indeed
To answer your question-is it they recruit from a shallow pool excluding those who don’t ‘belong socially’?
Gary Stevenson managed to slip through. Is he the exception who proved the rule? I really don’t know
Welcome back to the Colonel. I imagine he has a view.
Thank you, Ian.
I don’t think it’s an issue of class any more. It was a fair bit when I went to to the City thirty years ago.
Gary Stevenson was at Citi, a US firm. US firms have, here, been traditionally more open.
Sajid Javid joined a US bank in the mid-1990s, after being turned away by a couple of blue blooded institutions. As it turned out, the blue bloods were correct. I will spare Richard the libel risks by not disclosing the dirt on Javid.
It’s just as well that Javid did not become PM.
I think it’s more about the diversity of views. People who espouse the sort of views found in this community won’t prosper in the City.
Thanks Colonel
I assumed it was the neo-liberal tendency to group think. It is very common but , there are are always people who can think ‘outside the box’ , even if they don’t get enough attention. Why those people exist is a fascinating question.
I think that this post powerfully reinforces the ‘perfect information’ fallacy, among even those that should be better informed than most.
🙂
Bank bosses – a few spring to mind – Fred the Shred (RBS), the Diamond Geezer (Barclays), Paul Flowers (CoOp), Peter Cummings (HBOS), Larry Fish (RBS), Gordon Pell (RBS), Mark Fisher (RBS), Adam Applegarth (Northern Rock), there are many more. All getting huge pensions from their former employers.
https://www.thisismoney.co.uk/money/news/article-2231774/Reward-failure-Britains-disgraced-bankers-set-share-104-MILLION-pension-pot.html
They do pick ’em don’t they?
So far, I haven’t seen the law mentioned in answering the question.
Are we really in a wild west situation as far as auditing and regulating banks is concerned? If so, it’s a matter of abandon all hope, ye who enter here. Are the regulators and their investigators so toothless they allow financial institutions to gamble?
I used to teach Banking classes in the 80s and while there was impropriety at board level, it did seem to be more closely monitored than today.
Auditors – are neitehrn watchdogs or bloodhounds these days.
I suspect the appointment of senior managers and chairs in major UK banks is carefully designed to look rigorous, but in practice it’s a closed and self-perpetuating system.
So Boards select their successors, and no doubt apply lots of weight to “continuity”. Then the Regulators pop in and rubber stamp the selections. And no public scrutiny. So. White, male, inward looking, no fresh thinking, no innovation, no social purpose. Just as long as there’s market confidence, eh?
A quick additional point on public accountability. For some time now, a very substantial proportion of the Big Banks’ profits have been coming from the deposits lodged with the Bank of England (which you’ve taught us about), and the cost of these interest payments is passed on to the taxpayer. In addition, the Banks are earning (relatively modest) fees when they handle public money. Again, this is passed on to the taxpayer. So, I suggest, we should have the right to demand greater public accountability in the way the Banks manage themselves and appoint their senior management.
Richard;
Was the banking firm of Birkbeck, Gurney and Peckover originally connected to Barclays?
I believe so. The Gurneys were Quakers
Re the topic of Quakers and business I have just published a short book on Quakers and the Lead Mining Industry of the North Pennines. The London Lead Company was a Quaker enterprise established in 1705 by Quakers in the City who used their goldsmithing business to finance lead mining in North Wales and the North Pennines. The same families were also founders of Barclays bank. The Lead Company survived some fraudulent investment of Lead Company money in the South Sea Company at the time of the bubble. The Lead Company prospered for nearly 200 years and was known for the housing, education and medical care for its workforce. In its early days the company supplied silver to the Royal Mint which minted coins known as Quaker Shillings.
Available where, and ISBN and so on?
Thank you.
I own a cheque issued by Gurneys in the mid-19th century.
There was an amalgamation of banks in 1896. Barclay was the first in alphabetical order.
Was that it?
Gurneys did, of course, also help the banking collapse of 1866 as I recall.
As others have pointed out the governments will bail the banks out and regardless of how sour the taste is we all know it’s the right thing to do. We also know what will likely happen is the banks will be publicly owned in full or in part. What we also know is that the cycle will repeat itself with those responsible retiring on a generous pension and the new set of fleecers buying the government shares for significantly less than we should get for them.
While I know there will always be a cycle, it’s a world economy and it just takes big bad actors in America to cause a shockwave around the world, but is there a way to get banks to behave more responsibly? Is there a way in the current climate given our governments from the 80s has been in hand with the bankers and at times subservient to them?
What really makes me sick is that when 2008 came and did it’s damage which my generation has had to live with for the past 17 years now (through low growth, austerity and even more stagnant wages) is that not one of the people responsible was held to account. I don’t mean sent to prison, I just mean taking away the ill-gotten gains from the risky business they participated in when it all blew up. We even ended up with one of them as PM.