We must remain vigilant about bankers
A recent Slog piece took readers through the fairly obvious fact that banks are gradually becoming richer and more powerful than governments. Sometimes it’s easy to see conspiracies where there aren’t any, and sometimes whether it’s a conspiracy or not is pretty much irrelevant. But over the last few months, the only thing required to prove the banking lobby’s desire to get business back to normal is Google. Simply Google ‘stop bashing banks’, and 1.3 million results come up. Add the filter ‘News’, and you will discover the startling fact that, since December 13th, there have been 55 articles in the mainstream national press of the UK, EU and US, all saying ‘banks need your support, not more bashing’.
If ever a piece of bollocks needed deconstructing, this is it. The banks have got our support – to the tune of £740 billion in the UK alone, and that’s not counting all future liabilities. And banks have shown – before, during and after the crisis they inflicted on us three years ago – that they need bashing again and again and again before they get even a glimmer of how greedy and dumb they are.
But above all, banks need to be both bashed and regulated 24/7 in perpetuity because they are now very close to being in a position from which they could happily ignore all future attempts at bashing. Yesterday’s news of a massive Goldman Sachs investment in Facebook should be viewed for what it is: a disturbing, highly strategic move.
Simon Johnson is a former high-flier in the IMF. In May 2009, he wrote an article in The Atlantic magazine (a favourite haunt of mine) in which he outlined with commendable brevity just much bankers have steadily gained freedom from regulation and surveillance over the last three deades. In a section called ‘Becoming a Banana Republic’, Johnson makes this telling observation:
‘Elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.’
Twenty months on, this allegation looks even more on the money than it did then. When you think about it, a Federal Government stuffed full of Wall Street grandees would be unlikely to behave in any other way. But when you think a little further, a Federal Government prepared to throw taxpayers at the problem come what may is, bizarrely, carte blanche for the banking sector to deliberately fail: it gets the bailout money, and the citizens (plus their Government) just keep on getting poorer. Until one day, you’re the only folks on the block with any money.
In 2008, Paulson blackmailed Congress into stumping up £780 billion. It was for recapitalising, and it entered the banking firms like they might have been a black hole. In reality, the money was used to do deals and make bigger profits. Within six months, the bonuses were back.
Throughout two QEs, US banks have ignored the socio-economic point of the stimulus, in favour of their own ends….and the further reduction in jobs via megamergers they daily underwrite. In the UK, they have piled up and reinvested bailout monies playing the Zirp strategy to their own ends. They have been warned and threatened about their behaviour over and over again by successive Labour and Tory Chancellors. But they have done nothing. Except hire PR agencies to secure placement of anti-bashing articles and OpEds.
As 2011 dawns, aside from higher capital requirements (still in my view nowhere near enough) nothing has changed. All Basle’s attempts to tighten things up have been diluted by furious bank lobbying. Yet a year before Simon Johnson’s piece, even the foolishly optimistic Jean-Claude Trichet of the European Central Bank was clearly outlining the requirement to clean up the banking act. Voted Banker of the Year (was this a prize or an insult?) Trichet made an acceptance speech in September 2008 which included several potent passages. The crisis had been caused, he blunty opined, by an
‘…inability to adequately assess the risks associated with the exposures they held…[and a] lack of transparency throughout the securitisation process that engineered the underlying mortgages into complex structured products made it difficult for market participants to identify where the risks were accumulating…’
Or in two words, reckless crookery. So it was that Trichet stressed how EU bodies were ‘about to finalise guidance on Sound Liquidity Risk Management and Supervision….the regulatory framework should be revised so as to restrain the build-up of excessive risks during expansion phases.’
That was two and a half years ago. The banks fought this tooth and nail every inch of the way. They demanded – and got – quid pro quos, delays, dilutions and reduced capital reqirements. They lobbied every politician they could find. And they kept back a much smaller tide of reform until October 2010.
Note also how, in this speech, Trichet did not once mention the issue of Sovereign debt problems. To some extent this is because he hadn’t as yet fully appreciated how much Athens (and its advisers Goldman Sachs) had lied to the ECB and Brussels about the Greek Government’s domestic accounting. But primarily, this reflects that – as a banker himself – Jean-Claude doesn’t give a monkey’s cuss about anything except the survival of banks in general….and the continuing Franco-German EU leadership in particular. Observe his behaviour during the Irish crisis, and you will see what I mean: The ECB boss is quite happy to leave ‘peripheral’ Sovereign EU States out to dry. Only political pressure has forced him to buy their worthless bonds – much to the chagrin of his fellow bankers on the ECB Board.
The US debt crisis, the eurozone crisis, and the massive UK banking bailout have all shown the banks to be uncaring about the effect on their fellow-citizens. We are to them irritating minnows getting in the way of their search for the next big slithery, leaping salmon to chomp on their hooks. As I wrote in October, the brass neck has now spread to Australia. There too, an asset bubble is being pumped up by reckless lending into a market where the average salary is already far too small to sustain a mortgage on the average price of a house. As I write, bank-owned insurance companies are scurrying around looking for reasons not to pay out on the policies of drowning Queenslanders.
To sum up, banks never learn. This is because some of their product-development folk (the ‘quants’) are maths nerds with no grasp of people or consequences. But it is primarily, based on the evidence, that they do not care to learn – any more than they care to apologise, stop paying bonuses, or look grateful for our help in their continued existence.
There is a cartel at the top of banking – most typified by the thoroughly objectionable Lloyd Blankfein – who sometimes give the impression that the end-game is to have every Government on Earth in their pockets, so they can hitherto plough ahead and do whatever they like in the pursuance of God’s Work. (A smart blogger confided to me last month that the reason most bankers hate George Soros is because he is alarmingly vocal about how this is precisely the strategy he has in mind – and this is the man, don’t forget, who 25 years ago very nearly broke the British Treasury).
Stop bank bashing? I won’t stop doing that until a lot more of them are behind bars…and their power is reduced. Neither should anyone else who cares about fairness and liberty.
But don’ t hold your breath either.