On 30 November, Robert Peston published an article on BBC Online that made my stomach churn. In the article, entitled “New City same as old City?” Peston reported on two significant news stories of the day.
The first was about the recent shenanigans at the Co-op bank and its internal inquiry into the activities of Paul Flowers whilst he was chair. The second was a confirmation that bankers pay was up again last year.
Video © Comedy Central / Inside Job Sony Pictures / Channel 4 / ITN
“According to an authoritative survey by the European Banking Authority, the total number of UK bankers who earned 1m euros (£833,000) or more last year increased 11% to 2,714 and their average pay rose 43% to 2m euros (£1.67m).”
So far so journalistically reasonable I can hear you say and that would be true if he had not decided to offer his considered opinion that the City of London is a “world-class exporter” and that “we should be relieved that the banks are still monstrous bonus-generating machines.” He then adds insult to injury by ending his piece as follows:
“And for those who – perhaps understandably – believe that the source of all financial calamities are investment bankers and hedge fund managers it may be worth noting that it was ethical bankers who wrought havoc at Co-op Bank, and hedgies advised by investment bankers who saved it.”
Peston who worked as a stockbroker for a couple of minutes after graduating from university and has been a journalist since 1983, is clearly of the view that it’s time to stop ‘bashing the bankers’. Last month he became BBC News’ economics editor. Stephanie Flanders, the former editor was appointed as chief market strategist at JP Morgan Asset Management – a high profile and extremely highly paid position. Perhaps it is the prospect of a big job at a global investment bank in the future that is why Peston is suddenly so forgiving about the sector’s unethical behaviour and malignant criminality. He is certainly aware that there have been no fundamental changes to the structure of the investment banking industry since 2008 and consequently that the greed fuelled behaviour of the banks continues unabated. As he highlights in the same article:
“[banking] structures right at the centre of the financial earthquake of 2007-08, which triggered the worst recession in living memory, remain in better shape than where most of the rest of the country lives.”
And why is that? Because, at it’s peak, £1.2 trillion (see the table below) that could have been spent on investing in the UK economy or to mitigate or even prevent some of this government’s attacks on the poor, the disabled and, of course, ‘hard-working families’ was instead spent saving the banks from the results of their own unethical and fraudulent behaviour and providing capital which they then used, in part, to pay another round of huge bonuses to themselves. And that is all before the taxpayers’ gift of free profits in the form of so-called Quantitative Easing (there will be a post on QE in the near future) which, inevitably, has also underwritten the continuing ‘heads we win’ bonus culture.
How much support did the Government provide to UK banks?
|Peak support (£bn) (i.e. the UK tax payers’ maximum risk exposure)||Total outstanding support as at 31 March 2013 (£bn)|
|Total peak support||
There were two types of support provided:
- Provision of guarantees and other non-cash support. The main items under this heading are the Credit Guarantee Scheme, Special Liquidity Scheme and Asset Protection Scheme, as well as various other guarantees and indemnities provided to UK banks.
- Provision of cash in the form of loans to the Financial Services Compensation Scheme and insolvent banks to support deposits, and the purchase of share capital in Royal Bank of Scotland and Lloyds Banking Group.
Source: National Audit Office (Taxpayer support for UK banks: FAQs)
As you can see in the video clip above, the cataclysm that was the financial crash of 2008 was not a one-off nor has it spurred governments across the world to instigate a fundamental re-evaluation of the global financial system to make it safer and fit for purpose. In a follow-up post, you will see that an innovative, stable and fully functional financial system is possible; we had one before and it already exists in at least one major Western capitalist economy today. Real change is not some distant “socialist” fantasy.
The main players in the global financial markets remain too big to fail, jail or bail. They do pay taxes on their excessive earnings (where they cannot ‘avoid’ them) but as you will see later this month not nearly as much as their PR would have us believe. Moreover, those earnings are due to the continuing predatory, unethical, and often fraudulent behaviour of bankers and, crucially, a lack of meaningful competition and regulation. They spend billions of dollars annually which is used to corrupt the political systems of sovereign nations and undermine democracy. No corporation, whatever the sector, should be allowed to extort national governments.
As there is no real price competition, banks fee structures allow them to suck valuable capital out of their thousands of commercial and millions of retail clients to pay in undeserved bonuses and dividends to the limited pool of a few thousand of their staff and fund managers. These rich individuals, by and large, then use lawyers and accountants to hide the true extent of their ill-gotten wealth from the tax authorities.
Elsewhere on this blog are posts about how, having spent several years working in the equity capital markets division of a number of investment banks, this blogger is certain that the ‘professional advice’ of investment bankers is simply not worth the huge fees for which they (over) charge their clients and how the resulting massive misallocation of capital distorts the market. It is the view of this blog that a trained monkey could ‘earn’ huge profits where it is part of a cartel providing a service that its clients are required by law to use and where there is no price competition. As bonus season is upon us once again, another post on the subject will appear soon. For now, suffice to say that this diverted capital could be used by small businesses, private individuals and even national governments to invest or spend which in turn would grow the economies of the world. Instead, much of it is hidden away in unproductive ‘tax havens’.
Robert Peston may think that it’s time to stop bashing the bankers but this blog argues the contrary. It is time to redouble our efforts and keep highlighting the ongoing obscenity that is global investment banking. We must demand that our governments find the cohunes and moral conviction required to rigorously regulate a corrupt financial services industry. Global investment banking is a scourge on society.
We need to remind these self-titled “Masters of the Universe” that, for all the faux complexity and opaque acronyms they invent, in the final analysis they’re job is to oversee a system of transmitting funds from one place to another. Like the UK’s energy sector, banking is a utility and like the UK’s energy companies banks are holding the country hostage.
It is not only the banks. We have seen it in technology with Google, Amazon and Apple dictating tax policy to the UK and US governments. We have seen it in the oil and gas industry where companies like Exxon, Shell and BP demand subsidies and special tax exemptions whilst they make billions in profits. This is economics 101 – if you allow global oligopolies to exist then expect your politicians to be corrupted, your democracy undermined and your economy to be excoriated. That is why we must demand that global conglomerates in all sectors are broken-up.
Robert Peston’s jaundiced eye may have told him that it’s time for everyone to accept the status quo and move on but he is wrong.
The time for change is long overdue.
The time for change is now.
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