What has changed?

This website started life in 2010, with the idea that an independent ‘truth commission’ was needed – at which bankers, traders, accountants and lawyers could explain themselves and their actions in creating history’s worst financial disaster to date.

The past 4 years have seen a series of official reports, covered in earlier posts, which have gone some way to get at the truth (albeit less so in the UK than in other countries).

Meanwhile the public have become inured to the series of financial scandals that continue to emerge.   Alex Brummer’s book Bad Banks traces the history of these.  Larry Elliott and others forsee a further repetition of 2008, with the problem of ‘too big to fail‘ still unresolved.

Pages on this blog written back in 2010 speculated, naively, on the motivations and values of those who work within the global financial system.  And on how peer pressure exerted via a truth commission might bring about some restoration of ethical principles.

Lucy Kellaway, writing in the FT on the aftermath of the rigging of Libor and Forex, points to one change in recent years.  ’Compliance departments appear to have had a 100 per cent success rate in training traders to drop a “U” (from fck) when using company software, lest it somehow damages the bank’s reputation. Yet they have entirely failed to train them to refrain from illegal activity, or from boasting about it online as they are doing it’,

Just about sums it up.



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Six years on and no end in sight

It is now six years since the start of the banking crisis.   This week RBS has announced that the bank’s pre-tax loss for 2013 was £8.2bn, compared with £5.2bn in 2012.   Chief Executive Ross McEwan tells us that it will take a further three to five years for the bank to recover.

This from a bank 81 percent owned by British taxpayers after its 46 billion pound government bailout in 2008.  And one that has set aside £576m for staff bonuses in 2013, a modest drop of 15% on 2012.  Of that sum, £237m went to investment bankers.

Had we been told back in 2008 this this would be the picture in 2014, what would have been public reaction?   As of now, there is a wearied indifference, or numbed incomprehension, from the public.   It is as if what happened to RBS was an Act of God, like this year’s floods, rather than the result of a systemic culture of  greed coupled with incompetence.

Ross McEwan has also announced that the radical new approach from RBS will be to stop using teaser rates and special deals that penalise existing customers (his words).  The aim will be to rebuild trust in the brand.

He did not explain why the bank, virtually fully nationalised by the bailout, did not adopt such a ‘radical’ option the minute it accepted 46 billion of public funds to stay alive.  Or why neither the previous nor this Government simply instructed RBS to move away from rip-off retail banking practices, if this is now seen as the route to the bank’s commercial salvation.

Several inquiries into the activities of the RBS Global Restructuring Group (GRG) -the “turnaround” unit on which there is growing evidence of serious malpractice – are now in progress.

The reality of the culture and behaviour of UK banks (not that they are alone) continues gradually to be exposed.   It remains a mystery to me why this process has to be so slow, and so lacking in robust confrontation.

Why do we have governments so reluctant to explore and acknowledge what happened, hold those responsible to account, stop bending to lobbyists and apologists from the financial sector, and regulate our banking system to greater effect?

Instead we now have a younger generation  disillusioned with our political class, deeply cynical of the financial sector and all its dealings, and aware that it will never attain the assets and lifestyle that a previous generation enjoyed.  Yet it is also a generation understandably too exhausted by the rigours of life to do much to change the situation.   Not an optimistic prospect.




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‘In reality the financial sector is not out of control, it is beyond control’

This is a quote from an excellent piece in the Guardian by Juris Luyendijk.  His analysis of the financial sector is from an anthropological perspective and looks at the involvement of credit rating agencies and accountancy firms, as well as bankers themselves.

Anthropologists have provided more useful insight than most professions into the behaviours that have damaged the lives of so many across the globe.  It was reading Gillian Tett’s early articles on credit default swaps in 2007 that made me realise, with a sinking feeling, that things would never be the same again and that any ‘return to normality’ has probably gone for good.

Meanwhile Andrew Tyrie’s Parliamentary Commission on Banking Standards (the nearest thing yet to the sort of ‘truth commission’ that this website has been advocating since 201o) as published its long awaited report.  While the language is stronger than past similar reports from the Treasury Select Committee and others, it seems that we will still need to wait a long time before the recommendations are put into effect.




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The Geithner Doctrine and ‘too big to jail’

Neil Barofsky comments in the FT that the banks are still getting off lightly, and remain ‘too big too jail’.   He attributes this to the priority that Tim Geithner gave to preserving global market stability, at the cost of turning a blind eye to the misdeeds of the banking community.  As Barofksy puts it:

This forbearance will have potentially devastating long-term effects, as each  settlement on favourable terms reinforces the perception that, for a select  group of executives and institutions, crime pays. It is only rational. They know  that they will get to keep all of the ill-gotten profits if they go undetected,  and on the small chance that they’re caught, most probably only the shareholders  will pay – and only a relatively minor fine at that. The lack of meaningful  consequences for those committing these frauds encourages future fraudulent  conduct. Ultimately, the financial crisis was a game of incentives gone wild,  and the lack of accountability in the aftermath of the crisis has only  reinforced those bad incentives.

The UK public has had little or no opportunity to give a view on how much ‘forbearance’ should be offered to banks that commit fraud.  Popular feeling has had an impact since 2007, in inserting some backbone to the work of Committee of Banking Standards for example.  But the impact of date on regulators has been harder to see.

How come a major FSA investigation of RBS, post 2008, was initially delayed several times and then failed to bring to public attention the sort of email exchanges on rate-fixing that we are now reading?



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The Archbishop and the Chairman of Barclays

The Parliamentary Committee on Banking Standards is making progress towards the sort of public and vigorous challenge to the banking community that was envisaged when this website first called for a ‘truth commission’.

This morning’s session concentrated on Barclays and the extent to which its new regime is having any real impact in changing the culture that developed under Bob Diamond.  It saw the new Archbishop of Canterbury use his knowledge of the City to question the chairman and chief executive of Barclays.

Justin Welby asked Sir David Walker how he would respond, should a new series of relevations emerge on Barclays involvement with the Quataris, at the time when Quatari loans were being used to keep the bank afloat.

He did not get an answer (that would be too much to expect).  Sir David fell back on the excuse that such matters were being investigated by the regulatory authorities and hence he could not comment.

But the context for such exchanges has changed a lot since the days in 2008, when bankers could appear before the Treasury Select Committee and patronise its members – claiming a set of skills and expertise that made them masters of the universe and which MPs, as lesser mortals, could not begin to understand.

The questioning from Andrew Tyrie and other committee members is firm, and challenges cultures, values and behaviours.  The bankers are now very much on the defensive, finding it increasingly hard to hide behind management speak and business jargon.

Coupled with George Osborne’s announcements on a commitment to ‘eletectrify’ the ring fence between investment and retail banking, it has been a good week.   Still too little and much too late (five years after Lehmans) but progress all the same.


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Parliamentary Committee on Banking Standards

This committee, set up following the LIBOR scandal, is proving to be the closest thing yet to the sort of Truth Commission which this website suggested back in 2010.

The Parliamentary committee, chaired by Andrew Tyrie, has begun to focus on the culture of the banking and financial industries, and on the values and behaviours of those who ply these trades.  This marks a change from previous UK inquiries and commissions, which have examined more technical issues of banking structures and systems.

It has taken five years, and a further set of major scandals over rigging of LIBOR, sale of products such as PPI and derivatives, and continuing doubts about the validity of banking balance sheets, for Parliamentarians to accept that any reforms will need to be locked very firmly in place.  The likelihood of the banks proving able to regulate themselves is now widely dismissed.  Their is now recognition in Parliament, as well as all other sections of society, that greed, short-termism, and (all too often) criminal behaviour have become endemic within UK banks.

The committee’s December 2012 report recommends not just a strengthening of the separation proposed by Vickers, but the construction of an ‘electrified’ ring fence.   This would ensure that regulators could take action against individual banks which made systematic efforts to undermine or subvert a split between retail and investment banking.

It is now acknowledged that banking lobby in this country is immensely powerful and will do all it can to water down reforms.   Yet the mood has shifted in the past year.   Politicians increasingly share the public view that bankers simply cannot be trusted to behave themselves.   Evidence of LIBOR manipulation by Barclays, RBS and UBS show that it has not just been the odd ‘rogue trader’ causing problems, but standard behaviour to reward oneself without thought to the wider consequences.

The Parliamentary committee will be moving on in the New Year to explore a further set of questions and issues, as below:

 The case for prohibiting groups containing a ring-fenced bank from engaging inproprietary trading, and in particular the contribution that this could make to the changes needed to banking culture and standards;

 How the structural changes will affect standards and culture in the long run;

 How to assess bank suggestions that setting the necessary standards for banking in UK might lead to a flight abroad;

 Whether the sale of derivatives inside the ring-fence has a bearing on measures to prevent future mis-selling of such products; and

 The wider issues of competition and transparency raised by the ICB.

The question of ‘the flight abroad’, and whether this is a real risk to the UK, is one posed by this website two years ago.   It is a question that, hitherto, has been met by the banks with condescension at such naivety.   Of course the UK economy would suffer irreparable harm, we are assured, were any Government to dare to impose really radical change in regulation and banking culture.   We must all be grown up and live in the real world.

It also is a question which has not had a remotely satisfactory answer, to date.   No solid evidence is ever put forward to support the assertion that the UK economy, and the lives of UK residents, have seen a net benefit as a result of London becoming a global financial hub.  Let us hope the Parliamentary Committee on Banking Standards find some answers to this question, over the coming months.



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Finally… Andy Haldane’s speech to Occupy

One of the few gleams on the horizon in recent months has been the speech organised by the Occupy movement last month and given by Andy Haldane (a member of the Financial Policy Committee of the Bank of England).

You can even find it on the Bank of England website here

For several years he has been a voice of sanity, and of some remorse, about the global financial collapse for some years.  This time, he is agreeing that Occupy has been not only morally right in the issues that it raised, but analytically right also.

His speech begins to answer the question posed some years ago by this website – what have the events of 2007 meant for us ordinary people.  Below is a brief section of his speech:

All in, this support to the financial sector amounted to perhaps as much as two-thirds of annual GDP in the UK and US, somewhat less (but still rising) in the euro-area.  Those government transfers were not shared equally even across the financial sector, with a strong skew towards institutions deemed too-big-to-fail.  This protected species status meant large institutions benefitted – indeed, continue to benefit – from an implicit subsidy from the state.

This subsidy is big.  For the global banking system, it may currently amount to as much as several hundreds of billions of dollars each year.  By comparison, that is multiples of the global aid budget.  For UK banks, the subsidy amounts to tens of billions of pound each year.  That too is multiples of the overseas development budget. These are extraordinarily large, and peculiarly-directed, government transfers to one sector.

If banks have been the winner from these transfers, then the wider economy has clearly been the loser.  The damage wrought by the pre-crisis debt mountain has been huge and is still rising.  The cumulative loss of output relative to trend is already fast approaching one year’s output in the UK.  As context, only world wars come with a heftier price tag.

The strain is being felt by many homeowners, companies and, increasingly, governments.  In the US alone, more than 4 million homeowners have so far lost their properties.  Many more households and companies globally can only support their debts at near-zero interest rates.  They are zombies, caught in a debt trapThe strain is being felt by many homeowners, companies and, increasingl

The financial press say that Andy Haldane will be Governor of the Bank of England, but not this time.  Please may it not be long.



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Getting closer to the truth – but not close enough

Three hours of Bob Diamond giving evidence to the Treasury Select Committee shed only a little light on the events of the past years – other than to confirm the gulf in attitude and perception between him and the ordinary public.

The political parties are now locked in debate over the options of a Parliamentary inquiry versus a judge-led inquiry.  The advantage of the former is comparative speed, the drawback that it will get sucked into a blame-game between politicians - a subject of little relevance to the real concerns of the public.

This website was set up in 2010 with the specific idea of promoting a fully independent inquiry, a form of ‘truth commission’ at which a group of ordinary mortals could question and hear from the former ‘masters of the universe’.   It suggested that these ordinary mortals should be drawn from those professions untainted by the extraordinary bout of greed-induced chicanery that has overtaken the City (and seeped onwards into sections of law and accountancy).

The suggested themes for a truth commission are very much those in the news at present.  Culture, behaviours, values, ethical principles.   Along with a straightforward explanation to the UK public of the price each household has paid to prop up the banks, and an exploration of the extent to which this has proved to be in the national interest.

Adita Chakrabortty in this week’s Guardian makes an attempt to answer the latter question.  He quotes from the book authored by by the Centre for Research on Socio-Cultural Change After the Great Complacence. This gets mixed reviews but sounds worth reading.

Elswehere on this site are suggestions of questions that a truth commission/independent public inquiry could explore, and ideas on how such a body could be established.  It could happen quickly, without all the paraphernalia that a Parliamentary or judicial inquiry involves.   It might not prove the best forum for fine-tuning legislation or introducing new regulation, but it would provide a means of channelling public anger and re-connecting bankers with the real world.

What would make it motor is a Government amnesty for whistleblowers who agreed to give evidence, and a mandate to override the confidentiality clauses imposed on those who left the financial scector because they could no longer bear to watch what was going on.  Too much to hope?

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You could not make it up

Mid 2012 brings us a further series of EU summits, held as part of increasingly desperate efforts to avoid serial sovereign default in Greece, Spain, Portugal, Italy.
Hinde Capital publish a report forecasting equal doom for the UK economy (Eyes Wide Shut).  Admittedly they have investments in gold to sell, and hence an interest in scaring us all.  But large sections of their report make perfectly plausible reading.
And now we learn more details of LIBOR manipulation by the banks, over a long period.   The FSA formal note to Barclays states:
Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders (“Derivatives Traders”). At times these included requests made on behalf of derivatives traders at other banks. The Derivatives Traders were motivated by profit and sought to benefit Barclays’ trading positions.

The Treasury Select Committee want to hear from Bob Diamond.   Ed Miliband calls for criminal investigation. Diamond announces that he and fellow senior managers at Barclays will forgo their bonus for this year.

Coming on top of revelations of widespread tax evasion by the wealthy, and at a moment when cuts in welfare benefits are starting having real effect, the incongruities are stark.  Efforts by the Government to persuade its citizens that ‘ we are all in it together’ prompt increasing derision.

What we have yet to hear is any estimate of the impact of manipulation of LIBOR and EURIBOR.  Whatever gains accrued to Barclays traders were losses for somebody down the line.

For how long can the Government continue to insist that banks such as RBS and LloydsTSB should be returned to the safe and trusted hands of the private sector, as soon as their share price allows?   And when will the public have their chance to ask direct questions of banking bosses, in a forum such as proposed on this website?

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Has 2012 brought good news?

A mixed picture. The crisis in the Euro area remains a constant reminder of the long-term misery created by the excesses and greed of the banks and money markets. Greek citizens continue to pay the price of the deals done with Goldman Sachs and others, to massage the accounts of their former governments.

In the UK, levels of public resentment also continue to rise. Government is becoming sufficiently nervous to make some token gestures, such as ‘welcoming’ in public the decisions of individual bankers to forgo their bonuses (while reassuring the City in private that regulatory action will be restricted to the modest steps taken on the Vickers recommendations).

The Occupy St Pauls campaign succeeded in raising awareness. The Move your Money campaign could catch on. Persuading the public to transfer their accounts to more ethical banks has long been one of the simplest forms of direct action available to UK customers.

The Move your Money campaign has been launched with well targeted publicity, to coincide with bonus decisions at Barclays.  It is also promoting the Banking Report from Ethical Consumer, which gives ethical scores for individual banks.

Investment banks and hedge funds are not making the money they were, but still no sign of real behavioural change from either.

So some glimmers of light at the start of 2012.  But no signs yet that the UK feels able to wean itself away from its Faustian pact with global finance.



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