St Pauls occupiers meet with Hector Sants

See this press release below from the St Pauls Institute.   One step closer to a longer term truth and reconciliation commission.

London Connection, the initiative announced by the Bishop of London with the mission of reconnecting finance and ethics in the wake of the St Paul’s protest, has begun a programme of dialogue and engagement. This is starting with a meeting between Hector Sants, Chief Executive of the Financial Services Authority and representatives from the Occupy London group.

London Connection is being led by Ken Costa, former Chair of UBS Europe and Chairman of Lazard International. He and the Bishop of London have convened the private meeting with Mr Sants, which will be held at St Ethelburga’s Centre for Reconciliation and Peace in Bishopsgate. The discussion will take place within a Bedouin tent in the garden of St Ethelburga’s, created in the wake of the IRA bomb which devastated the church in 1993, to provide a unique, private space in which people from different backgrounds can meet as equals.

The meeting will give the opportunity to discuss the banking system, as well as for Mr Sants to outline the FSA’s programme for regulatory reform and to examine the role that ethics have to play. It will in turn provide representatives from Occupy London with the chance to voice their own opinions about banking regulation.

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Iceland’s experience – and lessons for the UK

Martin Wolf in the FT has drawn attention to the recent conference on Iceland’s experience since 2007. The conference was co-hosted by the IMF and the Icelandic government, and involved speakers from the government alongside distinguished international economists.   The proceedings are available online, and are remarkable for the open way in which Iceland’s near-death experience at the hands of its banks is analysed and discussed. 
There are a number of lessons for the UK, as an economy with its own currency (a benefit when things go badly wrong) and a very high level of public and private indebtedness.  All in all, Iceland seems to be well on the road to recovery and to have been able to enact major reforms and tax adjustments swiftly and effectively, albeit with big sacrifices by its citizens.   A government dominated by women, which took over in the crisis, must surely have helped.

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Financial Transactions Tax – will the UK public be allowed a view?

We are told that David Cameron and George Osborne are firm in their rejection of EU proposals for a Tobin Tax, otherwise known in Europe as a Financial Transactions Tax and in the UK as a Robin Hood Tax.

As with the timetable for the Vickers reforms, the banking lobby and right-wing think tanks such as the Adam Smith Institute have been swift to issue press releases, as soon as the EU agreed to undertake further feasibility work on such a tax.  It would cause the ruin of pensioners, banks to leave the UK, death of the City of London, sky to fall in etc etc.

The report published by the EU makes a perfectly coherent case for introducing such a tax, although it acknowledges that this particular policy instrument might prove less effective than others (such as a Financial Activities Tax) were it to be introduced across the EU only rather than at global level.

The UK public will have little or no chance to give their view on the issue, despite the activities of organisations such as the Robin Hood Tax campaign (see links).  The Campaign reports that the UK public are 2 to 1 in favour of such a tax.  But unless there is more widespread support from MPs and other opinion formers, we will remain outside the EU consensus on this issue along with many others.

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St Pauls adds to debate

The continued ‘occupation’ by demonstrators camping in front of St Pauls has already achieved one of its main aims – in prompting wider debate on the ethics and morals of the banking profession.  While Canon Giles Fraser has resigned his post, it seems likely that the public will hear more from him on this subject over the coming months.

Meanwhile, the St Pauls Institute has published the results of its survey into the perceptions of 515 professionals working in the City.  Among its more startling statistics is the finding that more than two-thirds (69%) of those interviewed did not know that the financial Big Bang happened in 1986, and 1 in 3 disagreed with the statement that banks had been deregulated.

Ken Costa, former chairman of Lazards International has agreed with St Pauls to lead a dialogue between the City, the Cathedral and the protestors, to ‘reconnect the financial and the ethical’.   More details are set out in Mr Costa’s recent pieces in the Daily Telegraph and in the Financial Times. Events are moving closer to an exercise which widens public understanding of the workings of the financial system, while exposing bankers to the views and values of the UK public, as advocated by this website.

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German support for a Tobin tax

Encouraging words from the German Finance Minister, Wolfgang Schauble, reported in today’s FT.

“I believe that it is in the interest of the financial sector itself that it should concentrate more on its proper role of financing the real economy, and ensuring that capital is allocated in the most intelligent way, instead of banks conducting the bulk of their trading on their own account,” said Mr Schäuble. “That is in the long-term interest of the financial sector.”

He also made it clear that if Britain opposed the idea at the G20, the 17 countries within the Eurozone might introduce such a tax without them.  As predicted, the UK is heading towards outlier if not outcast status in EU negotiations.

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Plan B

Responding to criticisms that the Left have produced no alternative to Osborne’s plans for the economy, Compass has offered its proposals in a new publication.

Plan B seeks to provide an alternative way forward for the UK. It relies on a set of emergency measures to kickstart the economy, using quantitative easing to finance a ‘green new deal’. Compass argue that further cuts will make the economy worse rather than better, and that the current austerity programme should be halted. 

The macro-economic case for Plan B over Plan A remains deeply contested.  Meanwhile Compass has some good points to make on banking reform:

‘Under the current financial system, the government effectively franchises the creation of credit to the commercial banks whose lening has created unsustainable asset price inflation, in housing notably, while poorly serving ‘useful’ economic activity.  The franchisees, the banks, have been appalling at allocating resources, even as they have benefited hugely from having the privelege to create and issue credit’.

And ‘understanding the deep resistance to change from within, and finance’s pathological lack of concern for the broader economic and social infrastructure on which it depends, is an imporant background to framing an alternative to banking’.

The solution proposed in Plan B is the full separation of retail and investment banking, with measures to curb excess pay and bonuses in the banking sector.  It is not made clear what form such measures would take.


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Were bailouts the only option in 2008?

The more information that surfaces on current events in the Eurozone, the more questions are left unanswered about the UK’s own crisis in October 2008.

Were the bank bailouts the only option?

We are regularly told that the Government had no choice but to intervene during those October days, because a shutdown of ATMs was only hours away.   Was the option of a temporary shutdown, and any failed banks meeting their commercial fate, ever considered?   Might this have proved a lesser disaster than the events that have since taken place?

What would have been the consequences of RBS and HBOS going into bankrutpcy, like Lehmans, with their debts falling on their various major creditors across the world rather than on the UK general public?   Were the consequences of bank default worked through in any detail, before the decision on the bailout?

ATMs closing down would have been a huge inconvenience, but would the sky have fallen in?   Could not the Government have announced the immediate full nationalisation of RBS and HBOS, with a guarantee that deposits up to £50,000 (as the figure then was) would be honoured?

A temporary absence of cash from ATMs, or the short-term inability to transfer savings online, is hardly the end of the world (and was an experience that Northern Rock customers had to deal with in 2007).    Local councils could have been authorised overnight to make temporary cash loans to anyone who could demonstrate they had money in one of the bankrupt banks.

Huge loss of confidence in the UK banking system would have been a consequence, with RBS a a major player on the global stage. When Lehmans went bust, the Dow Jones lost 500 points (or 4.4%) in a day.  There was a further drop of 7% a couple of weeks later.  But we now see volatility not far off these figures on a regular basis.

These questions may appear hopelessly naive, but it would be good to know if the alternative of bankruptcies was talked through in any detail, and what advice was given the Alistair Darling and Gordon Brown when (and if) they asked the question ‘is there another way of handling this?’   Where exactly would we be now, three years later, if RBS and HBOS had been allowed to go to the wall?

How come we have a governmental system that made the bailout decisions possible?

The bailouts at their peak totalled £1.12 trillion.  As of July 2011, the NAO was forecasting that the banks still owe £436bn.    No one ever seems to ask how come the executive in the UK (i.e. government ministers of the day) could simply authorise the handover of these extraordinary sums without so much as a by your leave from Parliament, let alone the public.

Unlike Germany, we don’t have a written constitution that sets out limits on the powers of the executive.   So it seems that there are no constitutional principles which state that  our Government cannot give away our national wealth to whoever it chooses, and whenever it wishes.   Am I alone in thinking that it would be nice to be asked first, before it happens again?

In Germany, the constitutional court has recently ruled that further bailouts for Greece (or any other country) will need to be approved by the Bundestag.   This ruling followed a legal challenge by six Eurosceptics.  The presiding judge said “The government is obligated in the cases of large expenditures to get the approval of the parliamentary budgetary committee.”   That seems fair enough, in a representative democracy.   Yet no financial commentator seems to have questioned why a similar situation does not apply here?   Anyone trying for judicial review of the Government’s decisions in October 2008 would have had nowhere to start.

Instead, we are told that it is a positive benefit that the UK has a ‘strong executive’ model of government, where such decisions can be taken swiftly in an emergency and before the money markets  cause mayhem.   But a positive benefit for whom exactly?  Many UK citizens would still it like to have it to be explained to them, in simple terms, why their future prospects (and those of their children)  have been severely damaged in order that private banks can recapitalise their businesses, and their creditors be protected?

Why no ‘haircuts’?

We are now told that those banks and financiers who lent money to Greek banks and the Greek government will have to accept a loss, or haircut, on their loans.   This is to avoid sovereign default by Greece.   In June the level of haircut for private lenders was to be 20%.   Now it is to be 50-60% because circumstances have changed.

Where was the haircut for those embroiled in money market or currency deals with RBS or HBOS?   Did we miss it?   Is it too late for it to be applied now, given that ‘circumstances have changed’? It now looks as though the national exchequer will not be repaid the remaining bailout sums for many years to come, if ever.

It is very hard for ordinary citizens to gain an understanding of the workings of global finance, and in particular of the inter-actions between governments and the money markets.    What used to be taken for granted (that sovereign nations in the developed Western world will never go bust) was, we now learn, never the case.   The parameters change, month by month, and old certainties are replaced by wholly new scenarios.

We do get  explanations on the evening news, but it feels if the bigger and more basic questions are still avoided.   The FSA report on the failure of RBS is to be delayed yet again (see previous posts) because some of those involved are not happy with the way in which their actions have been described.

Meanwhile the UK public are far from happy about what is happening to them, week by week and month by month.    But our views do not seem to count for much in this continuing saga.

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Vickers reforms: too little and too late?

Several commentators have argued that the timeline for reform, as proposed by the Vickers Commission, is too extended.   While the economic news across Europe remains febrile to say the least, 2019 feels a very long time away. 

Assuming the Coalition Government sticks to its promises and introduces early legislation to give solidity to the Vickers proposals, might there be some novel ways in which reluctant bank bosses could be encouraged to move faster.

The response to proposals for ringfenced retail banking has been almost unanimously positive.    Why should not bank customers bring this model about, sooner rather than later, by voting with their feet?

Building Societies already provide a model close to ringfenced retail banking.   So do the bigger supermarkets.  We are not obliged to keep our accounts with Barclays, HSBC, Lloyds Group or any other bank that continues to operate the universal banking model.

Surveys have shown that the UK public are very reluctant to switch their bank accounts.  We worry about direct debits going astray, and about the hassle involved.   Vickers has made suggestions on how switching could be made easier.

But even in advance of such measures, why not a Government-led campaign to encourage us all to switch away from the riskiest universal banks, towards existing  providers closer to the ringfenced model?    If the FSA were to publish, at suitable intervals, a simple list of which banks are devoting the most staff resource to indulging in the riskier end of investment banking, this would give a strong incentive to move our money to a safer haven.

It would not take long for trends in switching to become apparent.   We could have a monthly update, tacked on to the televised Lottery results, through which we could keep score.   The growing public anger at the behaviour of the banks would be partially assuaged by watching the results of a race in which we, as bank customers, are not wholly powerless.   Barclays custom shrinks again, Nationwide forges ahead, and on it would go, month by month. 

Exhortation from Government about ‘safer banking’ is urgently needed.  It is the contemporary equivalent to adverts for safer sex, with individual behaviour change needed in the national interest.   It is hard to see how anti-competition laws would be breached.   Even were the Government to offer, say, a £20 voucher to every switcher, this would remain the exercise of individual choice, merely better informed than in the past.

The ‘nudge unit’ at Number 10 needs to be put to work.  Behavioural change over our banking habits should take priority over the other worthy ideas.   It cannot be an impossible challenge. 


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