Bob Diamond was almost certainly ignorant of the market manipulation Barclays have admitted to. You don’t take notes on a criminal conspiracy and you don’t run a major bank without knowing how to not know what you shouldn’t in a defensible manner. Sorry for the Rumsfeldian epistemology.
But this isn’t limited to individual banks, or a lapse in the regulatory regime. Other banks were directly involved in the LIBOR manipulation and in the credit swaps fraud that will be announced shortly. Not to mention all the other incidental frauds that haven’t been discovered yet. There’s a systematic problem that all the major commercial banks are or were actively and gleefully participating in.
The ever astute Gaby Hinsliff pointed out the fundamental issue with a thorough Leveson-esque inquiry into this. It seems justified but would make the current IT issues at RBS seem like a good day as the UK portion of the international financial system collapsed under the weight of its own shit.
I don’t really know what to do from here. The banks have caused a massive world recession which has caused huge government deficits and the failure to deal with the recession in a sensible manner by governments, not least the austerity programs in Greece, Spain and the UK have made matters worse. Yes, there are issues about the way that the Northern European countries benefited from a relatively low Euro exchange rate at the expense of countries like Greece and Italy, that the better off benefited from the policy of price stability pursued by the BoE and the ECB at the expense of the worst off but there’s a deeper issue about the way that corrupt financial institutions have literally collapsed the Western economy around us all through fraud and corruption.
There’s essentially three questions which may well have conflicting answers:
1. How do we get out of this?
2. How do we stop this happening again?
3. How do we punish the incredible malfeasance which got us here?
#1 by Neil Murray on June 29, 2012 - 9:51 am
“finance, far from being a parasite on society, is one of the most powerful tools we have for solving our common problems and increasing the general well-being. We need more financial innovation–not less–and finance should play a larger role in helping society achieve its goals.”
Robert Shiller – Finance and the Good Society
http://press.princeton.edu/titles/9652.html
#2 by Aidan on June 29, 2012 - 9:56 am
That’s a good book, though Prof Steve Keen was also fairly bang on about the predictions.
I’m not arguing that there should be no financial system, banks have a useful role in any economic system. But the financial system we have is quite clearly not working and hasn’t been for some time.
#3 by Jen on June 29, 2012 - 6:53 pm
Law and order needs to be restored in the banking and financial world. Firstly, I think we need an inquiry and or investigation which leads to criminal prosecutions and heavy sentences for the offenders. These people continue in the way they do because there is no consequences.
Secondly, no more public money, let these banks fail.
Next, all the board members past and present, should be made to repay the bonus earned within the period of the LIBOR scandal and the traders. In addition, if they don’t have the cash now for the total figure owed, they should have their assets frozen and then sold.
Next, all these people should be banned from the profession for life.
May sound extreme, but whilst bankers continue to get away with corruption and incompetence on this scale. They need to pay and watch standards rise.
These people are unable to work within the system no matter what is created, the culture of greed is breed in. New people are required then any new system at least has a chance.
In additon, we need to ban the revolving door between the government and the financial world. Some might say it gives MP’s and civil servants much needed experience etc but in practice, it increases corruption.
I am disgusted with these people and if I had my own way, I would jail them all for life!
#4 by Antoine Bisset on June 29, 2012 - 7:03 pm
The acceptance of the gambling approach to the stock market was, with the deregulation of banking, an invitation to the banks to join the party.
Gambling, (trading is the preferred term) became more and more attractive to the banks. Quick profits could be shown compared to the traditional method of lending money on a small margin. Commission was charged by the banks whether buying or selling, and this could be boosted by trading in stocks that the banks did not own.
With the results of these bets garnering bonuses for the traders who place the bets, the outcome was easily predictable.
Additionally, the UK banks decided to trade in mortgages sold to them from the US and the UK banks bought from US intermediaries without any guarantees. The UK banks UK practice of stringently vetting the property and the mortgage applicants simply went out of the window.
It was never going to be the case that the unemployed blue collars getting mortgages on tarpaper shacks in the bayou were ever going to redeem these mortgages. And so it quickly proved, leaving UK banks, their investors and customers holding paper worth less than confederate currency.
To stop this being repeated at least two things need to happen.
Firstly all stock market purchases need to be for a minimum period, say 3 months. That is if shares are bought by anyone than they cannot be sold within 3 months. Share gambling must cease and shares become investments for the long term.
Secondly, domestic bank business, ie customer accounts, lending and mortgages needs to be carried out by a separate company to other activities.
#5 by Don Francisco on June 29, 2012 - 8:32 pm
A complete firewall between investment & retail banking must be inevitable now. Does retail banking really need to be much more than a basic building society model (loans made from deposits, money earned from paying loans paying interest on deposits)? If people want to gamble then let them, but without deposit insurance.
As for business loans – that’s a laugh.
Each passing year I’m increasingly doubtful that we will ever get our money back from these institutions. As a friend recently pointed out to me – if someone opened an completely honest, straightforward bank that gave you all the amenities of the current highstreet bunch, wouldn’t you move your money there? Wouldn’t everyone? And if we all move our money to these new banks, how are we ever going to get our money back?
#6 by Jim Bennett on June 29, 2012 - 10:30 pm
Andy wightman structures a good argument for a system of small banks a la Germany:
“It is worth contrasting the British banking system with that of Germany – a…breakdown of the banking sector with 70% of banks being owned by local authorities (Sparkassen) or credit unions, co-ops and mutuals.”
http://www.andywightman.com/?p=1322
I’d also argue for state control of the major banking regime.
#7 by Aidan on June 29, 2012 - 10:33 pm
That’s true, however a similar system in Spain with regional banks tied to the autonomous state authorities has caused major problems there.