Hanging 20 bankers at the end of the street won't help, says Blair

MrJudgeyPants - liked your Adam Smith quote; thanks for that.

Nevertheless, profit and sustainability are not the same things. The banks do not pay huge bonuses in order to make them sustainable. They would be sustainable with much lower profits and salaries. The question is whether they are worth sustaining at all if they do not provide a social utility AND are not capable of earning enough to make themselves sustainable let alone make a profit, without trillions in taxpayer support.

It seems that those who are most in favour of unbridled capitalism in general and it being fine, indeed desirable that banks make and keep large profits in the good times, are the same ones who here argue unashamedly for the socialisation of the banks' losses in the bad times.

There is no inherent logic in that position.

If that was the case, we'd be bailing out any business that failed to make a profit. But we don't. We let all the thousands of businesses whose services we deem non-essential go to the wall. But we rescued the bankers - not because they are more self-interested than other businesses (though that may be true), and certainly not because they were more successful at amassing money (or they would not have needed our help), but because they were seen as more essential ie useful to society as a whole.

If in fact they are not fulfilling their function for society as a whole, but just filling their own boots instead, then we might as well, if not string them up on lamposts as the thread title suggests, at the very least lock up the most criminal ones and stop bunging cash to all of them, and let them face market forces and see how well they can stand on their own two feet without taxpayer support.

You do realise, Edgar, that by your definition criminals and thieves are just good businessmen as they are succeeding in making money according to the supposedly iron law of everyone acting in their own self-interest alone?

"By that definition, there is no difference between the business of a shoe shop or an accountant or a theatre or a bank"

Indeed. there is no difference - the purpose of any business is to make money. if not : see 'Charity'.
as mrjudgeypants says.

it isn't silly. you are confusing means and end I believe edam.

Edgar is right - businesses exist to make money. The shoe shop and the accountant may provide us with very different services but it is from the intrinsic 'selfishness'* of finding any way possible to make a living which makes the system work.

The point Edgar is, I think, trying to make, was eloquently made by Adam Smith nearly 250 years ago when he wrote "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

Whilst a bank provides a useful societal function to match people with money to lend with those who wish to borrow, long term profit, a.k.a. sustainability, is and should always be the motive.

* In this instance, I don't use the word selfishness as a pejorative term, think self-interest.

Edgar, that's silly. By that definition, the only purpose of any business that makes a profit is to make money. By that definition, there is no difference between the business of a shoe shop or an accountant or a theatre or a bank. Except there is. We can all see that shoe shops are useful because we can get shoes from them, accountants help us sort out our finances, theatres fill our cultural void ... and banks? well, what do banks do, other than store money safely in return for interest and lend it out again in return for more interest. (Plus some which call themselves banks, but are really casinos, gamble big time with other people's money. This has no social utility at all.)

When you say 'the purpose of a bank is to make money' what you really mean is that banks function, as all the private sector does, as part of the capitalist system, which - the clue is in the name - works by exchange of capital. But that's the underlying system, not the purpose. Capitalism is the reason we exchange money rather than barter sheep, say, but it's not the purpose of why we do things.

Rubbish. If they only existed to make money (and these days it's a moot point whether the rewards accrue to shareholders, as classic economics assumes, or senior employees) then we wouldn't have bailed them out.

Banks have an economic and social function as described by breadandbutterfly. That is why they were bailed out. Too late for them to protest now. In return for still existing, they need to focus on performing a useful function in society and in the economy. They need to support the real economy, not threaten it.

the purpose of a bank is to make money. it may provide useful (or, for modern life, essential) services as a by-product.

the reason for the bail-out is not the raison d'etre of banking.

Edgar - the purpose of a bank is not to make money. Or at least, that may be their real purpose, but it's not their public utility, it's not what we bailed them out for, so they could make more bankers rich! The purpose of banks is supposed to be to enable those with spare capital to store it safely whilst enabling those who want to borrow money to invest in business etc to do so. Banking is supposed to be a useful intermediary, not a leech.

If banking's only purpose was to 'make money' we would not have bothered to bail them out and they would not have been too big to fail if they hadn't had all our money sunk in them...

After exciting everyone last week with his promise to 'do something' so the markets could move forward in a positive way, ECB chief Draghi underwhelmed today.

Last week he told the markets that he was going to do something positive, so everyone waited hopefully for the announcement today. But when it came down to it, we got more vague promises that he will do something 'in future'. Bad move.

It feels as if no one is in charge - or perhaps those in charge either don't know what to do, or are simply hoping that somehow things will improve with a few small tweaks here and there.

also - the purpose of a bank is to make money. banking has not lost its purpose.

Edam, I'd like to know how you propose to re-build the global banking system from 'first principles'. Maybe we could sort out world peace whilst you are at it.

Also, could you give examples of 'multiple systemic failures'? What do you understand by that term?

"There needs to be root and branch reform, starting from first principles."

what do you mean by this? specifics?

or just bland rhetoric?

Banking is already highly regulated!

Thing is Cote, your line that this is just about a few bad apples really doesn't cut it any more. It is clearly not just a couple of outliers. There are multiple systemic failures - the whole industry has lost its purpose and become a danger to the citizens and to the real economy. There needs to be root and branch reform, starting from first principles.

Exactly. And as I said below, bankers weren't singularly egregious re sub-prime crisis:

CoteDAzur Sun 29-Jul-12 18:47:10
Also, the crisis started in the US in subprime mortgage market, where the mistakes were evenly shared between politicians (short-sightedness & greed), bankers (pure greed), and consumers (idiocy and greed). It is very unreasonable to put the blame exclusively on the shoulders of "bankers", the vast majority of whom have been working within legal framework (bad legal framework, for sure).

the sub-prime fiasco was the thing causing most of the economic problems, not some money laundering in mexico..

and the former was legal trading. (giving a product a wrong rating is not illegal... ratings are usually already out of date when given)

what effect the LIBOR fixing may/may not have had on the general economy..hard to say..

Is "Massive lol" what passes for economic commentary in your primary school?

It is a fact that quantitative easing is a valid and effective macroeconomic tool under such circumstances. If you don't even know that, you shouldn't be posting on a thread on the economy.

Quantitative easing wasn't a bad thing

Massive lol.

"cote, did you really think I meant the whole concept of banking was an entirely bad thing? I suspect you knew perfectly well that I was talking about the way banks have been operated in the West and especially the UK."

I've seen other ways banks were operated, notably in Soviet countries, and I can assure you they were completely ineffectual, corrupt, and useless.

Just where are banks operated the way you would like them to be?

"It's quite appropriate to be angry at the banking sector."

Being angry at a sector is meaningless, like fighting drugs or terrorism. You can and should be angry at the criminals within that sector, just like you should be fighting drug dealers (not inanimate recreational chemicals) and fighting terrorists (not terrorism, a method of warfare).

"They gambled with public money and lost, they committed fraud"

As I said, criminals. Those you should of course be angry at.

"they award CEOs millions of pounds for failure"

If they have severance packages detailed in their employment contracts, what do you suggest their employers do when they are being let go?

"they received tens of billions of pounds in bailouts from public money"

Again, what would you have the state do, let banks fail and trigger a complete meltdown of the financial system? Would you really be better off living in a banana republic with 10000% inflation and a currency worth not much more than toilet paper?

"We need a a financial system that supports the economy, not destroys it."

Like what? Would you care to share your vision with us?

"Cote, at the height of the crisis we were within hours of the cash machines running dry, and chip and PIN machines failing."

So you can tell the future now? Hours to PIN machines failing, no less.

"just look at the Euro"

I'm looking at the Euro and it has lost value, as it should, given the multitude of problems in the Eurozone.

"Of course the banks are a negative force - are you going to pretend the Libor rigging was a good thing? That laundering drugs money is a good thing?"

Several criminal acts doesn't mean an entire business sector is "a negative force". I read about five murderers this week, so the human race is a negative force

"That pissing away billions upon billions of pounds magically created by quantitative easing is a good thing? All those billions called into creation, at the cost of peoples' savings and pensions, and it's done sod all for the real economy."

Quantitative easing wasn't a bad thing, and the decision to do it was not taken by bankers. You see, it's statements like this that show you don't really understand what is going on.

Edgar, I don't know if you noticed this minor news story about rigging the Libor rate? Or the other minor news story about laundering drugs money? Or mis-selling scandal after mis-selling scandal - they aren't refunding people because they are feeling charitable, they are doing it to avoid feeling the long arm of the law. It's essentially fraud, but mis-selling sounds so much nicer. Both massive scale and small scale wrong doing.

Just one example of the small scale stuff. One high street bank, for instance, signed my MIL up for a loan for home improvements. The fecking paperwork she signed, after high-pressure sales tactics in her own home, actually says you have to be employed in order to qualify for credit. This was a little old lady who had been a pensioner for 10 fecking years yet the bank happily connived at this deal - and are STILL trying to extort money from her even though we have pointed out the agreement was a con. My MIL, unfortunately, is far from alone, as scandal after scandal has shown.

Yup, although I don't think there was much option at the height of the crisis - can you imagine the hell that would have been unleashed if the banks had just stopped working? We were only hours away from that scenario. There could have been a LOT more strings attached though, and the emergency action should have been followed with a fundamental root and branch review of banking and its function in society.

yes it was! the opposition supported this at the time though.