Brown and the Banks

[Monkeytrousers]

www.thisismoney.co.uk/news/article.html?in_article_id=453203&in_page_id=2

I know there wil be a chorus of cynical voices echoing Tory grumbles (I have been told by an insider that the Tories are despeeratley praying for disaster in the economy - our economy - their economy - just so they can play the 'I told you so' card) of unfair use of taxpayer money, which completley ignores the payoff at the end if this works. This move will radicalise the banking system, and for the better.

I think this plan is a stroke of genius. I am in awe of GB's balls. I really hope it works and am almost sorry it's taken a global recession to do this, as it needed doing anyway.

Good post Blueshoes.

DH is a fund manager in the pensions side of things - his funds are above benchmark and it makes my blood boil when people who don't have the first idea about what it is like to have the responsibility of someones financial future on their shoulders demanding thier pound of flesh.

It makes my blood boil when people who are paid handsomly fuck it up and walk away scot free.
You live by the sword, you di by it.

Oh and as for taxpayers money is not the government's. You see, the government can print money against future income ad infinitum (what do you think inflation is?) - and this is not money that they own at all, but money that future taxpayers will owe. If the government spends that money now, it means they'll have no money in future to pay for public services.

I think it's also fair to say, DaddyJ, that the bankers who helped create this situation are suffering as much, if not more, than the fund managers, accountants, lawyers etc. etc. The scale of job losses in the City has been massive and concentrated on the investment banking sector - 5,000 alone at Barclays. Those investment banking departments responsible (e.g. fixed income, credit derivatives) have seen jobs decimated.

Everyone benefited from the good times - bankers, lawyers, accountants, fund managers, private investors - every single one. And all of them are directly responsible. And it is, very simply, the greed of the average consumer that caused it - I know I did.

When I chose where to put my savings, I chose a bank that offered one of the best rates of return. When I chose a pension fund, I chose one that would give me (hopefully) the most money when I retired. When I chose a mortgage, I chose one with the lowest rate. Maybe you didn't. But I suspect you would be in the minority.

Thank you, cest, yours is a much more clearminded and mature approach to seeing things.

Fact is, we ALL benefitted during the good times. And whilst I am not excusing it, the herd mentality has a lot to blame for things getting so far beyond the straight and narrow.

If every other fund is doing well, it is a rare fund that will take a conservative approach by shunning the better performing industries (in hindsight, was a bubble)

If every other bank is posting good results, which bank wants to incur the wrath of their shareholders by avoiding lucrative fee-earning areas and end up posting lacklustre results.

If people are piling into the latest investment product that promises fabulous returns, don't you want a piece of the action too?

If your colleague's pension fund has doubled in value, I would be thinking of moving my future contributions in there as well.

OHB, as regards dying by the sword, I am not sure what revenge you would like to see exacted.

If the investment bankers/hedge fund managers acted fraudulently or inappropriately, they would be pursued and dealt with by the FSA - whose enforcement department has BTW countercyclically just gone on a recruitment drive.

As for greed, there have been lots of criticisms about the remuneration basis for such persons, long before it all went tits up. If you wish them to disgorge their fat bonuses, well, they will be an obvious target. But what about the man in the street who benefited from selling their shares when the going was good, who bought annuities off the back of their inflated pensions - shouldn't they also be made to pay something back?

Thanks blueshoes.

Just to be clear, I certainly don't condone the approach of the banks. At best it was ill considered or reckless and at worst (in certain cases) bordered on mis-selling in the manner in which some the sub-prime mortgages were sold to householders in the US. I certainly do believe there needs to be more regulation of them, improved controls and better alignment of payment between risk and reward.

There is, however, a very simplistic tendency to say "the bankers are bad, they did it just to earn lots of money at the expense of everyone else". That is wrong. Yes, some of them (not all, and actually a very small minority) earned a lot of money but that is not why these risky investment products were created.

They were created to satisfy the increasing demand (or greed) of funds to deliver the best possible returns to their investors. Investors who would happily switch funds if they weren't getting the best possible return. Investors who ask their financial advisor to get them the best deal they can. Investors who, in the online age, could compare and switch funds with a couple of clicks. Investors like you and me.

Everyone benefited - bankers, lawyers, accountants, fund managers, private investors - I don't see any teachers, doctors, checkout assistants on that list and yet they will be the ones paying for this.
I'm not expecting anyone to literally fall on their sword however loosing their jobs and beemers doesn't seem to bigger price to pay does it ?
My ex husband works in the city so I'm afraid I do know just what kind of person ass we're saving here and I assure you they do not think much of the little people when the going is good or bad in fact.
The pensions argument is hilarious too, how many under 30's have been able to save for a pension whilst trying to get on the property ladder, not many I bet.

OHB, sorry about your exH, but don't tar everyone who works in the City with the same brush. You may have demons to exorcise.

I don't expect anybody to shed tears for the banker who loses his/her job and car.

As for the hilarious pensions argument, just because you don't see the financial situation of people above 30 as relevant, does not mean they do not exist and not caught up in all this as well. I have had a pension since I was in my early twenties, no doubt in the minority.

The housing boom benefited all homeowners, at the time.

Rubbish, my ex was hardly alone with his appalling behaviour in fact he was quite a nice man until he started with GMS, the attitude rubs off quite quickly, it has to in order to survive and he was only an analyst. The real wankers are the one's i'd happily watch go to the guillotine, let them eat cake was actually heard quite frequently at company dinners etc.
Ah to the homeowners argument, well again the young people who bought in the past 5 years on sub prime mortgages and 100% are going to be roasted alive aren't they, as is anybody who remortgaged and indeed anyone who thought this is an unsubstainable bubble i'm keeping out of it and going to save instead.
We're heading for inflation now it's that simple but what a terrible day for democracy.

OHB, you do live up to your name

Really is that all you have, I'm disappointed

I am speechless

Lehman was allowed to fail precisely because of my argument -
fancy name for it is 'moral hazard'.
Merrill Lynch, on the other hand, was effectively bailed out
which makes a nonsense of your 'retail customer base' assertion.

The point is that today Darling is putting a gun to our heads once more
telling us we either bail the banks out or else.

Well, not so fast, Ali. I don't particularly like negotiating at gunpoint
and you bet I want my pound of flesh.

First of all, we need to make sure this does not happen again
and the fundamental issue here is renumeration/risk.
'Heads - banker wins, tails - taxpayer loses' must never happen again.

Secondly, all those who walked off with huge amounts of money -
I don't mean the 1000s of city workers, cestlavie, but the people at the very top -
need to be held to account.
We know who they are and how much they made.

They need to be held to account for being in charge of a system
that has made them fabulously rich while taking us, according to our chancellor,
to the brink of economic collapse.

It was their system, it was their show,
they were the Big Swinging Dicks, the Masters of the Universe
and now it turns out that it was one big fuck-up.
Which we are now asked to pay for.

Do I not like that.

Of course, all the people who were sucked into this global Ponzi scheme

• either because of greed or fear ('Buy a house NOW before it's too late!!') -

played their part but it is grotesque to suggest that they were responsible for it.

daddyJ, Merrill Lynch was bailed out because it was clear that Lehman would not be the only investment bank to fall and the interlinked banking system could not take a domino investment bank crash. Retail investors would be seriously affected.

I agree that the remuneration of bankers which rewards short termism and risk-taking needs to be revamped. This is where the moral hazard applies.

As for 'we know who they are and how much they made', if it is really so easy and cut-and-dried, by all means, go after them. Don't let them get away.

BTW, I was not suggesting that the man-in-the-street is responsible for the current crisis. Save that the sole responsibility for the credit crunch does not rest at the feet of the evil men and women at the top of the financial industries tree. These evil people could not have done it by themselves.

As for the rest, you should consider working for a tabloid paper!

Okay, let's just through this carefully.

1. Lehmans was allowed to fail because (a) it did not have a retail consumer base and therefore would not directly jeopardise individual's savings and deposits and (b) the Fed believed it to be an isolated and very specific case which they could 'allow' to fail without affecting the rest of the banking system. By the time Merrill Lynch was approaching the same difficulties they had realised that actually systemic risk made (b) totally wrong.

1. Fundamental issue, as I explained, is not banker wins, taxpayer loses. On the way up the credit bubble meant many many people won - including bankers, fund managers, lawyers, small businesses, homeowners, savers, investors, young people, old people. On the way down many people lose - including bankers, fund managers, lawyers, small businesses, homeowners, savers, investors, young people, old people. Trying to simplify it is pointless and wrong.

1. The bankers were not in charge of the system. The governments and regulators were. They set the framework. They decide what is and is not permissible. They can choose what does or doesn't go on. If anyone should have stepped in, they should have.

1. To echo blueshoes, it is not to suggest that individuals are responsible for this. It is, however, very accurate to say that there is a very widely shared responsibility that is overlooked.

blueshoes, if I did work for a tabloid I would be curious
why you feel so aggrieved on behalf of a group of people
who have made obscene amounts of money and left us with the bill.

No, not me but Alistair Darling should go after them
because so far they got away with it.

The Madoff with the money, as it were.

That's the perception the government needs to address
if it wants to broaden support for its measures.

Retail investors were and still are seriously affected by the collapse of Lehman.
You are right, though, moral hazard was essentially suspended
because letting them all (i.e. Merrill, Goldman and Morgan) fail might have
had catastrophic consequences.

They could not enforce moral hazard on a company level. Fine.
They should have enforced it on a personal level instead.

Let me dwell on points 1-3 for a sec but as for 4:

Whenever something goes wrong suddenly responsiblity gets shared extremely widely.
Almost as widely as to suggest that there was really no one responsilbe,
it was more of an act of good.

That's not good enough.
It really is not.

daddyj, you are using emotive language.

I am not 'aggrieved'. Just looking at things in the wider context.

The average fund manager or investment banker is not comparable to Madoff himself. If you could bring yourself to understand the conditions under which they operated - I have already explained herd mentality and shareholder/investor pressures - you will see that whilst they were greedy and short sighted, they were not fraudulent.

You will disappointed to know that many of them would not in fact have done anything wrong under the legal and regulatory frameworks within which they operated. And if they did, they have to account to the FSA and the courts and rightly so.

Greed in itself is not a crime. Nor is making a lot of money.

As cest says, there are winners and losers in all ranks on the way up and down. I personally don't like extreme boom and bust cycles because so many get caught out disasterously on the way down. I am all for devisings ways to smoothen out the process by which bubbles build up.

Not really DaddyJ. I don't think I, or others, are arguing that the investment banks involved so not bear a key part of the responsibility. Nor do I suggest that action should not be taken against them to avoid a similar situation happening again them, including regulatory and financial requirements - requirements which should have been in place beforehand, but which no party (including governmental or regulatory) wanted to see.

My point, more accurately, is that the current vogue for jumping up and down excitedly and saying "bad masters of the universe, they must be punished, they caused this" is simplistic, inaccurate and wrong.

More troublingly, many of those who benefited from this on the way up (Wow my house is worth twice what I bought it for 2 years ago/ Oh I might get a new car with that pay rise/ I'm putting my money in Icesave cos they've got great rates/ Hey why don't you get an Egg card, they've got a zero percent balance transfer rate) are those shouting loudest about how unfair it is now.

Point 2 and 3, cestlavie:

You could claim the same thing about a Ponzi scheme.

Everyone is happy while the going is good
but does everyone really lose out when the inevitable happens?
Actually, it's nearly everyone - the ones who ran the whole thing walk off much much richer.

They are still the ones who are responsible. They are the conmen.
Sure, the police should have been more alert and they need to learn lessons
but they are not the ones who committed the fraud.

It's not a 'vogue' it's a question of fairness.

Nobody would be jumping up and down excitedly if banks just went bust.

Seeing as they are too important to fail
we ought to make sure that no one running them
will ever put us into this position again.

And to that end examples should be made of the people who ran them in the past.

Interesting analogy DaddyJ. Trips off the tongue nicely, suitably emotive but is rather inaccurate...

There is a very large difference between fraud, recklessness and error. Very large. Prison for a start, as Madoff wil no doubt discover and as Charles Ponzi certainly did. There is no evidence to suggest that any of the institutions involved were fraudulent. They wholly believed that these securities were as valuable as they indicated. In fact, to the extent that they bought large quantities themselves.

It is, of course, though very easy to score points by clamouring and using words like "fraud" and "conmen" and "masters of the universe".

"More troublingly, many of those who benefited from this on the way up (Wow my house is worth twice what I bought it for 2 years ago/ Oh I might get a new car with that pay rise/ I'm putting my money in Icesave cos they've got great rates/ Hey why don't you get an Egg card, they've got a zero percent balance transfer rate) are those shouting loudest about how unfair it is now."

No that's not true at all the ones shouting loudest are the people who stayed out of the whole circus expecting a natural cycle of peaks and troughs, who refused 5 times your salary or 100% (and more mortgages) and didn't take out loans for cars/holidays/extentions etc, the people who saved "knowing" that what goes up must come down are shouting because that nautural cycle is being interferred with and who knows what the consequences will be for our children.

blueshoes, is it not slightly disingenuous of you to critise my 'emotive' language
after you quipped - in jest of course! - that I should be working for a tabloid?
If you like to spice up the debate with a bit of banter I am happy to oblige.

No, I don't think my language is emotive enough actually to get my point across.

If tomorrow somebody glassed the ex-boss of Northern Rock
my reaction would be:
C'est la vie.

If you fuck the whole world over to enrich yourself
don't be surprised if the world reacts badly.
Particularly if you don't show any remorse or any sense of responsibility.