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

[NicholasTeakozy]

Why not 30? Or 40?. Maybe not Tone, but it'll be a start.

"it's caused the collapse of the whole economy right across the developed world, "

not yet - certainly serious problems but not collapse.

rethinking is required - but to describe the FS sector as unregulated would be to ignore huge amounts of existing legislation...what was going on was already illegal (hence the payouts for PPI mis-selling) and there is already a body of law in place.

some of the regulation suggested would be antithetical to providing capital to SMEs and would slow growth not aid it (eg deposits vs loans ratios enforced, transaction taxation..etc etc..)

it was pfizer

ah well, and 'tipping off' catch 22s...

One of the main/big areas for dodgy financial practise has been the London offices of the US banks/financial institutions. Who regulates them? US authorities don't seem to have the authority (and are hampered by geography), and I'm not sure UK authorities have any oversight/power either. It is a 'grey area' that has cost the world billions when deals have gone wrong.

The AIG debacle originated out of London with very complicated and virtually impossible to understand financial vehicles (credit default swaps). The man responsible for the whole mess (Joseph Cassano) sits very comfortably (one assumes) in his Connecticut home while the rest of the world is still picking up the pieces from that mess.

The recent JP Morgan mess also originated with the 'London Whale' (so named for the size of the positions he took). He and his team were not supervised properly (maybe his supervisors simply didn't understand the complicated vehicles), and what was initially estimated to be losses of 'only' $2billion is now currently estimated to be $9billion......and they're still not done unwinding the positions.

And now we have the bank of England and Timothy Geithner pointing fingers at each other about the LIBOR scandal - who knew about it and when, who was responsible for policing/fixing, who knowingly looked the other way, etc.

I cannot fathom that one of the main architects of this LIBOR mess at Barclay's left the bank last week with a payout of $8million (or was it
£8million?). That is the sort of warped and rotten business practise that makes me furious. How does that happen? What is the logic in the boardroom that permits that level of reward for someone who should arguably be going to prison for fraud?

I cannot understand why our politicians do not put into place some strong and effective regulations (and regulators) to protect our economy and our people.

Earlybird: "I cannot understand why our politicians do not put into place some strong and effective regulations (and regulators) to protect our economy and our people."

That is a good question, Earlybird.

I suspect the answer is lies partly in the fact that the financial products became too complex and the banks became too big to be effectively regulated. I wonder how much people at the top like Bob Diamond (Barclays), Stuart Gulliver/Lord Green (HSBC) and Jamie Dimon (JP Morgan) actually know the nuts and bolts of what goes on the all the various arms of their far flung businesses. If the chief executives of these globally systemically important banks do not have a complete handle on their businesses, what hope is there for a regulator to regulate effectively.

This issue is how financial institutions became 'too big to fail' or, as it were, too big to govern effectively. The roots are in legislation and politics, yes, during Labour. Do have a read of My Judgeypants' link early on in this thread.

I wonder if the solution is more regulation? Already, the administrative burden of complying with increased regulation is drying up credit, increasing banks' overheads (I am not complaining as I work in compliance, but outside financial services) and creating a lot of uncertainty.

The key I feel to reforming financial services lies in how bankers are remunerated. Short termism is rife because pay is linked to immediate profits or worse, de-linked to performance. That does not just apply to financial services but to all corporates. Shareholder 'spring' is a good thing IMO.

i have heard it said over and over that the banks are simply too big and complex for a CEO/President to effectively oversee. Hence Jamie Dimon, Bob Diamond etc saying they weren't aware of many of the positions/practises until there was a big problem.

As far as regulation: many analysts trace the problems in the US system to a repeal of regulations that were put into place after the Great Depression and removed under President Clinton.

Other factors to consider: much larger and more complex financial instruments than in the past (which I am not sure lawmakers or regulators understand enough to monitor effectively), and the high speed/high volume trading done by machines rather than humans.

It is all a big mess, and I honestly believe that there is widespread corruption and fraud occurring all the time in our financial institutions. But, so much of it operates in areas too 'grey' to be blatantly illegal (so can't be prosecuted) or too complex to be regulated/traced.

Agree with an awful lot in the past few posts. Interesting that the US banks are falling into a regulatory gap.

Mexico - yeah, we have all these apparently stringent money laundering regulations that are such a pain in the bum for ordinary account holders but somehow a UK bank STILL managed to launder drugs money in its Mexican subsidary? WTF? Clearly regulation is not and has not been working - too much faffing around with the small stuff while allowing huge wrong doing to slip past.

If banks are too big to manage, those who were paid to manage them were clearly incompetent - they should have warned their shareholders. And we should be cutting them down to size so chief executives and boards ARE able to manage the risks they take. How the fuck does a bank think it's a good move to start trading things they don't actually understand?

Read a letter to the editor somewhere - could have been the Telegraph - that pointed out senior people in other fields don't demand bonuses for doing their jobs. Judges and doctors for instance (merit awards for doctors are a bit different). I think we need to sort out banking so the banks are managed in the interests of shareholders and society, not senior employees who think the business is their personal goldmine. Get back to first principles where the business is run in the interests of the owners, the shareholders, and NOT in the interests of the top employees.

jrost-

No I'm not a banker, I just think that blaming all the problems in the economy is a very lazy analysis.

The financial collapse and the subsequent recession, which is the worst since the 1930s, was caused by the banks and financial sector. It's really not lazy to assign most of the blame on to them.

" somehow a UK bank STILL managed to launder drugs money in its Mexican subsidary? WTF?"

think about this. last year there were 400-odd murders. murder is already illegal. you can't make it more illegal. changing the law does not prevent the crime happening.

regulation is therefore not the only thing to look at - i am sure HSBC will be looking deep at the procedural errors that allowed this as it has evidently caused them huge embarrassment (and will possibly end in financial loss).

although i do know that all bank employees have done Anti Money Laundering training and there are already bank systems in place..the question is why they weren't sufficient - was it real complicity?

if it was actual criminal intent on the part of bank employees, that's not something you can structure- or train- out the possibility of. ultimately, there is always a way round if you want there to be...

Ttosca, certain bankers are to blame, together with politicians who relaxed regulation which allowed the separation between retail (or 'utility') and investment (or 'casino' if you wish) banking to be removed so that banks could grow to the current size with its inherent conflicts of interests, because it suited the politicians to be seen to increasing the wealth in the economy. The regulators who fell in thrall with this thinking.

And don't forget the man in the street who gorged on easy credit.

Exactly, Edgar. There is always a way around procedures if you are determined enough. What extra tools would a bank have to determine source of funds or ultimate beneficial ownership if there was not anything obvious from the usual information sources and the customer had a plausible story.

I am not saying that HSBC was or was not vigilant though. They are no doubt examining their procedures now. Hopefully, this will lead HSBC and all banks to tighten up their procedures. But even then, that is no guarantee things won't slip through the nets.

edam - in the instance of Jp Morgan, Jamie Dimon has Managing Directors that are responsible for their own divisions/profit centers and they then report to him. The woman MD (Ina Drew) who was responsible for the recent losses (that came from the 'London Whale') was out of the office for months due to an illness. It was clear that she was unable to oversee what went on and whoever she put in her place was ineffective (many stories here about the power struggle among the big egos in the bank). She has now lost her job, and surprise surprise - exited the company with a big payout.

There was a fascinating documentary on the causes/origins of the global financial crisis a few months ago on PBS in America (Public Broadcasting) called 'Money, Power and Wall Street'. No idea if you can watch it online outside of America (sadly, BBC i-player doesn't work for us), but worth a try:

www.pbs.org/wgbh/pages/frontline/money-power-wall-street/

There are interviews with the people who invented credit default swaps, and how lucrative an idea it was. They watched, horrified, as their competitors adapted the concept and used it for massive short term profits with little understanding or regard for what would happen when the instrument was used incorrectly or what the consequences would b if/when things went wrong.....as they did.

The show also graphically describes how regulators and lawmakers either don't understand or are several steps behind this fast paced business so are left mainly to clear up the mess created by this testosterone-driven industry which essentially is gambling with the financial health of the world.

The financial collapse and the subsequent recession, which is the worst since the 1930s, was caused by the banks and financial sector. It's really not lazy to assign most of the blame on to them.

how could a financial collapse be caused by something outside the financial sector?

i suppose there are some things that could tip it (like Hurricane Katrina, which was a contributory factor) - government interference (or lack of it, in this case the US governments lack of regulation over mortgage sales and the duopoly in he US mortgage market) - but then you are always back to internal factors, the fact the financial sector bought into the sub-prime debt as an investment and got burned, resulting in massive loss of confidence in the market such that even banks still turning a profit and worth no less saw their shareprices plummet...leaving some of the banks to be bought at less than their real book value even when the subprime loss was taken off the balance sheet...

but for a country to weather it better or worse is still the politicians responsibility. Not every country faces Greeces difficulties, or has Germanys advantages...

"The banks are a negative force in this country"

Edam, you are becoming more and more extremist on these threads and funny sentences like the above are damaging your credibility imho.

Banks are an integral part of any economy, even truly socialist ones. If you eliminated them, they would need to be immediately replaced by something identical, arguably with a different name to calm the feathers of villagers with torches & pitchforks like you who have grown rather allergic at the word "bank".

"The financial collapse and the subsequent recession, which is the worst since the 1930s, was caused by the banks and financial sector"

As someone said, that is lazy populist Daily Mail analysis.

For one thing, it's not a collapse but a crisis. If it collapsed, I think we would all know it from the 1000% hyperinflation.

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).

There is already the growing and largely unregulated 'shadow' banking system, that is filling in the gaps left by the banks and in some cases replacing them ...

To regulate banks now is in a sense closing the stable door after the horse has bolted.

Earlybird, I cannot click into your pbs link due to regional rights restrictions.

Cote, at the height of the crisis we were within hours of the cash machines running dry, and chip and PIN machines failing. How is that not a collapse of the international financial system? The whole thing broke, was patched together but the patch isn't a long term or reliable solution - just look at the Euro.

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? That taking down the whole economy is a good thing? That starving business of investment is a good thing? That mis-selling PPI, and pensions, and endowments, and thousands of other products are all good things? 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.

The industry is rotten to the core and needs root and branch reform. We need a a financial system that supports the economy, not destroys it. That helps to create jobs and services, not destroys them. We can't keep stumbling along pretending it will all be fine as long as we keep handing over the cream to the fat cats.

Sadly I get rights restrictions too, which is a real shame.

Looks like you can get segments on

cote

"The banks are a negative force in this country"

Edam, you are becoming more and more extremist on these threads and funny sentences like the above are damaging your credibility imho.

Banks are an integral part of any economy, even truly socialist ones.

I think she or he meant the way British banks have been run, rather than the principle of banking per se.

If you eliminated them, they would need to be immediately replaced by something identical, arguably with a different name to calm the feathers of villagers with torches & pitchforks like you who have grown rather allergic at the word "bank".

It's quite appropriate to be angry at the banking sector. They gambled with public money and lost, they committed fraud, they award CEOs millions of pounds for failure - from public money, no less, and they received tens of billions of pounds in bailouts from public money.

Are you saying that people shouldn't be angry?

Well said,
edam.

Edam, I can understand your anger.

But you are reading like a tabloid with your pat solutions and sweeping statements.