This article was published in the Daily Mail in September 2011.
Looters in suits: Three years ago this week, Lehman Brothers crashed. Since then, Britain’s bankers have learnt nothing and have been let off the hook again
Three years ago this week, the collapse of the American investment bank Lehman Brothers signalled the onset of the global financial crisis, which has since escalated into a sovereign debt nightmare, boiling around us still.
In response to the financial services industry’s manic greed and incompetence, the British Government last year established the Independent Commission on Banking.
On Monday, the commission published its final report, calling for Britain’s banks to be broken up, ring-fencing their retail arms from the investment ‘gambling’ operations.
So far so good. But then the rocket fizzles out abruptly: reform need not be implemented for eight years. Some of us will be dead, for God’s sake, before anything happens.
Barclays’ chief executive, Bob Diamond, declared emolliently that the commission’s report represents ‘a step towards greater clarity’.
I have read enough to know that if I was drowning and needed a kindly hand, I would plead with Tony Soprano or Darth Vader before trying Diamond.
This is the man, you will remember, who told a House of Commons committee earlier this year that ‘the time for remorse is over’ about bankers’ excesses and who picked up a share-based bonus of £6.5 million last year, in addition to £250,000 basic salary, as well as having the potential to pick up a further £6.75 million in performance-related share options.
When Diamond shows that he thinks the Government’s plans for banking not too bad, the rest of us get the message: these princes of greed and amorality are off the hook again.
Here is an industry which has failed on a Titanic scale (this week we saw further incompetence when a trader at banking giant UBS lost £1.3 billion in a string of reckless transactions); whose warlords remain impenitent, committed as ever to skinning the rest of us for their own enrichment.
And they are offered almost a decade to mend their ways. No wonder Bob Diamond and his friends are having the giggles.
In eight years, anything can happen. Governments change. Reform may get kicked into the long grass. The current generation of bandits — sorry, bankers — have time to make more fortunes and retire to the Caymans.
But, the only thing we can sure about is that we, the banks’ customers, will feel the pain much sooner.
Commentators reported this week that reform plans probably mean the end of free banking for account-holders because separating retail and investment banks will cost £7 billion, and we, the customers, will have to pay the shortfall.
I make no apology for penning what I hope City folk will call ‘another banker-bashing article’. These people achieved a grip on our society, which the Spanish Inquisition would envy, and used it to create one of the great scandals of our time.
They have inflicted financial injury on almost every citizen of the Western world, while themselves continuing to strip bank coffers.
Whenever I wonder if we are wrong to feel continuing outrage, I read a new speech by Sir Mervyn King, the Governor of the Bank of England, who plainly feels the same way.
A distinguished Financial Times columnist complained, some months ago, that not a single banker has gone to prison as a result of their abuses.
While the British Government rushed to launch a public inquiry into the Press following the News of the World phone-hacking scandal, and another into the Iraq war, there has been no such investigation of the bankers’ wickedness.
As a historian, I try to achieve perspective by measuring the misfortunes and follies of our own times against those of the past. Today’s bankers are moral descendants of medieval robber barons, tyrannical rural landlords, the ruthless industrialists of the 19th century.
When a minority group is granted licence to exploit others, it seldom holds back.
Some eminent Victorians fought tooth and nail to sustain their right to employ child labour, send small boys up chimneys and suchlike.
George Hudson, who led the investment boom in railways in the 1840s, the coal mine owners of Wales and the North, the 19th-century American industrial monopolists, were men cast in same mould as today’s bankers. Yet one big thing is different: the entrepreneurial monsters of the past took huge personal risks to make their fortunes.
Today’s bankers, by contrast, are mere employees. They claim obscene rewards while placing bets with other people’s money, backed by the institutions which employ them, and ultimately by their nation’s taxpayers.
The two best-paid staffers of Barclays’ investment banking division, Jerry del Missier and Rich Ricci, last year earned £47 million and £44 million respectively in salary, bonuses and share-based awards.
The average pay per employee — which takes in secretaries and cleaners — at the five biggest American banks last year was £252,000.
The average pay of Barclays’ 230 best-rewarded employees in 2010 was £2.4 million.
Nothing in the Independent Commission on Banking’s recommendations will do anything to diminish these crazy numbers.
Yet Sir Philip Hampton, chairman of The Royal Bank of Scotland, defends the salary figures by saying: ‘There is a big objective reason why you pay people the way you do. This is a serious professional job where people handle almost unimaginable amounts of money.
‘Many banks will have balance sheets worth more than £100 billion.
‘That means that a single individual could be responsible for, say, £50 billion of assets. With that proximity to such large sums, you want to make sure that your money is being properly looked after.’
It will have taken most of you 0.6 seconds to spot the flaw here. The truth is that our money has not been ‘properly looked after’.
Its banker custodians have mishandled it on a scale that a similar number of chimpanzees could not match.
One of the reasons the financial crisis has not been solved is that few of the world’s banks have even now admitted how much bad debt they hold, acquired in the maddest years.
Bank shares have fallen drastically, so that anybody who has invested money in the institutions run by the wizards of Wall Street and the City has seen it halved, or worse.
Hundreds of billions of hard-pressed taxpayers’ money is shoring up tottering financial institutions. Yet the men and women who have destroyed shareholder value continue to receive fantastic pay packets for themselves.
Adding insult to injury, ordinary customers — and especially small businesses — find it increasingly difficult and expensive to borrow.
For example, my son works in Argentina, but is buying a flat in Britain. Because I knew he would have trouble getting a mortgage, I offered my own bank an unconditional, personal guarantee on a loan for him.
Fine, they said. They offered the money, less than half the value of his property, at an interest rate of 6.9 per cent. I exploded: ‘But you’re paying only 0.5 per cent interest on my money deposited with you!’
They shrugged: that is our rate, take it or leave it. We left it. I lent my son the money myself rather than see him taken to the cleaners.
As a result, the only function I asked the bank to fulfil was to transfer the money on a given date. They acknowledged the instruction — then forgot to do it.
How can bankers be surprised by our contempt? Many people much less able to look after their own interests than the Hastings family have suffered worse experiences at the hands of bankers who still house themselves in Notting Hill and plonk their pot bellies on the best seats at the Opera House.
They are incapable of shame.
I recently heard the chairman of an investment bank solemnly deplore the criticisms which Mervyn King heaps on his kind.
‘The Governor of the Bank of England really should not talk in such a way,’ he said, shaking his head as might a clergyman on hearing that his bishop had been pawning the diocesan silver.
I suggested to this City grandee that he himself was lucky not to be in jail. He thought I was making a tasteless joke, but I meant it. He and his kind are looters in suits.
The bedrock of banking used to be trust. The destruction of that precious commodity is almost all the bankers’ own work, though governments and regulators were not blameless.
Ordinary customers might not care too much about the City’s reckless trading, but we have every reason for bitterness about the manner in which banks and financial advisers, often working in cahoots, have robbed savers and private pension-holders.
The Civitas think-tank has just published a new pamphlet, entitled You’re On Your Own. It shows how, over the generation since Tory Chancellor Nigel Lawson revolutionised the pensions industry and allowed people to organise their own old-age provision, the financial services industry has actually pillaged them.
‘Very often,’ say the authors, ‘trust in finance industry professionals has been misplaced. Some . . . have acted like doctors who recommend unnecessary, even dangerous treatment, drugs or surgery, solely because they benefit financially from it.
Any doctor discovered doing that would be struck off the medical register and probably prosecuted.’
By contrast, similar shoddy behaviour by those working for banks and financial service providers led to them receiving bonuses!
The Civitas pamphlet goes on to highlight what seems to some of us a key issue: ‘For at least the last 30 years, it has been assumed by almost everyone — economists, politicians, civil servants — that if the finance industry is doing well, that must mean customers (and society more generally) were benefiting.’
In truth, however, the sole beneficiaries of much of the activity in the financial services industry are those who conduct it.
Even today, it remains uncertain whether government understands this. The banks fiercely lobbied in advance of this week’s Independent Commission on Banking report, claiming that the economy would suffer if their present, supremely self-serving arrangements are disrupted.
It is hard not to believe that the scheduled eight-year-long delay before the new structure is implemented reflects a success for City special pleading.
Many economists, and some of the most senior figures at the Bank of England, believe it is long past time to call the bankers’ bluff.
If Bob Diamond, of Barclays, wishes to cart off its investment ‘casino’ operation to New York, let him do it. He can scarcely take the retail bank in his hand baggage.
I believe that any banker who prefers a new life in Zurich should be offered bus vouchers to Heathrow. Anybody who has spent 48 hours in a Swiss canton, except to ski, knows that a spell in the gulag would be jollier.
For years to come, real living standards will fall in most of the Western world, as a consequence of events since 2008. The only people whose lifestyles are likely to be unaffected are those who precipitated the catastrophe.
To be sure, bankers’ paper wealth has shrunk. But their pay is still so astronomical that mansions and private school fees, spa treatments and skiing holidays, remain untouched.
A couple of years ago, I did an assignment in the Italian Dolomites. The grandest hotel nearby was almost entirely occupied by thirtysomething Englishmen, their wives and one child apiece.
‘They are all bankers or hedge fund people,’ the manager told me cheerfully, ‘the only British people who can afford us.’ Little has changed today.
No plausible legislation will prevent bankers from continuing to enrich themselves. In the era of global markets, they have struck a golden formula. Like the mafia hoods in the film Goodfellas, they have discovered how to extract a ‘tribute’ on every financial transaction.
The most we can ask, it seems to me, is that private customers and innocent bystanders should be protected from their avarice, as we have not been in the past.
The Government and regulators have a duty of care to save us from our bankers, just as bars separate us from tigers, jackals and vultures when we visit zoos.
Meryvn King, a deeply moral man, is doing his best to achieve this, but the Government remains more frightened of the bankers than it should be.
David Cameron and George Osborne must see by now that these are hollow men and women, of limited skills, feckless judgment and unbounded selfishness.
It may be true that the financial services industry will remain economically important to Britain.
But, henceforward, it is the duty of government to ensure that it is conducted on society’s terms, not those of the profoundly unlovely people who have steered us to the brink of an abyss.