I did some work in London this Monday, near St Paul’s. It was a pleasant day, so I walked down from Liverpool Street rather than taking the Tube. What struck me was for a country that was in danger of running into the second dip of a double dip recession, there seemed to be a lot of money sloshing around and how much buzz there was. Twenty and thirty-something guys with tailored suits and their hands jammed in their pockets or on the phone seemed to ooze brash bravado, set against the occasional refined clicking of designer high heels from pencil-skirted women.
The Daily Wail has an article spitting bricks about a party sponsored by Square Mile magazine, where bankers are living it up. While it makes easy journalism and pumps up the angry readers who are looking for someone to blame, I don’t share their angle one bit.
I’m quite glad to see they’re partying and chuffed to see banks are making money again. The reason is that as taxpayers we subbed the banks a shocking amount of money over the last couple of years. I’d quite like some of it back. Let’s face it, a profit wouldn’t be such a bad thing. In the end Britain isn’t going to become the workshop of the world again, we don’t have the skills. And yet, it seems, we have some animal cunning for the world of finance.
The near-death experience of the financial system does show that perhaps we want to be a bit more careful. In particular, the end of Gordon Brown’s tenure seemed to have an awful lot of money spent on stuff that wasn’t perhaps necessary, and Britain isn’t as rich as we thought we were. The banks and their problems were the lightning conductor that flashed over after the huge misallocation of resources, but I am not convinced that they were the cause of the financial crisis.
We borrowed too much on our credit cards, we did not pay off our mortgages, preferring to raise loans against the equity to go on holiday, buy cars and all the other trappings of consumerism. The banks didn’t make us do it, they let us do it. They aren’t our mothers.
We need their recovery, both to get our money back and also to buy us enough time to work out what went wrong and how to forestall it in future. There is a theory that suggested that some of the excesses were due to regulations such as Glass-Steagall set in place in the 1930s but rolled back as the people who experienced the Great Depression retired from the workforce. The reason for the checks and balances set up eighty years ago were forgotten. Regulatory bodies had forgotten that financial crises do occur and tend to be all-consuming, and were hopelessly outgunned in terms of intellectual resource and publicity by the industry calls that it is different this time. It is never different this time.
Perhaps every generation needs to be reminded that capitalism has boundary conditions. We will have other problems to face in the years to come. I find some cheer to be had that the animal spirits seem to be returning to the City. Yes, the BSDs are louche loudmouths with execrable taste. But I’m glad to see them back. They are signs among others that our shattered financial system may be on the mend. I would rather the taxpayer makes a decent profit on what seemed to be an impossible bet, and accept the partying for now, than screw the whole sector down with heavy regulation and have it chunter along in low gear for years. Unpleasant as it may look, this healing process needs to be well underway before any of the benefits get into the rest of the economy.
Of course, we would do well to work out what exactly it is that we want of a financial system. Perhaps we do want to separate investment banking from what used to be called retail banking. However, as the Iceland banks debacle showed, retail depositors cannot discriminate risk that well, so the bad drives out the good when there is a government bank deposit guarantee. If we don’t want to bail out banks in the future, we may have to accept our responsibilities and be prepared to lose our savings if we chase particularly high interest rates.
This is just hearsay, of course, my subjective impressions of a sunny couple of hours in the City. And yet some of the figures show that life stirs anew in the Rough Beast, its muscles rippling as it feels the fires of Mammon once again –
seems a straight flush, covering most of the big British banks.
Sir John Grieve, former deputy governor of the Bank of England, says pretty much the same thing on the Today programme
“the bank results are good news, we stepped in to rescue the banks in order to put them on their feet so they could make a profit, so we shouldn’t complain when actually we succeed.”