Bob Diamond: you couldn't make it up

Entirely coincidentally, I'm reading Alan Plater's The Beiderbecke Connection, which features Ivan, a computer hacker (though the word isn't used), who deliberately caused the 1987 stock market crash to bring about the collapse of capitalism.

'Your plan is to overthrow world capitalism? Give or take a dollar or so?'
'The hands that touch the keyboard rule the world… We started a long time ago. You might remember the crash'.
She remembered the headlines, if not the small print… The way the bubbles had burst and the yuppies fled from the temple of Mammon, clutching their portable telephones as souvenirs of the never-never land. And nothing could be heard above the sound of gravy trains crashing into the buffers, and the metallic shriek of Porsches as they were pushed through the shredder.
Jill had enjoyed every second of it: it was really good fun. 

And later, an MI5 officer returns to the subject.

'The central problem is that he seems to regard the whole thing as a game… Straightforward bank robbers are no problem, as we know… But this man is different. His aim, apparently, is to dismantle the financial institutions of the world. I need hardly remind you, if we do not take these institutions seriously, we perish. The precise balance of currencies… the symbiosis of the stock markets of London, New York, Tokyo and Hong Kong… on all these temples we all depend. Whether we like it or not, they are our bread and butter. Our life and death'.
Hobson caught a sliver of irony in the Commander's words. 

What's changed since 1992? Well, the vandals are within: bonus culture, greed and social irresponsibility has put our financial institutions under the control of the wreckers. They aren't anti-capitalists trying to push the capitalism to its inevitable collapse under its own contradictions: they're capitalists pushing capitalism to its inevitable collapse. Instead of Ivan the Leftist Bank Robber, we've got Diamond the Capitalist Bank Chief. The result is the same, except that this time it's not just yuppies feeling the pain. If they are at all. 

What those banking ads really mean

Bank ads. I hate them. All those smiling young people in polyester uniforms saying 'we'll open for 15 minutes extra every 29th February  because we really care and think it'll make you forget that YOU lent US YOUR MONEY and we gave it to spivs, liars, conmen, crooks and speculators who lost almost all of it and spent the rest snorting the finest crack cocaine from the genitals of supermodels on the deck of a yacht that we paid for via an offshore account so that the governments who bailed us out didn't get A PENNY in tax. So now you're all broke and we're not. And you actually elected a government which has given MORE of your money to us by abolishing schools, universities and hospitals. CRAWL BEFORE OUR MIGHT, PEASANTS'.

But we're not that stupid. All those ads pretending that banking is about being nice to old ladies on the high street can't hide the fact that these people are reptilian scum from another planet.

Someone else makes this point slightly more calmly:

If you see John Redwood, punch him in his lying face

(Obviously metaphorically because otherwise I'd be inciting you to commit a criminal offence. Which I'm not).

So why does Tory Scum MP (representative for Outer Space) deserve a sound thrashing?
Because he just told Radio 4 that the recession is the fault of 'governments and regulators' for making banks hold higher reserves, thereby preventing them from lending more to get the economy going.

Now let's just review the last twenty years (don't worry, I'll be brief).

1. Tory government - including a Mr John Redwood -  and their Labour successors accept financiers' arguments that government regulation is holding them back. They abolish most of the regulations put in place after the crashes of the 1920s-1930s.

2. Banks and finance companies invent a wave of literally incomprehensible financial instruments to fuel uncontrolled speculative greed. Bank speculation dwarfs reserves by massive multiples: the assumption is that nothing bad will happen, so potential losses don't have to be covered.

3. Bad things happen. Banks don't have money to cover their losses. We taxpayers have to spend all our money on saving them. Public services are cut. Job losses are massive. Wages slump. Pensions are cut. Manufacturing nosedives.

4. A tiny bit of regulation is put in place making banks hold a little bit more cash in case of deals going wrong, amidst much whinging from business. Tory government cuts taxes on corporations and cancels new school buildings.

5. John Redwood blames us for the recession.

Now doesn't that demand a sound horsewhipping?

Banks 1, Japan 0

Apparently the Japanese tsunami is going to cost them 'as much as £145bn'. That's a lot of money. How will we ever find enough cash to help them out?

Oh wait. The UK found £20bn to bail out the banks, according to the Bank of England. The US handed over $100bn. The total cost to the UK economy in lost output is £7.4 trillion.

Funny how fast the banks got their (our) cash. Funny how slow it's going to be to help the Japanese. I'm going to phone my bank and ask them to send the money I lent them via the government to Japan.

An Inside Job

I was still too full of snot to go fencing last night, so sloped off to our wonderful independent cinema (The Light House) instead. I was quite torn between Never Let Me Go (great book, but Keira Knightley) and Inside Job, which was only on for one night. Because I am a nerd, I chose Inside Job: it's a documentary asking the hard questions about how banking managed to crash the global economy.

Wow. It turns out that you only need a small group of multimillionaires and billionaires to do it. They invent insane financial instruments which turn bad investments (like thousands of extra-expensive mortgages given to poor people) into AAA-rated investments, then they persuade the politicians to abandon all regulation. Then they sell this rubbish to pension funds while betting with their own money that these things will go bust. While all this is going on, they take jobs in all the government regulatory departments, and sack everybody - not because they weren't needed, but because unregulated free markets had assumed the status of a religion. And everybody knows that only priests get fat from religion.

All the people now being asked by the American and UK governments to fix the system are the people who caused the crash in the first place: Paulson, Summers and many more.

One of the fascinating aspects of the film was the incredible self-assurance of the interviewees. I've never seen so many 'X declined to be interviewed' titles, but quite a few of the guilty parties did grant audiences - and despite crashing the entire global economy, having to be rescued by the government and not having to suffer in any way, they were still convinced that they and the system were completely right on every detail. Remorse? Forget it. Reassessment of their ideology? No chance.

And the universities? They're providing the bullshit justification for all this, while secretly being paid to produce research 'proving' what a brilliant idea it is. One very senior academic sat on the boards of several of the stupidest banks, designed the anti-regulation environment for George Bush, and took money to write papers like 'Financial Stability in Iceland', which he now lists on his CV as 'Financial Instability in Iceland'. Meanwhile, they don't declare any of the payments for churning this stuff out: imagine a pharmaceuticals research paper not mentioning getting funding from the makers.

I literally cannot explain how moronic these people were, nor how deliberately selfish. At times during the film I laughed, at others I wanted to cry or punch things. Do see it. (More here).

Let's do lunch

I've just spent the afternoon with one of my favourite classes, doing plays about bankers and other con-men, from almost 300 years apart: Philip Massinger's very conservative comedy A New Way to Pay Old Debts (revolting city wide-boy loses his cash and daughter as punishment for being a flash social climber - the aristocratic values endure) and Caryl Churchill's Serious Money, an astonishing satire set in the 1980s world of investment banking and financial engineering - in verse.

In this one, the wide-boys win, though the toff bankers they replace are equally corrupt and revolting. They use the crudest sexualised language to discuss their work, though they're all too worn-out to actually have sex with anyone. They're amoral, cruel, greedy and selfish. Unfortunately, the City Boys didn't see it as a critique: legend has it that City firms block booked the theatre when it was first released, encouraging their workers to worship their fictional counterparts.

I hope my students enjoyed today's session: it's hard to analyse comedy without killing it stone dead. Some hadn't read them of course, but I like to think I've done my bit for the cause while simultaneously introducing them to literature they might not otherwise have come across. It's Gerrard Winstanley next: some of his pamphlets and Churchill's play about him, A Light Shining in Buckinghamshire.

(For your amusement: David Cameron Pretending To Be Common).

How bonus culture works

Goldman Sachs profits down 53%
Goldman Sachs bonuses down 5%

I really, really, wish I worked in the banking sector.

Mmm, fried squid rings

Actually, it was Matt Taibi of Rolling Stone who described Goldman Sachs as a giant vampire squid. Read the piece here.

O David! A spoonful of sugar will help the medicine go down

The big story this weekend was multimillionaire Treasury Minister David Laws being caught claiming rent money from the taxpayer and giving it to his long-term secret partner: MPs are forbidden from renting from partners to avoid the sense that they're scamming us.

Coincidentally, I watched Mary Poppins yesterday. The whole thing. Despite Dick Van Dyke's awful, awful accent, it's a fascinating film, covering imperialism, masculinity, childhood, suffrage (OK for the upper classes, not OK for the serving classes), class and high finance - Mr Banks's bank collapses because young Michael's tuppence is grabbed by the greedy directors and he demands it back, leading to a run.

Ironically, Michael Banks and David Laws are rather similar:

 

Despite Mr. Banks's protestations that banks are reliable, ration, friendly and well-run, this song reveals the ugly, vampiric truth. There's a glorious irony in most of the words, especially this: 'prudently, fruitfully, frugally invested…' - presumably not in CDOs, CDSs, derivatives and all the rest of the modern banking world's attempts at alchemy:

Stuff the markets

I've been getting increasingly irate over the weekend by the sight and sound of bond market traders and bankers telling the media (and thus us) how our next government should spend our money. Politicians are (rightly) terrified of the markets, which pass judgement on political decisions by selling or investing in the currency and government-issued debt, which is how day-to-day state spending is financed.

The world's a more complex place than I'd like: the markets exist and to some extent are useful, but we're in danger of losing democracy, simply because some very rightwing people accountable to nobody are happy to bankrupt countries they don't like. They aren't 'rational actors' of the type deified in economics textbooks: they attack liberal and socialist governments.

Even if you think this is OK, remember this: the ratings agencies which are bankrupting Greece and may turn their attention to the UK are the very same people which told us that Enron, the Icelandic banks, credit defaults swaps and all the other insane financial instruments were absolutely fine. They're not just vicious, selfish capitalist scum, they're utterly incompetent.

Added to this is the fact that they're paid to cause short-term moves in the bond and currency rates (ruining a country's currency or bond yields is as profitable as boosting them) and you have a recipe for selfish destructiveness in the fiscal system. Who loses? Governments which need to pay pensions, build new hospitals or schools without waiting for the next tax year.

Let's remove them. Let's organise the IMF and World Bank to trade debt instruments between sovereign nations. Some of my readers know much more about this than I do: are there ways to circumvent these bastards?

This is a robbery. Get your cheque books out

Bob Diamond, president of Barclays, declined his bonus this year, to deflect criticism of banks which have been saved by the taxpayer, directly or indirectly.

What a gent.

As a result, selfless, poor old Bob has had to scrape by on a mere £60 million this year. If you'd like to send donations, I'll put together a food parcel.

Resisting the banksters

American-focused, but relevant globally.

Stick em 'up: this is a bank manager

Well, the marking's done - 240 essays read, written on, graded and added to the electronic system. Now all I have to do is teach and field the multiple interviews with students (the good ones) about how to improve their understanding, and find somewhere to stash the hundreds of uncollected pieces (bad students!). What I really want to do is crawl into bed and stay there for a week.

Infuriatingly, I left my Francis Wheen book at mum's place yesterday, with two chapters left. I hate waiting to finish books. I'll be in a different mood and mindset by the time I get back to it. Instead, I read Shane Ross's The Bankers: he's an Irish Senator, and the book names the guilty men and institutions which have ruined Ireland. In a nutshell: if every businessman, senior civil servant and politician goes to the same two or three schools and universities, plays golf at the same club and spends his time hobnobbing with the same small group, nobody is every going to say 'no', whatever you do. Politicians wanted cash, developers wanted loans and planning permissions, bankers wanted higher salaries and deregulation, regulators were former bankers (or joined the boards of the banks subsequently).

Even the Central Bank, the country's banking authority, stuffed its board with get-rich-quick bankers. The stockbrokers constantly hyping bank shares were owned by those banks! Chances of them pointing out that the banks were unstable? Zero.

Who lost out? Any depositor in Irish financial institutions, anyone with a pension, anyone who had to take out a massive mortgage to buy even the smallest house - and all the taxpayers who bailed out this tiny group of banksters. Who were also politicians. And regulators. Were it not for the rain, Ireland, far from being the Celtic Tiger, has been a banana republic since independence.

Anyway - Sarah's given me a calming book of proverbs to restrain the ranting, and I'm off to celebrate Alan's 52nd birthday. Then sleep…

How to do real populism

The UK government announced that it would tax the pool of bankers' bonuses above £25,000 at a rate of 50%, a sensible move and one I'd like to see extended past this year. But in political terms, they downplayed it - even suggesting that it would raise only £500m, when it appears that around £2bn will result.

Over in the US, where Obama hasn't even got an election to fight (unlike here), the President is instituting another tax on bankers, but he's taking a very different approach, and one which Brown might learn from if he wants to win power. This is how to do real hardball politics.

He:

told Americans that he was determined to recover "every single dime" of the scheme unveiled in the dying days of the Bush administration.

"My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people, who have not been made whole, and who continue to face real hardship in this recession," Obama said.

Instead of setting a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I'd suggest you might want to consider simply meeting your responsibility."

"If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers". 

Do massive executive pay deals and bonuses improve company performance?

That's the standard justification.

The answer is… er, no. Company directors now earn around 250-350 times more than their employees. Meanwhile, the bonuses for some banks (the season's starting this week) are now equivalent to the billions poured in by taxpayers to keep said banks open.

Since 2000, stock market valuation by the FTSE 100 has declined 25% while relevant executive pay has risen 85%, and bonuses by 350%. 

Do not pass go. Do not collect £200

The government here placed a temporary 50% tax on financial bonuses above £25,000 to encourage responsible behaviour: the signs are that banks are either going to carry on regardless, or find ways to avoid it, but it's a good start. The investment banks and their friends have bankrupted the country and yet seem totally reluctant to make amends or change their behaviour, despite us saving them at huge cost to ourselves.

Over in the US, the Americans are facing similar problems: the taxpayer saved the banks, yet the economy is unreformed and bonuses are back. However, Obama seems to have decided that a bonus tax is just too easily avoided, and plans to introduce some other form of charge which can't be easily passed on, while rejecting a transactions tax. It'll be interesting to see if he can come up with something that the world's tax lawyers can't get round, but I'd support a transaction charge (a 'Tobin tax') - 0.005% of the value of each transaction would raise massive amounts of money (hundreds of billions) without limiting the bankers' freedom to conduct their business. It would be complicated, but it would be just and lucrative.

Ursine Arboreal Fertilisation Shocker

I know this is very hard to believe, but bear with me.

According to the International Monetary Fund, which seems to be having a quick break from bullying poor countries, banks and associated financial organisations which spend tons of money lobbying governments to tilt the playing field in their favour, aren't very good at their core business (i.e. making money). Even more shocking, they behave more recklessly with other peoples' money than organisations which don't spend their time trying to rig the market!

The study, entitled A Fistful of Dollars: Lobbying and the Financial Crisis, published by the IMF, reveals a stark correlation between lobbying by lenders and high loan-to-income loans.

The paper, written by a trio of high-profile IMF economists, established that firms who spend more on buying access to politicians are more likely to engage in risky securitisation of their loan books, have faster-growing mortgage loan portfolios as well as poorer share performance and larger loan defaults.

Highlighting 33 pieces of federal legislation that would have tamed predatory lending or introduced more responsible banking but were the target of intense lobbying, the IMF found that the efforts by banks to resist the legislation overwhelmingly succeeded. 

Who'd have thought that a bunch of tricky short-term buck-chasers could behave in such a way?

My Christmas message to you all

We all got a little bit heated last week, while discussing the role of bankers and politicians in destroying our economy.

I'd like to silence you (how I'd like to silence you) with a closing quotation from Thomas More's Utopia, from 1516. It's a complicated text: satirical, political, self-contradictory in places and morally complex.

But as this is a blog, I can ignore all that nuance stuff and just give you this, which I hope you agree applies to our current condition.

Hythlodaeus (who appears to represent one aspect of More's personality):

It appears to me that wherever you have private property and all men measure all things by cash values, there it is scarcely possible for a commonwealth to have justice or prosperity - unless you think justice exists where all the best things flow into the hands of the worst citizens or prosperity prevails where all is divided among very few.

When I consider and turn over in my mind the state of all commonwealths flourishing anywhere today, so help me God, I can see nothing else than a kind of conspiracy of the rich, who are aiming at their own interests under the name and title of the commonwealth. 

Eat the rich!

Today's the big day when Alastair Darling announces his Pre-Budget Report, which is actually a mini-budget. It's a big job: claw money back from the fatcats, cut back public services and still persuade everyone to vote Labour in 5 months' time.

Follow the fun here.

Meanwhile over in Ireland, which is even more screwed through having 2 Tory parties vying to be the most capitalist, a second emergency budget is announced today (follow it here from 3.45 GMT). Just like the UK, ordinary workers are going to suffer because all the money's gone to bail out the banks which have bankrupted the country. Can anyone else see what's wrong with this picture?

What a very exciting day (2)

The people rose up and protested against the obscene and excessive charges levied by the banks for things like slipping over your withdrawal limit, or a cheque not being cleared (often £30 or more).

The Office for Fair Trading supported them. So did the High Court. It seemed like the Establishment was going to side with us for a change. Until today: the banks' appeal to the Supreme Court has been upheld.

The judges say the banks can charge what they want for the fees - that they do not have to reflect the cost of the administration involved. They say the charges were not concealed and consumers knew what they were in for when they signed up for the accounts, which means the OFT could not test them under the regulations.

Apparently you can charge whatever you like for services without regard for the actual costs. The OFT has been told that 'fairness' doesn't apply to account charges. How weird.

If you don't have a mortgage, according to Moneyfacts at Abbey you will pay £25 a month for going overdrawn without permission, plus up to £35 for bounced cheques and payments. At Alliance & Leicester, the overdraft fee is £5 a day, subject to a maximum of £100, while bounced payments cost up to £25.

The costliest bank on the high street seems to be Clydesdale, where Moneyfacts says going overdrawn without asking will cost you £25 a month, plus £25 each time the overdraft increases, plus £35 for every bounced payment.

Lloyds TSB charges £15 a month, plus £20 for each bounced payment, subject to a maximum of three a day. Halifax is charging a flat £5 a day for unauthorised borrowing, with no additional fees for bounced items.

I'm not affected by this - I claimed £700 in bank charges three years ago and the Co-op paid up without demur, which I took as an admission of guilt, though it may have been the case that it was cheaper to pay than to fight it through the courts. I stayed with Co-op and am generally happy with it, especially as it has an ethical investment only policy.

I do feel for everybody else though. Our banks have hardly covered themselves in glory recently, and as taxpayers we now own most of them, and now this. Banking isn't free, but they make billions by paying us 0.01% on our current accounts and lending it at 8.5%: these charges are excessive.