Sep 23 2009
Socially useless activity?
It is popular apparently to complain that bankers are paid too much for doing “socially useless “activities. If they get a bonus for doing lots of them, it is even worse. The crisis, we are told, was “cooked up” in their dealing rooms.
Funny that. I thought we had banking regulators to make sure banks didn’t get carried away on a high created by other people’s money. Wasn’t the overextension of credit cooked up in the Regulator’s rules? Didn’t they act as master chef to the banking undercooks who burnt the food? They wrote the capital and cash recipes they all had to follow. The “huge transformation” that is needed now to rescue or enhance reputations surely is a transformation in how the regulators regulate the banks. Shouldn’t the Chief Regulator be asking how socially useful their activities have been in the last four years? Wouldn’t a touch of toughness as the boom built have been a good idea? Shouldn’t they have called for more cash and capital reserves long before 2007 dawned? Wouldn’t some respite now the banks are weak be an even better idea? Can we have more banks please, so they have to compete more on price and service? Can we have smaller banks, so each one poses less of a risk to the markets? Where were the Regulators when the mega mergers were taking place? Why did they allow them?
No-one wakes up on a Saturday morning and thinks, “Thank God the Regulators kept the banks in check”. If we have truly had a “near death experience” it was one that in the case of the large banks was approved and permitted by Regulators, some on bonuses. There is a lot to be said for making things “boring”. If we want banking to be less edge of the sseat today, the Regulators should allow banks to do more with their money than simply lend it back to the government.
34 Responses to “Socially useless activity?”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
Communists often drone on about socially useless bankers and tend to arrest them. The rip-roaring success of their economies should act as a lepers bell for such crazy remarks.
I’m off to see some of the ’socially useless’ to raise funds for the latest project directly, (housebuilding) which last time i checked was still more or less officially approved of.
The banking that people need for their day-to-day lives should be kept separate from investment banking. It would be much easier if the word “bank” was not common to both types of institution! It’s an easy way to keep things manageable, and makes it possible for investment banks to fail without causing chaos in the real world.
Retail banking should not be leveraged, and should not be allowed to go to external sources (such as the money markets) as a matter of daily routine. If they need occasional short-term help, that’s what the BofE should be for. Call it a traditional Building Society if you want to – as long as there are lots of them around! Socially necessary and safe.
Investment banking can then do what it wants, subject to any suitable regulation. If one of these fails, protect the small investor (with the existing £50k protection scheme or something similar) and let the shareholders take the pain. Yes, I know that the big shareholders are often the pension funds. That’s why you should spread your savings between different types of organisation.
It was the progressive (sic) repeal of the UK equivalent of the Glass-Steagal act that helped towards this banking collapse. The UK finances would be in a much more healthy condition (with a much smaller deficit) if the banks didn’t have to be rescued. The law of unexpected consequences strikes again….
Perhaps this is too simplistic, but if anybody of average intellegence can understand the system, it’s much easier to spot impending problems. Any assumption that only people from within the industry can understand what’s going on will perpetuate the social danger.
THE ESSEX BOYS Reply:
September 23rd, 2009 at 10:51 am
Mick – this is a really sensible straightforward summary.
Your comment that…It would be much easier if the word “bank” was not common to both types of institution!…is one of those ‘glimpses of the bleedin’ obvious’ that we’ve not heard elsewhere.
Cheers.
Man in the Street Reply:
September 23rd, 2009 at 1:32 pm
“It was the progressive (sic) repeal of the UK equivalent of the Glass-Steagal act that helped towards this banking collapse.” And this was driven by the flow of EU Directives, which whilst allegedly being about create a single market have more to do with European integration that iensuring an appropriate and transparent regime for the regulation of European financial institutions. At the end of the day the FSA are simply the mouthpiece of Brussels, with little independent power of discretion to act. The tripartite regulatory regime (HMT – FAS – BoE) is in response to an EU Directive – never mind that it won’t and does not work – that the cost of Brussels interference in the City of London.
Michael Lewis Reply:
September 23rd, 2009 at 3:14 pm
This old chestnut has been done to death. There may be a case for the separation of wholesale from investment banking.
However, it should be pointed out that HBOS for example failed because it made bad loans. As simple as that. It is simply wrong to suggest that the banking crisis is a problem with investment banking. Too many retail banks that have provided the counter example.
Robert K. Oxford Reply:
September 24th, 2009 at 5:38 am
Exactly: Northern Rock was not an investment bank
Mick Anderson Reply:
September 24th, 2009 at 8:36 am
True, but I understand that NR relyed heavily on borrowing from the international money markets. It lent more than it had on deposit – I seem to remember a 10:1 ratio being mentioned!
It borrowed “short” and lent “long”, so when the short term money dried up it was left with unrealisable assets, and a massive immediate debt. It seems as though it was using “investment bank techniques” to support its otherwise unviable business model.
There is also an argument to say that if NR has been allowed to fail, perhaps all the other vulnerable UK banks would have spent the intervening year trying to put their collective houses in order.
Were retail banking restricted to lending what is on deposit (or a small amount of leverage backed by the BofE), the amount of potential damage would be restricted to manageable levels. Keeping investment banking (and the methods associated with it) separate stops the “risky” part from pulling down the “tax-payer protected” part.
It’s only by breaking the interdependancy apart that potential problems can be managed in the future.
Mick Anderson Reply:
September 24th, 2009 at 6:22 am
Hi Michael,
You’re right that HBOS failed because it made too many bad loans. However, if it had only lent out money to the value of that which was on deposit, perhaps it would not have been able to dig itself into such a deep hole. They may still have not survived as an independant institution, but their liabilities would not have done so much damage to the Lloyds balance sheet when rescued. I expect that Lloyds would have then been able to avoid taking tax-payer money to survive.
This issue has indeed been done almost to death, but it’s still twitching, and will come back to life (and we are in the chestnut season, after all!). The framework that allowed this disaster to happen (if you think disaster is too strong a word, talk to the newly unemployed) is still in place – nothing of substance has been changed. The Government would claim that they have “improved” the regulation, but in reality that was just a bit of tinkering.
There is not one simple cause of the problem, and I know it’s not just “investment banking” that caused the crash. To my mind, a big part of the problem was the abdication of responsibility – banks were trading in unassessed packages of loans, and relying on insurance policies to cover them. Had they been using traditional retail banking methods (Mr Mainwaring as the example), the loans would have been made with due diligence – for example, a sensible loan-to value for a mortgage, and proper proof of ability to pay.
If money had not been so easy to come by, the housing bubble would not have been able to inflate so far. The economy would have grown more slowly, and this would have been more sustainable. At the very least, any recession “started in America” would have been less painful. With less debt in the system, the Labour government would have been less able to afford to hire such a massive and wasteful Public sector. The taxman has his sticky fingers over every transaction – for example, lower house prices means less Stamp Duty going to the Chancellor. Fewer people spending borrowed money on new sofas means less VAT raised. There are lots of unexpected consequences when the system goes out of balance in this way.
The banks felt that as long as somebody would insure any deal, it had to be a good one. Insurance companies seemed to take the view that if the bank thought it was a safe loan, due diligence had ipso facto been performed. This philosophy of passing responsibility seems to have perculated throughout the financial industry and needs to be changed. Change is going to have to be forced on them, because they still like the old system – it was rather lucrative!
So, splitting banking in two is partly about keeping “risky investment banking” away from the tax-payer protected retail banking. However, it’s also about making changes to show those in the financial industry that society is not prepared to tolerate being held to ransom.
It appears the bankers have bought their way into Government and it will not be until the country is properly bankrupted that the change will happen.
It will be no different for the Conservatives, money talks.
The madness of the government giving the banks money in order for the banks to give the government money is so sublime that people don’t even realise what is going on.
When it all unravels in due course, everybody will be saying: “But how?” And by then it will be much too late.
John
Yes agree that the Regulators did probably not do their job correctly.
Yes agree that type of Regulation requested by Government was almost certainly at fault.
But also individual Banks also at fault for not controlling the situation “In House”.
Just because the rules do not say you cannot, or should not behave in a certain way, does not mean you do as you wish, and to hell with the consequenses.
I don’t think there is any appetite for changing the banking model. The politicians and regulators are paying lip service to change but are in awe of the model that bought them the biggest and most successful banking industry in our history.
No matter that much of the industry was floating on froth what they want is a return to those times and they think a little more capital is all that is necessary to control the risk.
No matter that the banks will continue to be “too big to fail” and will again in the future require taxpayer support; it was an easy living for the politicians who watched tax receipts expand in a truly extraordinary way.
So, we are to be dragged back to an economy built on the financial sector and probably the housing sector and it will all collapse again and again until someone allows the economy to re-configure itself.
This of course is the Keynesian way; inflating and contracting fiscal and monetary policies in an attempt to get back to where we left off with no regard to fundamental failings in the economy that might need fixing.
Our banking model is broken but if nobody is listening then it will be business as usual, together with outrageous bonus payments, until the next time
We’ve never been fond of Adair Turner – too much velvet glove and not enough iron fist for our liking.
However he IS starting to talk the talk at last after a year in the job. whether none aboard the leaky ship
We’ve never been fond of Adair Turner – too much velvet glove and not enough iron fist for our liking.
However he IS starting to talk the talk at last after a year in the job.Whether anynone aboard the leaky ship ‘Financial Regulation’ can stay afloat is another matter!
Walk the walk? More likely we’ll have the crew walking the plank under the next government!
Incidentally we hear that Charles Clarke has gone feral again in today’s Evening Standard. The BBC are reporting this but concentrating on the ‘No love lost/Usual suspects’ angle.
Probably the real story here is that he’s asking Brown to step down on health grounds. We feel this is the start of the main media starting to air the stories circulating strongly on the web of late stemming from the efforts of John Ward on the ‘NOT BORN YESTERDAY’ site.
We believe it’s an overdue omission on the part of the mainstream media as this involves the very health and fitness for action of the British government not just one man.
Couldn’t have put it better.
In the same way that all roads lead to Rome so do almost all Government disasters lead to Brown. The tri-partite regulatory regime which failed so spectacularly was his design.
The FSA were compliance officers not regulaters, the Treasury should have sounded warning bells and the Treasury – oh yes – that was run by Brown.
The banks are masters of a deviously little trick so obscure it doesn’t even have a name. They produce financial products which perform wonderfully for 9 out of 10 years – and then in the tenth year you lose all your gains and more besides. Banks keep their thumbs over the bad year while selling you the product.
They have now replicated this on a national scale. We never did have a productive, wealth-creating financial services industry making us all rich. All we had was ephemeral jam today all to be paid for by the taxpayer tomorrow.
Banks have been too cosy with the state for decades, maybe even centuries. They have special guarantees from the government; special precedence in bankruptcy; we even have “bank holidays”!
The government should long ago have made it clear that banks are businesses and if they fail they’re on their own; no guarantees, no bail-outs, put your money there at your own risk.
Banks put me in mind of a cancerous tumour, now so large that cutting it out would kill the patient. Better to leave it in and give the patient a few more years.
Levels of pay – and bonuses – are driven by many things, but amongst them are surely levels of profit at the employing institution.
Those profits in turn are driven by industry structure, and one of the main causes of “excess” return on capital is the presence of barriers to entry. Regulation increases barriers to entry.
Ergo, increasing regulation of the banking sector increases profits for incumbent firms and therefore increases pay for their employees.
If the government really want to address the issue of bankers’ pay, they need to reduce barriers to competition in the industry. Yet they are now doing the opposite.
Funny old world, isn’t it?
Who are these cretins who believe the job of a banker is to be ’socially useful’?
Turner got it in the earhole when giving his speech at Mansion House yesterday – and rightly so. Having made his cash he now thinks he can lecture people about social responsibility. How hypocritical – and how entirely predictable of this man.
APL Reply:
September 24th, 2009 at 10:52 am
“Having made his cash he now thinks he can lecture people about social responsibility.”
He is a Labour placeman. Cameron will have his work cut out if he really means to make a change.
He should sweep whole swathes of these orginisations away overnight. The BBC should go at the same time, all together they comprise a parasite at the heart of the british economy that will eventually suck the life out of it altogether.
Unfortunately, Cameron being a Europhile, will bend his need to the European Union and knuckle under to their broadly similar and equally damaging policies.
When Cameron isn’t prone in front of the European Union, hs is fawning at the feet of the Green movement. Really, we are doomed!
Reply: He is no Europhile. Europhiles would not have pulled out of the EPP grouping in the EP.
APL Reply:
September 24th, 2009 at 4:03 pm
JR: “He is no Europhile. ”
Credit to you Mr Redwood, you do keep saying that.
Cameron has done a thing several years after the deadline he promised to do that thing.
Not at all impressive.
On the other hand he has abandoned the policy that Howard, I think proposed to repatriate British fishing rights in British waters around the British Isles.
The result of the common fishing policy, introduced you will recall by the Europhile Edward Heath, has bee the decimation of the british fish stocks and the almost complete destruction of british fishing fleet.
If Cameron wants to build up some conservation credentials he should announce a complete morotorium on fishing in British waters, other than licenced british registered vesels – until fish stocks have recovered, then the licencing should be introduced gradually to other applicants countries.
This way, both the British fishing industry and fish stocks in British waters could recover.
Let us remember that it is not just the banks who were affected by the change to the one size fits all FSA regulator. Specialist regulators such as FIMBRA, LAUTRO etc. were subsumed into feet high rulebooks. A good deal of the banking problems stem from mortgage fraud of many types: falsified valuations, applications etc. Such frauds became a commonplace under the new regime where they were a rarity before.
Volumes of rulebooks do nothing to prevent such occurrences: they are socially useless, only being read by the regulator that writes them and by some poor unfortunate in larger firms designated as having the regulatory contact role. His job is merely to assure the regulator that he has read the stack of paper, and has built up an empire accordingly that is ignored by the rest of the organisation because most of what it does is quite irrelevant to good business practice anyway.
I remember when the FSA first came out with their exams back in the mid-eighties, I thought I would have a look to see if it would be worth the bother of taking. I looked at the section on bond trading, which was what I did in back then. It was almost entirely wrong – whoever was setting the exam clearly had not the faintest idea of how trading rooms worked.
I guess they haven’t got any better in the decades since.
An article with some interesting stuff about ill-advised deregulation in America in the 90s and the consequences :
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine
Bankers should go back to wearing hard hats– bowler hats, because my word they are certainly having the flak flung at them.
Serves them all jolly well right too.
Mr Redwood,
Might I, against my nature, defend the requlators?
Regulators, even if nominally independent, work within the current political & economic climate. They would not have called for increasing capital requirements during the boom, as there was no visible reason to do so. After all, we had “ended boom & bust” – due to the prudent handling of our economy by the then Chancellor. Where was the risk factor that justified such a measure?
If a Regulator had called for tougher rules, he would have been lambasted by the press, and criticized by most expert economists. Financial Experts would say capital requirements could be lower (not higher), as risk was now diversified throughout the global financial system. Politicians would have said that such unilateral action would jeopardize London’s position as the World’s No.1 financial centre. If the Regulator had sufficient stature, then the £ would have gotten a bit jittery, and some shares in the banking sector would have taken a tumble. A government spin doctor would have then come out we a speech saying “what I think you will find the Regulator actually said was .…” – and then say something that was the opposite, or renders the comments meaningless.
After a few days of ducking the issue, the Chancellor would have given his full support, followed the next day with the Regulator’s “voluntary” early retirement (or movement sideways).
[...] Financial Regulators are as fallible as the rest of us John Redwood, in defence of the banker’s, asked whether the regulator’s in the part four years has engaged in socially useless activity. [...]
I would have thought that there were many activities which were far more “socially useless” than banking, and if you look at the subject objectively, top bankers get paid far less than top players in another “socially useless” (in my view) activity, football!
Don’t Blame the Bankers, if they had said no, someone else would have taken their place and the system would still have been turned into a Casino.
This has been deliberate, planned by International communists to collapse Western Economies and claim ‘See we told you Capitalism would fail’ then they can demonise the Bankers while claiming to be our saviours and then impose their New Communist World Order on us all.
It bothers me that most people can’t see through this obvious and deliberate act of financial vandalism.
Come on people, it’s even written in the Communist Manifesto, how much evidence do people need.
Does anyone really think that lending fractionally reserved thin air credit then marketing these debts and selling these on is not one day going to collapse.
http://en.wikipedia.org/wiki/The_Communist_Manifesto
Adrian Peirson Reply:
September 23rd, 2009 at 10:24 pm
Actually, there might be a reason why I can see it and so few others do, I don’t partake of Pharmaceutical drugs, Vaccines etc.
A predictably glib attempt at buck passing. Bearing in mind that your wife is (or was) a FTSE quoted company CFO, I would have hoped that you would have had a better understanding of the utterly limp wristed regulatory system that you and your colleagues concocted when last in power. You went for a “principles” (ha, ha, ha!) based system of financial regulation rather than a product based approach. So, the principles were that whilst the money kept rolling in, nobody dared or wanted to ask the awkward questions! Loadsa’ money!
Some of us dared to point out that the Great British “economic miracle” was built on a mountain of debt, a ballooning trade imbalance (after you and your mates literally decimated UK manufacturing between 1979-82 and entire product sectors are now unrepresented in the UK) and was as robust as a sand-castle with the tide coming in. For the trouble, we were portrayed as doom-mongers “unable to face up to the wondrous economic changes brought about in Britain after the Thatcherite revolution [principal cheer-leader: one Redwood J]….” The same was as true under BluLabour as under the OldTory party.
Professor John Kay, writing in the Financial Times last year made the entirely apposite point that were anyone in the FSA to have, at any point, queried the business models of any of the leading banks or financial institutions (let us not forget that the FSA is indeed PAID for by the self-same institutions…), then he/she would have received a response along the lines of “just who do you think you are sonny and just what do you (not being one of the “Masters of the Universe”) think you know about anything….?!” The levels of hubris demonstrated throughout the upper reaches of the directocracy in charge of UK financial institutions was only matched by their greed, gullibility and ignorance of the risk profiles across much of their balance sheet. Many of them probably believed that they could walk on water.
If you want to do any good out of this mess John, then try addressing the heart of this issue: not the FSA but the limited gene pool from which the FTSE directocracy is drawn from. This stems from the wholly closed shop nature of the FTSE directocracy: to be a non-Exec, you have to be a main board director elsewhere. Whilst at London Business School, a study was undertaken re: how to obtain such positions. Conclusion: don’t bother. Most are reserved for golfing mates of the chairman/ head of the remuneration ctte/ CEO etc. What was it you spent so much time attacking during the 1980s…? Oh yes, “Spanish practices” in the Trades Unions… Don’t recall a peep from you (ever) about the cosiest closed shop of all: in the FTSE board room. No open advertisements and only the identikit breed of chartered accountants need apply. But what position did your wife hold?
But was it not ever thus that the City is able to fleece the rest of us in good times and bad? And they can always rely upon faithful satraps like you John to attempt to divert the focus of attention and culpability away from where it ought to be focussed. You give every impression of having learnt precisely nothing from this experience other than to recycle the tired old claptrap you’ve been peddling for the past twenty plus years. Doesn’t quite fit with “Dave’s” attempt to rebadge you all as “liberals” methinks.
Reply: You belong to that sorry school which blames a successful government – the 1981-8 Thatcher era – for errors and disasters that are happening almost 20 years after she left office. I fully understand the weaknesses of some companies and have never argued that all large PLCs are engines of moral authority, efficiency and success – if only. I have always argued that we need more competition to keep them all more honest and under pressure to perform. I spend more time discussing the obvious failings of the public sector because it is my job as an MP to exert some “shareholder” and customer power over the monopoly service and activities which government does, usually badly and inefficiently. Where I find badly performing PLCS offering poor product at high prices I exercise choice, refusing to buy from them and backing their competitors. I can’t do that with monopoly public services, where I have to pay under threat of prison if I don’t. The regulatory system we set up in the 1980s kept good control of banking cash and capital That control was lost on Brown’s watch by the new regime he put in place.
It’s a strange thing for lefties.
Bankers, who do their socially useless casino banking, should be hit with high taxes and masses of regulation, all designed to make them earn less money.
And yet they say that the unemployed, who it cannot be argued are providing any kind of socially useful activity, should get more money.
The inconsistency is there for all to see. Of course we all know that they are just using ’socially useless’ as some form of flimsy justification, and their real goal is to soak the rich, regardless.
I would argue that anyone who is a net contributor to the state cannot be classed as socially useless.
It is really important that the sort of thoughtful people who contribute to this blog communicate an essential truth about the banking collapse: it was a consequence of state intervention and regulation. NuLab is dangerously incompetent in many areas but is supreme in spin – and here, its riff on bankers’ bonuses is the most egregious. Please don’t just take my word for it. I urge you to get hold of a copy of Verdict on the Crash: Causes and Policy Implications, published by the Institute of Economic Affairs. Let me offer a just few selected quotes to give a flavour:
“[We] show how government regulation actually encouraged US institutions to lend to bad risks. The US government was also strongly supporting the process of securitisation of mortgages through its corporatist, nominally private institutions Fannie Mae and Freddie Mac.”
“Paul Tucker, recently promoted to deputy governor of the BoE said in a speech as late as April 2007: ‘So it would seem that there is a good deal to welcome in the greater dispersion of risk made possible by modern instruments, markets and institutions.’.”
“Even if one does not accept that government action was a considerable contributory factor in the boom and following crash, it is quite clear that government agencies did not spot it before market participants did.”
“International banking regulation encourages the creation of opaque financial instruments.”
The analogy I use to explain why state intervention was the cause, not the solution to, the financial crisis is this. Imagine that the state owned all the iron and nickel ore in the world and controlled its production and pricing. After a period of carefully modulating output, it decides to slash prices. The steel industry notices the price incentive and adds capacity. Because steel is now cheaper and more plentiful, the car and shipbuilding industries, amongst others, are able to increase capacity and reduce their selling prices.
The world economy booms, more steel is consumed, more iron and nickel ore is mined, factories are opened and profits soar. The captains of the steel industry are awarded substantial bonuses by their shareholders, who are impressed by their ability to steer the ship in such strong tailwinds, and they are lauded by the state. They are awarded knighthoods and peerages and invited to sit on governmental advisory panels to share their expertise with the public sector.
Then the state notices that the boom has got out of control. Too much capacity has been added throughout the economy and it needs to be reined in. It hikes the cost of iron and nickel ore. The steel companies are forced to pass on the price increases to their customers. Demand shrinks and the steel companies are left with huge overcapacity. With their high fixed costs they are suddenly bankrupted. The state then turns around and says to the captains: “You villains! Look what you have done to the world’s economy with your greed and ambition! Look how you failed to steer your ships properly when the storm was brewing! Return your bonuses and your pensions!”
The state then nationalises all the steel companies, and tries to get the whole bandwagon rolling again by slashing the cost of iron and nickel ore.
Now, like all analogies, this has its limitations. Iron and nickel at least have an intrinsic value whereas the raw material that the state manufactures to allow the banks to conduct their business – fiat money – does not. The banking industry is much more heavily regulated than one could imagine the steel industry ever being. But if anything, this just underlines the point – the root of this problem lies with state intervention in free markets. The solution to it lies in true free market capitalism which is the only source of wealth creation.
Mick Anderson Reply:
September 24th, 2009 at 12:41 pm
As you say, the problem with your analagy is that fiat money can be created out of thin air.
The existing banking problem was indeed caused by regulation, but I’d say that it was bad regulation, rather than too much or too little regulation.
That’s why I prefer a simpler, broken up system. It makes it easier to apply the appropriate regulation to the things that need it (safe retail banking), or no regulation where it isn’t required (investment banking). Simplicity also make it easier for the regulators to see what is happening clearly – less chance for impending doom to be missed.
Free market capitalism is fine if there is a practical and informed choice. However, when the entire UK retail banking system risks imploding, what exactly is plan B? We can’t all go back to a barter system overnight.
There are some things that need to be considered “infrastructure” and protected. Realistically, when every bank in the country is relying on risk to maximise profits, the consumer has no opportunity to chose a safe option. I would accept a compromise in having free market retail banking that has no tax-payer safety net, as long as there is also a regulated alternative that is protected – a safe haven.
Some of the existing banks have ridden the crisis better than others. However, as consumers, we had no way of knowing which ones we should have been using for security. So, if there had been an institution that was not risky by design (perhaps like the Building Societies before they most of them went after the money and demutualised), we (as clients) could have made that choice.
If the free market is going to regulate itself successfully, random chance should be removed from the result of the decisions that we make within that market. If we can’t design chance out, the next best thing is to have a safe place created by regulation, in parallel with the completely free market. This safe place won’t be as profitable, but that’s the trade-off.
When I needed a replacement brake parts for my wifes car, I had a choice of product from different sources; there were new dealer parts, pattern parts and reconditioned parts available. I know something about maintaining a braking system, and chose a pattern part from a manufacturer that I have faith in. The free market, working for me, but not a choice that everybody is equipped to make. Even with hindsight, I can’t see how I had a comparable choice the last time I changed retail bank – they would all have claimed to be a safe place.
I think that where we disagree is in the scope of regulation. The free market is a wonderful thing, but not everybody wants to ride that particular rollercoaster all of the time. For those (like me – cowards!) who want some security, it can (co-)exist under a suitable regulatory umberella.
JR: “It is popular apparently to complain that bankers are paid too much for doing “socially useless “activities.”
I am not interested in anything (I got a Labour peerage – ed) ‘Lord’ Myners might have to say.
‘Lord’ Myners ( My investment(ed) fund is doing very nicely, thank you very much), now I intend in typical socialist manner to stop anyone else managing to scrape more that two pennies together.
We should really be concentrating on what bankers have done that is harmful to society, such things as negative amortization mortgages, where if you pay every interest payment on time in full, you still end up owing more at the end of the term that at the begining of the term.
Loans made ‘for social’ reasons, where you loan, as a result of governing party pressure, to groups of people who you know will not be able to repay the principle, because of lack of income, fecklessness or simply any money at all.
‘Socially useful’ banking – that is lending to bad risks, 100% or greater mortgages, negative amortization loans are ‘economically damaging’ and hence socially damaging.
Why wasn’t the FSA regulating these practices over the last ten years? Was the FSA ’socially useless’?