Sunday, February 08, 2009

More Bloody Bankers

In The Independent on Sunday, Maggie Pagano, a friend, plugs the Facebook Make Bankers Accountable campaign run by Nassim Nicholas Taleb, another friend. (I am a global hub, a sorcerer of connection.) Meanwhile, Obama having capped pay in newly-supported banks at $500,000. Darling-Brown sets up an 'independent inquiry' into bank remuneration (great word, suggesting, as it does to my ear, 'manure'). Ha-bloody-ha. Brown can't make decisions and bad bankers were his best pals, kicking this into the long grass is so much in character it's embarrassing. Also in character is the fact that it won't work. All the papers are now bashing bankers, inspired by the realisation that a) this is just and b) bankers are despised by the public. The depth of this loathing cannot be overstated and it will get deeper as unemployment rises. In this climate, the political temptation must be use them as the sole scapegoats to divert attention from the countless other horrors we face. No doubt this is on Mandelson's mind. Unfortunately, he's only got Brown to work with and he can only say one thing over and over again in answer to every question. (I see Mandy as a movie director who used to work with Cary Grant (Blair) and now finds himself with some klutz who once had a walk-on part in Emmerdale.) Guilty bankers - most of them by the sound of it - should be humiliated, impoverished and, in some cases, imprisoned. (The latter is the humane option as it should prevent them being lynched, assuming their fellow prisoners don't read the business pages.) Then we can get on with remembering how to make real stuff like the Germans.
And - can't wait - the bankers are appearing before the Treasury Select Committee on Tuesday. Perhaps they'll ask Fred the Shred what, in view of the fact that he's plainly bald, he has on his head. But really what I want them to do is this.


  1. I'm rather hoping that the MPs will provide a room off their meeting place with a desk and a drawer that contains a revolver. Mind you, with Sir Fred Goodwin the revolver would need to be on the desk, not in the drawer, as he has demonstrated such little imagination. Just one banker taking the honourable exit would do much to assuage the public mood.

  2. Putting aside the fact that 1.8 trillion dollars of Chinese money distorted and broke a pretty feeble banking system I have a question.

    Where were the journalists? (present arts journalist are excused) but where were the stories, the questioning of the system, bankers. regulators and general inept macro economic policy ect.

    Apart from a few bits and pieces about self assessment, very very little.

    So far Ive only come across Frazer Campbell admitting that they should have asked more questions.

    Take 2004 for example, the IMF had a big argument with crash Gordon about taking house price inflation out of the headline inflation figures thus distorting interest rates (would not have save us, but the the fall would have been shorter)

    As for as I know only one paper the indie run one general story about this issue.

    Bank of England and IMF on a collision course over house prices

    So Bryan, did the 4th estate who are now in a bit of a huff about bankers bonuses have a good war?

    Of course its not the business of Newspapers or Journalist to save the world, but is it not their job to be skeptical about the world around them?

    What was it that Galbraith said? something like for a boom to really take off everyone has to believe it.

  3. (Hugh=)Cary Grant-Farmer Brown(=Emmerdale Farm)?

    Is the money we still have in the system safe or should I cash in and buy gold ingots for burying in the garden?

  4. I don't think hatred is conducive to clear thinking.

    "Guilty bankers - most of them by the sound of it - should be humiliated, impoverished and, in some cases, imprisoned."

    I really would very much like to see guilty bankers impoverished etc. but what percentage of bankers do you think had anything to do with the crisis?

    Obviously we can rule out the employees of retail high street banking operations. There's no reason to think that those involved in lending to businesses were at fault. Let's concentrate on the investment bankers. No problems with equities, M&A, FX, interest rate swaps etc. As far as I can tell, the fault lies with those who created mortgage back securities and credit default swaps etc. and either misunderstood or misold their creations, and the directors who decided what positions to take, to what extent to treat them as risk free assets, what bets to take etc. and the directors above them that were supposed to have oversight. I'd guess, after excluding admin staff and so on, that'd cover somewhere around 2% of the trader/analyst/manager level employees of the investment banks.

    But it doesn't matter. Who wants to be fair to bankers when they're all bastards who have bankrupted the economy? I might bleat that it's still worth while trying to think and write accurately about what happened, but I don't anticipate a sympathetic audience.

  5. Well then boys and girls I did my very best on your behalf, last Friday morning driving into Edinburgh. Who did I pull up alongside, no other than Sir Fred in a brand new Rangy Rover thingy, at least it looked like him, that would be a paedophile caught sniffing a saddle, apologies to the driver if it wasn't, for my disgraceful act and I will pay to have the mess removed.

    By the way, our mole inside Gogarburn, that's the RBS chapel of rest, indignantly insists that the forthcoming bonus divvy up is "thoroughly deserved" and the present predicament is "nothing to do with us".

  6. "nothing to do with us" In a way Malty they are right, afterall they dont run actual economies.

    Even if there banks the are supposed to be running are in fact bigger than most real economies.

    Its the deserved bit I fret over. I wonder if Fred will turn hero(ish) and dish the dirt on his mate Gord and his mad stewardship over HMS Broken. should be fun whichever way he plays it.

    It all has echos of the BSE fiasco, politicos kick the ball about a bit until they realise that it was they the establishment that are the guilty party...and then a big wet blanket gets a throwing generously over the debate.

    I think the Beeb needs to get "yes minister" out of storage and put "dr who" back in

  7. Thanks Luis Enrique for "trying to think and write accurately" about the crisis and succeeding more than most.

    The highly related question from passer by about where all the journalists spouting furiously now were as the crisis developed was most honestly answered, for me, at Predicting the Crash, a panel discussion at the Frontline Club on 6th November. The video is third item down here. I strongly recommend taking 90 minutes to watch it.

    Gillian Tett of the FT and Ann Pettifor, once of the Jubilee 2000 campaign, were without question the best examples on show that night of those that genuinely, and with integrity, tried to blow the whistle beforehand. But from very different points of view. It's a discussion to be watched and thought about deeply. Don't take my summary now as the final word. But here are two extremely relevant points, one from each lady.

    Tett, who trained as an anthropologist, tells us to listen to the social silence at least as much as the social noise. That is extremely relevant as the cry for vengeance against bankers - too often without any distinction, as Luis points out - begins to grow very loud.

    As Luis quite rightly says it was the area of mortgage backed securities that was the silent, massive hidden bit of the iceberg. It was this that Gillian Tett bravely identified and then tried to expose, in the teeth of some disgraceful attempts to cow her back into silence by some key players in the banking scene.

    Those specific people do to my mind deserve punishment - or at least a significant decrease in wealth, by some means or other, but all within the law. Properly identifying such miscreants isn't easy but we should try.

    Note Tett tried to correct Paul Mason when he, like many, lumped in Credit Default Swaps (CDS) with CDOs (part of the mortgage backed securities that we know really kicked off the crisis, for sure). I know Nassim Taleb is still very concerned about the CDS situation and, given his track record, he may be right. But that so far is a Black Swan to come, not one that has already swum down our river. It's US subprime mortgages - an area of massive, criminal fraud, as made clear by Paul Lashmar of the CIJ on the night - and the CDOs built on them, with glowing triple As from rating agencies snoring at the wheel, that are at the heart of the current problem. We must see this clearly - not bring CDSs and other complex derivatives into it unnecessarily - if we are to 'think accurately', as Luis says.

    This is important not least because the media were all over complex derivatives beforehand, either bigging them up or saying that they might lead to massive crisis. That's where everyone was looking. It was the much more boring, but pervasive CDO that in fact broke the system. We must listen to the social silence. That is crucial insight from Tett.

    For Ann Pettifor that stuff is just scratching the surface. Like Nassim Taleb she questions more deeply. She acknowledges her debt to Nouriel Roubini. But here she was, an economist in the UK, respected for her role in persuading the West to forgive third world debt, now convinced that the next debt crisis was going to come not from the developing world but from the United States - and with a book to prove it. It is worth asking how she knew all this ahead of time yet the mass media managed to totally ignore her.

    Pettifor, like Taleb (and Paul Myners just before Gordon Brown made him Lord and crisis guru), puts the spotlight on the role of central bankers and regulators. Taleb mocks Value at Risk, I'm sure quite rightly, which was stupidly embedded in the central bankers' Basel II. Pettifor, also quite rightly, I feel sure, goes back to Richard Nixon's unilateral default in 1971, that forced the world off the remaining traces of the gold standard, ending the Bretton Woods system.

    Now, this stuff isn't totally easy to grasp in a few minutes ranting about the latest greedy banking kingpin who seems to have got away scot free. For my sins, I admitted for years that I didn't understood fractional reserve banking - a system Pettifor, like many others, has grave doubts about. For me now, Antal Fekete has gone beyond goldbugs like Rothbard and von Mises in showing that the key loss around the time of the First World War was not a 100% gold-backed currency, which never existed anyway, but Adam Smith's Real Bills Doctrine, which combined with the gold standard was both fair to the widow and orphan at home, ie the saver with limited resources and time to track the weirdness of the markets, and allowed for sustainable growth in world trade, to the great benefit of the poor elsewhere. Such a system didn't prevent all crashes but made recovery from them, it seems, much easier.

    Pettifor was I think a lot more on the right track than most in the UK. And she has the world's poorest on her heart, that's part of her DNA. So - and this is important - if she's not big on vengeance towards the annoyingly rich, we should I think, humbly, listen to her now on that too. We should as she says get the system right, by which she clearly means make it just. Money is not like bread.

  8. Ok, but don't forget that the US "cap" is actually so porous in the detail that you can bet your grandmother's left hand that people will find a way around it. There's no way that someone in that position will have to make do with 500K. No way.

  9. Chris Dillow nails it for me. We should be talking about why there's so much money being made in banking in the first place, and why individual bankers have the power to direct it in their direction. Mucking about with legislation to cap salaries is going to fail, I think, if it does not address these underlying questions.

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  11. Luis, thank you for the reference to Dillow, that took me on to Falkenstein and Kwak. Great names! There has to be truth in the picture painted there. I'd like to feel that there are some corrections the market can also make, in time. But I'm not smart enough to figure that all out right off the bat.

    I still think some areas of banking are a special case, due to the easy money to be made by those on the inside of an unjust system. Fekete points for example to bond market speculation, once central banks came to accept treasury bills as reserves, and the Acceptance House system, as opposed to "an honest and publicly scrutinized discount system".

    Whatever the precise cause ordinary wage earners and savers know instinctively they've been screwed. We sense that Paul Krugman is right when he says

    In recent years the finance sector accounted for 8 percent of America's G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing - and it probably was - we're talking about $400 billion a year in waste, fraud and abuse.

    This points to a deep structural problem that needs to be talked about, calmly, and really understood. Simplistic bonus rage won't help that cause, as you said earlier.