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Bankers belong at the back of the queue
The damage inflicted by this financial crisis will take a lot longer to undo
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- William Keegan
- The Observer, Sunday 13 September 2009
- Article history
Some of my best friends are bankers. Some were born bankers; some achieved banking; and some have had banking thrust upon them. Those in this last category are not alone. We have all of us had banking thrust upon us. That is why the world has been – and still is – undergoing a financial crisis, the like of which only those aged over 80 have experienced before.
Earlier this year, at the World Economic Forum in Davos, I had an interesting off-the-record discussion with a banker for whom I have great respect. He is one of the old school, but not so old as to have failed to qualify for the new school. Anyway, the thrust of my interlocutor's pleas was that, disastrous though the economic situation appeared (and this was no exaggeration in January), the important thing was not to indulge in recriminations, but to pull together to get out of the mess – and that went for the media as well.
You might say that he would have said that, would he not? But the unfortunate thing is that the bankers have invited recrimination by going out of their way to give the impression not so much that it is a case of après moi le deluge as of après le deluge, c'est moi encore. The G20 finance ministers have been praised, with good reason, for having put the emphasis at their recent meeting on being sure that we have emerged from the deluge before measures are taken to deal with all those deficits.
This is important because, since a very large element of the deficits is attributable either directly to the banking crisis (all those public funds going to bail out the bonus-seekers) or indirectly – as the recession caused by the financial crisis has swollen government spending and drastically reduced tax receipts.
The bankers have succeeded in doing more damage to the economy than generations of trade unionists. Yet the G20, while judicious in its assessment of the crisis, was pusillanimous in the approach to the bankers.
Arguments about capping or clawing back bonuses were red herrings. It has been pretty firmly established that the bonus culture itself contributed in no small way to the excessive risk-taking that ended in disaster, and that many of those "profits" – but not the bonuses – were illusory.
According to a report by JP Morgan, the various mandatory and "macro-prudential" measures now being set in train will seriously eat into, as it were, the free lunches hitherto enjoyed by the bonus-takers. We shall see.
It is not just bonuses, of course. It is the whole gamut of what are known as remuneration or even compensation packages. As Ogden Nash said long ago: "Bankers are like everybody else, except richer." Bankers keep complaining that politicians do not understand bankers; but it seems that bankers do not understand politicians. Or perhaps they do: they became the darlings of soi-disant leftwing governments, and are even now running rings around the politicians. Consider the remuneration packages of the top people at the largely nationalised RBS. You have to laugh – or perhaps you don't. Why, even Lloyd Blankfein, chief executive of Goldman Sachs, concedes that the furore over bankers' pay is "understandable and appropriate".
Of course, the punishment of bankers, even if it happens, will not in itself solve an economic crisis that had many contributory causes, ranging from deregulation through lax regulation to serious mistakes of economic policy and a multiplicity of "events". Many problems lie ahead, and the rebalancing of the world economy – so that some countries rely less on export-led growth and others rely less on running up debts – is a goal more easily enunciated than achieved. The same goes for the attempt to coordinate economic policies around the G20.
Which brings us to all this talk – nay euphoria in some places – about "recovery" and the end of the recession. I hesitate to be a spectre at the feast, but the word "premature" comes readily to mind. Many people are suffering, and huge damage has been caused by this financial crisis. There is a very long way to go before we can talk seriously of a well-established recovery, and the level of output in the UK is well below what economists call "trend" or "productive potential". Among other things, this means that the living standards of many people, and employment prospects are going to remain grim for some time.
The good news is that policymakers, having acquiesced in a culture that contributed to the crisis, have studied their history books and stepped back from the abyss. Whatever else the criticisms of Gordon Brown's premiership, he deserves considerable credit for the outcome of the April G20 summit and his contribution to this recent meeting of the G20 finance ministers. Only the lunatic fringe can seriously argue that the collective fiscal and monetary stimulus has not saved the world economy from going into the abyss. It was vitally important that finance ministers and central bank governors recognised last weekend that this was not the time to activate an "exit strategy" from all the measures to alleviate the crisis.
In his Callaghan lecture in Cardiff last week, Chancellor Alistair Darling made a reference to James Callaghan's assertion during the crisis of 1976 that "You can't spend your way out of recession". But Callaghan later made it clear to me that that passage, by a speechwriter, was entirely tactical – designed to please a very rightwing US treasury secretary and the financial markets, whose lack of wisdom has been amply demonstrated by recent events.
The truth is that the only way out of a recession is to spend your way out. If the private sector is depressed, the spending has to be done, or facilitated, by governments. That means deficits until normal service is resumed.
Alistair Darling seems to have reassured the rating agencies by promising that he has a plan for reducing deficits in due course. That's fine, but personally I don't rate the ratings agencies.
http://www.guardian.co.uk/business/2...an-g20-darling
I like the opening line that is a rip off from Shakespeare's play "Twelfth Night"
