Greedy banker monopolism is suicidal
Have you ever known a child who, through having been spoiled relentlessly, simply cannot comprehend any opposition to a course of action? Given parenting these days, I’ve met rather too many. But the thing I always notice about such kids is, it’s not a question of wanting to know the point of something being forbidden: they have reached the stage (rarely reversible, I find) when such knowledge is of no interest to them. They just want what they want, and that’s that.
Most professional soccer players suffer from this syndrome. Having been told since they could kick a ball that the world is their oyster, they are determined to have every gram of the mollusc’s flesh – washed down with the finest lemons and vintage Krug Champagne. “I’m at the top. I must be good. I deserve it”. Anyone who watched the dismally cynical match between Manchester United and Liverpool last Sunday will know that the main thing they deserve is a boot up the backside, and a one way journey to their room.
So it is with bankers, a subject to which I find myself returning on a daily basis now. I’m thoroughly bored with the subject to be honest, as I imagine you are. When each new example of their arrogant victory in the face of spineless government and regulation hits the airwaves, I find my reaction to be more one of sighing resignation rather than incandescent anger. I tend to think: ‘They are going to get their way. There will be no evolution, no sensible reform…and for want of that, there will be tears and then revolution’.
It must be like it was for Turgot, the one enlightened courtier to Louis XVI. Surrounded by self-indulgent dandies and chinless aristocrats, he kept on warning that slaves and peasants were potentially quite dangerous people – and not that fond of cake. Once he’d died in 1781, things went from bad to worse, and thence to the guillotine.
This morning’s news of a Coalition ‘climb-down’ on bank bonuses isn’t exactly a surprise. The senior end of the financial community has indeed reached the stage of that spoilt brat who no longer wants to know why not, but rather ‘how’. It is a community full of charts and statistics and performance, but the one element missing f rom their outlook is the one thing that makes people see them as sociopathic: they do not see themselves as subject to the same rules as everyone else. It may work for them, but as a position, it doesn’t bear even the slightest interrogation.
The ozone-sized hole in the justificatory bollocks is ‘the key importance of what they do’. That is a matter for lively debate in and of itself, but relating pay levels to ‘importance’ is infantile. On that basis, George Osborne deserves £3.5 billion as his bonus for saving the nation’s credit rating. The two reasons he isn’t getting that are first, he’d be strung up if he tried; and second, the jury is still out as to whether this will be a success. The parallel with bank bonuses is exact: RBS is a long, long way from being out of the woods – but Hester gets £7 million.
On this braindead basis of reward, the electrical engineer who risks his life to keep 3000 pylons working for six months longer deserves £0.7 billion. Didier Drogba deserves £3omillion for scoring the winning goal in the Champions League final. The accountant who successfully suggests putting 10p on peripheral supermarket brands deserves £10.7 million. And so on and so on. It’s a pathetic argument, and demolishing it is a waste of the time of bright people with more important things to deconstruct.
The other hole in the ‘case’ for bonus greed (it’s probably no bigger than Manchester, this one) is the classic ‘if we don’t pay them like this, people will go elsewhere’. So in other words, it’s a cartel. But even if it isn’t, the simple answer is to tax the hell out of any bonus above a certain level. Such action runs entirely contrary to my natural instincts, but for these Bunters I’m prepared to make an exception.
This suggestion attracts the ‘but the banks will all leave’ mantra. To which, again, there are two sensible (albeit radical) responses: then let them go – the entrepreneurial sector doesn’t need them anyway. And/or, coordinate with all G20 nations to ensure that wherever they go, the regime will be the same.
(Cut to the bit about this sort of thing being Communist).
Ultimately, the best solution to this problem – and it really is a carcinogenic drug we must get capital finance off if our creativity in all walks of life is not to degrade further – is to simply treat the banks and bourses as a Maginot Line, and walk round them.
This isn’t mad, and it is entirely consistent with what I’ve been blogging about for the last seven years. I was in business for nearly four decades, and to me this remains an issue of the diversification of capital financing. After one disastrous experience in the clutches of City traders, brokers, analysts, and M&A specialists, I made a vow to stay clear of them ever afterwards. I did not struggle to find money; what I did get was active partners rather than greedy, remote shareholders.
Over three quarters of all SMEs don’t use banking finance, and the majority of larger-medium companies aren’t listed. Importantly, nearly all Britain’s future economy-rebalancing companies could very easily leave the banks without their business. In time – say, twenty to thirty years – investment and merchant banks especially would be left with the Dodos. And they would die. This is called The Free Market.
Jim O’Neill of Goldman Sachs was on BBCNews Hardtalk last night. It is very hard to dislike O’Neill: he has fought long and hard to get the Glazers out of Old Trafford – even though they are a Goldman client – and he gives straight answers to difficult questions. Given he’s now Chairman of GS’s asset management division, he’s probably also very good at what he does – and doing something useful to help investors. It would be interesting to see how he might react if approached by an enterprising Minister, and asked, “How in simple language can we make this system fairer and fit for purpose?” Or (more to the point) “Would you be interested in setting up an alternative finance initiative free of Government meddling?”
Above all, there is one way in which banking could be made more responsible overnight: by simply passing a financial instruments law on articles of association to make clear what the consequences are of failure. Privately and bourse-owned banks would be, henceforth, responsible for clearing up their own mess, period: no exceptions, no extenuating circumstances.
Too big to fail is based entirely on the Lehman experience. I was close to that one, and I can tell you that the vulture-banks sitting on their hands (and in at least one case, Lehmans’ money) was a power-play, pure and simple. The Federal Government was taught a lesson by the banks: if it goes down, we won’t help. Paulson’s $780 billion chicken-licken-sky-falling performance was another example. In a truly free market where money is real, nobody is too big to fail. What people really mean by TBTF is ‘too politically unpleasant’.
There are a thousand reasons why none of these ideas I’ve outlined will be taken up. It’s a wicked cocktail of graft, credit dependence, straw-spines, fear and ingrained monopolism. But if something isn’t done, the ramifications will go beyond cash flows and credit crunches, toxic debt and dafaulting sovereigns.
As with the issue of EU secession, anyone looking to choose the bold route with financial reform is quickly dismissed and – if persistent – smeared. But sometimes risk is responsibility. For anyone who needs further convincing proof of this, I recommend John Lanchester’s entirely lucid and engaging book, ‘Whoops!’. But not for bedtime reading, otherwise you won’t get any sleep at all.
Lest we forget, it isn’t all about money. Perhaps the most unhealthy thing about Bourses and bankers is that they think it is – and I’ll tell you why: not one of the successful wealth-creators I’ve met in a lucky life did it for the money. Monopolists do it for the money: that’s why they’re out of step with society in general, and business creativity in particular. That’s why we need to isolate them from the commercial mainstream.