Something changed yesterday.
The political and media establishments caught up with everyone else.
Yesterday, they went after the banks. Not the bankers. Not their bonuses. The banks. Perhaps they didn’t realise how far they were going. But it’s too late. The entire structure and nature of Britain’s investment banking sector is now on the table, whether Fleet Street and Westminster like it or not.
When the banks crashed the economy in 2008, many people took one look and said, “enough is enough”. Politicians took one look and bailed them out. Journalists took one look and hailed the politicians for “saving the world”.
Yesterday that changed.
At the heart of the latest scandal to engulf the London-based investment banking sector lies one simple word – impunity.
It’s not rocket science. If you give anyone large sums of money and power, allow them to hide from view, and let them – no, encourage them – to do as they please with no rules, no limits, no boundaries and no checks and balances, there is a very good chance they will run riot.
For the best part of ten years, investment bankers – and the heads of some retail banks, such as Northern Rock – lent recklessly, traded recklessly, and operated with total disregard for the financial safety of their institutions and the wider economy.
When it all went south, nobody in Britain was prosecuted. Those senior figures that were forced out got massive payouts. The banks were bailed out by taxpayers. Bonuses continued unchecked. Party time resumed in the City of London while the rest of the country suffered. I can skim over the details – everyone knows the score. It is the definition of impunity.
In September 2007, the governor of the Bank of England, Sir Mervyn King, warned that bailing out Northern Rock might create “moral hazard”, where banks felt they could get away with irresponsible practices, safe in the knowledge that the taxpayer would bail them out. The banks attacked him for dragging his heels. The chancellor, Alistair Darling, considered firing him. Sir Mervyn relented in short order, and Darling cooked up a botched nationalisation that could end up losing the taxpayer billions of pounds.
Look at that date. September 2007. Right up until 2009, Barclays was rigging Libor, potentially pushing up the cost of borrowing for millions of people. Did Barclays executives start rigging Libor because Northern Rock was bailed out? Of course not – the Libor rigging predated the bailout.
But did they think they could get away with it? Clearly. Did they feel anyone was watching? Clearly not. Did a culture of “anything goes” prevail in the City of London after the bailouts, with swaggering City whizz-kids confident that nobody could touch them? Well, look at those bonuses. What is that telling you?
This culture of impunity, even after the financial crisis broke, was borne of the very attitudes that allowed the crisis to develop – the sanctifying of the City of London by Westminster. The bank bailouts represented the government saying to the Square Mile – we can’t make it without you. Whatever it is you’ve done, we need you to survive if we are to survive; we need you to grow if we are to grow. By tying the survival of Britain’s economy to the survival of London’s investment banks, the government was writing a blank cheque of support to the banking sector:
- the government couldn’t get back its investment in the bailed out banks without those banks achieving significant growth, meaning a return to business-as-usual
- breaking up the banks was off the table, and even separating investment and retail banking operations was kicked into the long grass
- the government wouldn’t touch bankers’ bonuses, for fear of driving them to Dubai
- the government wouldn’t force bailed out banks to increase lending to the real economy, for fear of the state encroaching on the private sector status of the banking industry
- when Tory MP Sir Peter Tapsell asked David Cameron when there would be prosecutions of miscreant bankers, the prime minister’s response made it clear he wasn’t interested in upsetting the applecart
- when all else failed, the government settled for irrelevant sideshows such as Stephen Hester’s bonus and Fred Goodwin’s knighthood as a distraction from more fundamental issues
Of course, having a party in government that is bankrolled by the financial sector is the icing on the cake.
Impunity is what got us into this mess. And impunity is what is keeping us there. Impunity, and a failure to recognise that the investment banking sector has been corrupted from top to bottom – that it has become, inherently, criminal.
According to the Telegraph, up to forty banks – forty banks – are thought to have been involved in rigging interest rates. In recent years UBS and Société Générale have been hit by rogue trader scandals. In the last two years the biggest swinger of all – Goldman Sachs – has paid $550m to settle civil fraud charges of misleading investors, $22m to settle charges related to insider dealing (both of these cases were settlements rather than convictions), and £17.5m for failing to provide full information to UK regulators.
Those are just the banks. The actions of UK Uncut have set off a chain that has dragged all manner of tax avoidance scams run by accountants and financial advisers into the open. Most of the key tax havens are UK territories, in an extended network with its heart in the City of London.
And these are merely the scandals that have emerged under the prevailing “light touch” regulation – the crimes that come to light in a system designed to keep them in the dark. The activities of commodities traders are largely ignored. Trillions of dollars of financial transactions are conducted “over the counter”, away from formal exchanges and any kind of scrutiny.
Not all of this took place in the Square Mile or its offshoots in Mayfair and the Docklands. But as John Snow wrote this morning:
“Evidence set before the US Congress last week claimed that the very worst of recent US banking scandals – JP Morgan for one – were hatched and executed amid what was termed the ’loose’ regulatory world of the City of London.”
Put all of this together, and it’s telling us something. This is not an industry. This is a criminal operation. Playing and scamming the system for the personal gain of the super-rich lies at its very heart. Libor-rigging isn’t an aberration of investment banking – it is investment banking. If it isn’t criminal, it should be – there’s that impunity again.
Calls are growing for a Leveson-like inquiry into the banking sector. Not before time. Questions are being asked as to why the bankers responsible have not been prosecuted via the criminal courts. Bob Diamond’s position as chief executive of Barclays is clearly under threat. The three main political leaders – still utterly in hock to the financial sector – are treading carefully, but backbenchers are restive. This is an insult too far.
There are bigger questions that must now be belatedly asked. What is the proper purpose of this country’s banking sector? What form of ownership and management is best placed to deliver that purpose? Why does the investment banking sector, which contributes a relatively small proportion of national wealth, command such a hold over awestruck politicians and journalists? What useful purpose, if any, do different aspects of investment banking serve? Where does the money it generates actually go? Where did the money us taxpayers pumped in actually go? Does it obstruct the rest of the economy? Why has London become a dumping ground for the world’s financial elite?
And most of all, why has all this been allowed to go on for so long, nearly five years after the house of cards came crashing down?