In recent times it has been particularly fashionable to publicly demonise 'bankers' for all the country's (and the world's) woes. Anything from the price of petrol to the mould on the bathroom wall seems to be placed firmly at the feet of the country's 'bankers'.
I use the term 'bankers' in inverted commas since there seem to be common ignorance as to whom people are referring to. So whilst the Maureen the cashier at your local HSBC could technically be classed as a 'banker' I think it would be dubious to claim that she solely caused all the world's financial problems (though no doubt by this time tomorrow she will be on the Daily Mail's extensive list of 'causes of cancer'). When people talk about 'bankers' it should therefore be understood that what they really mean are investment bankers, these are not the same as the bankers down your high street. So the fact that, for instance, Barclays are a high street bank and an investment bank, does not necessarily mean that there is a high level of interaction in the dealings between the two institutions.
In recent rhetoric, demonising bankers is akin to demonising paedophiles, indeed the way that some people talk, one would be led to believe that there was very little difference morally between the two. There are a number of issues here that can be looked at and should be considered before jumping on the bank beating bandwagon.
Firstly whilst the actions of banks did contribute towards the recession, this does not automatically mean that they are solely responsible for it. The country has built up a huge debt both nationally and individually, this is due to a large number of people (including the Labour government) taking out large and expensive loans on an (unchecked) assumption that the boom period would last forever. Now firstly on individual debt; just because the banks were willing to lend people money does not automatically make them evil. People have a choice whether or not to take out a loan, it is not the banks responsibility to force people not to take loans out, they make judgement based on what they believe people can pay off and what securities they have and give a loan on those bases. If one high street bank refused because they believed that there may be a crash in a few years time then customers would go to another bank and the first bank would lose money and potentially go out of business. There is a level of personal responsibility that people have to take in regards to their finances. Had the banks collectively, during the boom period, refused to loan money to people, there would have been public outcry and it would have meant a dramatic slowing of the economy and could have led to a recession in itself. Looking then at a national level, the country (i.e. the Labour government) too accrued a huge national debt, which somehow seems to be laid at the feet of the banks as well. The country has a huge national debt because the government has taken out huge loans in order to pay for the growth of the country. It is only as we fall out of the boom period that the size of the debt becomes such an issue, since we need to be able to pay it back and are unable to continue borrowing at the rate we had before. This though is an issue for the government to consider and deal with and is nothing to do with the actions of the banks.
Secondly, it has been argued that banks have recklessly gambled with our money. The first point on this is that, the whole purpose of a bank investing money, like any other trader on a stock market, is to try and predict what the market will do in order to make money for the people who have invested their money, i.e. you, me and every other investor. If they did not 'gamble' then we would not make any interest on savings, banks would not be in a position to lend money and the economy would slow to a halt and almost certainly start a recession. Investing is not gambling in the sense of 'let's take a punt and see what happens' it is based on quantifiable risk and probability of a return on an investment and is the mechanism by which capitalism works. It has been argued though that they were reckless in their 'gambling', which they could afford to be because they were considered 'too big to fail'. To look at this, one should consider that any investment is made on the basis of an attitude to risk, i.e. how willing you are to risk the money you invest. This determines the potential level of yield at the end; the greater the risk, the greater the potential yield. Large banks, it is argued, realised that even if the worst came to the worst then the government would bail them out because if they collapsed then it would be a disaster for the economy, therefore they took higher risks than they would have otherwise done. Whilst this may be true, it is an attitude that makes sense in any other situation. If you were to buy a car on finance and the dealer says 'I know it's a lot of money but if you can't pay a repayment, don't worry I will pay it for you.' you would say 'thank you very much, that sounds like a good deal'. The issue here therefore is not with the banks, who are merely accepting very generous terms that the government unofficially set up, but the issue is with the government. If they didn't want the banks to lend in this way, then they should either let a bank fail to show that they are not immune to financial crashes, or bring in greater regulation to prevent this happening in the first place. Yet 13 years of a Labour government refused or was unable to do this, and therefore we now face the consequences whilst the government instead decided to pile the blame on the banks. One could compare it to the fat kid who was given a jar of sweets and told to eat as many as he liked but then when he finished eating them all he is told off for being so greedy. Whilst one could argue that bankers should have taken social responsibility and shouldn't have taken what was offered, they would have been foolish not to, because it would have meant they would have lagged behind every other financial institution in the world and would have failed financially.
Thirdly, the way out of this is not to demonise bankers indeterminately. If the government is determined to move the country out of this mess then the answer is not to drive all the bankers away from the country. This country still has an element of power and influence in the world and Europe primarily because of finance. Finance is our biggest export and is the prime reason we cannot afford to demonise all bankers. Common rhetoric such as 'get rid of all the bankers' or 'make them pay back everything they earn until we pay of the national debt', are as stupid as they are inflammatory. This is not constrained to the Guardianista but even the new 'liberal' 'anti-business' Tories. For instance in the recent Treasury select committee hearing when quizzing (though verbally assaulting would be more accurate) Bob Diamond the chief executive of Barclays, it appeared that the issue for all the politicians was in no way trying to determine a way forward or generate some sort of helpful dialogue that could be of benefit to the finances of the economy, but instead it appeared to be an opportunity to for politicians on both sides of the house to act 'very sincerely' in their outrage and disgust of the naughty bankers, purely for public platitude. There was therefore no useful outcome from the event apart from a few meaningless soundbites. Any attempt by Bob Diamond to reason with them was met with puerile petulance that was more at home in a primary school playground than a gathering of professionals in charge of the country. If the country succeeds in these ignorant attempts to demonise and destabilise the banks then all that will happen is that the banks will move to other countries and take the power and influence that Britain enjoys elsewhere. At which point everyone can be happy as we dissolve and fade into some powerless non-country, like Lithuania.
Fourthly, bankers' bonuses are not the cause and are not the solution to our problems. Whilst the amount that top investment bankers are paid seems a lot there is a reason for it. In any company in the world the top people in the company will earn a lot of money; that, thankfully, is the way that capitalism works. Now that the amount that bankers get paid is well known, it is suddenly seen as vastly more unfair than when they were getting paid the same amounts for the last 20 years. Yes, it is a lot of money but it is comparable, not only to the highest earners in other top companies, but also other top investment bankers worldwide. Ridiculous notions of completely getting rid of bonuses or (as heard on the Radio 4 today) reducing 'bankers' salaries to £30,000 (all bankers mind you! and hedge fund managers and anyone in finance and anyone who passes near to Bank underground station), will not have the effect that these people wish. Presumably they want the bankers to work for a fraction of what they earned before and still be motivated to do an exceptional job and create money for the bank and therefore for customers. Well if in my job I continued to perform as well as I had in the past and you reduce my pay by 90% for no discernable reason, purely based on public opinion, then I wouldn't stay doing what I was doing if I knew that I could get a job either in another company abroad for my old salary or in another sector within this country. To think that the top investment bankers have some moral duty to work for nothing is confounding naivety. If there are no top investment bankers in this country then the banks will move country since it will not be financially viable to remain here. This will be a disaster for the country whatever people think. At this delicate time in the economy the banks need to be stimulated to encourage growth in the private sector, especially since the government is slashing the public sector. Also, the size of their bonuses is not arbitrary; it is based on comparative amounts that other banks both within the country and outside the country pay. It is the market rate and therefore whether people think it is a 'fair' amount is irrelevant. It is the correct amount to pay them, because that is what the market demands and therefore what they are worth. Bob Diamond, in his select committee public flogging said that banks need to make people more aware of what bankers do for people so they can understand why they are paid what they are paid. This is very evident; people moan that footballers are paid a lot, but they still love them and when they score a dramatic goal, all of a sudden it seems reasonable to pay Wayne Rooney £250,000 a week. People only see or here about bankers when things have gone wrong. So in 13 years of boom, there way no public praise and adulation of how these (reckless) investments were helping bring wealth and prosperity to the country, but only when something goes wrong do they hit the limelight. There is also relatively little the government can do to prevent this, as Cameron and Osborne have admitted. If the government brings in laws to unfairly tax bankers then they will have to tax every highly paid professional in the country in any sector. This will bring ruin to the country and will cause a far worse recession than we have just had. Banks are private companies that are free to pay their employees what they want; to bring in universal pay caps would only drive the banks away from the country, as would introducing significant restrictions on their manner of trade.
What should be done then? Well for one, as previously stated, banks should be encouraged not punished. With a shrinking public sector, they are the prime force behind a private sector recovery and should therefore be stimulated. People can't have it both ways. They can't moan about how much banks make and then moan that they can get a loan from a bank, you either have prosperous banks which means that the country prospers or you have weak banks, which means the country is weak. To have a prosperous bank you need the bank to be able to invest both in the best employees and what they consider to be the best investments. If the government wants to change the way banks operate and invest, then they risk driving the banks away and bringing financial ruin to the country. It will only take one bank to go for other to follow, and with the emergence of China as the next world's super-power one could anticipate that the banking centre of the world could very easily take a significant shift to the East. If we are not very careful with how we deal with one of the country's most valuable assets then we will lose them and probably never get them back.
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