Ca.sino Roy.ale

The credit crunch eh? Casino banking, casino banking, mega bonuses, eh? Investment banking, eh? Know what I mean? Know what I mean? That Fred Goodwin, that Bob Diamond (see above), ring fence casino banking, put it at a remove from decent, ordinary banking, eh?

Bollocks.

Via the power of wikipedia here’s a list of the British financial institutions that failed and/or where taken over due to the credit crunch:

The Catholic Building Society *

Alliance and Leicester

Derbyshire Building Society

Cheshire Building Society

Halifax Bank of Scotland

Bradford and Bingley

Barnsley Building Society

Northern Rock

London Scottish Bank
Scarborough Building Society

Dunfermline Building Society

Royal Bank of Scotland

Chesham Building Society

Do you see the pattern there? Here, here’s a clue, “actual or former building society” There, thought that might help.  Picking thru the list only one of the feck ups (RBS) had anything even remotely resembling a casino banking bit to its business meaning it was the exception to a broader rule, which is that the British credit crunch was about actual and former building societies destroying themselves doing too many shit mortgages, too many shit commercial property deals and a hearty soupcon of shite private equity deals as well, all  funded via too much of a reliance on short-term wholesale funding markets (as opposed to customer deposits)  End of.

Now a couple of things follow on from these dull, plodding, pedestrian facts. One, all the chat about casino banking and ring fencing, electrified or otherwise, distracts from the reality of what actually happened and whose to actual blame here i.e. whose balls should have been nailed to the wall years ago. Like to give one example, what in the fuckin’ name of fuckity fuck is Alan Dickinson doing sat on the board of the Nationwide given he was a senior corporate boy at RBS when it was pissing - what turned out to be taxpayer money - allova shit deals? I mean seriously, him being sat there is just wrong in all sorts of potentially libellous ways. What Alan DICKinson's continued career proves is that yer average punter has been spoonfed an account of why most people in Britain are worse off to the tune of hundreds of pounds a month that is (a) fundamentally wrong and (b) has let the guilty parties off the hook. 

The other, the one this post is intended to flag up, stems from the second thing which relates to the current Archbishop of Canterbury and the tosh he spoke about credit unions vs pay day lenders (plus the broader trite, shite about credit unions as an alternative to mainstream banking you get in the liberal press), which misses out two v.important, if dull facts. 1) Credit unions are teeny, like I mean seriously teeny; the total assets of the entire sector, at £961m in 2012, equate to a rounding error in the annual accounts of just one high street bank and 2) Britain used to have a reasonably chunky alternative to banks, they were called mutual building societies. 

Except now we don’t because institutionally, the credit crunch in Britain is actually about the failure of demutualisation. Remember that? You know it was that Thatcherite policy where people opened up savings accounts left, right and centre in the hope that the building societies they were saving with would demutualise, and hand them a fistful of free shares. And what did these wonderfully efficient were building societies became PLCs subsequently do? Pissed away what eventually turned out to be taxpayer money on shit deals is what.

What follows on from that is straightforward – yeah, yeah, credit unions are lovely, so good, change the law to encourage them. But, mutual societies are also lovely, have far more of a track record, and are already  much bigger. So if you seriously want to encourage more competition in high street banking, establish a powerful alternative run on a more prudent basis, less exploitation etc.,, etc.,  then encourage building societies as well even if its just to get former corporate bankers off their boards. 

And yes demutualisation was the the fault of the Tories

* New one on me

P.S. Aug 15th - Oops, I forgot about the Co-operative Bank, or more precisely its acquisition of the Britannia Building society, which has in turn knacked the Co-op, which is now having to sort out - wait for it, wait for it, can you guess?, yup, that's right - all the crap commercial property deals the Britannia did. Ring fence casino banking? Ring piece more like.

All bets are off

A mate txted me yesterday morning and told me to look up the Anglo Irish chat. The revelations certainly made for good “craic”, but apart from that so what? When I read an enquiry had been proposed as the official response, I tried to organise a bet that, apart from a 3 hour or so grilling by politicians in however many months time, both would get off Scot free. That was at 10.19. By 11.01 all bets were off.

I don’t bet, however, this seemed/ still seems a sure thing. Unfortunately, my mate shared my view that too many Orish politicians are implicated for anything even approaching justice to be served. Implicated in what you ask? Well, dat’d be the events leading up to then took place during the orish banking crisis. To be sure.

Like go here, here and here, fer instance, to read the chat and it actually leaves you feeling kinda dirty. Tax dodgers aside, the Orish economy reads like it was dominated by a charmed circle of politicians, bankers and businessmen/property developers who vigoursly backhanded the entire economy into the ground; did you hear O’Flaherty wants to develop dat dere land? Well, to get approval he’ll have to give the minister a helicopter ride to the races, bung his wife Eur50,000, do it as a joint venture with O'shaughnessy and make sure the bank executive is happy wit it’all. To be sure. And what did the regulator say? Daft Michael? Aww, we’ll just leave him out of it, besides you know how his head of section is pals with those senior banking fellas.

That was before things went tits up. Since then the entire economy has been unnecessarily put on the line by the government deciding to guarantee all bank deposits followed by a never ending run of bank bailouts, then the initial attempt to get taxpayers to overpay for bad bank assets via NAMA.

Anyone who seriously tried to bring any part of that to justice runs the risk of formally exposing the whole damn shebang. On the basis turkeys don’t vote for Christmas, the only thing I reckon any enquiry, give or take some recommendations about what not to do in future, will do will be to stall, delay and prevaricate until things have moved on.

So any takers for my bet (I’d gladly be wrong)?

P.S. Yes events in Ireland do put what happened here into sharp relief including the limitations of British journalism given its complete failure to place it in its proper context. As for the facetious /cack orishisms above, a system that bent doesn’t deserve respect.

Historicism

Whoever said the lesson of history is that there are no lessons was an arse. Mark Twain on the other hand is supposed to have said “The past does not repeat itself, but it rhymes”, which rocks.

To give one example, there’s that Scottish bank run disastrously into the ground by its West of Scotland executives who, speculating on asset values, lent too much to too few people while taking no where near enough security to protect their company’s interests. Obviously, I’m talking about the 1878 failure of the City of Glasgow Bank. Obviously. Since then banking has become a much, much more sophisticated activity and no banker would ever be fuckwitted enough to adopt a similar “business model", give or take the ones that have.

To be fair, the work chat I mind from a couple of years back was that business cycles last 6 years; 4 to learn the lessons of the last disaster and another 2 to forget them. This implies that in banking, greed, arrogance and stupidity are both timeless and recurring. Given that, let’s compare and contrast what happened to the bods who knacked the City of Glasgow Bank with today’s high flying “wealth creators”.

As if to emphasise the difference between then and now, the late historian Sydney Checkland described the City of Glasgow Bank’s board when it failed as “mediocrities and men of straw”. All of them, plus the Bank’s manager, were soon had up before the High Court in Edinburgh, found guilty of various offences and given jail sentences ranging from 8 to 18 months. Thankfully, today’s “wealth creators” are treated with much more respect; when they go a tad awry, the worst they can expect is a fine equal to only a fraction of their personal wealth or the loss of a knighthood, but prison? Heaven forbid.

Another difference between then and now was that the City of Glasgow failure taught the late Victorian bourgeoisie the limitations of unlimited liability; because it was an unlimited concern the Bank's 1,819 shareholders were liable for all of its obligations and after these were met, only 254 of them remained solvent. Funnily enough, the City of Glasgow Bank failure was followed by a new Companies Act in 1879 and with it the widespread adoption of limited liability; unlimited liability, or what a Vince Cable might call shareholder activism, having previously been regarded as a built-in check on management, was suddenly recast as a barrier to investment and as such something to be got rid of pronto for the good of the economy.

Fast forwarding to today, rather than any change sensibilities, I'd argue the structural changes made to the financial obligations of asset owners/shareholders (i.e. the rich) underpin the change in how “wealth creators” now get treated. Then, shareholders got fucked. Now? It’s the taxpayer. Then, the people who ran banks that fucked up and fucked the finances of the rich got the jail. Now? Less so. See the difference?

As for the rhyme, it sounds like Berkshire Hunt(s).

Peter C

The FSA judgement on Peter Cummings is interesting for all sorts of reasons, notably its fundamental flaws. Cummings' repugnantly unrepentant whine, as quoted in a BBC article  is also interesting; "(f)or the past three and a half years I have been singled out and subjected to an extraordinary Orwellian process by an organisation that acts as lawmaker, judge, jury, appeal court and executioner."

That Cummings appears aware of how organisational power can enforce a worldview wherein 2+2 = 5 is a revelation, but am guessing he actually meant Kafkaesque. Am also guessing he doesn't know any better. Ignorant dick.

Augean Stables

So that’s a Spanish bank bail out then. Lovely. Except it reminded me of this blog post written in 2009 (!) called “Are the Spanish banks hiding their losses?” What was/is so good about this post is how the author shows how one of the 2 big Spanish banks appeared to take an overly optimistic stance when it came to declaring losses on its US mortgage book, the implication being its “loss hiding culture” was probably company wide i.e. it applied to its Spanish operations as well.

Old news? Nope because this year it had become increasingly hard to reconcile the Spanish unemployment rate with the much lower rate of mortgages going bad that the Spanish banks were collectively willing to declare. Alongside this were other suspicions about how Spanish banks were artificially propping up house prices, again to minimise their losses. When confronted with this kind of stuff in April, the Santander CEO declared “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”

There you are then. Except, alongside this you had Bankia restating its annual accounts for 2011 in a way that turned a Eur309m profit into a Eur4.3bn loss before taxes.

To be fair the Spanish government does finally appear to be aware of the credibility issue surrounding Spanish bank accounts, hence independent outsiders have been brought in to establish how much capital the Spanish banks need before the bail out gets doled out. Except, outsiders already audit Spanish banks so they can produce annual accounts; they’re called accountants.

So what makes this lot any different? Err, they’re management consultants as opposed to bankers or accountants, which is kinda confusing. Like are accountants no longer fit to audit banks, are current annual reporting requirements that inadequate, are Big 4 firm Spanish accountants bent? Am sure all of these things will be examined at length and in great detail.

Back in the real world, there are a couple of things to consider. One is the extent to which a blind eye appears to have been turned towards the general dodginess of Spanish bank accounting practices both at a Spanish and at an EU level. Practically, this left the Spanish government playing catch-up, placing sticking plasters here and there as new problems emerged. The consequent Spanish and EU failure to sit down and sort shit out once and for all led to a drip, drip dripping away of confidence and credibility that I’d guess means the bill now in the process of being paid is far bigger than it would have been say 2 years ago (compare/contrast with the last British government's approach of bank recapitalisations and the introduction of an Asset Protection scheme to draw a line under potential, future losses).

Another is how this modifies interpretations of the current situation that focus exclusively on government debt. Spain had a debt fuelled property bubble to be sure, but a private sector led one; the Spanish government was by comparison a global model of fiscal probity. So rather than debt, I reckon the main parallels to draw between Spain, Greece and Italy concern the significant contribution the behaviour of their political and economic elites made to their current woes, be it institutionalised Greek tax dodging, Italy’s general bentness or Spain’s overly optimistic bank accounts. Note how in every case these issues cut across both the public and the private sector. Note also, give or take Berlusconi being got rid of, how bail outs don’t directly address them i.e. the European debacle is going to continue for the foreseeable future with presumably Portugal and Italy next in line.

If I was a rich man

Professor Andrew Lo’s review of 21 books about the financial crisis is a lovely thing in principle; he read them so you don’t have to. Professor Lo also abstracts from the various interpretations kicking around to make some interesting points, or at least tries to in a here’s MY review, oh yes, MY review of things kind of style.

The one that got me because it’s so topical was his footnote 'n’ quote driven dissing of the following notion that he says has “become part of the folk wisdom of the crisis - Wall Street compensation contracts were too focused on short-term trading profits rather than longer-term incentives. Also, there was excessive risk-taking because these CEOs were betting with other people’s money, not their own.”

Instead, Professor Lo responds with “in a recent study of the executive compensation contracts at 95 banks, Fahlenbrach and Stulz (2011) conclude that CEOs’ aggregate stock and option holdings were more than eight times the value of their annual compensation, and the amount of their personal wealth at risk prior to the financial crisis makes it improbable that a rational CEO knew in advance of an impending financial crash, or knowingly engaged in excessively risky behavior (excessive from the shareholders’ perspective, that is). For example, Bank of America CEO Ken Lewis was holding $190 million worth of company stock and options at the end of 2006, which declined in value to $48 million by the end of 2008,5 and Bear Stearns CEO Jimmy Cayne sold his ownership interest in his company—estimated at over $1 billion in 2007—for $61 million in 2008.6 However, in the case of Bear Stearns and Lehman Brothers, Bebchuk, Cohen, and Spamann (2010) have argued that their CEOs cashed out hundreds of millions of dollars of company stock from 2000 to 2008, hence the remaining amount of equity they owned in their respective companies toward the end may not have been sufficiently large to have had an impact on their behavior. Nevertheless, in an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”.

Phew. Except, hmmm. No. Actually this is what you call knowing the price of everything and the value of nothing. If I were inclined to do the math(s) or even the arithmetic, I’d note how Ken Lewis’s wodge of stock fell over 74% in value. Ouch. I mean crikey the credit crunch cost him at least $142m. Ouchy, ouch. Over here where executive pay hasn’t yet reached American levels you could do the same kind of thing for the those who ran the subsequently bailed out banks into the credit crunch or at least you could in percentage terms, but absolutes? Nah, they lost millions not tens or hundreds of millions.

The thing is though even after all these terribly important people lost all this dosh (well actually they didn’t cos it was shares they’d have had to sell to get their hands on the moolah), they were and are all still very rich. 1% rich even i.e. the “penalty” for (some of) the people who caused the credit crunch is that they’ve tumbled all the way from fuck me they’re rich to fucking rich or to quote the handy dandy Institute for Fiscal studies online questionnaire about where you are in the distribution of income in the UK - if you were on Mr Goodwin’s pension right now you'd discover “Your income is so high that you lie beyond the far right hand side of the chart”.

Hence, references to “risk-taking incentives” are beside the point; these people simply weren't taking any meaningful economic risks or at least not ones even remotely comparable to say I don’t know the printers currently being asked to vote on a 10 to 20% pay cut. So whereas yer average punter isn't taking the kids on holiday this year and is having to watch the weekly shop like a hawk, for a Ken Lewis all this means is buying 2 rather than 10 new Bentleys.

Instead, rather than an economics of pay, at these levels an open and honest sociology makes far more sense. Some of the obvious stuff this would have to draw attention to would be as follows; every year the charismatic, experienced and successful people (no seriously) that make up the board of yer typical PLC take their CEO aside and tell him that he’s so insightful, strategic and lovely, so best in class and thought leadery that he as a person is worth millions and millions of pounds. Not just one, or two, but millions and millions. And see that corporate jet you wanted? It’s over there. A chauffer? He’ll be round tomorrow morning. And apologies for not asking before, but do you like your grapes peeled or unpeeled?

Now, the notion that such institutionalised, positive-reinforcement didn’t, doesn’t, couldn’t or can’t turn an executive or a trader's or anyone's head is ridiculous. Rather, the way Professor Lo presents Wall Street contracts as a folk-loric contributory factor is a convenient straw man. Sure sure those in charge lost big arithmetically, and? A crucial and key driver of the credit crunch was an arrogant hubris that reached monumentally destructive levels. And this hubris WAS fed by Wall Street contracts (along with those signed in the City of London and elsewhere) that awarded fortunes every year and were primarily set in relation to how rival egos were being similarly massaged.

Personally, I think Sarah Beaney’s Property Ladder telly programme still illustrates this better than however many books on the financial crisis; every episode some dicks bought a house to develop then spent so long fucking it up the rising market meant they still made a profit. Except they actually believed this was due to their great acumen and risk taking endeavours as opposed to fortunate circumstance. So was executive and banker pay a factor? You totally betcha! And no, not because of the absolute amounts at stake, rather it was the relative numbers presented each year on paper and the impact that and the associated rituals had on the egos of key individuals.

Like Ken Lewis, I'm sure, thought he was the dogs and why shouldn't he? Every year he was handed a multi-million pay package and as we all (used to) know people awarded that amount of dosh don't make catastrophic decisions. So sure he had a lot to lose, but does anyone think that when Ken made decisions he seriously took into account the possibility of him actually losing well anything really? Like really?

The other thing are the challenges now being made to it all. Like we’ve been told for however long that the rich need to be rich because then we’re all better off, except no we’re not actually. Or, as is the case here, we get references to “an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”. Except no they didn’t i.e. dull stuff like reality makes utterly fucking clear the current system didn’t and doesn’t work as a means of risk management let alone wealth creation for society as a whole.

Rather, Gramsci’s theory of hegemony and how the ruling class defines the common sense of an age is what's increasingly relevant because the "common sense" we've been fed is thankfully and increasingly being questioned in ways that expose it as a pile of self-serving shit.

Dinna, dinna, dinna, dinna, dinna, dinna, dinna, dinna ......

Fuck Guy Fawkes, the Occupy London protest is actually more like batman; it gives you a good feeling knowing he/they’re out there fighting the good fight, just don’t think too hard about it or you’ll realise it’s a bunch of mentalists wearing their pants over their trousers.

I mean seriously, I had a nosey at the protests the other day and the first thing I came across was a cardboard sign claiming 9’11 was a conspiracy. Similarly, a vaguely interesting episode of the Radio 4 programme the Report (broadcast Nov 17th) described how attempts to get the Occupy London lot to support a Tobin/Robin Hood tax had failed because (a) every demand they make requires consensus and (b) as some of the protestors oppose the very existence of banks, a tax on financial transactions was irrelevant.

But, that kind of naïve/stupid/ideological purity at all costs regardless of it achieving nothing of any substance whatsoever/adolescent fucktardness isn’t the point. The actual point is to ignore pretty much anything the protestors say and focus instead on the broader cultural wave they’re riding.

To give just one example here is what a post in the Financial Times FT Alphaville blog said in advance of the Pre-Budget thingy - “The misery can be eased, and the populace comforted, if only Mr Osborne could find a way of making the fattest cats pay more. He underestimates the depth of feeling against this thin layer of full-fat atop the skimmed milk the rest of us are on at his peril. Pay rises to FTSE100 directors, bonuses for bankers at loss-making rescued banks, and rewards to departing failed executives (in both public and private sectors) all fuel the resentment. Austerity is bearable if everyone is paying. If some are seen to escape, then the likely result is something much worse than a few tents outside St Pauls.”

Just chew on that for a second – this is the Financial Times being used to warn the chancellor that he needs to do something about fat cats because of a widespread revulsion about how things are playing out. The Financial Times!

Tomorrow’s one day public sector strike similarly epitomises this broader cultural wave. So sure, sure, you can slag off public sector workers for not living in the “real” world as you make arrangements for getting your kids looked after. You could even compare and contrast “gold plated” public sector pensions with the private sector, ignoring in the process how that simply reflects the weakness of private sector trade unionism. But, again that, as with slagging off the Occupy lot as get a haircut, get a job, have a bath mentals, is to miss the point.

Rather, as at least one teacher has put it straightforwardly to me “why should I have to pay for the mess the bankers made?” It’s a fair question, one that simply isn’t getting asked with any meaning by any mainstream politicians of any significance and certainly doesn’t figure in any of their policies. It also taps into what I think (for which read hope going by the pathetic turnouts in the numerous strike votes) is a broader dissatisfaction with the way shit is wherein the legitimacy of established arrangements – we vote for a socio-economic-political elite to get more and more of everything it wants in exchange for us getting a decent pension, a job, a new telly and a future for our kids – is currently being got tae fuck in a fuck me and you, but never them kind of way.


P.S. No this isn't a plea to view things via some puerile end capitalism now vs give the job/wealth creators everything they want cos we’ll all benefit in the long run dichotomy, not least because in the long run we are all dead.

Nae prospect

For me Prospect stands out a mile as the best regular journal. So OK they’ve got a lurve thang going on with Chris Patten, the acceptable Tory despite his way out of date references, but by the same token they avoid the nepotistic, upper middle class mediocrity that characterises the Spectator. Similarly, they’ll get Labour bods in to write stuff, but avoid the plodding, partisan dullness of the New Statesman. And thankfully, they just don’t do the one-sided free marketeering wank that too often lets down the Economist.

But, here that’s no saying its good, rather it’s saying it’s not bad, whereas it is in fact good. So sure the recent article by some plumb saying Sarkozy’s appeal to France was based on French people wanting to be ridden hard by a sex dwarf was bloody awful (I shit you not. Shame the references were to Nietzche and not Marc Almond), but for the most part the commentary is wide-ranging and the views expressed informative and thought provoking. I mean fuck me a magazine that actually provokes thought as opposed to reinforcing existing prejudice, how cool is that? The problem it has right now though is relatively straightforward – it’s the economy stupid!

I don’t mean by this an exercise in political positioning or sloganeering. Nor is it a question of which party is best equipped to run the Treasury. Rather the reality is that (a) the economy is totally fecked and will be for a good while, (b) following on from that we are going to see a mighty hack back in public spending over the next 3 years at least and (c) we’re currently seeing the rules governing the relationship between the financial sector and the economy being debated before they are rewritten and as such are still up for grabs.

These are key issues and they’re simply not being addressed by Prospect (or anyone else for that matter). Sure they’re getting in bods to explain what quantitative easing is, but so the fuck what? The point surely isn’t to simply explain, rather it’s to analyse, contextualise and relate the implications of this to government policy, the economy and social issues.

Here a quick and easy example –

An obvious response to the recession is for government to embark on a major social house building programme, which would address housing issues and provide jobs.

However, it would also increase government borrowing. The existing level of government debt has already prompted at least one rating agency to make noises about downgrading Britain’s credit rating, which would increase the government’s cost of borrowing.

However, the same rating agencies also said sub-prime was the bees knees despite the conflict of interest whereby the people paying for the ratings where the same ones who would benefit from it getting a high rating.

So should we look at the role of rating agencies, their structure, strategy and technical competency both in terms of rating sub-prime debt and government debt? Like should we rewrite market rules so they can go and fuck themselves?

Even more straightforward, should the issue of social inequality figure in the regulation of pay in banking and the assocaited rhetoric used to justify mega bonuses.

See? Some quick, practical examples that relate social policy to economic policy to financial re-regulation.

And there’s more – the cuts in public sector spending to appease rating agencies arguably render Prospect’s a wee bitty wanky obsession with think tank politics irrelevant. So one think tank says we need to do this to help the disabled, that to help ethnic minorities and the other to address issues of national identity? Piss off, we can’t afford any of them and that’s that really oh and we’re cutting your 2010/11 funding by 30%.

For me unless these realities are addressed and debated it looks like what we’re going to see when it comes to the financial system and the economy is one big vested-interest cluster fuck focused on retaining as much as possible of the old regime, regardless of its flaws .

I should perhaps confess at this point I still think Marx had it more or less right when he wrote -

“these relations of production correspond to a definite stage of development of their material forces of production. The sum total of these relations of production constitutes the economic structure of society - the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life determines the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.”

i.e. that’s what I mean when I say “it’s the economy stupid”. The challenge we have right now is that outwith the Treasury, the FSA, the Bank of England and the financial system theres too much focus on the superstructure and way, way too much ignorance about the base.