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Extracts from a City diary, from an insider who has worked in the City of London for over a decade ...
"... You get to the top by making more money than your peers. Competitive crafty, greedy people give their employers what they want and rise up the ranks. Greed is inevitable ...
... We're told by our chancellor that the solution to our crisis is more effective regulation of our banks, but regulation will never stop greed. Chancellor Darling also cites the notion that "spreading your risk is a good thing." This is a classic academic over-simplification and fails to account for human behaviour ...
... All that happens when risk is "spread" is that it ends up in the weakest hands and overall the system becomes saturated with the same risk. The mantra that diversifying risk is "good" ends up producing the opposite effect: we all fall down together ...
... It's why we must disentangle investment banking from more ordinary, commercial banking. It's the only way to stop another crunch in however many years' time ...
... After the Great Crash of 1929, the Glass-Steagall Act in the USA forbade commercial banks from conducting investment banking business. Since then, financial crises came and went without the disaster we've just witnessed. Separation of the two forms of banking prevented contagion ...
... The investment banks could be as greedy as they liked without recklessly endangering the rest of the population. Glass-Steagall was repealed after nearly seventy years in 1999 and it then took just eight years for the investment bankers to bring our entire global financial system to its knees, hold it to ransom and then get paid to fix it ...
... The politicians' solution? Merge more banks together and embed investment banking even more deeply into our financial blood system. Institutions that are "too big to fail" should, if we apply common sense, be "too big to exist". But instead they have become "too big to resist" ...
... If I am right, the next financial crisis, when it comes, stands to make the last two years look like a "warm up". When these newly engrossed banks fail, what then? For the time being, more of the same is the only prescription the politicians can conceive of. The bailouts that were sold to the public on the grounds they would help the ordinary citizen have failed to do anything other than nationalise previously private debt, leaving the "little guy" to fend for himself and pay up to the hilt for the privilege ...
... Closer to the ground, it's common to believe that these are uniformly hard times for everyone in the City. Not necessarily so. The firms that survived the bust have never known it so good - less competition, fees have gone up, margins have got larger - all courtesy of the reduced competition created by our politicians waving-through mergers as a solution to the crisis ...
... But none of what I see makes me any more hopeful for a better, leaner City. I want a City that properly serves the economy and acts as the lubricant, rather than the engine, of growth. I want commercial banks to make boring, safe loans. I want investment banks to be able to blow up without taking the country down. I want the ordinary citizen to be insulated from financial excess, not left out in the good times and then billed for the bad times. Yet none of this is on the way. Leaving me to simply ask: Why? ..."
Again great insight which very much echoes many of my posts (e.g. take a look at this recent one for instance) ... and I think the answer to last question partly lies in the fact that it's not in the interests of the 'small minority' currently in 'power', who desperately want to 'maintain power' so they can 'profit from power' (i.e. applying Poweromics). However Ignoromics will also have to reduce for this to be properly challenged ... for real change to take place ... and for us to see a "Leaner City" ... one applying "Leanomics" ... and focused on adding value and wealth creation (for communities/society) rather than wealth manipulation (for a small minority).
The 'battle of values' ahead is becoming ever clearer, and as more people take notice (and take responsibility) new 'leaders' will emerge and change things for the better (nb current 'leaders' are unlikely to this - for the reasons outlined in my previous post), and this is not very far away ...
Referred to on Stephanomics recent blog.
