The banks are to blame ... and King's surprised people aren't more angry!

In an interview with the Daily Telegraph, Mervyn King has urged high street banks to take a better, longer term view towards their customers and to stop focusing on the need to “simply maximise profits next week”.

He accused them of routinely exploiting their millions of customers, stating “If it’s possible for them to make money out of gullible or unsuspecting customers, particularly institutional customers, they think that is perfectly acceptable.” [More evidence highlighting that ignorance is not bliss, and that those misusing power think it's perfectly acceptable to exploit it!]

The Governor also criticised the “weight put on the importance and value of takeovers” and raises concerns that companies with good reputations have been “destroyed” in the search for short-term profits.

Mr King expressed regret for not sounding a louder warning over his concerns before the last banking crisis [NB Is this an apology? IMHO he should have been sacked for this!]. The Governor’s remarks are a warning to George Osborne, the Chancellor, as a government commission considers whether to force high street banks to sell off their investment banking arms [NB IMHO this is a must and a no-brainer!]

Mr Osborne is thought to be against such a plan [NB as he's trying to look after his friends in the City!], but Mr King is due to ultimately become responsible for banking regulation and his views are, therefore, critical. In the interview, the Bank Governor said: “We allowed a banking system to build up which contained the seeds of its own destruction. We’ve not yet solved the 'too big to fail’ or, as I prefer to call it, the 'too important to fail’ problem. The concept of being too important to fail should have no place in a market economy.”

When asked whether there could be a repeat of the financial crisis, Mr King said: “Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again.”

Mr King suggested that the culture of short-term profits and bonuses within the banks may ultimately be responsible for the problems. He says that traditional manufacturing industries have a more “moral” way of operating [i.e. banks have few(er) morals!] They care deeply about their workforce, about their customers and, above all, are proud of their products. With the banks there isn’t that sense of longer term relationships. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know”.

The Governor added that good businesses “keep a clear vision of who their customers are, and are run by people who don’t think they should simply maximise profits next week.” He said that the payment of bonuses is part of this cultural problem. “Why do banks in general want to pay bonuses? It’s because they live in a 'too big to fail’ world in which the state will bail them out on the downside.”

Over the past 30 years, he says, “we changed Britain away from a sclerotic economy with inefficiencies and problems in labour relations. Everyone got to the point where we no longer expected government to bail us out. Everyone bought in to market discipline. We were all better off. It was working very successfully.” But now, people have every right to be angry, because “out of what seems to them a clear blue sky”, the crisis comes, they find they lose their jobs and there’s the sharpest fall in world trade since the 1930s. “But, surprise, surprise, the institutions bailed out were those at the heart of the crisis. Hedge funds were allowed to fail, 3,000 of them have gone, but banks weren’t”.

The comments will embarrass the Chancellor, who recently concluded a deal with the banks under which they would be able to resume the payment of bonuses in return for boosting lending [IMHO this is yet another act of treachery, from a Tory millionaire looking after his friends in the City, and who also fund his party].

So why aren't people more angry? ... well there's Ignorance of course ... but there's also a great deal of Apathy! Apathy is a disease in Britain ... a disease that will result in millions of lives being blighted!

Brown: The collapse of the UK economy was down to me

Gordon Brown today admitted he made a mistake in not introducing tougher bank regulation when he was chancellor.  The PM, chancellor from 1997 to 2007, said that in the 1990s the banks had all been calling for less regulation.

"And actually the truth is that globally and nationally we should have been regulating them more," he said in an interview on ITV1's Tonight.  The Conservatives said Mr Brown had "failed", while the Liberal Democrats said his admission was "not enough".  The prime minister said he should have put the "whole public interest" before the banks.

Mr Brown said: "In the 1990s, the banks, they all came to us and said, 'Look, we don't want to be regulated, we want to be free of regulation'." ... "All the complaints I was getting from people was, 'Look you're regulating them too much'. And actually the truth is that globally and nationally we should have been regulating them more," he added.

"So I've learnt from that. So you don't listen to the industry when they say, 'This is good for us'. You've got to talk about the whole public interest."

Ed Balls, who worked with Gordon Brown when he was chancellor, said both had previously admitted they should have done more to control the financial sector.  At Labour's morning press conference he said: "In retrospect we should have been tougher with some of the investment banks which did not know the risks they were running."

Business Secretary Lord Mandelson added: "Regulation should have been more intrusive and the regulatory practice of the Financial Services Authority should have kept pace with the fast-changing developments in the financial services sector."

Shadow chancellor George Osborne said: "So finally Gordon Brown admits he failed to regulate the bankers and increased taxes on the poor (removing the 10p tax band). We've had 13 years of his economic mistakes. Britain can't afford five years more."

Lib Dem Treasury spokesman Vince Cable said: "It's not enough just to hold your hands up and say sorry without having a plan for making sure that the same thing doesn't happen again."

Most people (particularly in the blogosphere) know this already, and many (including myself) believe admitting to being partially responsible for the worst economic mistakes for generations is not enough (i.e honesty) - if he had represented us properly (which as Prime Minister is his job!) he would have always acted in our interests (not the banks), if he was a capable leader he would have asked far more questions (rather than simply listening to the banks), and if he was selfless, honest (and honorable) he would have admitted his mistakes at the time (and resigned without question or delay) ... instead of using spin to create a smoke-screen (e.g. a 'global problem') and deflecting blame onto others (e.g. America - which President Obama will never forget) ... both strategies regularly adopted by those who apply Poweromics* (to maintain their grip on Power).  Given we are fining the leaders of Northern Rock for their failings, perhaps we should fine/charge Gordon Brown for his role too**, so he is made bankrupt, never forgiven and never allowed into a position (or to profit from a position) of power again (e.g. relinquishing any right to a position in the Lords)*. 

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed. 

** NB In China he would have been locked up and probably receive the death penalty (for 'economic sabotage').

Steaming ahead ... to a Precipice?

As the UK Government continues blindly along its path (without changing a thing), the 'elephant in the room' is still steaming ahead and taking the UK economy towards the edge of the precipice.  With buoyed up (i.e. inflated) asset prices, colossal debts (Government and personal debts), collapsing tax receipts (income tax and corporation tax) and economic activity 'quietly' but steadily declining (and with massive jobs cuts predicted in the public sector too), it doesn't take long to see the unsustainable nature of the currently 'recovery' (0.1% growth!) and where it's heading.

However, 'talking things up' appears to be back, with news of house prices 'apparently' on the rise once again (i.e. more asset price inflation/speculation - rather than building of new property, which is real wealth creation).  The folly of such concepts is plain for all to see, with just a little digging, as the only people who truly profit in the long run from this are the landowners and the banks (who take away most of our younger generation's salaries). Reports of banks making bumper profits (and paying themselves large bonuses are also back), which is not hard to do in the short term when you can pay out at 0.5%, whilst lending out to businesses/individuals at 5%-30%, and whilst you can also take taxpayers money and re-invest and speculate it in the short term on collapsing assets prices (that are a result of previous actions of the banks themselves) whilst the Government/taxpayer underpins any of their bad debts.

However, inflation is now rising (the Bank of England has had to write to the Chancellor this month), and in normally the best month for tax receipts (January), the Government has had to borrow yet more money rather than being able to pay any debt back - for the first time since records began!! Our economy is in crisis, and founded on outdated/flawed leadership and management practices (i.e. poor moral values, self interest and greed).  The present system is continuing to collapse, but those in power (e.g. Government leaders, banks) are choosing to look after themselves rather than doing anything about it (for the majority of people in this country, and particularly younger generations).  Real economic inactivity and the impact on future generations has been recently highlighted, and there will be more of this to come in the future unless we change things quickly and for the better. The opportunities in the future are vast, but only if we embrace them.

As the risks associated with our economy grow, investment in the UK will drop, our debts will become increasingly expensive to service, and more young people will look elsewhere when considering their future - none of which the UK can afford ...

"The City" - 'socially useless' and needs be 'taxed more'

In a recent post I pointed out the need to tax wealth manipulation far more (e.g. many investment banking transactions), and ideally in a similar way to 'gambling' ... and it's interesting to now hear Lord Turner, chairman of the Financial Services Authority (i.e. the FSA - the UK's financial watchdog), say he also backs a new tax on banks (e.g. speculative transactions) ... as a means to prevent excess bonus payments in the industry. It was also even more profound to hear Lord Turner say that much of the activities in the City of London are "socially useless"!

However Lord Turner's comments do not set out a new policy, because as a government spokesman has been quick to point out, "tax policy" is a matter for the Chancellor! Lord Turner's comments do however put far more pressure on the Chancellor, Gordon Brown, and the Government, to show their true colours now ... and to show us whether all their 'talk' to date of fixing the problems are 'real', or all 'rhetoric' and 'spin' ...

To date it has been mostly rhetoric and spin, as they have handed bankers an open cheque (i.e. taxpayers' money on a plate), and given they created much of the UK banking crisis themselves (e.g. by allowing the re-integration of investment banking with commercial banking here in the UK) ... I think it's unlikely they'll admit their mistakes or fundamentally change tax policy here anytime soon, despite the fact that it's desperately needed ... they'll probably simply rely on fear and confusion created by others (e.g. groups like the CBI, the Voice of Banks, for instance) who will predictably speak out about the 'damaging effects' of such a move.

What Lord Turner has successfully done is to raise the 'stakes' and to highlight where 'responsibility' actually lies ...

Referred to on Stephanomics recent blog (on QE and banking). Take a look at Paul Mason's blog too - he's Newsnight's economics editor, and unlike Stephanie, he took time to blog about this specific subject himself.