How 'Good' is Britain?

Quoting Aristotle, and following on from my last post, the following question is now partially answered ...

Aristotle said ...  "The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice*"

And this week Robert Peston, one of the few in the BBC bold enough to question what is going on, this week highlighted the "Valueless Banking Boom", following figures released by the Bank of International Settlement, which show global foreign exchange turnover rose 20% to $4trn per day on average (yes, that's each single day) in April 2010 compared with April 2007.

"A sum equivalent to the entire output of the global economy is traded around once a fortnight on currency markets ... and what's more, London's portion of this business has increased even faster, by 25%, so UK based banks' share of forex business is a market-leading 37%.

As for over-the-counter interest rate derivatives (transactions that are largely bets on the direction of interest rates), these rose 24% globally to $2.1 trn ... and Britain's share of these trades was a striking 46%, up from 44% in 2007.

Many might well dispute that the great banking meltdown of 2008 happened because of this explosive growth in financial trading - but the trading certainly didn't prevent the crash.  It is clear that bankers are being allowed to continue to gamble unabated, without the fundamental problem being addressed (i.e. bankers' gambling being separated completely from ordinary citizens' savings).

And there is a massive disconnect between a global economy that has less than doubled in size over 12 years and - on the other hand - OTC derivative transactions that have increased eight fold while foreign exchange transactions have almost trebled in value. What's more, as I've pointed out before, the global economy was growing quite as fast in the 1960s when much of this financial business barely existed.  

So those (like me) who can't see the point of all these financial trades may have a point - unless, that is, you believe the enrichment of financial traders and hedge fund managers is a social good in itself.

Which is why, some would say, it's slightly odd that when no less an authority than the chairman of the Financial Services Authority, Lord Turner, questions the social utility of much activity in financial markets, and also suggests that it might be no bad thing to levy a tiny Tobin tax on all this frenetic trading in electrons, well it's curious that the chancellor of the exchequer (who could use a bob or two) doesn't lick his chops and demand a bit of that."

Well it's clear that immorality/corruption runs deep, and at present with whatever 'colour' of Government is in Power (n.b. ironically the last Government arguably lead the way to this path of immorality - 'led' by politicians who hid behind supposed religious beliefs), and none of them are going to challenge anything that serves their own vested interests ... even when it's clearly at the expense of everyone elses'. 

From a society (and moral point) of view, separating gambling from traditional banking is a 'no-brainer', but current leaders continue to choose not to do this.  From a society and moral point of view, restricting (and taxing) trading/gambling, and investing resources into activities that add real value (the reason for currency) is also paramount, but current leaders choose not to do this either.  Clearly the hidden hand of 'power' exerts major influence on those seen to be in 'power' (e.g. Politicians) and only truly honorable, respectful, courageous and strong 'leaders' will resist this and do what is right ... and the current set of Politicians are rapidly proving they have none of these qualities (particularly the first, and arguably the most important, two).

My previous reference to the article below explains/expands on this point ...

"Introducing tighter regulations for bankers or politicians does not raise their level of maturity, morality or their ethics, it just limits what they can get away with. No, it is the type of people, the Ethnocentrics themselves, that have to go. Worldcentric people by definition and by their nature would not have abused the old regulations, let alone need new ones. Anyone below Worldcentric on the “chart” should not be selected or elected into positions of leadership in politics or big corporations, not just banks. Fewer people would fit the bill and that would limit our choice, and so it should.

The second of the two issues was the failure of commentators to seriously question the capitalist economic system that has proved to be so fragile and unjust. It has brought wealth to half the world while the rest starve; it thrives on excess consumption and the inevitable emissions, and it seriously retards the evolutionary development of individuals and cultures. Bankers and politicians alike strive to prop up the old failing system which they abused, because they know no better.

However there is also a groundswell of more conscious or ‘worldcentric’ people who will no longer tolerate the old order and they will become ever more vociferous until the ethnocentric majority of politicians are discredited, ousted and replaced. Some commentators will reread if not resurrect Karl Marx, but the way is forward not backwards. A new economic order is essential, one that puts people and planet before profit".

To answer the question we need to go back to Aristotle ... noting we are recognised as the nation leading the way in profiteering from currency, instead of making it from the process which currency was meant to serve. 

The immorality of such action is clear, and those who conspire to allow this to happen are not 'Good People' and need to be challenged ... and it will take 'Good People' to join together to do this**

... so "How Good is Britain?" ... well the evidence suggests not good I'm afraid ... and in the future ... well we shall see (i.e. will "Good" people do nothing, and be complicit in evil). 

And as I also referred to in my last post, Aristotle referred to the 'Evil of Ignorance' ... IMHO Apathy (i.e. Type 2 Ignoromics***) can be referred to as 'evil' (as it is both complicit with and an accessory to evil), but Ignorance (Type 1 Ignoromics***) is arguably less so (as it is neither complicit with nor an accessory to).

* Avarice - Extreme greed for wealth or material gain.

** 'For evil to flourish, all it needs is for good men to do nothing' [Edmund Burke 1729 - 1797]

*** Ignoromics = People are either effectively ignorant of the situation (Type 1 - Ignorance) or not prepared to take responsibility to make sure it changes for the better (Type 2 - Apathy).

Taxing Times - Taxing Gambling ... Separating Gambling

Robert Peston appears to be one of the few BBC journalists prepared to probe what's going on and to question further what current leaders are doing. His recent blog eluded to the fact that the Government are considering ways to 'tax' Banks more ... partly to pay for the fact the taxpayer has had to bail them out ... but for me this does not go far enough ...

Following on from my previous post I decided to add the comment below to his blog too (Post 53):

"Tax gambling (i.e. investment banking) a lot more - absolutely ... for any Government and society, with any values/morals at all, taxing gambling heavily is a 'no brainer'.

What still makes this story more spin than substance however is that the Government is STILL avoiding the key issue ...

... We must NOT allow investment bankers to gamble with taxpayers and hard-working people's savings! ie. investment banking needs to be separated from retail/commercial banking (as well as being taxed more) so they can be allowed to fail when their gambles go wrong ...

http://poweromics.blogspot.com/2009/09/challenging-greed-and-creating-leaner.html

... We need a new Glass-Steagall type act introduced again, similar to the one brought in after the last great depression ... which the current set of clowns (with 'no brains' and/or 'no morals') in their 'wisdom' took it upon themselves to remove!

Keep up the pressure and can you challenge them on this please too Robert".

A bankrupt system and a vacuum of ideology

Robert Peston seems to be doing a much better job than Stephanie Flanders (BBC economics editor) and Nick Robinson (BBC political editor) these days, as he explained in his recent blog ... where we are, the people responsible, the dilemmas they now have and the vacuum of ideology that exists ... e.g. take a look a few key points below for instance:

"... it is by no means a trivial political event that Gordon Brown should make an explicit attack on what he called a 'bankrupt ideology' that 'markets always self-correct but never self-destruct' ... a somewhat delayed reaction to that recent spot of bother for banks ...

... but this wasn't just any old failure of markets. It was a system breakdown that has prompted a theological crisis for most mainstream economists and an existential crisis for those whom we trusted to deliver financial and economic stabiltity, viz regulators, central bankers and finance ministers ...

... and for politicians ... such as Gordon Brown ... there's something of an ideological crisis .... It's all very well to say, as he did, that 'what failed was the right wing fundamentalism that says you just leave everything to the market and says that free markets should not just be free but values-free' ...

... but for years his government was seduced by this so-called fundamentalism ... and if Brown no longer trusts markets for the efficient allocation of precious resources and the optimal pricing of goods and services, what does he trust? ...

... if markets are no longer the best guarantor that resources won't be wasted in commerce or public service, what is the new insurance policy of optimal resource distribution? ...

... it's all very well to ditch a faith, if it can't be sustained by the facts. But I suspect that voters will want to know what will fill the vacuum ... and although bashing bankers' bonuses may resonate with many, it's not really a comprehensive industrial or economic policy."

To which I added the following comments below:

... "Wise words Mr Peston - perhaps you should be political editor and economics editor too.

* Traditional economics is dead.

* Traditional politics is dead.

* Traditional enterprises are dead.

* Traditional nations will also die, unless they change the above very quickly.

Can Brown fix it .... No - he exacerbated the problem in his 10 years as Chancellor*

Can the Tories fix it .... No - they haven't got a clue, and if they did they wouldn't do it anyway.

Vacuum - there is ... at present ... but as ignorance reduces and things get much worse (which they will again soon - as nothing has been done to address the above issues) the 'battle' of the future will begin - a 'battle of values' that transcends nations (take a here for instance) ... and successful nations will emerge out of the crisis powered by a new form of leadership, economics and politics (which was predicted over 20 years ago but is just starting to come to the fore now) ...

History tells us change things will, and with modern 21st century technology, change will happen in many different ways ... but history also tells us the UK is unlikely to one of the successful nations ... unless it responds right now and it does not falter in this goal.

David Clift, A Future 500 Leader

* Brown was responsible for introducing the 'targets culture' and for driving in highly wasteful 19th century management practices, as well as focusing on a flawed economic strategy which was over reliant on the city, fueling it by overseeing the removal of the constraints that kept commercial & investment banking separate (brought in after the last great depression!), then bailing out the banks with our money without fixing the fundamental problem (and a problem he himself had previously helped to create) ...

University education - who 'pays' ?

The Confederation of British Industry (CBI) today stepped forward to say University students in the UK should pay more for their loans and accept higher tuition fees as "inevitable".

The National Union of Students attacked their report as "gross hypocrisy" from the "fat cats at the CBI". The Association of Teachers and Lecturers attacked the proposals as "arrogant and elitist".

In my view the CBI is once again promoting the wrong strategy, and Robert Peston has today done a fantastic job in challenging this position in his blog ... and points to the issue of inter-generational social justice the CBI ignores ... I've included a few of his comments below:

'... More by luck than desert, the generation of Lambert, Balls, Laidlaw and even Peston have had it pretty good ... we had free university education ... we have saved for a pension over the many years of a bull market and when companies and the public sector felt obliged to offer gold-standard final salary pension schemes ... we managed to get on the property ladder before house prices became ludicrously inflated...

... It was our generation which royally messed up the economy with the inadequate governance that led to the credit crunch and the worst global recession since the 1930s ... but we're - on the whole - alright Jack, thanks to the accident of when we happen to have been born ...

... but those leaving school and university today face an altogether bleaker future: a drought of jobs; a bewildering and unappealing set of options for saving and investing; over-priced residential property (even after the "correction"); relentless fearsome competition from India, China, and so on ...

.. and there's the costs of providing a health service and welfare state to sustain an older generation ...

... so some may well argue that as and when a new government decides to make cuts or increase taxes - to fill the hole in the public finances created by the current generation - its first instinct should probably not be to penalise students ... shouldn't the older generation bequeath them something other than debt?'

and in response to his blog I added:

'Well put - an excellent article again ... and many great comments from bloggers too. IMHO setting a target of 50% of people going to university is a joke, the CBI comments are a disgrace and the Government need to think very carefully about what they choose to do in this area ...

... for instance young people also have a choice where they live (n.b. they can move anywhere in the EU without restriction), and if hard-working young people move out of the UK to work elsewhere then there will be few value/wealth creators at all here in the future and no-one to pay the taxes necessary to subsidise any public services at all (or to pay off any of the debts) ... and the whole system will continue a downward spiral ... until widespread protest/social unrest hits the streets ...

Instead of passing more debt on to future generations, what about introducing a new tax - a 'Land Value Tax'* (which a number of other countries currently have) ... as it's known to be particularly effective at targeting rich landowners who own most of the land, assets & wealth ... as this group can more than afford it, it can't easily be 'passed on' and they also can't avoid it - unlike most/all of the other taxes aimed at them**! ...

... It would raise large amounts of tax and would allow other taxes to reduce as a result. It would also push landowners to make more land available for housing - which would partly tackle the over-priced residential property market we still have too. A small fraction of this tax revenue could be used to subsidise free tuition fees and provide maintenance grants (e.g. more 'means-tested' grants) for future generations of value/wealth creators (e.g. so long as they are UK residents and continue to stay in the country) ...

... Let's also reduce the number of students going to University from the stupidly high target of 50%, support proper vocational apprenticeships and scrap/replace all the poor quality courses we see today e.g. most of the very expensive, and yet completely flawed, MBA programmes ... which teach students 19th century management practices instead of 21st century management practices (i.e. outdated courses, which partly got us in this mess, and which are often referred to as 'Maybe Best Avoided' - even without all the debt)!

* take a look at http://poweromics.blogspot.com/2009/08/land-of-free-but-whos-paying-for-it.html for instance.

** NB the Government have allowed 'land' to be one of the very few things exempt from inheritance tax too!

Media and Journalism - what future ?

Robert Peston recently tried to answer the above question in the Richard Dunn Memorial Lecture at the MediaGuardian Edinburgh International Television Festival ... and for me the main points he made were really about the future of journalism:

"... It was plainly in the public interest to disclose the weakness of our banks. And the primary justification - for me - of this kind of story is to democratise information that matters to all our livelihoods, which would otherwise be available simply to a few bankers, hedge funds and government officials ...

... what matters is what has always mattered - the facts, the story. The skill for a journalist is unearthing information that matters to people and then communicating it as clearly, accurately - and if possible as entertainingly - as possible ...

... for me, the blog is at the core of everything I do, it is the bedrock of my output. The discipline of doing it shapes my thoughts. It disseminates to a wider world the stories and themes that I think matter ... it connects me to the audience in a very important way. The comments left by readers contain useful insights - and they help me understand what really matters to people. That is not to say that I give them only what they want. I retain an old-fashioned view that in the end the licence fee pays for my putative skills in making judgements about what matters. Most important of all, the blog allows me and the BBC to own a big story and create a community of interested people around it. Sharing information - some of it hugely important, some of it less so - with a big and interested audience delivers that ownership and creates that committed community ...

... more than ever we need a choice of providers of high quality, authoritative news. The question is how to ensure there are enough competing groups with the resources to invest in news - because it is far from cheap to supply people with the information they need to take control of their lives and hold big institutions to account ...

... in my area, of financial journalism - but I think this argument can be extended - there is more-than-ever a requirement to fulfil that traditional purpose of serious journalism, to empower people to participate fully in democracy ...

... there was a time when jobs were for life and a decent income in retirement was guaranteed by a benign employer, with the welfare state rescuing the unlucky or feckless few. Those were the days. Whether it's pensions, or buying a house or acquiring new skills so that we can remain in gainful employment, the onus has been put much more on individuals to make decisions that will determine whether they'll be prosperous or paupers. But are we equipped to make those life-determining decisions? ...

... what I am talking about here, as you know, is the importance of public service journalism, about informing and educating the public so that there is democratic participation in big decisions about the future of capitalism. Now at a time when the future of the financial underpinning of the economy is in question, so too is another part of the fabric of our society - the part that transmits not money but the news and information we need to hold powerful institutions to account. And for me, the issue is all about securing the greatest access for the greatest number of people to a diversity of competing high quality news sources ...

... with financial paternalism in its death throes, just as we are being forced to take control of our financial lives as never before, are we sure that a wholly liberalised commercial news market would ensure that everyone has access to the kind of news and financial information they need and deserve? ...

... will the new paid-for online model inform and educate on hard issues - financial matters, but also medicine, the environment, education and so on - that matter to us, or will it concentrate on the more sensationalist and titillating bangs for the buck? And even if paid-for online services do endeavour to fill the gap created by the death of financial paternalism, will millions on low incomes be excluded from access to this information? Should we be relaxed if 'can't pay' means 'can't know'? ...

there is a debate here about two kinds of fairness. There is the fairness of ensuring a level playing field for players in a commercial market. And there is the fairness of the distribution of information and knowledge to all who need it, irrespective of their material circumstances ..."

The reason for highlighting these statements in particular are because they allude to a more fundamental problem, not directly (but indirectly) mentioned, which is the demise of proper responsible journalism, and its increasing replacement with sensationalist / celebrity news reporting (e.g. headline grabbing) ... as highlighted by Jeremy Paxman as well in the 2007 James MacTaggart Memorial Lecture entitled "Never mind the scandals: what’s it all for" ... as well as Peter Sissons recently, whilst referring to the lack of unbiased journalism in the BBC with regard to climate change ...

Comment Added to Robert Peston's blog.

The Writing's on the Wall ...

I was interested to read an observation made by a fellow blogger (writingsonthewall) on Robert Peston's blog (post 60), referring to where the current slight up-turn in house prices comes from ... and what we are yet to face (e.g. 'capitulation' & 'despair') - it chimed with a number of people reading the blog and with much of what I've been saying here too ... so I thought I'd summarise his comments here too ... and link it to my previous post ...

"... you can listen to all the optimism - or you can prepare for the worst and be pleasantly surprised if the worst does not happen. This graph (included below) beautifully explains where the mini-boom comes from. It's for the housing market but it applies to all asset bubbles (and we are currently moving towards 'return to normal') ..."

As pointed on in my last post, wealth manipulation 'transfers' wealth (e.g. share dealing, loans, mortgages, debts) ... whereas wealth creation is achieved by 'providing value' which 'creates wealth' (e.g. products, services, shelter ...).

House prices are starting to stabilise/go up again slightly (e.g. in the UK), partly as we've been building too few houses for so many years (nb a lot of projects have virtually stopped now too = i.e. we've stopped creating any more value - i.e. real value/wealth!) ... and partly due to the low interest rates at the moment (NB the gap between the rate at which banks now lend money compared with the Bank of England rate itself).

However asset (house) price inflation is arguably not what most hard-working families should be looking for ... as it simply means our children, and our children's children become forced into taking on more debt (and effective poverty/stress), for more of their lives (just to pay for a roof over their head) - so that the bankers/landowners can benefit from this more.

A reality check is due (as highlighted in the graph) and this hasn't happened yet ... but it will and the whole 'illusion of wealth' will go with it, alongside the current 'political' and 'economic' system ...

This will be further exacerbated when people realise that the politicians have effectively colluded with the bankers to take the future health, wealth and prosperity away from our children, and children's children (paid off in future debts/taxes), due to the colossal bailouts of the banks (who have made billions, have personally pocketed millions, and who are now doing exactly the same thing again - and all at our expense, and not from 'creating wealth', but by 'manipulating wealth!).

History says change will happen, and with the advent of the internet now, it's likely to occur in many different ways ...

Wealth creation vs Wealth manipulation

In this blog I've been discussing the 'battle of the future', a 'battle' that 'transcends nations' - a 'battle of values' ... and as the 'illusion of wealth' now evaporates, and as our current 'leaders' dis-regard the future of our children, and our children's children (to try to prop up a 'failed system' for a few more years), the battle will become ever clearer ...

And I define this 'battle' in a very simple way ...

Leanomics vs Poweromics & Ignoromics

where ...

* Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

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

* Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

and where Poweromics and Ignoromics are 'partners in crime', which arguably describes the prevailing 'values system' and 'economics' we have today. But in the 'battle of values' ahead there is also another 'battle' we will face too, and that is the one of ...

Wealth creation vs Wealth manipulation

... for instance take a look at my reply (Post 71) to a great post on Peston's Picks ('who'll be shot when banks misbehave') below ...

"I agree with much of what Post 61 said, and particularly the following ...

"... the solution does not lie in tinkering with the norm, or fiddling around the edges - the solution has to be to dump the system which forced public money to be used to bail out the banks ... The solution is simply to get off your backside and overturn both the political and economic system. I can't tell you what the result will be - but it's no good moaning about it unless you are prepared to do so ... Every other solution is simply time wasting ... New regulation will not resolve it - hanging bankers from bridges won't resolve it - changing the Government from red to blue won't solve it ..."

IMHO we also need a 'new values system' - one that rewards 'value creation' & 'wealth creation', instead of 'wealth manipulation'. The latter of these often destroys 'value' (and 'overall wealth' too) and hence this should be made far more difficult to do and arguably be taxed far more too ... but therein lies a problem, the people in 'power' will fight tooth and nail to maintain their grip on 'power' so they can continue to 'profit from it', and from 'wealth manipulation' (e.g. bankers, politicians) - supported by laws introduced to help create this environment and to maintain it into the future too (nb as post 64 pointed out above all these laws fail to challenge, in any effective way, all the unethical practices being carried out by themselves).

The internet will change everything eventually, including 'power', 'politics' and 'economics' ... and the real 'battle of the future' is a 'battle of values' that 'transcends nations' which will continue to accelerate as 'times get harder', 'understanding grows' and 'apathy reduces' ... (which is arguably what 'current leaders' are really getting worried about ... hence all the knee-jerk reactions we currently see to try and delay this for a few years more).

IMHO there are interesting times ahead ... history tells us change will happen, but with the arrival of the internet change is likely to happen in very different ways ..."

NB there are a great many other insightful comments on this blog too ... and I would recommend reading it ... as the comments show us the 'future battle' is becoming ever clearer ... and take a look at this equally relevant blog too ...

Why Bankers aren't worth it ... and Government is failing

Robert Peston posted a great post on his blog today, entitled "Why Bankers are not worth it", which refers to a speech by Andrew Haldane (the executive director of Financial Stability at the Bank of England), entitled "Small Lessons from a Big Crisis". In particular Haldane looks at the returns generated by UK banks and financial institutions since 1900, to see whether shares in the financial sector have performed better than the market in general.

What this shows is that from 1900 to 1985, the financial sector produced an average annual return of around 2% a year, relative to other stocks and shares. So for 85 years investing in bank shares was "close to a break-even strategy", nothing special (and very much like a utility).

But in the subsequent 20 years, from 1986 to 2006, returns went through the roof: the average annual return soared to more than 16%, which was the best performance by financial-sector shares in UK financial history. And it's no coincidence that the pay of top bankers also zoomed up to the stratosphere. Which at the time upset only a few, because the bankers seemed to be enriching the owners of the banks, their shareholders (millions of us through our pension funds) ... but did they earn it?

Additional observations made by Handlane and/or Robert Peston include:

1. The collapse of banks' share prices in the past two years has wiped out most of those gains. What this means is that in the full period from 1900 to the end of 2008, the annual average return on financial shares was less than 3%, almost identical to the market as a whole. Which is what common sense would predict should have happened, since banks are to a large extent a utility, serving the needs of the wider economy, and its difficult to see how banks in general can therefore grow significantly faster than the wider economy.

2. Were top bankers much more brilliant than their predecessors between 1986 to 2006 such that they deserved disproportionate rewards? Haldane answers this question by breaking down banks' return on equity - the return generated on ordinary shareholders' capital - into its two component parts, which are the return on gross assets and the leverage employed by the bank.

3. If you want to know whether bankers are particularly skilful, you have to look at the return on gross assets. If one bank earns consistently bigger margins on the loans and investments it makes, that tells you it is probably doing something cleverer than its rivals.

4. By contrast, leverage - or the ratio between a bank's gross assets and its stock of shareholders' equity - is the Las Vegas part of the return on equity, the contribution made by a punt or a gamble.

5. The important point: for any rate of return earned per unit of a bank's gross assets, the return on shareholders' equity rises as the assets-to-equity ratio rises - or, to use the jargon, as leverage rises.  Increasing leverage is a simple and automatic way of increasing returns to shareholders and there's nothing terribly clever about it.

6. Maximising leverage is the equivalent of buying a house with the maximum amount of debt: it looks like an awfully smart thing to do when everything's going up up up, but is the fastest way to lose money when the economy turns.

7. Haldane found that (since 2000) the rising leverage fully accounts for movements in UK banks' ROE [return on equity] - both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008. In other words, in the seven years before the crash, British banks' bumper profits were in aggregate generated wholly by a massive increase in leverage by the industry: and in Haldane's view, these would be returns generated by gamblers' luck (the jackpot from the roulette ball landing on black) and we all playing the price (because the Government couldn't allow then to fail because of millions of people's savings), in the form of the worst global recession since the 1930s, now the bankers' luck ran out (when the wheel spun to red) ... ie it was nothing to do with skill or ability.

8. The overall level of bankers' pay was inflated over the past few years by the rewards they scooped from the leverage gamble, not due to their skill, hence the title of his post!

Robert Peston went on to discuss ways of preventing bankers from repeating these reckless gambles again ... eg i) cutting to a level commensurate with an industry that's closer to a boring utility than to a wealth-creating, entrepreneurial venture [NB This has not happened yet. In fact, if anything, bankers are pumping up their pay packages again], ii) Regulators imposing a legally binding maximum - and at a relatively modest level - for the ratio of a bank's gross assets to its equity, the leverage multiple, to restrict bankers' freedom to gamble. iii) Owners of banks should be very cautious indeed about rewarding bankers for the returns they generate on equity, and should focus rather more on the returns earned on gross assets. iv) Introducing 'moral hazard' into banking to persuade bank chief executives and employees that they'll really suffer personally if they place reckless bets that go wrong.

 

All are good ideas, but there's more to it than this, as Brown and Darling have a great deal to answer too. It was they who created the non-robust tripartite approach to regulation, to 'profit' from it and increase public spending ... for instance take a look at my comments (and others on his blog too) ...

 

 

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Post 156 (Leanomist) wrote:

 

A provocative article, some good insight and some great comments - my joined up highlights (and a few of my own comments) include:

 

1. Wee-Scamp wrote:

"This is a good article but I also think we need to look at banks, their leaders and their shareholders in the context of what they achieved for the country ... In the UK's case their activity did huge amounts of damage to manufacturing, slashed the business birth rate, pushed house prices through the roof, created record household debt levels, created a record trade deficit and so on and so forth ... "

 

2. BankSlickerminustheR wrote:

"This is just fraud on a massive scale...but who will grow some cajones to go after these banksters and start prosecuting these vermin ... The discussions on regulation reform are shaping up to be a complete whitewash ... We have been soft soaped and shafted by The City ... and they are being given carte blanche to do it all over again! GIVE US A NEW GLASS-STEAGALL (EQUIVALENT) LAW - NOW!"

 

5. John_from_Hendon wrote:

"The other critical element in the explosion of the 'fake' returns of banks was to permit asset price inflation to be seen as a good thing (which of course it is not, and has never been, and if we are to get a recovery this must be fully understood). This was achieved through successful lobbying of the banks and their economic friends educated in institutions which themselves became dependent of the finance sector (See Harvard) to have mortgage costs and house prices removed from all inflation indices (these indices being used to measure the effectiveness of monetary control) This was insane and inevitably led to the collapse in the price of money, which itself let to the 'necessity' to loan this worthless money to less and less creditworthy customers on poorer and poorer security which let the CDSs and CDOs etc. etc. which led to the global collapse ..."

 

72. At 12:42pm on 03 Jul 2009, stanilic wrote:

"...In the light of what you describe one can only ask what were the regulators doing whilst all this was going on? It was not as if there weren't enough of them under the new Tripartite system introduced in 1997 by you-know-who. Was there a sub-text at that time nobody noticed as looking at current circumstances I doubt very much if you-know-who had the ability to think it through on his own?

So we have bankers cutting and shutting debt instrument thanks to deregulation, massive development in computing power, mathematical modelling and a perception of a new paradigm. Talk about The Bubble as it was once known.

More significantly we also have governments using this explosion in presumed wealth to expand the base of the state into all parts of the economy and society on an assumption that the government cares. Inevitably government will not regulate the bankers too hard as they too became dependent upon the money. So we now had a Double-Bubble.

Both of these events at the time pushed the remainder of society into a cul-de-sac where we were left to live of the remains of the feast. It became very difficult to create commercial value in real terms because the rate of return on investment was vastly inferior to what could be got from The Bubble. So we lost a million manufacturing jobs.

Now that the Bubble has burst we remain still at only the start of the new times. The state is a bloated shell that needs to shrink in size. The banks want life to continue as before: well they would wouldn't they? And the political will to move on is just not there.

The real economy once discarded as too cheap and too poor is now underpinning the lot. The balance of power in the economy has changed; but nobody has noticed yet.

At least the bankers got their new paradigm: it is not the one they expected but then they never are. Time to change and change big because (old cliche coming round the bend) those who refuse to learn the lessons of history are doomed to relive it.

The public are in a hanging mood because they understand times have changed but those who say they are our betters have not and probably cannot. Time to encourage the others, methinks..."

 

125. ExcellenceFirst wrote:

There was me thinking that just a little bit of reality was seeping into the public consciousness, and that maybe, just maybe, we were getting towards the stage where we could start to put our intellects together and devise an appropriate way out of this mess which is of our own making - all of us ... And then I read the comments to this post, and with the notable exception of stanilic (above), everyone's come to the conclusion that the independent decisions of banks and bankers are wholly to blame for the situation we are in. It will never cease to amaze me the power of the establishment to mould the thinking of people into whatever shape it wants. Absolutely unbelievable ... So the reality is that we still can't make any progress in sorting ourselves out, because, other than a handful of people, everyone is heading off on a mental wild-goose-chase. At the end of which we will end up with reams and reams of "action" none of which is remotely close to addressing the issues that need to be addressed ... O brave new world that has such people in it..."

 

144. ExcellenceFirst wrote:

"I think we should start by reacquainting ourselves with reality. And top of the list would be the criminalisation of using deception for advantage. So goodbye most advertising, promotions, public relations, marketing and spin. Communication becomes genuine and honest. Making progress as individuals requires us to do things better - and not to waste time and effort to work out more and more convoluted ways of describing what we actually do as being better than that which it replaced.

 

The point is that we will have to do this sometime, and sometime soon. There will come a time when so many people refuse to believe a word they're told about anything, that government of the country becomes impossible. We're moving ever closer..."

 

==========================

 

And my observations:

 

It is amazing to see the Government (Gordon Brown and his Darling) focus on blaming the banks, when it is they that introduced the flawed/ineffective tripartite system of regulation, which allowed lax regulation to prosper so they could build up the economy (and hence public services) based on the 'short term economic bubble of profit" that resulted - and all at the expense of the real economy! Shame on them - and all who allowed them. Given Gordon is supposed to be a religious man - perhaps he should re-read the ten commandments and scriptures related to money lenders.

 

 

David Clift, a Future 500 Leader

 

PS Contrary to popular belief, Brown and Darling are not dealing with the crisis - They want to maintain the tripartite system and Darling is now having to 'plead with the bankers' not to start the bonus culture all over again e.g. take a look at http://news.bbc.co.uk/1/hi/business/8131898.stm (and http://poweromics.blogspot.com for a wider perspective too ). They created the problem, refuse to acknowledge this, and are failing to fix it too (and people allow them to).

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