Monday, June 2, 2008

A nasty post mortem of modern banking

The gods of greed

It goes without saying that those responsible for the speculative bubble of early 2007 could not conceive that one day it would burst. That was where the arrogance kicked in. The super-heroes of the New Olympian order were the brightest and the best of their generation. Their activities were making massive profits, a good chunk of which were being paid out in seven-figure bonuses that kept property markets humming in the Cotswolds and the Hamptons. Could they really be guilty of crass stupidity? Even when cracks did start to appear, the New Olympian class managed to blame everyone but themselves.

Posted by quiet guy @ 02:18 AM (731 views)
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12 thoughts on “A nasty post mortem of modern banking

  • Charlie Brroker says:

    Its all very well articles like this being published but when are the culprits so mentioned going to be punished for their plunder and damage?

    Until such a day, this sort of writing just pays lip service its readers and a tidy fee to the authors.

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  • Brilliant article. A must read for all of us. But which party will save us from these tyrants? New Labour, the supposed party of the left, is in thrall to these demons. The Tory party have proffered no opinions on the matter. Only the Lib Dems, with the financially astute Vince Cable, have the right idea. Could they win the next election?

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  • I weep for joy! I dance in the street! I take my shirt off and embrace Mrs Panda! MORE BRANDY! MORE BAMBOO! This is WONDEFUL!

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  • it_is_going_with_a_bang says:

    Could they win the next election.

    erm … No is the answer to that. I think you know that anyway.

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  • Terrible article.

    http://ftalphaville.ft.com/blog/2008/06/02/13488/fat-myths/

    The Guardian today runs an interesting fable in G2: The gods of greed, by the paper’s economic editor Larry Elliott and his former colleague, Dan Atkinson, now at the Mail on Sunday. Like all legends, it’s heavy on the moral narrative, short on the fact.

    If you can get hold of the print edition do – replete with illustrations, it’s a Dantesque vision of huddled proles worked dry by the morbidly obese pin-striped brace-wearing slave-drivers of Canary Wharf.

    For what it’s worth, the article weaves together all the popular myths of the current financial crisis into a pacy yarn. Individual errors of fact aside (French bank BNP, unlike Bear and Rock, is doing just fine, merci bien) there are nonetheless a couple of larger tears in the fabric.

    Firstly – on the bailing out of banks. Messrs Elliott and Atkinson draw a stark comparison: how is it the UK government will so readily bailout the banking sector when it is at the same time, so viciously against “bailing out”, for want of a better phrase, the poor. Sic. welfare is the scourge of modern British politics, so why isn’t the BoE’s SLS?

    Elliott & Atkinson don’t seem to have considered, however, what might happen if the banks weren’t “bailed out” (never mind, for now, subtleties such as the fact that the SLS is a loan facility, whereas a welfare cheque isn’t). A banking collapse would plunge a lot more ordinary folk into penury. And even if there weren’t any more collapses, without the SLS, banks would in the best scenario, be even less willing to lend. The economy would stagnate, the collapse would be worse: far more “ordinary” businesses would bust. The “bailout” is not for the banks, and the BoE only stepped in when it became clear that the real economy would suffer hugely if nothing else was done.

    Similarly, the authors criticise the Fed’s bailout of Bear Stearns:
    Over the weekend of March 15 and 16, America’s central bank, the Federal Reserve Board, launched a rescue for Bear Stearns, the country’s fifth-largest investment bank. To smooth a takeover by JP Morgan Chase, the Fed assumed up to $30bn (£15bn) of Bear’s more doubtful assets. Were this act of corporate welfare not sufficient, the Fed also announced that it was to provide emergency liquidity to the market. For good measure, it cut interest rates.

    The act was, of course, unprecedented. The Fed has let plenty of institutions fail in the past. There’s little probing, though, from Elliott and Atkinson about why Bear wasn’t similarly left to fail. Never mind then the fact that a Bear failure could – not to put to fine a point on things – have brought down Wall Street and with it, almost certainly precipitated a general financial collapse. Was the Fed, then, “bailing out” Bear? No, $2 a share can hardly be called so. And even $10 a share meant Bear’s fat cats lost a fortune.

    The second broad sweep of the narrative deals with the “New Olympians”. This is a more persistent myth, and more difficult to pin down. It’s the argument that the entire current financial crisis is the fault of greedy, careless, tax-exempt fat-cats. No doubt that’s true in part. But forget-not also what underlies the whole crisis: mortgage debt. Cheap mortgage debt. Debt which “ordinary” people have had a ball on, for the past five – if not ten – years. Let’s not excuse ourselves so easily from this bubble and its pricking. That debt – notwithstanding tales of hapless pensioners and subprime single parents – wasn’t forced on us.

    And that really, is the whole problem with whinging about capitalism. For all the complaints about bankers bleeding us dry – smoking cigars while we work the treadmill – we still hungrily consume the fruits of the system. Not just cheap mortgages, but consumer products of every hue. All this talk of “mountaintop” meetings and private jets is utter fantasy: “The fault, dear Brutus, is not in our stars, but in ourselves.”

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  • The Olympian gods frequently bickered and quarrelled. During the Trojan war some were on the side of the Greek tribes, others on the side of the Trojans. Once Zeus (pro-Trojan) and Hera (pro-Greek) had an almighty row about the conduct of the war and a hush descended on the great hall of the gods. Then Hephaestus, the fire god, stood up and handed Hera a double-handled goblet of nectar. “We gods must not come to blows or there will be chaos and our banquets will be sent crashing – all for the sake of mortals”, he told her. Nothing’s changed.

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  • letthemfall says:

    A timely article. Will it be recognised in Govt circles that the notion that the CEOs and financiers create vast wealth and therefore deserve their vast rewards is an odious lie? We are witnessing huge destruction of wealth, presided over by a Govt that has naively allowed it to happen. As to who will win the next election, what difference will it make? The Conservatives share identical attitudes to this Govt. The Lib Dems will never win. The best we can hope for is a hung parliament, where the very few wise and brave politicians, Vince Cable being the foremost, have an opportunity to exercise some power. Depressing isn’t it.

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  • letthemfall says:

    James

    I don’t think the authors are suggesting the banks should not have been bailed out. As you say, collapsing banks, which might otherwise have happened, would be economic disaster. And it’s true that people’s ignorance/cupidity/stupidity have played an important part in this shambles; but the big money men are the most culpable in my view, and, worst of all, it would seem they are not being brought to account and are unlikely to be in the future. The most important question is how much all this will cost the taxpayer.

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  • ltf – the comment is from FT Alphaville (see link) but I do largely agree with it. As for bringing the ‘big money men’ to account – for what? Supplying credit to those who desperately wanted it? Credit’s not illegal! If you want to regulate it in future because you find it distasteful – that’s one thing – but no laws have been broken here.

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  • James – use an admin password so that people can respond before the post scrolls off the page.

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  • icarus – I try and keep as much of my personal information private as I can, so don’t want to sign up. Re posts scrolling off the main page too quickly – they’d also be slowed by people following the site’s own guidelines and not posting multiples / articles from rubbish sites like prisonplanet, etc..

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  • letthemfall says:

    James

    It may be true that no laws were broken – although that may turn out to be a fine line – but the bankers have done a very bad job. They pedalled and missold credit and caused a financial crisis. One cannot blame the man in the street for that, however foolish they may have been. The financiers should be made to answer for their bad and reckless decisions, and where appropriate made to pay with their jobs (preferable without a huge severance).

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