Published on 31 Jan 2012

Deleveraging, not de-honouring Mr Goodwin is the real issue

Let me list 5 things off the top of my head more important than Sir Fred losing his knighthood.

1. RBS is missing its targets to lend to small business, and Project Merlin, in general, has not worked in supplying more credit

2. Why has there been no independent report into the failures at HBoS? We might as a nation, in splenetic rage at essentially the failure of the Scottish banks, be learning entirely the wrong lessons about the future of this controversial but undoubtedly lucrative industry.

3. The combination of bonus tax, levy, gold-plated capital and liquidity regulations, bonus witchhunts makes our banks more sensitive to their shareholders urging a move.

4. The UK bank reforms are being seen as a poster child for “deglobalisation” of finance, or a desperate attempt from countries around the world to repatriate capital.

5. Stephen Hester’s strategy of trying to trade RBS out of its troubles using huge investment bank profits, which worked, briefly, is not working any more.

I have two sources for my cynicism. Why now? Amazing that it pops up during bonus season. First bankers lose their bonuses, then their knighthoods, perhaps tomorrow one of their limbs. And then the use of the word “symbolise” by the Chancellor and the likes of Lord Oakeshott. It’s all too suggestive of an attempt to communicate having done something about a problem without a root and branch look at the causes of the problem. It is narrative-based politics, but actually without a great deal of substance. It’s an easy hit. A ritual sacrifice to appease public sentiment, and possibly distract away from the contracting economy.

The bigger picture here is that the entire political class is struggling right now with the border between the state and the British banking system. Far more important than de-honouring, is de-leveraging. Project Merlin has come to an end, I am told by senior bankers, and some banks have smashed their targets, and others have missed them. All will be revealed in the upcoming bank results season.

The Treasury has promised us Credit Easing, government guarantees of small business lending, but the mood music from UK banks in Davos is that they are not yet convinced it can work. The lack of credit, confidence, and investment is the prime cause of the jobs crisis emerging in Britain, and of course the fact that the economy is shrinking and possibly in recession.

So the really tough question here is whether, as suggested by the Bank of England’s Adam Posen, RBS is fated to become a vehicle for state-directed lending. When Adam Posen is ridiculed, there’s normally a time lag of about a year before his Japan crisis-influenced ideas become official government policy. Frankly, the knighthood, and the Hester bonus are third and fourth order. It is a radical idea. Politicians are scared, mainly, I would say, because they are terrified of getting blamed. Yet they have started to interfere on bonuses. They have taken a couple of steps down a rather slippery slope.

We are always told that getting back the £45 billion taxpayer investment in RBS is all that matters. That incentive is hard-wired into UK Financial Investments ownership strategy. Perhaps it would make more sense for us to risk losing some of that 1-2 per cent of GDP, say, with an entirely different strategy to boost, say SMEs.

The real lesson of this bank bonus season may well be that with its state-owned banks, for the economy’s sake, the government needs to be far less arms-length, and far more strong-arm.

10 reader comments

  1. Vindice says:

    Another pro-banker article by the Channel 4 News Team. Bravo guys! Good performance! That’ll teach the poor who will be paying off the debts of these cretins for the next two decades. That’ll teach those odious public sector workers who, through no fault of their own, are being forced to work longer and accept unfair pension cuts. That’ll teach those horrible kids to care about pursuing their dreams of a better and more equitable future. Excellent!

    I absolutely understand Faisal’s position. Working in close quarters with some of the world’s greatest criminals is a difficult task. It requires constant self-effacement and the ability to place all attempts at social justice on hold. Failing that, it requires that journalists become taken by a form of Stockholm syndrome – to agree with the commands of those who bear nothing but contempt for the great majority of upstanding citizens. It is a tough job.

    I agree that systematic reform is required – root and branch reform in fact. But I do not spare a single tear for those who have committed daylight robbery and who continue to live in up in the face of easily reversible social decline. And neither should any decent reporter.

  2. UKFInotFFP says:

    New Gov e-petition urges UKFI rethink: epetitions.direct.gov.uk/petitions/28557

  3. Pkobi says:

    This is the Stockholm Syndrome writ large Faisal. Although Goodwin’s gong has the stench of politics, it sends a message to those in the private sector: “YOU CANNOT EXPECT BUSINESS AS USUAL”. For us mere plebs “symbolism” is important because for those without any influence and power it is the only morsel from the table of the elites. The private sector banks got us into this mess, and shifted the risk onto the public sector to survive, while monetarist economists and their media friends have perpetuated the lie that it is all the fault of the public sector. While other measures – lending to SMEs, restoring the normal monetary transmission mechanism, reducing balance sheet risk, deleveraging – are important, so is the seemingly soft measure of stripping Goodwin of his gong despite the odious politics that goes with it. Ideally it should have been done years ago. With ego a prime factor in a chief executive’s decision making process, knowing that a gong can be removed if you take the p*** will make some of these bankers think twice about trying to take reckless risks. The public is swallowing a bitter medicine while bankers & their apologist friends deny it’s they who need…

  4. Philip Edwards says:

    Faisal,

    Either you just don’t get it or you are becoming just another bright eyed economist gauleiter with reverse binocular vision, a mere money technician.

    It isn’t a question of capitalist “banker targets.” It is a matter of a more equitable society and a system with a social conscience.

    As for Goodwin and his public school mates….they wouldn’t know an honest living if they tripped over it on the way out of a Canary Wharf wine bar. To hell with them.

  5. Anna says:

    How is this pro-banker? It’s merely anti-pandering to the mob. I hope this non-story about the knighthood is off the news as quickly as possible and, as outlined above, more important issues replace it in the lineup. It’s a political gesture that has nothing to do with implementing any actual reforms. Good list.

  6. Fordy says:

    I think Faisal is right on point here. If you really think that some tabloid style “justice” is going to prevent this slow motion car crash from happening again in the future you are living on a different planet.
    We’re preoccupied with bonuses and bogeymen bankers because they offer us a warm fuzzy feeling that we’re much better people than those city scumbags – well done us!! Admiring the view from the moral high ground isn’t going to fix anything though.
    Intelligent dialogue, listening to some of the ideas on the table from the likes Steve Keen, and some pragmatism would be a better starting point.

  7. Philip says:

    It’s all flim flam anyway. Faisal is right – if we own the damn bank, perhaps we should be MAKING it do what we want – to get the economy going through investement rather than hoping if we leave the bankers to their own devices the share price will rise (in the middle of a global slow down/recession – some hope!) so we can sell the taxpayers/ shares. And why does anyone think we taxpayers will see any “dividend” on our shares if/when they are sold at a profit. With this Government, they’ll either go into vanity projects like HS2 or tax cuts for the better-off.

  8. pierregonzalez says:

    You have laws about Medical Negligence.
    Yo have laws about Corporate Manslaughter.
    Why can’t we have laws about Corporate Negligence ?

  9. TNA says:

    Goodwin can keep his gong, I just want my money back….

    Everything else is just noise.

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