A lot of bad stuff seems to happen in and around banks – PPI miss-selling, LIBOR-rigging, overdraft-charge gouging to name three recent megascandals. When they are found out, billions of dollars are routinely paid in fines. And the striking thing is that unlike scandal in other industries, in banking it is not single institutions, but many caught in the same act. Is it collusion? Systemic? Genetic? So it was with the 2007/8 financial crisis (which I shall call the ‘Bankers’ Crisis’), the juggernaut of all scandals. Many players contributed to it, and when it morphed into a systemic monster of course the taxpayer had to foot the bill. The consequences are still being felt – but by the wrong people.
1. The bankers caused it yet not one senior banker has been brought to book
‘A fish rots from the head down’, the saying goes – which is biologically questionable, but we know what it means. People in the top jobs, getting the top salaries and the mega-bonuses, set the tone for the institutions they lead. All that money is paying for skill and responsibility. Given the size of the mess, you have to question the former. As for the latter, why is no-one in prison? It might sound naïve, but surely we could have got some fat-cat for something, somewhere in this enormous stit-shorm? Surely? In Voltaire’s Candide the execution of the British admiral following the loss of Minorca is explained thus: “In this country, it is wise to kill an admiral from time to time to encourage the others”. That’s what I’m talking about; but without the actual loss of life, natch.
The only senior banker, that I know of, facing criminal charges is Barclay’s John Varley, for stuff he is alleged to have done in a (successful) attempt to avoid taking a taxpayer bail-out. Now, call me crazy, but really? He’s the single one we go after? Is this man not a (comparative) hero?
2. It cost taxpayers (i.e. us) $1 trillion globally
A trillion is a thousand billion; a million million. $1,000,000,000,000. Ok, I saw this suspiciously round number in an article by the immensely well-read Dan Hannan but cannot find the source. In looking though, I came across a 2014 IMF paper putting the accumulated cost at $21 trillion in terms of increased G20 government debt alone. However you look at it, it’s quite a lot of money. Who are the taxpayers? Oh, that’s right, you and me. Who will have to repay the debt? Our children. (I told you we should still be angry).
3. …plus lost GDP (forever)
I once called myself an economist on the shaky grounds that this was what I studied at university. I quickly stopped calling myself that, long before the ‘profession’ brought shame on itself by completely failing to foresee the 2007/8 Bankers’ Crisis. But this one is an economist’s point: The Bankers’ Crisis cost not just a huge loss of taxpayers’ money, but also a recession. This is not just a temporary loss of economic growth but a permanent loss of income. Imagine a graph with a line heading up from left to right – national income. Imagine a second line, with a downwards kink in it, before it starts going up again. The area under the first line equates to what the national income would have been without the recession. The area under the second line is the smaller national income, thanks to the Bankers’ Crisis. The difference between the two is income forever lost. OK, I said it was an economist’s point – but it’s billions more not in the pockets of the working, taxpaying citizen.
4. It caused austerity
In the UK we are uniquely dependent on services, especially the financial sector. The Germans manufacture cars and other environmentally ‘problematic’ products made from minerals and hard, cold-rolled things. We Brits make things so warm and soft they can mostly be squeezed easily down an internet cable and pop out virtually (ha!) anywhere. Advertising, accountancy, law, music … and Collateralised Debt Obligations, their new ugly sister Collateralised Leveraged Loans and other bankers’ sorcery. The importance of finance is why the UK was hardest hit of all the major economies by the Bankers Crisis. What the IMF called ‘Upfront Government Support’ for the banking sector in the UK was equivalent to 19% of national income. The average for other countries was under 4%. If you look at a graph of our national debt over the last 15 years it looks like a Nike tick with the inflection point around 2007. That’s why Mr Osborne (remember him?) felt he had to impose the ‘austerity’ we still feel today.
Yep, you can blame the Bankers’ Crisis for the mountain of debt, the slow growth, the higher taxes and the closed library, youth centre, swimming pool. Meanwhile nobody important went to jail and Wall Street bonuses continued to be paid throughout the crisis and are now higher than ever.
Are you angry yet?