Good Riddance to Bad Rubbish

Diamond gone, Agius gone, del Messier gone, so long and we won’t miss you. In Poplar, we would have said “good riddance to bad rubbish”. Mr Diamond earned more than £20 million a year and only now do we know what you get for £20 million a year in the banking industry. Mr Diamond has left the bank he loved. Whether he will be compensated for his sins remains to be seen. The scandal is just beginning, not ending and the chickens have yet to come home to roost; piece by piece most of what actually happened with LIBOR fixing will unravel.

The scandal leaves our banking industry, born as a giant casino following the deregulation which was created by Mrs Thatcher’s “big bang”, as no more than a device for picking the pockets of their customers. The levels of banking service have now reached record lows as the banks are trying to cope with irate customers’ complaints, compensation claims and working with computer infrastructure that has not had the kind of expenditure (in relative terms) that the bank “invested” in their top executives’ pay.

The bank staff must be terribly demoralised by the recent events. It is not good to realise that you have been working for a bunch of crooks. The business managers and the bank have become villains which make estate agents and journalists look good, and that is quite a feat to achieve.

The scandal damages Britain, where banking (or the gambling side of it) is a big part of our economy. It seems inevitable to me that the banking industry will decline as regulations bite deeper and harder than they have bitten for thirty years. One definition of intelligence is learning from experience. The nation must learn from this experience and change the ways of the bankers, who are so reluctant to change their own ways themselves.

Many blame greed for these events but I think that you have to look further than greed, which is a common human trait. Greed only provides fulfilment when there is an opportunity for greed. By deregulation, failing to police and by using devices of incredible complexity beyond the understanding of virtually everyone outside banking and hedge funds the system has provided great opportunities for greed and for skimming money which were not previously available.

We need to get some reality in banking. This means drastic action. There are four ideas I offer

1. Outlawing future commodity and currency trades for which there is no commercial purpose

2. Outlawing the sale of derivatives except to high wealth people and corporations that are using their own funds without leverage.

3. Limiting the leverage that banks can employ.

4. Requiring the banks to break up into smaller enterprises. They are too big to police as well as too big to fail.

I am not a banker and it seems to me that others will think of even more ideas that can prevent this scandal from happening again, in a different form. If my ideas are put into practise, the number of banking transactions will decline drastically and with that the number of people employed in banking, mostly those who supply support rather than those who deal the transactions. Many jobs will be lost. That is a natural consequence of creating jobs founded upon gambling with other people’s money. Unfortunately, it is inevitable.