On Catching Up

I don’t tend to follow the news much on holiday. Anyway, while I was away and since I got back to the UK, various things have happened.
To take a few. The Bank of England has cut base rates from almost nothing to a bit
less. This means our pensions, which were unaffordable, are now
slightly more unaffordable.
The Government has this summer decided, as a consequence of a vote the
result of which the majority of the country now regrets, that any
attempt to bring the country’s finances into balance is no longer
worth attempting. See the above, re pensions.
A hospital in Grantham is no longer offering a 24 hour A&E service. Not, not enough money, but not enough doctors, however much we are prepared to pay them.
Spending on the NHS is rising by 1 per cent a year. The amount that
needs to be spent, because of our ageing population and our refusal to
stop eating ourselves to death, is rising by 3 per cent plus. This is
going to end how?
A review of the banking system which has run for several years has
come to the conclusion that there is nothing much wrong with the banking
system. The man responsible was on R4 Today defending this conclusion.
Not terribly well.
Nothing that has happened over the past decade would lead one to the
conclusion that there is anything wrong with the banking system,
would it?
The Government has decided to delay the decision to build new
electricity capacity that will be desperately needed in half a decade because it
is always easier to delay a decision than to take one. As it happens,
I think that new Hinkley Point plant is the wrong solution to that
problem. But to solve it, we have to decide to do something. Not
nothing.
This means the lights will start to go out about when the country runs
out of money and the pensions of people now nearing retirement prove to be inadequate. That will make for an interesting couple of months, won’t it?
Oh, and staff on Eurostar are going on strike over the Bank Holiday, thereby
screwing up any number of people’s summer holidays. Their reason? With no sense of discernible irony, they are unhappy about their work/life balance.
Welcome home.

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On Firefighters, And Bankers

Ping! There arrives a message from the Fire Brigades Union, whose New Best Friend I appear to be. People like firefighters more than they like police, scientists and engineers.

Fellow journalists will know the deadening feeling when yet another survey from a professional body hits your in-box. They fit into two categories, the self-serving and the bleedin’ obvious.

“Western civilisation to collapse if vets’ fees are not immediately doubled, according to research commissioned by the Veterinary Association.”

“Majority of people would prefer to pay less for their groceries, according to survey from Consumers’ Association.”

The news that firefighters are more valued than bankers, who end up at the bottom of the list, fits neatly into the second category. People who stop your house burning down are likely to be more popular than people repossessing it. Yes, I can see that. Nothing about journalists, though.

On Grexit – A Contrarian View

I have been writing about Greece for some time now, on and off, and I am still not sure I have grasped what all the fuss is about. We are told that Grexit, the departure of the country from the euro, might be followed by some unimaginable catastrophe that could shake world financial markets to their foundations.

No one has quite explained what it might be. World stock markets have been tumbling. Even Monday’s collapse on Chinese markets was being blamed in part on Greece, a country of ten million people a large continental landmass away. Rather than China’s unsustainable asset bubble, as unsophisticated investors have borrowed billions in the hope of striking it rich buying fantastically expensive tech stocks. (Sound familiar?)

If Greece exits, what happens? I am told the event would send shockwaves through the world economy and destroy confidence. Again, given it seems a foregone conclusion, no one can quite explain why.

The obvious consequences would seem thus:

A loss of face on the part of the unelected Brussels autarchs who put the euro together in the first place, on the assumption that no one would ever want to leave. Too bad.

A hit on European banks that were foolish enough to lend to Greece, the main reason the whole affair has been dragged out for so long. UK banks’ exposure is limited, and often in areas such as shipping that will continue regardless of what happens to the Greek economy. Those European banks are in far better shape than they were four years ago, and more capable of taking the hit.

Little real pressure among other southern European countries to quit. The likes of Spain, and even Italy, are likewise in a rather better place than they were three or four years. Their bond yields, the amount they have to pay to borrow, reflect this and are at historically quite low levels. They would not be if anyone seriously thought they could follow Greece of the door.

The collapse of the Greek banking system. Widespread social disruption and suffering. Probably the need for some sort of international aid package – as opposed to more debt. Desperately regrettable, but with Greece accounting for less than 2 per cent of EU GDP, again, little relevance outside.

The loss of the bulk of savings held in those Greek banks, both from their collapse and the sharp devaluation in the successor currency, the drachma, against the euro. Imported goods will become horribly expensive, while Greece only produces two things, food and tourism. For the social effects, see above.

Tourism, though, will suddenly become much more attractive to outsiders, who will bring in hard currency, though Germans might consider going elsewhere for a while.

As to the wiping out of those savings, someone really callous might liken this to the payment of all those back taxes the Greeks have been avoiding for years. I couldn’t possibly say.

Greece has always seemed to me one of those places that, amid much that would resemble chaos elsewhere, somehow seems to muddle along.

Obviously, greater minds than mine are worrying themselves sick over Grexit. There must be something I am missing.

On The Midland Bank

For some years now I have been operating, subconsciously, under the illusion that I have an account with the Midland Bank. One day shortly this may prove to be true again.

I took up with the Midland, as it then was, in the 1970s, mainly because my parents had banked at the same south west London branch for decades. In those days the acquisition of a bank account was something of a rite of passage, and not open to all comers.

The history of the Midland parallels the history of the British banking sector. It started in Birmingham in 1836, expanded by buying other regional banks and came to serve a cross-section of the country’s emerging industrial base, foundries, engineers, railways and local corporations.

At one stage one of the biggest banks on the globe, it bought an investment bank before most of the others, made a disastrous overseas purchase in California and was swallowed by an overseas bidder, HSBC, in 1992. The distinctive griffin and gold coins logo, in an act of flagrant vandalism by the designers, was ditched thereafter along with the name and the slogan “The listening bank” for the more anonymous initials HSBC. And a non-descript logo whose design does not easily come to mind.

Now the Midland name is likely to be revived, quite possibly along with the griffin, and the bank’s HQ will go back to Birmingham. I will one day, assuming they haven’t managed to ban them, be issued with a cheque book featuring the griffin, which will reappear on the high street to replace those anonymous initials.

It will never be quite the same, because banking has changed. I can barely remember the last time I visited my branch. We get our cash from ATMs that began to be introduced in the 1970s. Before that, you had to go along to your branch, write and hand over a cheque and take your money. In banking hours, which ended at 3.30.

You could try a friendly pub after hours, if you fancied a drink, but many of these used to display a printed sign. “We have an arrangement with our bank. They don’t sell beer, and we don’t cash cheques.” Ha bloody ha.

I went in mortal terror of the Midland and its staff. As a broke student, I would hand over the cheque to the university branch. The man would step into a back room, check my balance, and if it had fallen too far into the red, re-emerge with a sad shake of the head.

My manager once gave me the choice, in my twenties, of having the mortgage paid but being barred from taking out any money until payday two and a half weeks hence, or falling behind with said mortgage. I took the wise option, walked quite a long way to work each day, and lived on what was left in the store cupboard. It was an object lesson.

This is an idea, I imagine, inconceivable to today’s twenty-somethings, who would expect to be extended credit without question. Until they were so mired in debt that there was never any possibility of escaping it. Or to max out their credit cards until they reached the same impasse.

You tell me which was the better way of running a bank.

On Fraud

The other day a member of an organised crime gang was convicted of a two month campaign of blackmail and intimidation against an innocent businessman. The man’s car was torched and he was threatened with serious injury. He and his wife were left traumatised.

The perpetrator had 25 convictions for various crimes, including wounding, and had served a ten-year sentence for armed robbery. He was by any standards a violent, unrepentant career criminal, and a danger to those around him.

He got six years.

A few days before, a young conman was found to have deprived a number of already affluent investors of a total of £21 million by means of an elaborate scam involving a fake dealing room.

He got seven years. I know which one I would rather see inside, and which I would be happy to walk past on the street.

We have this weird attitude to fraudulent crime. Banks can indulge in organised behaviour that is deliberately designed to deprive customers of their cash, in exchange for products they do not need, but this need not be followed by any criminal action. As it happens, one of the recent banking misdeeds that came to light involved the depriving of customers of a sum in excess of £23 million, which should have, logically, attracted a tariff slightly higher than our amateur fraudster.

Two other things about our scam artist. These were affluent investors, not widows and orphans, who presumably knew their way around the financial world. But they were happy to entrust their money to a smart-talking 24 year old. There must be some degree of contributory negligence or contributory stupidity.

Second, such scams generally involve the offer of returns that are substantially and implausibly more than you could possibly expect to get elsewhere. There is a saying in the investment world, if it looks too good to be true, it generally is. A degree of contributory greed there, too, perhaps.

Of Banks, Again, and Repentance

With repentance comes forgiveness. But to truly repent, you have to admit that what you did was wrong, that you knew it was wrong, and that you will strive never to do it again.

I suggested here a few weeks back that given the moral cesspit our banks had fallen into, some were inclined to give them the benefit of the doubt and assume they could fall no further. I suggested I was not among that number, and that there was worse to come. I was right.

So far this year, Royal Bank of Scotland and Lloyds Banking Group, in both of whom the tax-payer has a large stake, have had to admit that the eye-watering amounts they have already had to set aside for misselling products to their customers are an underestimate, and they have had to set aside billions more.

Misselling means telling your customers, who trust your honesty and probity because you are a bank and we used to trust banks, that they have to pay you large sums of money for something that, in fact, they do not actually need. It is a form of theft, not that anyone who indulged in this widespread malfeasance will ever by charged. Instead, banks are required to hand the money back, like a mugger who got half-way down the street and realised the game was up. “All right, you can have your money back…”

At the same time State Street, a huge US bank of which few people will have heard, was fined £23 million by the financial regulator for overcharging six presumably wealthy customers by about the same amount. Presumably at some stage those customers will get their money back.

A fine of £22 million is the equivalent of fining you or me about tuppence ha’penny, with the proviso, as I have suggested before, that the real owners of the bank, the investors, will have to foot the bill.

It is worth reading what State Street said in its… I hesitate to use the word defence, because it isn’t one. The actions involved were “a significant departure from the high standards of conduct and transparency that we expect” and not consistent with the way its employees treated clients from day to day, it claims.

Except that we know from elsewhere that the sort of behaviour that is coming to light at the banks is entirely consistent with the way they have been treating their clients. It is institutionalised, to the extent that people’s bonuses, or even their survival in their jobs, is dependent on behaving in just this way. You see what I mean by repentance. It’s the corporate hand in the cookie jar again. “Honest Mum, I wasn’t really going to steal any biscuits…”

I think we are underestimating the degree that the banks have lost our trust, to the extent that silly, misguided policies such as those suggested by Ed Miliband are backed, according to the opinion polls, by the majority of voters. This will do irreversible damage to the financial services sector, which is, like it or not, one of the most successful parts of our economy. And it will be no one else’s fault but those greedy, scheming, dishonest banks.

On Banks and ATMs

Three banks, Lloyds, TSB and the Halifax, have suffered one of those unfortunate computer glitches that prevent customers from paying for goods purchased or getting access to their money.

These are not uncommon; I am not a banking IT expert but I suspect that retail banking has provided so little in the way of profits for years, by contrast with the sheer joy of playing the world derivatives markets with shareholders’ money, that little investment has gone into those systems.

Retail banking is free because no one is prepared to pay for it. It shouldn’t be, but people have become used to not being charged if they stay in credit, and no bank is going to be the first to bring n charges. So you get what you pay for.

In a high interest rate environment, banks made money on the amounts you kept in your account to tide you over to the next payday. With rates virtually zero, the bank sees little in the way of profit unless it is stinging you for an unauthorised overdraft.

Last summer RBS, the Natwest and Ulster Bank had a similar problem. Ulster Bank, which serves the north and the Republic, saw its machines frozen for weeks, with house purchases delayed and some genuine cases of hardship.

Halfway through this process, its boss made a magnanimous gesture. He would not be taking this year’s bonus.

You have to wonder how the terms of that bonus were assessed, and in what mad world the person responsible for this abject failure could expect that extra reward in the first place. You and I, unless you are a banker, get a bonus only if our performance is rather better than expected. If the department you run shut up shop for more than a month, your performance would hardly be deemed good enough to warrant an extra discretionary payment.

Ulster Bank indeed failed to provide the service its customers were entitled to for a whole month or more, yet its boss was still deemed entitled to a bonus. You can be pretty certain the people in charge of those other banks whose systems have just crashed will be equally well rewarded, whatever inconvenience the customers suffered over the weekend.

Funny business, banking.

Banks 2, Regulators nil

This has been another bad week for the reputation of our banking sector. Some may wonder, given the moral cesspit they now occupy, how much further they can fall. Watch this space. There is more to come, I suspect

An industry that was once a by-word for being dull, sometimes pompous, fuddy-duddy but deeply moral – think Captain Mainwaring, or Frank Capra’s “It’s A Wonderful Life” – has been taken over by spivs, get rich quick merchants and hucksters. You have to be a certain age to find this worthy of note.

Royal Bank of Scotland has been fined $100 million for cheating on US sanctions and supporting some pretty evil regimes, like Iran and Libya. For money, pure and simple. Blood money, given some of those regimes’ fondness for killing their own citizens and citizens of other countries of which they disapproved.

Lloyds Banking Group has been fined £28 million, a record, by the UK regulator for a strategy of utter dishonesty whereby staff were rewarded if they sold customers who had placed their trust in the bank, thinking it to have their best interests at heart, policies they did not need. Staff were penalised if they refused to do so. It does not get any worse, except that somehow, somewhere, I suspect it will.

Fining Lloyds £28 million is a bit like thrashing the car, Basil Fawlty-style, for breaking down. It might make you feel better, but it does not punish those at fault.

To put it another way, fining Lloyds £28 million, a miniscule sum given its worth, is a bit like fining you and me a fiver – with the proviso that we can ask our employer to make the sum up. The money will come out of shareholders’ funds or loaded onto customers’ bills. In this case, you and I pick up part of the fine, because we, as the state, are shareholders in Lloyds.

One of the weaknesses of UK law, and the Americans are a bit ahead of us on this one, is that you can hold a corporate responsible for some breach of the law. This applies in cases such as corporate manslaughter, after those accidents on the railways at the turn of the last decade. This is the equivalent, as I said, to beating the furniture.

It is extremely hard to hold to account those who run that corporate. Offences take years to come to light and be investigated. By then, the perpetrators have long gone, and cashed in their bonuses.

It must be possible, and I speak as one with some training in the law, to hold such people to account ex post facto, that is, after the event, and exact an appropriate financial penalty.

Suggest such a thing and the business pressure groups such as the CBI and the Institute of Directors will whine about a “constraint on entrepreneurs’ efforts” or a “tax on business”. So will their lickspittles among the press.

But I rather suspect that any political party that suggest such condign punishment of those actually responsible for such outrages might find itself all of a sudden rather popular with the voting public.

A Hand in the Cookie Jar

In an ideal world companies we have control over, like Government departments we fund out of our taxes, we should be able to compel to behave in a moral manner. This is not an ideal world. Royal Bank of Scotland, which is about four fifths owned by the state, that is, the taxpayer, has been revealed by two separate reports as behaving in an entirely immoral manner.

The bank pulled lending on a large number of businesses so it could buy them on the cheap after they collapsed. This is disgusting, shocking behaviour by anyone’s standards. It is tantamount to theft. We will never know how many homes were lost, how many marriages collapsed, how many of RBS’s lenders were driven to suicide, as a consequence. But this will have happened. It always does.

Listen to this response, from an RBS spokesweasel. “GRG (the part of the bank involved) successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”

This is the sound of a corporate caught with its hand in the biscuit barrel. No apology, just obfuscation and lies. “I didn’t really mean to steal any biscuits, Mum, I was just checking how many were there. Honest.”

I have suggested before that corporates will behave with absolutely no morality whatsoever, if they are allowed to. Corporates like RBS and all the others have no conscience, no sense of right and wrong. They have to be controlled, and regulated, to prevent them behaving in such a deplorable manner.

But to whom does this task fall? If we have learnt anything over the past few years, it is that the system of regulation and oversight over the financial services industry has failed utterly and is not fit for purpose. Those same regulators who allowed a coke addict and expenses cheat to run our most “ethical” bank. If we cannot compel moral behaviour on a business we control and own a majority of, how can we expect to control any of the others?

I Do Not Want What I Have Not Got

Some stories one can simply not make up. That the head of the country’s biggest ethical bank should turn out to be a coke-sniffing crystal meth abuser. And a Methodist minister to boot…

But what has occasioned much extra startlement over the Paul Flowers affair is that he appears to have no qualifications whatsoever to run a bank. I  know much more about banking then he does; both my teenage children would be more suitable to run the Co-op Bank than Flowers. They know as much about banking as he does, and neither, to the best of my knowledge, is a crystal meth abuser.

But with hindsight, this lack of any knowledge or ability to run a bank should not have come as a surprise at all. It is par for the course. There used to be an old joke that went around when the financial crisis kicked in. Name the odd one out: Andy Hornby and Lord Stevenson, the two top men on the board of HBOS, Fred Goodwin of Royal Bank of Scotland and Sir Terry Wogan. The answer, of course, is Wogan. He is the only one with any qualifications to be a banker.

Hornby is the interesting one here. A former management consultant, he first made his name at Asda. This means his job, as with other retailers, can be summarised as persuading people to buy things they do not necessarily need and which they may not be able to afford.

When Hornby pitched up at HBOS, his job seems to have been persuading people to take out loans they did not necessarily need and could not always afford. He can hardly be blamed; it is a seamless career progression, and he probably thought that was what they wanted. When he left HBOS, after it collapsed and took Lloyds with it, he pitched up at the company that owns Boots. Job description: persuading people to buy face creams, etc, etc.

Thereafter, he went to run the bookmaker Coral. Job description: persuading people to take on bets they are, statistically, more likely to lose than win and which they might not be able to afford. There is a pattern here.

When I first had a bank account, I went in mortal terror of my bank manager. He once gave me the choice of surviving over the next three weeks to payday on next to nothing or paying the mortgage. I paid the mortgage. Banking has plainly moved on since then, with the consequences we can all see.

One of the most closely studied economic statistics is the rate of sales on the high street, measured against the rate a year ago. The October numbers are out this week. They show a dip year on year. This is a Bad Thing. Sales, measured on a like-for-like basis, must grow year by year. Economic growth, the economy generally, depends on it.

Yes, I know, so do people’s jobs, businesses, and so on. But you do not have to be a hair shirt-wearing, “let’s all go and live in an unheated yurt and subsist on our own organically grown turnips” puritan to have doubts over an economic model that requires us to buy more and more stuff, on an accelerating basis, that we do not need and may not be able to afford. I am as guilty as any; I do not have a fashion habit, but I do have DVDs I haven’t watched, CDs I don’t have the time to listen to as much as I would like and a pile of books as yet unread. And I keep ordering more books, two this week on Amazon.

And Christmas is approaching. This is the season when we buy other people things they do not necessarily need, etc, etc. And so around and around it goes.