Bankers under fresh pressure after beng pulled back from the brink

We are trying to achieve closure; we are trying to say there is a basis on which banks can say it will get no worse than this.”

Lord Myners , an insider brought in from the top of business and banking by Gordon Brown to add expertise as City Minister has given the frankest interview so far on the state of the financial crisis. Ministers appear to be trying so steady nerves now by admitting we were “ on the brink” in October. Saving the banks then was the necessary first step in order to save the economy now. Myners’ tilt against the bankers draws fire away from government for a while and diverts attention from the insistent question: are the government’s twin bailouts going to do the trick? The growing consensus is – No. Myners told the Times.

“We were very close on Friday, October 10. There were two or three hours when things felt very bad, nervous and fragile. Major depositors were trying to withdraw — and willing to pay penalties for early withdrawal — from a number of large banks.”

To show he’s no banker’s poodle Myners lays pretty brutality into some of his old colleagues.

Ӆ if people have committed crimes they should be prosecuted. : “I have met more masters of the universe than I would like to, people who were grossly over-rewarded and did not recognise that. Some of that is pretty unpalatable…They are people who have no sense of the broader society around them. There is quite a lot of annoyance and much of that is justified. Let us be quite clear: there has been mismanagement of our banks.”

Myner’s seems to be softening up the banks to start lending once the details of the government deposit insurance scheme is ready late next month .His main worry now is that banks have gone from a period of “excessive exuberance” to one of “reckless caution. They are “are at the shallow end of the pool, clinging on to the rail. We want to get them out into the deeper water. If they don’t go there, the fear they have is crystallised by their own actions. Failing to support British business and householders is going to create a downward spiral.”

The Economist in its main leader is broadly supportive of government – which won’t please David Cameron – but clearly believes it hasn’t yet done enough. Mass panic is still a threat.

“The excessive lending of the boom has to be brought under control. That inevitably brutal change can take place in two ways. It could be relatively orderly as borrowers scale back and lenders strengthen their balance sheets. Or it could cause a mass-panic that would wreck banks and businesses as it did in the 1930s. Just such a panic was in the air in October. Today’s recession is grave but in sparing the banks, however undeserving, governments spared their citizens from something worse—at least so far.”

Is the government getting it right?

“For any government setting out a rescue, this reception holds two lessons, concerning the scale and the shape of a rescue. First, its scale must surprise everyone. Britain chose insurance alone and, at the moment, it looks as if it has made a mistake. The suspicion is that the government preferred insurance for political reasons because it is a promise-now, pay-later scheme. It would have done better to reach for that kitchen sink and do both—buy the worst assets at their market value and put them in a bad bank, as well as insure the healthy assets that remain against catastrophe.”

Myners doesn’t disagree – but ministers haven’t reached the “bad bank” stage yet, at least in public..There could, the minister admits, be more bailouts to come. “There may well be. Who knows? It depends how we negotiate these things… Nationalisation is not the solution, he says. “I always say you can never rule anything out, but I believe that strong independent commercial banks are the best way to manage the division of credit in our economy. However, he insists that the Government will do “whatever is necessary” to shore up the banks. “Doing too much is less risky than doing too little.”

  • cynic

    And where was Government while all this was developing over the last 5 years? At least there is now a telling admission that this is not something totally unexpected that blew in from the USA and caught poor little old UK totally by surprise.

    Myners is keen to say there has been mismanagement of our banks but there has also been mismanagement by Government – and on an epic and frightening scale. One cannot avoid the conclusion that if Brown has spent more time at the Treasury watching the banks and less plotting to oust Blair, we might have been in a better position to deal with this.

  • blinding

    In the real world people that are not good at there jobs get sacked.

    Why does this not happen to the bankers.
    They were/are getting well paid to do their jobs.
    They did not do their jobs.Some one better grow some balls and sack some of them before the lynchings commence.

  • The Pict

    I did not get a bonus from Brechin City FC for winning them the Scottish Premier league because (i) I am not their manger
    (ii) They have not won the SPL during my non-time in charge

    so an Investment bank makes a loss of $2.6 billion and they pay out $2.1 billion

  • The Raven

    Great post, Brian, where at last someone further up the food chain is turning round and point the finger at the banks without mercy.

    I posted recently about 10 businesses I was working with – of varying sizes – who were experiencing difficulties because of the banks’ sheer refusal to make overdrafts available. Just to add that three of those businesses have closed voluntarily. Despite having, (in some cases), full order books and ongoing work, they’ve just decided to close down now, and perhaps come back when this is all over.

    That’s the real effect of all this. These aren’t multi-nationals. They are owner-managed businesses perhaps employing one or two people. Now, we all see the Seagates, the FG Wilsons etc in the news. But the little guys go unreported. And around 97% of these businesses make up Northern Ireland’s economy.

    “Reckless caution” indeed.

    Myners talks of strong independent banks. And I agree completely. But it is time that banks were truly hauled over the coals. Named and shamed by the very businesses to whom they have denied credit. By the little guys on the street who are getting shafted by the banks’ sheer inability to realise the double-whammy they have created by needing a bailout and then not sharing the wealth.

    I’d like to see Government doing just that, because I don’t think the general public really understands the full extent of just who the bad guys are in this scenario.

  • Greenflag

    ‘In the real world people that are not good at there jobs get sacked. ‘

    One would hope so 😉 In the surreal world of Wall St the CEO of Merril Lynch paid out 1.2 billion dollars in bonuses to his executives just a few days before Merrill Lynch was bailed out by Bank of America who are now discovering that what they have purchased may be worth a lot less than what they had thought .

    By the way the CEO was fired by the new combo. But the 1.2 billion is gone for ever .

    Raven,

    ‘I don’t think the general public really understands the full extent of just who the bad guys are in this scenario.’

    Take your pick -rapacious greedy bankers and or head in the sand and negligent politicians or both . Throw in avaricious property investors and the ‘consumer ‘investor in property – plus a dash of personal irresponsibilty in running up credit card debt and there you are 🙁

    The banks and other financial services including the hedge fund scammers have in recent years been playing at ethical business behaviour almost as well as Brechin City have been playing football:(

  • ulsterfan

    When the dust settles and we get back to some sort of normality in a couple of years the whole regulatory system must be overhauled and the FSA either reformed beyond recognition or replaced by an Authority which can take action and put these Bankers in Jail if they should breach guidelines/rules etc.
    This threat should not be a far distant punishment but should be used on a regular basis to protect the rest of us and to say how much we hate the way they do business.
    Simply to disapprove of their bonuses is not enough.

  • The Raven

    Greenflag, you pick up on a very valid point, whch arose only an hour ago in conversation.

    “Throw in avaricious property investors and the ‘consumer ‘investor in property”

    A friend of mine had noted that her neighbour’s house had finally sold.

    The upshot of the conversation was when she was told how much she could get, and that it was only a few thousand more than she owed the bank, she was bewailing and bemoaning that “I haven’t made any money on it”.

    And this is an important postive out of all of this: perhaps people will finally realise that when they buy a house, it’s not a property. It’s a home. And it should be regarded and treated as such.

  • Harry Flashman

    “I posted recently about 10 businesses I was working with…”

    Raven the stories you are recounting are an absolute bloody disgrace, can you not bring it to the attention of someone in the local news media? I know they’ve got such important stories to report about the ongoing “peace process” (now entering its fifteenth year), but somebody should be screaming about this stuff from the rooftops.

  • Mr Angry

    Harry, you are absolutely right, as is The Raven.

    I too am aware of horror stories regarding local businesses who are being nailed because of the banks and their less than reciprocal support.

    The issue here is that the vast majority of the local print and broadcast media are wholly dependant on the banks and they are therefore, to a larger degree, “untouchable” from that perspective.

    I’m aware of at least one small business which, on foot of hearing local MLA criticism of the banking system on Question Time, wrote to the minister concerned highlighting the practices of their particular bank seeking an intervention which might force the bank in question to comply with their lending obligations under the rescue package. That business, some eight weeks later, still awaits a reply.

    Public statements and undertakings on the part of the banks and lending institutions in relation to lending and small business liquidity should be taken to task and exposed as the hollow platitudes they are.

    Take, for example the following….[i]”Tesco has moved the goalposts as far as their Personal Finance eligibility requirements are concerned.

    News reached the editor that the Ulster Bank, the Northern Ireland subsidiary of RBS (which we all now own), have drastically reduced their staffing levels in their in house Tesco Personal Finance section.

    The reason?

    Quite simple really.

    Someone at Tesco’s apparently decided, rather than risk the ire of Gordon & Co by blatantly refusing to lend, that they should simply change the criteria to the extent that it is practically impossible for anyone to qualify for a Tesco loan.

    The result?

    Staff redeployed / made redundant by Ulster Bank, no contribution made to the economic kickstart which Gordon and Co are so desperately trying to get us to buy into (pun intended, I assure you) and Tesco get to maintain their squeaky clean image as the “consumers friend”.

    Every little helps….indeed.”[/i]

    This [b]does[/b] need to be exposed.

  • The Pict

    A book in the Library written by a commodities trader had him go three times to his bank to try to get a loan to buy a house as an investment and have his tenants rent pay the mortgage. Three times he was turned down as it was too risky yet this is the very thing that would later get them in trouble.

    Moral hazard anyone?

  • Comrade Stalin

    Raven, you might have replied to me on this question before, but if you have I have missed it. I am wondering how a long-standing business can be seen as being viable if it needs credit in order to survive ?

    A good business will have cash in the bank for a rainy day. A good business will also avoid damaging its profitability by paying interest/overdraft charges to a bank. Therefore, a business which actually depends on loans in order to keep going can’t be a good business. I appreciate that there may be something I’m missing here ?

    The issue about personal lending is the same, if not worse. The banks have upped their lending criteria to reduce risk, but it remains the case that they make money out of lending cash to people who are able to pay it back, so it is in their interest to lend where they can. If the bank won’t give you a loan, it means that they think there is a possibility that you won’t be able to repay it. I’m sorry, but I’m struggling to understand why the banks should be made to take this risk. People are going to have to get used to the fact that they have to live within their means and that they can only buy the things that they can afford.

    It is the idea of perpetual borrowing and splurging that got us into this mess. It’s insane to think that more of that will get us out of it.

  • In Soviet Russia

    Bank rescues you!

  • Comrade Stalin

    I love it 🙂

  • Harry Flashman

    CS

    I and others did respond to your previous query, the fact remains that credit and debt are absolute fundamentals in business. As I explained at the time unless a business is a one man market trader who deals only in cash, buys stock and doesn’t buy any more until such time as he has sold his stock at a profit then of course it will require credit frequently.

    Let us say Raven’s customers are businesses that are picking up trade and need a new piece of plant, a new van say, or a substantial piece of equipment, how are they supposed to finance that? By saving every penny up until they have finally got enough money? What are the potential customers and staff going to be doing while that process works itself out over twenty years or so? No, the business puts together a plan and goes to a bank and takes out a loan over a period of time, paying off interest and capital on the increased income produced by their expanding business.

    Perhaps they’re a seasonal business, a farm for instance or hotel, what do they do during the lean months? Just close every thing down, lay off all staff and do no maintenance? Of course not, they run a temporary overdraft in the knowledge that it will be fully paid off with interest when the business picks up again.

    Lending money is the job of banks, in exactly the same way that baking bread is the job of bakers. If bakers told the government they needed a massive bailout to survive but even then they wouldn’t actually be producing any bread the Chancellor would tell them to go stick their heads in their ovens, so it is with banks.

    If banks don’t wish to provide this very basic service to the economy then why the hell are we all bankrupting ourselves and our grandchildren to keep them afloat? If they willfully refuse to carry out the basic part of their reason to exist, well then let the bastards go to the wall, they serve no other worthwhile purpose and if they are currently destroying wealth creating businesses due to their inability or unwillingness to do their jobs then fuck them, pull the plug on them now.

  • The Raven

    Comrade, as Harry notes, we did reply before; I refer you to Harry’s post for the rationale. It’s pretty spot on.

    We aren’t – well at least, I’m not – talking about huge amounts in banking terms – between £3,000 and £25,000 overdrafts. And these are businesses with good order books.

    Shameful. As I think I posted earlier, I closed my account with the bank in question, as a (monetarily small) protest!