Merv King the Governor of the Bank of England is a pretty extreme example of what I consider a crude monetarist. But in this interview with The Telegraph he points the finger at bankers. With good reason.
Now, the Governor is off on why all this has a moral dimension: “The more I’ve thought about how labour markets work, the more I’ve realised that there are hardly any jobs whose tasks you can describe exactly. Nowadays, most jobs have the property that employees can choose to do them well or badly, so employers need to think about the long-term welfare of the staff not just pay today.” It follows that moral attitude is vital. Industry often understands this well. Nissan in Sunderland asks all its workers for ideas to raise productivity, and, says Mr King, it benefits.
The Governor makes a point of visiting manufacturing and service industries all over the country. Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.”
He also thinks that there is “too much weight put on the importance and value of takeovers”. They make short-run profits but “it doesn’t make sense to destroy a company with a reputation”. Since the Big Bang in the late 1980s, Mr King goes on, too many in financial services have thought “if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”. Good businesses “keep a clear vision of who their customers are, and are run by people who don’t think they should simply maximise profits next week”. But in the past 25 years, banks have increasingly “taken bets with other people’s money”.
That is bad enough, but it gets much worse “if the rules of the game are that they get bailed out if it all goes wrong”. In this weird atmosphere, banks eventually stopped trusting one another. “Financial services don’t like the word ‘casino’, but instruments were created and traded only within the financial community. It was a zero sum game. No one knew which ones were winners when the crisis hit. Everyone became a suspect. Hence, no one would provide liquidity to any of those institutions.”
So what that does that mean for us. Heads the overseas owners of banks win and our balance of payments suffers and tails New Zealand businesses, individuals and the taxpayer cover their losses. And our balance of payments suffer.
Hat tip Lloyd Morrison
He should also have pointed the finger at Tony Blair, Gordon Brown and Alistair Darling – they were culpable because the took the overseening of the Banks away from the Bank Of England and gave it to the FSA but did not provide them with the wherewithal to do the job.
Maybe pdm you could say that he, like Blair and many others suffered from the misapprehension that bankers would act ethically.
hehe
Interesting reading. Looks like the world is waking up, the slight problem I have with this is the Governor encourage and certainly didn’t raise any issue about it until now.
Also, amusing ,said in the article
“banks have increasingly “taken bets with other people’s money”
isn’t that kind of like socialism in a way, taking other people moneys and spending it! lol
Speaking of quotes from the Bank of England, the one below attributed to Sir Josiah Stamp, the B of E Governor in the 20′s should still ring out as a warning to us all:
“Banking was conceived in iniquity and was born in sin.
The Bankers own the earth. Take it away from them,
but leave them the power to create deposits,
and with the flick of the pen they will
create enough deposits to buy it back again.
However, take it away from them, and
all the great fortunes like mine
will disappear and they ought to disappear, for
this would be a happier and better world to live in.
But, if you wish to remain the slaves of Bankers
and pay the cost of your own slavery,
let them continue to create deposits.”