Newspaper article The Evening Standard (London, England)

The Scandal Is That Bankers Have Just Kept on Winning

Newspaper article The Evening Standard (London, England)

The Scandal Is That Bankers Have Just Kept on Winning

Article excerpt

Byline: Chris Blackhurst City Editor

AS someone who spent happy years trolling round the darker recesses of Westminster and Whitehall, as well as the City, I've long since given up on conspiracy theories, preferring to put my faith in chaos.

Nevertheless, where the banking crisis and its aftermath are concerned, I'm having serious doubts. Let me put this prognosis to you.

Banks manage themselves for the benefit of their shareholders. But they also know they are too important to the world economy to be allowed to go bust. They therefore overload on risk, chasing hefty bonuses. "If it blows up, either it'll be long after I've been paid, or we'll get bailed out by the Government," was one comment reported to me from the trading floor.

As the good times roll on, the regulators start to believe the banks really have solved their problems, so they begin to reduce their capital reserve ratio requirements and wind back on restrictive legislation.

So the Glass-Steagall Act was repealed in 1999 and, after 68 years of keeping the economy safe, it took just eight years from then for the bankers to bring the global financial network to its knees.

With those reserve ratios reduced and legislative impediments removed, the banks can take more risks, and leverage up further. The bonanza continues, and with it, credit standards become progressively lower -- so that people who previously would have been refused loans are now offered as much as they want.

The man in a string vest strumming a banjo on his front porch gets a $1 million mortgage, and is fully aware he can't repay it, but does so knowing that at any moment he can simply return the keys and walk away.

Bankers appreciate that credit restrictions are falling and that credit brokers have created a chain so long that lender and borrower know nothing about each other -- but no matter, they don't care, because they want their bonus or at worse, they can fall back upon the likely bailout. …

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