Political Fudge Is No Recipe to Tackle Banking Malaise; BANKING ANALYSIS

The Evening Standard (London, England), May 27, 2010 | Go to article overview

Political Fudge Is No Recipe to Tackle Banking Malaise; BANKING ANALYSIS


Byline: Graeme Davies

I HAVE a very nasty feeling that we are approaching one of those great political fudges. In a truly New Labour sidestep, the difficult issue of banking reform has been sidelined by the Lib-Con administration with the utterly transparent mechanism of the instruction of a "commission" scheduled to report in a year.

A free pass for the culprits, for the second time in as many years, delivered in the same breath as a package of spending cuts penalising the man in the street -- the innocent victim of all this. And all this to a deafening silence from the media.

In a year's time, conveniently, the banks will be rattling along at great speed, making profits like there's no tomorrow (or, rather, yesterday) and in the same fashion as they always have. The taxpayer, in his turn, will be greedily eyeing the prospect of his own bonus -- the one payable when our shares in the banks are sold.

The refrain "why mend it if it ain't broken?" will be hummed cheerfully around the corridors of power and our shiny new leaders will bask in the warm afterglow of their success -- in doing precisely nothing.

This is exactly the Nelsonian blind eye that got us into all this trouble in the first place. The one that was turned so magnanimously on Fabrice Tourre, the Goldman trader involved in that controversial collateralised debt obligation, now the subject of a Securities and Exchange Commission investigation.

And let's not forget how a blind eye was also turned to the internet analysts of the technology boom. And many others during other bubbles. The problem faced by the George Osborne and Vince Cable double act is a simple one. It is the almost complete lack of hard evidence pointing to which part of the system we actually need to repair. This is because the system that produced the credit crisis -- our economic system -- did not, actually, fail. It is not therefore eligible for repair, or even due for a service.

How ever hard we try to pretend that bonuses are the problem and that bankers are some sort of evil criminal class more properly confined to the sweating bowels of some or other secure establishment, it will not change the fact that it is our system which produced this apparently mutant creature.

It is a system of free markets and of reward for individual endeavour. A system kept in check by the simple mechanism of the market, connecting reward directly with risk. Ensuring, quite simply, that the more money one wishes to make, the more risk one must accept. …

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Political Fudge Is No Recipe to Tackle Banking Malaise; BANKING ANALYSIS
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