Darling acquiesces in return to debt-fuelled casino

August 2nd, 2009

Despite the bluster from politicians last October that banks would only qualify for bail-outs if they changed their ways — for example by lending more responsibly, curbing pay and bonuses, facing tougher regulation, etc, etc), the UK’s banking fraternity has put two fingers up to such talk.

Our craven chancellor of the exchequer, Alistair Darling, has caved in to their scaremongering, which has included hollow threats to move their businesses offshore, and shelved plans for radical reform.

Instead we’re getting a timid and confused hotchpotch of reforms, coupled with the occasional piece of theatre from the government which is likely to do very little to prevent future crises. The reforms proposed by shadow chancellor George Osborne are not much better.

With the media spotlight turned away — the MPs’ expenses scandal was a God send for the bankers here, as was Sir Fred Goodwin’s pension — the asset protection scheme, which is disastrous for the taxpayer, and Stephen Hester’s £9.6m remuneration package have either received minimal coverage or simply been waved through.

In a recent column in the Belfast Telegraph, Eamonn McCann wrote

“The banks, having worn diplomatic expressions of contrition for 10 minutes or so, are now sniggeringly scornful of those threats of tighter regulation … Goldman Sachs — described in the current issue of Rolling Stone as a “vampire squid sucking the face of humanity” — has set aside $11.4 billion for ‘employee compensation’ (bonuses) for the first half of this year, suggesting an average (average!) payout of $770,000 …  The schmucks and chumps [by which McCann means us lot, the Great British taxpayer] have come up with the cash. Time to get back to business as usual. No need to feel chastened, no need for change.”

Many bankers have convinced themselves that, even though this crisis was of their own making and it has so far cost UK taxpayers £1.3 trillion, they should once again be left to their own devices and granted the freedom to drive us all into greater and greater debt as though nothing had changed. That’s gratitude for you!

They believe they must be let off the hook, even though it’s going to take several generations of UK taxpayers to pay off the debt pile the Labour government has accumulated in order to salvage what remains of the institutions and economies they have wrecked.

And Darling and his colleagues — apparently hell-bent on returning state-owned banks to the private sector as soon as humanly possible — have displayed economic illiteracy in their hankering for a return to the unsustainable pre-credit crunch finance industry. The agenda is to get property prices back onto an upwards spiral and once more give Britons the chimera of wealth. If they succeed, the next crash will of course be just around the corner. And it’s going to be even more painful than the last.

What infuriates me the most right now is the deception the banks are using on the government and the media to ensure they get their own way.

This week banks including Lloyds Banking Group, the proud owner of HBOS, are going to use every accounting ruse in the book — including booking one-off exceptionals such as gains from disposals, write-backs of subprime assets and gains from swapping junior for more senior debt — to give the impression they’ve recovered their poise and and are either already or soon to be profitable.

They are also, of course, abusing the oligopolistic position that they currently enjoy in the market to bump up prices.  Thankfully, the European Commissioner Neelie Kroes is serious about tackling this market abuse.

Despite all this, I predict that, in underlying terms, banks like Lloyds and RBS will be heavily loss-making for some time. This is largely due to the second wave of bad debts and impairments that are occurring in the “real” economy. I suspect the massive corporate and retail loan books that they so injudiciously built up during the boom will continue to overhang their balance sheets for years to come (see Jane Croft’s article in the Weekend FT Reality will rain on sector’s parade).

It must also never be forgotten that the Labour administration intends to palm us, the British taxpayers, off with the burden of some £585bn of the bankers’ toxic waste — loans that are unlikely to get repaid and assets so opaque they’re actually worthless (these were the loans and deals on which the bonuses of people such as RBS’s Johnny Cameron and HBOS’s Peter Cummings depended) — through the inequitable and morally dubious asset protection scheme.

This has already been described by Paul Murphy of the FT as a scam, a “deceitful deal” designed to:-

“stamp all over the interests of British taxpayers – all in the name of retaining Lloyds’ status as a private entity listed on the London stock market …. The government is conniving to keep [Blank and Daniels] in their jobs, while at the same time allowing existing shareholders to cling on to the fantastical idea that their stock is actually worth something.”

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Posted by Ian Fraser on Aug 2 2009. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry