In defence of Banks

Gary,

I absolutely agree, although I come at this from a slightly different direction. There was a great trailer for the BBC Question Time programme last night. Its said 'what should we do with banker who cheat?'. My instant response was 'the same thing you'd do with anyone else who cheats' - but you're right, at the moment it looks like the financial services industry is the whipping boy and easy target for the morally outraged and righteously indignant - otherwise known as the uninformed or deliberately blinkered.

These are incredibly dangerous combinations and, when you add in politicians, who appear to have rings through their noses to be pulled about by whichever sound bite that puts them on the 'high moral ground' and a media that is less interested in reporting than it is in the worst kind of journalism - you end up in 'knee jerk' territory.

That knee jerk is likely to be an acceleration of the the change from principles based regulation of financial services to rules based regulation. We're certainly seeing this already in FATCA from the US and there's a lot of positioning going on in Europe right now off the back of that to have FATCA type rules between members states here.

The problem with moral outrage and righteous indignation is that they often blind people to rational thought.  There is no doubt that if someone has done something illegal, they should be pursued and punished using the systems and processes we set out as the foundations of our society. But if, according to the rules of the day, they haven't done anything illegal, if its thought to be 'wrong' that just means you need to change the law, and have the rational debate that that change requires. Its an evolving animal anyway, but thats the way our western society works. Moral indignation of the type shown by David Cameron against Jimmy Carr for example always looks like an attempt to re-write history (notwithstanding that I gave Mr Cameron no mandate to preach to me about morals). Mr Carr was only doing what most of us would have done if we had been in the same position. It was not illegal, it was tax avoidance not evasion.  If it was immoral, thats between him and his conscience and we change people's views on morality through debate, not lynching them on the gibbet of media. The people taking the moral approach seem to be trying to make avoidance (legal) the same as evasion (illegal) in the eyes of the public. The public could easily be hoodwinked in this way, as they appear to be being with the banks in general today.

This is symptomatic. The same thing happened in 2008 in the sub-prime crisis which triggered the whole thing off.  The pubic conveniently forget that while the banks may have been offering 'too good to be true' mortgage deals by playing the markets in the background - for every one of those there was someone prepared to sign up to a debt knowing that they'd probably not be able to service that debt if the markets changed much. It takes two to tango. Not sure I've seen too many people holding their hands up and saying - we were partly to blame - maybe we should have taken a more thoughtful position on increasing our debt before signing the contract?

The banking industry is very complex its true, possibly the most complex system that we have today. But I've worked in many industries in my career to date. I can tell you that banking is no different in principle to any of the others. When you lift the hood, you find that, for most part the engine is working well. What surprises me about the financial services industry is not that has failings, its that it works at all.

Perhaps all those currently displaying morality and indignation should reflect that nothing is perfect and that throwing rocks rarely solved a problem.

Well said sir!

Although no one "would say no", only bankers seem to be "given the chance". Banking is the only industry I can think of where (a) the employer realizes returns from a deal over several years but the employee receives the bonus on the total deal size on the same year that the deal was struck (b) gains are personalized but losses are socialized. Greed / avarice are as much part of human fraily as the tendency to not say no given the chance, so I'm not sure if passing laws against greed / avarice would work. A more practical solution would be to pay out bonuses to bankers strictly in lockstep with the actual inflow of projected deal benefits.