In an interview with the Telegraph, Mervyn King, the Governor of the Bank of England said,
“…the institutions bailed out were those at the heart of the crisis. Hedge funds were allowed to fail, 3,000 of them have gone, but banks weren’t.” Could there be a repeat? “Yes! The problem is still there. The ‘search for yield’ goes on. Imbalances are beginning to grow again.”
Mervyn King never raises his voice. But in this little quote he is shouting. And we need to listen because the bankers are not going to.
I am sure Ms Knight would have an uncomplimentary thing or two to say about that description, but that’s the ‘recovery’ I have been watching over the last two years. Ad maybe, just maybe, Mr King has begun to see a little of what I have seen. BUT as soon as Head of the Bank of England says “the search for yield” is growing again, that “Too Big To Fail” has not been addressed and that “Imbalances are beginning to grow again”, the ink has hardly dried before the banking lobby has dispatched their mouth piece, Angela Knight, Chief Executive of the British Bankers Association, on to the Today programme and to every newspaper, to say she didn’t recognize in Mr King’s comments the banking industry as it is now. It is she declares a “responsible industry” and “it has reformed radically”.
Now I don’t want to say that Ms Knight is stupid, I have never met her. Perhaps systemically ignorant might be better. For example in a Guardian article from 31st December 2009, called “Let bankers do their job” she wrote,
Siren voices are calling for the break up the banks on the grounds that they are too big, too risky, or both. Yet worldwide, big banks survived the crisis best with many more smaller, simpler banks – including the mutuals – failing.
Perhaps she failed to notice that the reason the Big Banks survived was because they were bailed out to the tune of hundreds of billions of dollars, euros and pounds while the little ones weren’t. Or did the bankers who pay her salary not mention that to her?
In the same article she goes on to describe our banking system as, “a banking model which has served us well.” So well, in fact, that our marvelous banking system, despite £1.4 Trillion in public support (The government’s own figures for what the bail outs have cost us so far) in loans, direct investment, buying their worthless debts and insuring the ones too worthless and toxic to buy, oh – and watching as they paid the bankers who created the mess, huge bonuses despite making more losses – so well, that despite all this the banks have said that it is too early to withdraw the support and to do so would risk their collapse. But of course not withdrawing the support is WHY we now have a public borrowing crisis which the self same bankers now advise we solve by cutting all non-essential services to the lesser classes of people who frankly are not really needed any more.
And Ms Knight, having told us, with all the authority invested in her by her clients and paymasters, and on the basis of her total impartiality and obviously far greater knowledge and understanding than the Governor of the Bank of England, that the banking system, “has served us well”, went on to say that the industry has got even better – “We are all more careful now. Products are simpler and more transparent.”
Isn’t that nice! Isn’t that just too creamily reassuring and don’t you feel silly for having worried your little heads! Gosh, I am glad Ms Knight is on the job to give us this doubleplusgood news!
Simpler and more transparent! Is that what she calls the huge bets the banks are making on interest rates, on currencies and commodities? But wait there’s even more, not only are they great already but they are getting even better
“Next steps also must address the risk culture within the industry. Those who contributed to the problems have gone, credit controls are changing and assessing risk is now a much more formalised process.”
You see they just knew straight away who the ‘bad apples’ and rogue traders were. As soon as they realized a few odd mistakes had been made, they just knew who the silly billy’s were and out they went. Yes indeed. Ms Knight might have taken them in hand herself!
I know a couple of risk assessment managers from major banks and they haven’t told me that much has changed at all. The fact is, the banks are using the same risk assessment methods now as then. Across the industry the same people are doing the assessments using the same models based on the same assumptions. Long term funding is still swapped for short term funding. Interest rate risk is still swapped away for market risk.
The same rating agencies are using the same methods to rate the same assets, bonds, debts, securities, derivatives and CDOs that they got so completely and utterly wrong before. The same ratings agencies are still getting paid for the same ‘expert’ ratings by the same banks who paid them off, sorry paid them, before. The same rating agencies are still claiming that their ratings should be trusted and quoted while simultaneously maintaining that their ratings are NOT guides to worth but are “just their opinion”. Excuse me? They take money from the banks, to rate the securities as AAA and then when thousand of those securities they gave AAA ratings to, implode into insolvency within a year of getting their AAA rating, the agencies who profited from helping to create the mess, say it was just ‘an opinion’? My ‘opinion’ is that they are sacks of shit. Just my opinion, of course. However that is the phrase used by some of the banks to describe securities that the ratings agencies did such a wonderful job rating, just before they sold them to customers as AAA rated. So maybe I’m on to something.
I don’t know what planet Ms Knight gets up in, but its not the same one as me. In my reality the same exact people who were paid hundreds of millions during the years when they created this mess are still running them today. And then exact same people who worked for them and could have stood up and blown the whistle but didn’t are also still there. Those top people have made sure the banks have paid off and headed off almost all effective change.
There has been no change in the fundamental ideological basis of modern finance it worship of greed, its acceptance of, or total inability to stop fraud and its assessment of risk. The same broad faith that ‘the market will provide’ still holds sway and has been re-enforced by the guarantee that whenever the market doesn’t or can’t provide, “don’t-worry-your-bonus-about-it” – the tax payer will be forced at gun point to provide, in the event of any emergency. So carry on searching for yield and wheel out Angela if anyone, even the Governor of the Bank of England has the audacity to think they have the right to question those doing God own work!
Since Mervyn King got pretty much everything wrong in the lead up to the GFC the fact that even he can see nothing much has changed should be a red flashing light to all. Knight's words on the other hand should be given the credence you'd give those of a corporate shill.
King is being a bit rich though. It's his policy or ZIRP and QE that are causing a "search for yield". Pensioners and prospective pensions are pretty much being forced into risky asset as a result of his currency devaluing and inflation instigating policies.
Personally I think it's guilt talking.
I agree with you.
King was an academic. I wonder if he is feeling he got used by people who said, of course we'll cooperate, and then didn't.
He still think and says "We avoided a second Great Depression." He can't admit, though maybe he can now see, that he just postponed it at enormous cost.
I think he'll try to retire rather than speak out and confront those who are betraying us all. I would love the chance to talk to him.
£1000000 a minute doesn't buy much these days
Golem
There was an interesting article on naked capitalism about George osborne holding off on transferring regulating powers to the BoE until Mr king was out of the picture in 2013
I think he might be a worm who has turned
http://www.michaelmoore.com/words/mike-friends-blog/america-is-not-broke If Michael's right the American people are starting to wake up to the truth.
Despite some kind assistance I still can't figure out how to post a link properly, duhhh !!
Hey Golem, feckin brilliant mate! Thanks for doing this work and expressing the view so well – seems you're getting more poetic/acerbic with each post. And IMO that's exactly what's needed, complex and arcane material distilled to a point that focuses the rage against the massive swindle being perpetrated. Heroic work.
And thanks to all the commenteers adding to my education here… seems to me this wave of sense will grow and grow
Mohenko,
Thank you! Having a low day. You cheered me up.
Amazing how Ms Knights response was rapidly given equal billing to Mervyns original comments in the TV news.
Hey Golem, glad I can give a little back. It’s no wonder you get low days, wading through the morass of mendacity to give us your illuminations. Your work is inspirational.
What brought me to this blog was the question: where has all the (QE) money gone? And this is the one place I have found that gives me a clue.
What I still want to know is: Who has the money gone to? Names, not just ‘senior bond holders’ etc. And this is important to me because then I will have more than just an abstract entity to relate to. Because this “Financial Crisis” (WMD, anyone?), in the scale and depth of its asset transfer from one group to another, is in practise more akin to warfare. And it’s utterly asymmetric – the target has been, very specifically, the personal wealth of ordinary public service users: me and you – but who in fact is benefiting? Wars against the abstract never work (wars against drugs, terror, poverty), so where can I find the names of the bastards that are fighting us? Or has the glittering spectre that has been devouring public assets (utilities and infrastructure), and now public services (hospitals, schools) for the past generation, which we must now subsidise for our own good, become so insane that it will eat itself?
In which case we can all go home and back to our comic books.
Anyway, thanks for the chance to toss my brass farthing into the ring, Steady as you go …
We're all tilting at windmills. Real action is what's needed. Boycott the fucking banks. Boycott the big corporations. Boycott your governments. Vote Anti-Incumbent EACH AND EVERY TIME! Impede TPTB smooth existence in any small way you can. You don't have to blow stuff up. Just use your mind and fight the bastards. Pick something you love that does nothing but create profit for a big corporation and stop using/buying it. For you english… stop drinking tea! I haven't had a coca-cola product since the early '80's. I stopped shopping at Walmart shortly after Sam Walton died. These are easy things to do. You don't need tea. I don't need to go to Walmart. I don't need to drink Coke! This crazy propaganda broad's in the Gaurdian?! WELL STOP BUYING THE FUCKING GAURDIAN! If Angela Knight comes into your establishment – tell her to get the fuck out! Do something – anything.
saynotocorporateamerica.blogspot.com
@GoPugYou
You'll make no friends telling Brits to lay off the tea. I'd pass up on oxygen first thanks mate 🙂
@Golem
Sorry to hear you're having a bad day. It must be tough to keep driving this message home and then see that little or nothing changes. Following your work helps me to avoid getting looped in to the mindless journalism spouted by the mainstream media. You should be giving yourself a massive pat on the back that Mervin King largely agrees with your analysis.
Do you think that the reason QE has been relatively non-inflationary is down to the fact that in a system were debt is money, deleveraging of households and companies (as now appears to be happening) will inevitably lead to shrinkage in the money supply and hence deflation? The people running QE probably know that if the general populace had deflationary expections it would only lead to further deleveraging and those expectations being fulfilled. In that situation the overhang of public sector borrowing becomes doubly toxic and systemic failure unavoidable.
A common law cout de ta HERE
@mohenko
There probably isn't one locus of control and power, although many voices take aim at the moneyed powers behind the Central Banks (e.g. Rothschilds / JP Morgan etc.).
I'd say it's more about who can siphon off profits from a huge cash flow generating mechanism, regardless of the system or structure.
The early crude forms of this Asymmetric Accumulation resorted to violence and intimidation (think early empires and current Middle East dictators extracting enormous wealth through tribute). The 20th Century brought us a different form: the Military Industrial Complex (think Boeing, Haliburton, big Oil etc), as a backlash against the Post War Social Democratic experiment (whereby power concentration was briefly tempered by an enlightened and empowered majority).
This period of relative harmony could be shortlived, however, as the latest incarnation of power control is more subtle. But ultimately aimed at restoring the feudalistic power structure, once again.
First there is the Predator State: the parasite that feeds off the tax system. James Galbraith explains how the prime function of the State then, is as collector of taxes and enforcer of private contracts and social compliance (all in the name of Social Democracy, of course), whilst the spoils are then doled out to the private sector.
Secondly, we are seeing even greater pillaging of the lower & middle class with the rising financialisation and the utter enforcement of debt contracts now emboldening those who favour "Indentured Servitude" as the cash cow of choice. Michael Hudson calls this the Counter Enlightenment.
Same ultimate end-game, just different operating methods.
We move closer to a bhive or termite mound way of operating but instead of pheremones we're controlled by memes some are lies some true and some just distractions. Our politicians are groupthunked by organisations like the bilderburgers common purpose and demos. Academia is more to do with elbows and troughs than real knowledge. Who wouldn't have a bad day now and then. This blog and its comments are a beacon thanks golem
hi hawkeye
Your perceptions are getting trenchant. I too think we are in some kind of 'last chance saloon' with respect to the idea of coherent democracy. If there is no collective assertive response to the mauling and dissembling people are receiving in order to prop up a destructive economic dogma then we are more or less acceding to a life as either privileged slaves or 'the abandoned', within a degrading social and physical environment.
And the UK is one of the critical places where a rejection of these roles might happen that could make a difference. I think the UK is going to be critical because the government is an unstable, 'best guess' choice out of a bunch of rotten apples and Nulab is still in some disarray and growing disrepute, and its leader is really quite stuck and uninspiring.
The policies of the coalition are extreme and risk serious fall-out, much worse than they need to be. I sense the Labour party are waiting for a major 'slip' or event to pounce, rather being pro-active( i.e. politically honest) but they are political opportunists of exactly the same kind as the coalition and exactly as they were in the Blair era.
Their dishonesty really needs to be exposed by people like yourself and David.
They are not an opposition; they are simply the reserve team operating within an enclosed detached system.
I have already said that we first have to break the duopoly of power and the easiest, least painful way is for lots of unaligned people to be elected. I think this is the purpose of the blog here-it is ahead of the mainstream and is partly shaping debate, not just getting in beforehand and politically energising a lot of people who might not otherwise have spoken up.
I am also pretty sure there are some very anonymous big-hit lurkers who are taking their cues from blogs, including this one.
I was thinking that David probably needs to consider how to get elected somewhere.
I think David is sloughing quite a lonely furrow but doing a fantastic job. I can see how it might be quite personally demanding but rest assured, it is much appreciated.
oops
sloughing=ploughing
Not sure how that one slipped through.
Hey Hawkeye,
am appreciating the real education I'm getting here, thanks for contributing.
It's all helping to focus the rage that's shaking me from my englamoured slumber. And I'm now seeing that fighting the kleptocracy has two sides: fighting against that which is reducing us, and fighting for that which can support us.
I'd still like to know where the QE money has gone: who has got richer these past few years? Then the austerity the many have to suffer can be contrasted, in concrete terms, with the benefits the few have reaped. Even better if it could be displayed graphically, e.g. http://www.gapminder.org/
More power to all who reveal the lies ..
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