Aspirational parents condemn their children to a desperate, joyless life

George Monbiot in The Guardian


 

'But to what are we aspiring? A life that is better than our own, or worse?' Illustration by Andrzej Krauze

Perhaps because the alternative is too hideous to contemplate, we persuade ourselves that those who wield power know what they are doing. The belief in a guiding intelligence is hard to shake.

We know that our conditions of life are deteriorating. Most young people have little prospect of owning a home, or even of renting a decent one. Interesting jobs are sliced up, through digital Taylorism, into portions of meaningless drudgery. The natural world, whose wonders enhance our lives, and upon which our survival depends, is being rubbed out with horrible speed. Those to whom we look for guardianship, in government and among the economic elite, do not arrest this decline, they accelerate it.

The political system that delivers these outcomes is sustained by aspiration: the faith that if we try hard enough we could join the elite, even as living standards decline and social immobility becomes set almost in stone. But to what are we aspiring? A life that is better than our own, or worse?

Last week a note from an analyst at Barclays’ Global Power and Utilities group in New York was leaked. It addressed students about to begin a summer internship, and offered a glimpse of the toxic culture into which they are inducted.

“I wanted to introduce you to the 10 Power Commandments … For nine weeks you will live and die by these … We expect you to be the last ones to leave every night, no matter what … I recommend bringing a pillow to the office. It makes sleeping under your desk a lot more comfortable … the internship really is a nine-week commitment at the desk … an intern asked our staffer for a weekend off for a family reunion – he was told he could go. He was also asked to hand in his BlackBerry and pack up his desk … Play time is over and it’s time to buckle up.”

Play time is over, but did it ever begin? If these students have the kind of parents featured in the Financial Times last month, perhaps not. The article marked a new form of employment: the nursery consultant. These people, who charge from £290 an hour, must find a nursery that will put their clients’ toddlers on the right track to an elite university.

They spoke of parents who had already decided that their six-month-old son would go to Cambridge then Deutsche Bank, or whose two-year-old daughter “had a tutor for two afternoons a week (to keep on top of maths and literacy) as well as weekly phonics and reading classes, drama, piano, beginner French and swimming. They were considering adding Mandarin and Spanish. ‘The little girl was so exhausted and on edge she was terrified of opening her mouth.’”

In New York, playdate coaches charging $450 an hour train small children in the social skills that might help secure their admission to the most prestigious private schools. They are taught to hide traits that could suggest they’re on the autistic spectrum, which might reduce their chances of selection.

From infancy to employment, this is a life-denying, love-denying mindset, informed not by joy or contentment, but by an ambition that is both desperate and pointless, for it cannot compensate for what it displaces: childhood, family life, the joys of summer, meaningful and productive work, a sense of arrival, living in the moment. For the sake of this toxic culture, the economy is repurposed, the social contract is rewritten, the elite is released from tax, regulation and the other restraints imposed by democracy.

Where the elite goes, we are induced to follow. As if the assessment regimes were too lax in UK primary schools, last year the education secretary announced a new test for four-year-olds. A primary school in Cambridge has just taken the obvious next step: it is now streaming four-year-olds into classes according to perceived ability. The education and adoption bill, announced in the Queen’s speech, will turn the screw even tighter. Will this help children, or hurt them?

Who knows? Governments used to survey the prevalence of children’s mental health issues every five years, but this ended in 2004. Imagine publishing no figures since 2004 on, say, childhood cancer, and you begin to understand the extent to which successive governments have chosen to avoid this issue. If aspirational pressure is not enhancing our wellbeing but damaging it, those in power don’t want to know.

But there are hints. Mental health beds for children in England increased by 50% between 1999 and 2014, but still failed to meet demand. Children suffering mental health crises are being dumped in adult wards or even left in police cells because of the lack of provision (put yourself in their position and imagine the impact).

The number of children admitted to hospital because of self-harm has risen by 68% in 10 years, while the number of young patients with eating disorders has almost doubled in three years. Without good data, we don’t have a clear picture of what the causes might be, but it’s worth noting that in the past year, according to the charity YoungMinds, the number of children receiving counselling for exam stress has tripled.

An international survey of children’s wellbeing found that the UK, where such pressures are peculiarly intense, ranked 13th out of 15 countries for children’s life satisfaction, 13th for agreement with the statement “I like going to school”, 14th for children’s satisfaction with their bodies and 15th for self-confidence. So all that pressure and cramming and exhortation – that worked, didn’t it?

In the cause of self-advancement, we are urged to sacrifice our leisure, our pleasures and our time with partners and children, to climb over the bodies of our rivals and to set ourselves against the common interests of humankind. And then? We discover that we have achieved no greater satisfaction than that with which we began.

In 1653, Izaak Walton described in the Compleat Angler the fate of “poor-rich men”, who “spend all their time first in getting, and next in anxious care to keep it; men that are condemned to be rich, and then always busie or discontented”. Today this fate is confused with salvation.

Finish your homework, pass your exams, spend your 20s avoiding daylight, and you too could live like the elite. But who in their right mind would want to?

Record fines for currency market fix

BBC 
• From the sectionBusiness

Five of the world's largest banks are to pay fines totalling $5.7bn (£3.6bn) for manipulating the foreign exchange market, US officials say.

Four of the banks - JPMorgan, Citigroup, Barclays, RBS - have agreed to plead guilty to US criminal charges.

The fifth, UBS, will plead guilty to rigging benchmark interest rates.

Barclays was fined the most, $2.4bn, as it did not join other banks in November to settle investigations by UK, US and Swiss regulators.

US Attorney General Loretta Lynch said that "almost every day" for five years from 2007, currency traders used a private electronic chat room to manipulate exchange rates.

Their actions harmed "countless consumers, investors and institutions around the world", she said.

Cartel threat

Regulators said that between 2008 and 2012, several traders formed a cartel and used chat rooms to manipulate prices in their favour.

One Barclays trader who was invited to join the cartel was told: "Mess up and sleep with one eye open at night."

Several strategies were used to manipulate prices and a common scheme was to influence prices around the daily fixing of currency levels.

A daily exchange rate fix is held to help businesses and investors value their multi-currency assets and liabilities.

'Building ammo'

Until February, this happened every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix, or just the fix.

In a scheme known as "building ammo", a single trader would amass a large position in a currency and, just before or during the fix, would exit that position.

Other members of the cartel would be aware of the plan and would be able to profit.

"They engaged in a brazen 'heads I win, tails you lose' scheme to rip off their clients," said New York State superintendent of financial services Benjamin Lawsky.

The UK Banking Fraud

Libor scandal: gunfight on Threadneedle Street

This is not just some common or garden mishap or even misbehaviour at a big business. This is 'fraud'

• Editorial
• guardian.co.uk, Tuesday 17 July 2012 20.50 BST

Only two weeks into the market-rigging scandal and already the economic-policy establishment resembles the final scene of Reservoir Dogs: a bunch of men in suits all blindly shooting at each other.

Former Barclays boss Bob Diamond has landed the Bank of England's Paul Tucker in deep trouble, with a note implying that he encouraged the misreporting of money-market rates. Barclays' ex-chief operating officer Jerry del Missier told MPs this week that Mr Diamond ordered him to fiddle Libor rates. And Barclays was accused by theFinancial Services Authority (FSA) on Monday of a "culture of gaming – and gaming us". The FSA has been dumped in it by Mervyn King, who argued on Tuesday that it was not the Bank's job to regulate Libor – the implication being that it was the FSA's fault. Both the FSA and the Bank agree that prime responsibility for monitoring Libor lay with the British Bankers' Association. And then there is George Osborne, whose main contribution to the chaos has been to suggest to a magazine interviewer that Gordon Brown and his lieutenants are somehow to blame.

This is the British economic-policy establishment under unprecedented pressure – and what an unseemly, blame-ducking, buck-passing panic it presents. Not just the humbling of some of our most senior and respected officials but also the erraticism with which they have been making policy. Take, for instance, the ousting of Bob Diamond. The FSA's Adair Turner told MPs this week that when he spoke to the Barclays chairman Marcus Agius after the Libor scandal, he had expected Mr Diamond to walk the plank. Something was obviously lost in translation, however, because Mr Agius stood down instead. It took the intercession of Mervyn King to force out the Barclays chief executive. And why exactly was Mr Diamond pushed out? Not for any direct involvement in the Libor scandal but, in the words of Mr King yesterday: "They [the bank] have been sailing too close to the wind across a wide number of areas." No actual infraction; just a general sense of having gone too far for too long. This raises the question of why no regulator seriously intervened in Barclays before the Libor scandal. Bob Diamond has been head of one of Britain's biggest banks since January 2011, yet no official has brought up a previous incident where they told the board to change their behaviour or their personnel. The impression left is of rather rough justice. As Andrew Tyrie, head of the Treasury select committee, drily observed in the same session, by that measure every chief executive in the land is "only a couple of bad dinners" away from being forced out of a post.

This is not just some common or garden mishap or even misbehaviour at a big business. As Mr King observed on Tuesday, this is "fraud". And it has not just been carried out by Barclays, but by a string of other financial institutions – who between them fiddled the benchmark interest rates that are used as reference for hundreds of billions of pounds' worth of transactions. Some of the commentary about this scandal has brought up the fact that this occurred during the credit crunch in 2008, when it would apparently have been in everyone's interests to pretend that all was normal in money markets. Maybe, except that this scamming took place over at least four years – and the kindest interpretation of the evidence to date is that officials asked barely any questions. In place of supervision there was what looks like worrying chumminess. "Well done, man. I am really, really proud of you," Mr Diamond emailed the number two at the Bank on his promotion in December 2008. Mr Tucker replied: "You've been an absolute brick."

This story has so far revolved around one bank rigging one set of interest rates, involving emails and letters and committee hearings. Imagine what a serious, wide-ranging inquiry could uncover. Britain certainly needs one, because this blossoming scandal threatens not just the reputation of an industry but the regulators and ministers who let it run riot.

Regulatory Capture - The Bank of England knew of LIBOR rigging but did nothing

Ben Chu in The Independent

Regulators on both sides of the Atlantic failed to act on clear warnings that the Libor interest rate was being falsely reported by banks during the financial crisis, it emerged last night. 

A cache of documents released yesterday by the New York Federal Reserve showed that US officials had evidence from April 2008 that Barclays was knowingly posting false reports about the rate at which it could borrow in order to assuage market concerns about its solvency.

An unnamed Barclays employee told a New York Fed analyst, Fabiola Ravazzolo, on 11 April 2008: "So we know that we're not posting, um, an honest Libor." He said Barclays started under-reporting Libor because graphs showing the relatively high rates at which the bank had to borrow attracted "unwanted attention" and the "share price went down".

The verbatim note of the call released by the Fed represents the starkest evidence yet that Libor-fiddling was discussed in high regulatory circles years before Barclays' recent £290m fine.

The New York Fed said that, immediately after the call, Ms Ravazzolo informed her superiors of the information, who then passed on her concerns to Tim Geithner, who was head of the New York Fed at the time. Mr Geithner investigated and drew up a six-point proposal for ensuring the integrity of Libor which he presented to the British Bankers Association, which is responsible for producing the Libor rate daily.

Mr Geithner, who is now US Treasury Secretary, also forwarded the six-point plan to the Governor of the Bank of England, Sir Mervyn King. The Bank pointed out last night that there was no evidence in the Geithner letter of banks actually making false submissions – although then note did allude to "incentives to misreport".

It was unclear last night whether Mr Geithner informed Sir Mervyn about the testimony of the Barclays employee who said that the bank was being dishonest in its submissions.

If it turned out that he did, that would be highly damaging for the Bank since it has always claimed that it never saw or heard any evidence that private banks were deliberately making false reports about their borrowing costs. Sir Mervyn is due to be questioned by the House of Commons Treasury Select Committee next Tuesday, where MPs are likely to put this question to the Governor.

The Bank's Deputy Governor, Paul Tucker, went before the Treasury committee last week to answer allegations that he had put pressure on Barclays to misreport its borrowing rates in 2008 while attempting to promote financial stability. Mr Tucker denied that he had done so and said he only found out that Barclays had been deliberately submitting dishonest Libor submissions recently.

The New York Fed released its cache of documents in response to a request from the chairman of Congress's Committee on Financial Services on Oversight and Investigation, Randy Neugebauer, who has been investigating how much US regulators knew about the rate-fixing scandal, in which 11 other banks around the world have been implicated.

A separate email released by the Bank of England yesterday shows that Mr Tucker forwarded the Geithner email to Angela Knight, the former chief executive of the British Bankers Association. She responded saying that "changes had been made to incorporate the views of the Fed".

While the BBA is understood to have acted on two of Mr Geithner's proposals, the other four were not adopted.

Before hearing from Sir Mervyn on Tuesday, the Treasury Select Committee is set to take evidence on Monday afternoon from Jerry del Missier, the former chief operating officer at Barclays, who gave the green light for traders to submit false Libor submissions during the crisis. He will be asked about whether he thought the order to do so had come down from the Bank of England.

Last month Barclays was fined £290m for rigging Libor between 2005 and 2008. The regulators found that Barclays traders had initially submitted false reports to make profits for its traders, but subsequently to allay concerns about the bank's health. Barclays' chief executive Bob Diamond resigned on 3 July. The Libor rate is used to fix the cost of borrowing on mortgages, loans and derivatives worth more than $450 trillion (£288 trillion) globally.

The missed warnings: ‘So we know that we’re not posting, um an honest Libor

One document released yesterday by the Fed detailed a conversation between staffer Fabiola Ravazzolo and an unnamed Barclays employee in April 2008, including the following edited extract:

Fabiola Ravazzolo: And, and why do you think that there is this, this discrepancy? Is it because banks maybe they are not reporting what they should or is it um…

Barclays employee: Well, let's, let's put it like this and I'm gonna be really frank and honest with you.

FR: No that's why I am asking you [laughter] you know, yeah [inaudible] [laughter]

BE: You know, you know we, we went through a period where we were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates.

FR: Mm hmm.

BE: And the next thing we knew, there was um, an article in the Financial Times, charting our LIBOR contributions... and inferring that this meant that we had a problem... and um, our share price went down... So it's never supposed to be the prerogative of a, a money market dealer to affect their company share value.

FR: Okay.

BE: And so we just fit in with the rest of the crowd, if you like... So, we know that we're not posting um, an honest LIBOR. And yet and yet we are doing it, because, um, if we didn't do it it draws, um, unwanted attention on ourselves.

FR: Okay, I got you then.

BE: And at a time when the market is so um, gossipy... it was not a useful thing for us as an organization.

Stiglitz - Bankers must go to jail

Joseph Stiglitz tells Ben Chu that rogue financiers have proven that regulation must get
tougher

Ben Chu
Monday, 2 July 2012

The Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it
coming decades ago. And he's convinced that jailing bankers is the best way to curb market
abuses. A towering genius of economics, Stiglitz wrote a series of papers in the 1970s and
1980s explaining how when some individuals have access to privileged knowledge that others
don't, free markets yield bad outcomes for wider society. That insight (known as the theory
of "asymmetric information") won Stiglitz the Nobel Prize for economics in 2001.

And he has leveraged those credentials relentlessly ever since to batter at the walls of "free
market fundamentalism".

It is a crusade that has taken Stiglitz from Massachusetts Institute of Technology, to the
Clinton White House, to the World Bank, to the Occupy Wall Street camp and now, to
London, to promote his new book The Price of Inequality.

And kind fortune has engineered it so that Stiglitz's UK trip has coincided with a perfect
example of the repellent consequences of asymmetric information.

When traders working for Barclays rigged the Libor interest rate and flogged toxic financial
derivatives – using their privileged position in the financial system to make profits at the
expense of their customers – they were unwittingly proving Stiglitz right.

"It's a textbook illustration," Stiglitz said. "Where there are these asymmetries a lot of these
activities are directed at rent seeking [appropriating resources from someone else rather than
creating new wealth]. That was one of my original points. It wasn't about productivity, it
was taking advantage."

Yet Stiglitz's interest in the abuses of banks extends beyond the academic. He argues that
breaking the economic and political power that has been amassed by the financial sector in
recent decades, especially in the US and the UK, is essential if we are to build a more just
and prosperous society. The first step, he says, is sending some bankers to jail. " That ought
to change. That means legislation. Banks and others have engaged in rent seeking, creating
inequality, ripping off other people, and none of them have gone to jail."

Next, politicians need to stop spending so much time listening to the financial lobby, which,
according to Stiglitz, demonstrates its spectacular economic ignorance whenever it claims
that curbs on banks' activities will damage the broader economy.

This talk of economic ignorance brings us to the eurozone crisis and the extreme austerity
policies being pursued. Stiglitz is depressed. In 2000 he resigned from the World Bank and
launched an excoriating attack on the way it and its sister institution, the International Monetary Fund, handled the Asian financial crisis of the late 1990s. He condemned the IMF
for imposing brutal and inappropriate adjustment policies on bailed out nations – medicine
which, he argued, merely pushed nations further into crisis. "For me there's some nostalgia
here," he says.

Does he see any hope for the eurozone, I ask, or is it now heading, inevitably, for a breakup?
"It is a train that can still be stopped" he says. "But the relevant question is the politics in
Germany. Have they created in their rhetoric a dynamic that makes it difficult to stop? In
particular [German Chancellor] Angela Merkel's rhetoric that the crisis was caused by
profligacy. She's framed the issue as profligacy, rather than framing it as 'the European
system is fundamentally flawed' ".

The central argument of his latest oeuvre is that the huge inequalities of income and wealth
that have developed in the US and elsewhere in the West over recent decades are not only
unjust in themselves but are retarding growth.

"Every economy needs lots of public investments – roads, technology, education," he says.
"In a democracy you're going to get more of those investments if you have more equity.
Because as societies get divided, the rich worry that you will use the power of the state to
redistribute. They therefore want to restrict the power of the state so you wind up with
weaker states, weaker public investments and weaker growth."

It's an elegantly simple proposition. And one that logically points to a radical manifesto of
redistribution and higher taxation in the name of the general public good. Time will tell
whether this comes to be regarded as another manifestation of towering economic genius.
But, for now, crusading Stiglitz has one more weapon in his hands with which to batter down
those walls of folly

Libor scandal: How I manipulated the bank borrowing rate

An anonymous insider from one of Britain's biggest lenders – aside from Barclays – explains how he and his colleagues helped manipulate the UK's bank borrowing rate. Neither the insider nor the bank can be identified for legal reasons.

It was during a weekly economic briefing at the bank in early 2008 that I first heard the phrase. A sterling swaps trader told the assembled economists and managers that "Libor was dislocated with itself". It sounded so nonsensical that, at first, it just confused everyone, and provoked a little laughter.

Before long, though, I was drawing up presentations to explain the "dislocation of Libor from itself" for corporate relationship managers. I was deciphering the subject in emails, internally and externally. And I was using the phrase myself openly with customers of the bank.

What I was explaining was that the bank was manipulating Libor. Only I didn't see it like that at the time.

What the trader told us was that the bank could not be seen to be borrowing at high rates, so we were putting in low Libor submissions, the same as everyone. How could we do that? Easy. The British Bankers' Association, which compiled Libor, asked for a rate submission but there were no checks. The trader said there was a general acceptance that you lowered the price a few basis points each day.

According to the trader, "everyone knew" and "everyone was doing it". There was no implication of illegality. After all, there were 20 to 30 people in the room – from management to economists, structuring teams to salespeople – and more on the teleconference dial-in from across the country.

The discussion was so open the behaviour seemed above board. In no sense was this a clandestine gathering.

The main business of the day was to deal with the deepening crisis. And questions were raised about what we, in one of the bank's sales teams, could be doing to earn our wages.

The answer was fire-fighting. Helping the corporate bank with clients – predominantly explaining why the customer's loan was being moved from base rate to Libor and why their interest margin was increasing sharply. It wasn't easy for the corporate bankers. They were under orders from the credit committee, and powers at the top, to change a client's borrowing rate to Libor and increase the margin if any covenant was breached, no matter how small.

We accompanied the relationship managers to meetings to explain what was happening in the economy – why base rate lending could not be sustained, why margins had to increase, and of course to explain the general economic backdrop.

As part of that, we had to explain the "dislocation of Libor from itself". As the trader put it, everyone knew that we couldn't borrow at Libor, you only needed to look at the price of our credit default swaps – effectively survival insurance for the bank – to see that.

What that meant was that even though Libor may have been, for example 2pc, the real Libor rate the bank was paying was more like 5pc or 6pc. So in fact, we needed to be lending money at Libor plus 3pc or 4pc just to break even. That is what we were telling clients.

Looking back, I now feel ashamed by my naivety. Had I realised what was going on, I would have blown the whistle. But the openness alone suggested no collusion or secrecy. Management had been in the meeting, and so many areas of the Treasury division of the bank represented, that this was clearly no surprise or secret.

Libor had dislocated with itself for a very good reason – to hide the true issues within the bank.

Investment Banking - An organised Scam masquerading as a Business

Let's end this rotten culture that only rewards rogues

The Barclays rate-rigging scandal has once again exposed a world where men and women with little skill and no moral compass can become very rich very fast

• 
• • Will Hutton
  • guardian.co.uk, Saturday 30 June 2012 21.00 BST

Barclays boss Bob Diamond. Photograph: Dylan Martinez/Reuters

 

Investment banking is an organised scam masquerading as a business. It is defined by endemic conflicts of interest, systemic amoral behaviour and extreme avarice. Many of its senior figures should be serving prison sentences or disgraced – and would have been if British regulators had been weaned off the doctrine of " light touch" regulation earlier and if the Serious Fraud Office's budget had not been emasculated by Mr Osborne. It is a tax on wealth generation and an enemy of honest endeavour – the beast that is devouring British capitalism.

The £290m fine on Barclays for rigging the interest rates in the inter-bank market is a defining moment. Not just for Barclays but for every bank with which it colluded. Barclays had the wit to come clean first – the first of many banks to suffer political and moral opprobrium for illicitly inflating its profits. It was also trying to protect itself from "reputational damage" – not wanting other banks' assessment of its creditworthiness to become public .

In the light of what we now know, that seems laughable. But between autumn 2007 and spring 2009, Barclays was fighting for its life as an independent bank. Had the news surfaced that other banks harboured such doubts about its credit standing, Barclays might have ended up being owned by the British taxpayer like RBS and Lloyds.

As the FSA reports, senior treasurers and the corporate affairs department were both keenly aware of those risks and anxious they should be averted. It beggars belief that the top of Barclays did not know what measures it had to take to pull through. It had to lie about the rates it was paying to borrow money.

This came easily because the practice had become habitual. The London interbank offer rate is set each day at 11am in all the key currencies lent and borrowed in London. Each major bank submits the interest rate it is paying to the British Bankers' Association and the average becomes the benchmark rate for most of the world's loans and financial contracts. For example, there are some $554tn worth of so-called interest rate derivative contracts whose price is linked to Libor – manufactured products whose alleged purpose is to hedge the risk of unexpected interest rate changes in a world of floating exchange rates and free capital movements.

In fact, there is no way that these instruments can insure against system-wide movements. Some bank has to lose by being the sucker paying out, then becoming the weak link in the system which, in an extreme case, has to be bailed out by the taxpayer. Derivatives should rather be seen as economically purposeless constructs whose ease of manipulation in opaque markets makes the investment banks rich – while the rest of us take our chances.

Over the past few years, more and more light has been thrown on how banks profit by trading on their own account in so-called "proprietary trading" – dealing in derivatives, while another part of the bank makes a market for buyers and sellers in those self-same products. First of all, they can take positions on a vast scale because they are enormous banks with their deposits effectively guaranteed by the taxpayer. Next, they rig the benchmark interest rate on which the price of many derivatives are based, made easier still because so many derivatives are custom-made. This means that deep non-manipulable markets are hard to construct; it's also easier for derivatives to aid and abet tax avoidance. And lastly, as Goldman Sachs' "Fabulous" Fabrice Tourre revealed, the banks actively manage both the buyers and sellers. Thus they know which way the prices are likely to move from hour to hour.

Managements have little incentive to manage such a business because their own extravagant bonuses depend on its success. Even if they were minded to insist on proper behaviour, so much of the action takes place over hours and even minutes – hence they have to give phenomenal discretion to the teams running the trading desks. Managers cannot possibly monitor their real-time positions or second guess why they have been taken – the reason why rogue traders can lose banks billions, as one recently did at JP Morgan in London.

Much has been said about the rotten culture in investment banking – now from both the prime minister and the governor of the Bank of England. But the regulators, the British government and bank managements – all genuflecting to the wisdom of the age that free markets make no mistakes – allowed a business model to be created in which men and women with very little skill and no moral compass could make themselves millionaires in a very short time. They contributed zero wider economic value but created immense systemic risk for the rest of the economy.

A rotten culture does not emerge from thin air. It emerges from structures that encourage rotten behaviour – and Britain, following the false gods that free markets and financial services were its economic future, created such structures big time, cheered along by a cross-party alliance that extended from Boris Johnson to Gordon Brown. Now is a decisive moment for both the City and the economy. The City's reputation is at rock bottom. Meanwhile the economy acutely needs a financial system that backs wealth-generating innovation. We need a determined root and branch reform of British finance to restore international trust, develop the national economy and to bring an end to the mis-selling scandals. In RBS's case, the bank was even unable to discharge for a week its basic function – allowing its customers to transact financial business.

A start has been made with the promised implementation of the Vickers commission's recommendations to ringfence investment banking from commercial banking. The ringfence, weakened by George Osborne under intense pressure from the banks, should be strengthened to produce a de facto separation. In particular, "prop" trading desks should operate as fully separate units with their own boards, balance sheets and capital. The measures should be rolled out as soon as they become law rather than delayed until 2019.

That is only a start. The banks and the British Bankers' Association can no longer be allowed to set Libor: this task must now be done by the Financial Conduct Authority that is to succeed the FSA. London must also fall into line with international practice and require all derivative trades in the over-the-counter market to post appropriate collateral. London can no longer be the wild west of international finance where American and European law can be flouted. I would go further and require all financial instruments to be traded in organised exchanges.

There is also the question of ownership: shareholders exercised far too little influence over bank managements. Worse, their short-termist behaviour encouraged banks to look for sky-high fast returns to keep them happy. The Ownership Commission ( which I chaired) argued for the creation of new ownership mutuals that pooled the voting rights of institutional shareholders. This would both anchor ownership to set more reasonable profit expectations, and give owners real muscle in a dialogue with managements.

Banks need such better, engaged ownership – and fast. The British government, owning RBS and Lloyds, should give a lead in what it expects from banks. In particular, it should take a lead on remuneration.

In my fair pay review for the government, I argued that private sector executives should put a proportion of their pay at risk to be earned back by doing their job properly; only then should they be eligible for an equivalent bonus. There would be no question of Bob Diamond trying to win brownie points by giving up his bonus. Under earnback it would be automatically forfeited.

The Financial Services Authority has begun to show how regulation could work: five years ago it would never have launched such a bold and revealing inquiry. George Osborne is breaking it up just when it should be backed and reinforced.

The £14m cut in the Serious Fraud Office's budget since 2008 should be restored in full. There should be arrests, trials and imprisonment. And there should be an independent Leveson-style inquiry into investment banking and the causes of the financial crisis.

So far, there has only been the whitewash report in 2009, co-chaired by Sir Win Bischoff and Alistair Darling, arguing that as little as possible should be done to regulate the City. It was a disgrace.
As far as possible, the underlying causes of the over-inflated size of finance should be addressed. If there were less exchange and interest rate volatility, there would be less underlying demand for instruments to protect against it. This is, of course, the case for a system of managed exchange rates and a European single currency.

Instead of deifying floating exchange rates as the magic bullet for all economic ills – the default position of the British economic establishment across the political spectrum — floating rates should be seen as another driver of our over-inflated financial sector.

Britain needs to rebalance and develop its economy – and it needs to start by reforming finance. This could be the moment the process begins, laying the basis for a remoralisation of our economy and a new industrial revolution. But it means confronting the biggest lobby of them all – big finance. Any takers?

Banking keeps getting away with it, just as the unions did

Heads will probably roll for the Libor scandal, but this crisis won't end until the profession's link with politicians is severed

• 
• • Simon Jenkins
  • guardian.co.uk, Thursday 28 June 2012 20.30 BST

Banking first refused regulation and now welcomes it, because only thus can it be protected from the consequences of its own greed. Illustration: Simon Pemberton

 

Too big to fail … now too big to jail? There seems no end to the immunity – moral, political, fiscal and possibly legal – claimed by the present masters of the universe, the bankers. In a side-splitting, coffee-spluttering radio interview today, Sir Martin Taylor, the former chief executive of Barclays, mused that his old board might consider the best person to "turn the page" on the bank's latest scandal might be none other than its author and present chief executive, Bob Diamond. That is presumably despite the bank being fined £290m and pending possible charges of fraud.

Diamond has "taken responsibility" for the division that from 2005 onwards manipulated inter-bank loans so as to disguise the bank's vulnerability in the runup to the 2008 credit crunch. The clear intention was to mislead the market and enrich bank staff with bonuses. Responsibility apparently means Diamond "giving up" a bonus which, surely, he has yet to earn.

A year ago the Barclays chief dazzled the BBC into letting him give a lecture on banking and citizenship, a lecture now sodden with irony. He spoke of the importance of an organisation's culture, of "how people behave when no one is watching", and how "our culture must be one where the interests of customers and clients are at the very heart of every decision we make". Bankers must be good citizens, said Diamond,, or there would be social unrest.

At the time Diamond was demanding his own shareholders pay him not just a salary, but the tax on that salary and then the tax on that taxable benefit. It is not clear who paid the tax in this spiral of greed. Diamond must also have known his colleagues were then being investigated by the Financial Services Authority for irregularities in the bank's trading. Diamond's entire reputation was built on his banking culture, one of bonus-hunting, offshore tax avoidance and killer-takes-all rivalry. For him to give a lecture on ethics invited cliches about Jack the Ripper and door-to-door salesmanship.
The Barclays affair should be a sideshow to our present discontents. The world currently faces the greatest collapse in western statecraft since the second world war. Economists, officials, politicians, even commentators, seem gripped by professional and intellectual rigor mortis, one horribly reminiscent of the 1930s. All experience tells them that a collapse in global demand needs monetary injection, not contraction. Yet they deny it, and bankers lie about it. In Britain we all parrot that £325bn has been "pumped into the economy" by the Bank of England. It has not. The money is nowhere to be seen. It is a device, a headline, a sick joke.

At such times it is comforting to turn from the murky failures of the present to the clear ones of the past. The snoozing Commons Treasury committee is yet again "to call Mr Diamond the account", so it can show off its interrogatory machismo. Lord Myners, formerly of the Guardian, won himself plaudits today by calling Barclays "the most corrosive failure of moral behaviour that I have seen in a major financial institution". But he was a worldly banker himself, and City minister in 2008-9, when the whole house of cards was collapsing amid media reports of "something fishy" in the Libor market. Labour was putty in the hands of the bankers.

From the credit crisis to the present day, the one profession with open access to Downing Street is banking. It lobbies successfully on everything from bailouts to bonuses, non-doms to Tobin taxes, euro regulation to "quantitative easing". When told to lend to small businesses, it refuses. When given money to do so, it buries the money. When ministers plead for lower salaries, it increases them. The government takes over a bank, RBS, and its computers crash. Bankers get ribbed in the press – but so what, when the bonus is in the safe and few are ever called to account, banned from trading, or sent to jail?

Banking gets away with all this because it enjoys the same unaccounted access to power that trade unions enjoyed in the bad old days. It first refused regulation and now welcomes it, because only thus can it be protected from the consequences of its own greed. It preaches the nobility of the markets and then rigs them. We should listen every day to Adam Smith's maxim, that "people of the same trade seldom meet together … but the conversation ends in a conspiracy against the public or in some contrivance to raise prices".

Most running controversies today reflect deep confusion in corporate ethics and accountability. Barclays traders, News of the World reporters, immigration office officials, even drone bombers, turn instinctively to the excuse that they were "just obeying orders". Thus is moral responsibility dispersed and blame passed upwards to the boss, the board, the regulator, the government, ultimately democracy. The great let-out is that "we are all to blame". As the philosopher Reinhold Niebuhr remarked, moral individuals can still constitute an immoral society. Guilt is diffused in a crowd.
Failure of regulation has become a catch-all to sanitise personal and corporate misbehaviour in large organisations. This merely means that, when an outrage has been detected, and a feeding frenzy begins there are howls for heads to roll. Certainly at Barclays public decency, if nothing else, demands some sacrifice. But the real fault lies in bigness, in the ease with which corporations can fall victim to ethical compromise and pretend it is not their fault but the regulator's.

There must surely be a reckoning one day for the loss and agony that the credit crunch has inflicted – and is still inflicting – on millions of innocent victims. But as we seek out the guilty men, we should know that as long as banking retains its stranglehold on policy, the disaster will continue.