Financial crisis: From chaos to complacency
- The Guardian, Monday 29 June 2009
Last October, Gordon Brown was furious with bankers. "I'm angry at irresponsible behaviour," he told GMTV, as he unveiled a £500bn plan to rescue a banking system near collapse. "Where there is excessive and irresponsible risk-taking, that has got to be punished. The day of big bonuses is over."
Last week, the angry man of politics nodded through a huge bonus package for the boss of one of the worst-hit British banks. RBS is 70% owned by the government, which makes its chief executive Stephen Hester a civil servant in all but name - yet if he plays his cards right he will pocket nearly £10m. So much for Mr Brown's righteous anger. Just a few months ago, the prime minister flew to Washington and called on Congress to "outlaw shadow banking systems and offshore tax havens". Today, the Treasury will publish a new voluntary code of conduct for banks, to dissuade them from constructing intricate tax-avoidance schemes. Again, Mr Brown's fine words translate into too-little action. This is not the general anti-avoidance principle tax campaigners have been demanding. Banks that duck out of the new gentlemen's agreement will face no sanction more severe than a bit of closer attention from Her Majesty's tax inspectors. As a government tax source told this paper a few months ago, "There are less than 100 inspectors actually tackling avoidance, against thousands of professionals advising companies on how to do it." Barclays - which has a huge structured-capital markets arm devoted to helping customers with tax - or any other bank may well decide that these are odds worth taking.
As the Lib Dem treasury spokeman, Vince Cable, puts it in an essay for this week's New Statesman: "The bankers can't believe their luck." After plunging the world into recession, and having had to be rescued by the taxpayer, the financiers are being asked for little more onerous than a commitment to do better next time. Mr Cable suggests that MPs' expenses have derailed the reform process, by distracting Mr Brown's government and by stripping Westminster of its authority to tackle banker excesses. But it is easier too for an enfeebled government not to make any more enemies by taking on the City. Certainly, next week's Treasury white paper on financial regulation looks as if it will be a modest document; a policy package better suited to 2003, say, rather than 2009. Mr Brown's pre-election gambit is clear: hold out for those fabled green shoots, float a stake in Northern Rock or another state-owned bank and claim the credit as firefighter-in-chief. Were they in power, the Tories would not do much better. George Osborne may sound tough about overly large banks being broken up, but the rhetoric is not matched by policy. Nor is it likely to be, going by yesterday's story in the Sunday Telegraph about bumper City donations to Conservative Central Office.
Wall Street has also returned to business-as-usual. Goldman Sachs is enjoying healthy profits and has reportedly briefed staff to expect juicy bonuses. Having won his mandate on the back of the banking crisis, Barack Obama this month unveiled reform proposals that amounted to little more than the shuffling of deckchairs. Last autumn's avowals of action have turned this summer into complacency.
The biggest difference between then and now is the lack of chaos. But take away the government safety net, as the Bank of International Settlements warns today, and the financial system would not look much better than it did last October. Few of the hard decisions essential either for a more stable or for a healthier financial system have been made; the toxic assets have not been disposed of, nor have giant banks been broken up. Instead, officials are merely throwing taxpayer funds at the problem. The age of irresponsibility is over, promised Mr Brown last September. In that too he was wrong: it has simply been suspended.