Go on. Admit it. You don’t feel altogether sorry for those bankers, do you? When you read about the collapsing pillars of the temples of mammon, you don’t feel the tears beginning to prick the corner of your eyes.
The City is a global industry in which Britian excels: we should not exult as banks fold.
When you read that the masters and mistresses of the Universe are being expelled from their glass palaces, ferrying their possessions in cardboard boxes, you can’t quite find it in you, somehow, to mourn.
Oh no. On the contrary. You snuffle and truffle your way through the yards of newsprint, searching for fresh news of folding banks and speculating who will be next.
So Lehman Brothers has bitten the dust, and the gloomy reverberations are being heard in Porsche dealerships on both sides of the Atlantic. Merrill Lynch has been sold, and now the tide of destruction is lapping about the feet of Morgan Stanley and – can it be true? – Goldman Sachs!
Amid the anguish, amid the despair, I am afraid I detect in the coverage a tiny but audible batsqueak of glee, and sometimes it is more than a squeak.
Every Lefty from Alex Salmond to Gordon Brown is queuing up to kick the “spivs and speculators”, who are apparently the authors of their own destruction, as well as the destruction of immeasurable wealth across Britain and the world.
At the very moment last week when banking stocks were a sea of gore, and thousands of jobs were being lost, the Prime Minister thought fit to announce that the “City must clean up its act”. In respectable conservative free-market newspapers you will find yammering columnists demanding new laws on usury, so that nothing of this kind can ever happen again.
As the banker-bashers survey the wreckage of Lehman Bros, the main complaint is that the carnage does not go far enough. Why, when ordinary people are suffering from plummeting house prices, are these ex-Lehman partners allowed to waltz off with multi-million pound bonuses?
Why, when they have so terminally stuffed the financial system that most people are finding it tough to get a mortgage, are these incompetent loan sharks still cruising the world in their yachts and Bugatti Veyrons? Yes, there are some pretty strong feelings out there: Schadenfreude at the bankers who have been punished, indignation at those who have not.
Which is why it is time for this column – ever alert to the noble but unpopular cause – to enter a note in defence of the banks, the City, and the general practice of lending money for profit.
Let us be clear: the banks have been greedy, sometimes hideously greedy. And they have collaborated in encouraging the greed and credulity of home-owners, on both sides of the Atlantic, who have taken on more debt than they can manage.
The banks have made it worse by taking that bad debt, and chopping it up into funny parcels called derivatives, and selling these products to each other to make even more money; and then they have made things much, much worse by lying.
They have been lying to each other about they extent to which they hold this toxic stuff, and so trust has broken down, and the banks have stopped dealing with each other, and no one can get any credit, and the short-selling hedge funds have begun to close in – quite reasonably – to sell the banks’ shares and start the bloodbath.
Last week we seemed to be faced with a full-scale run on the banks, and governments in America and Britain had no choice but to act. The Labour Government has flouted competition rules to protect HBOS, and both governments have banned short selling.
It is an incredible turn of events, and for a free marketeer it is quite dizzying. There can be no doubt that government has a duty to get involved, not least to protect innocent depositors. Someone needs to make sure there is no more sharp practice, and that someone is government.
How come Lehman was allowed at the last minute to whip an £8 billion cushion away from London, and transfer that cushion to New York? The result was that the defenestrated bankers of New York had a softer landing than Lehman folk in the City. It looks damn suspicious.
We need an answer, and fast. But we should also remember that whenever government gets involved in the market – whenever they use taxpayers’ money to defend the price of a share or a currency – they create a risk and they create an opportunity.
When Hank Paulson nationalised Fannie Mae and Freddie Mac, he was issuing a feeding call to the sharks, as obvious as the boasts of Norman Lamont that he would fight to the death to protect the parity of sterling against the German mark. The hedge funds saw a one-way bet, then and now, and the paradox is that Paulson’s initial actions may have made the banks more vulnerable, not less.
What will happen in January, when the rules on short-selling expire? And whatever else government does, we must remember that regulation introduced in response to one crisis almost always helps to create the next one.
London’s recent success as a financial centre – and our edge over New York – has been at least partly to do with the post-Enron Sarbanes-Oxley rules that fettered American markets.
Before you attack the bankers of London, remember that this is one of the few global industries in which we truly excel; the City contributes about 9 per cent of Britain’s GDP – think of all the professions and trades that feast, directly or indirectly, on the nourishment provided: the lawyers, accountants, PR firms, architects, interior designers, builders, taxi drivers and just about everyone else.
And before you go whingeing to me about house prices boosted by City bonuses, I leave you with one final thought: whatever the disasters of the sub-prime sector, these products allowed millions of Americans to own their homes, and the vast majority are making their payments.
They will enjoy the long-term benefits of home ownership, and that is thanks to the ingenuity and enterprise of people who lend money for profit. Of course there are spivs and speculators out there.
But before we get carried away with neo-socialist claptrap, we should remember the huge benefits brought to this country by bankers and the City of London.
[First published in the Daily Telegraph on 23 September, 2008 under the heading ‘ Financial Crisis: Bankers and the City of London provided a roof over people’s heads’]