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Monday, December 14, 2009

the Banker's dozen

The New Economics Foundation claims that banks are socially useless, as, unlike cleaners and care workers, they have no benefit to society at large NEF.

Evidently there is some political pandering to the masses with this report. Without banking, cleaners could not get loans to buy houses. Without banks, care workers would not have hospitals or homes to work in.

This is a glib response. The arguments against banks being socially useful are plentiful: while some bankers have lined their own pockets, they have contributed to the economic woes of the poorest nations, lining their coffins (well, they probably don't have coffins, but there had to be some element of thoughtful prose). Banks have racked up their own debt, gearing their balance sheets within an inch of their lives, and created a situation where not only are banks in debt to the taxpayer, but the taxpayer is faced with a higher tax bill as a result. Great scott! Our debt is being used to pay off the debts of the banks, so that we can start borrowing from them again. What a tangled web we weave, when first we practice to receive...

But are banks morally bankrupt? Certainly, the policy of chasing that last nickel at the expense of the customer is immoral. The policy of making consumers pay for a bank to manage their deposits, just so the bank can get out of debt - that, too, is immoral. Banks recalling loans to schools, charities, small enterprises and community concerns is, also, immoral - they could, if they wanted to, recall loans from other, larger, private and public companies although this might create relational problems with potentially profitable long-term clients. A charity might not have a lot of money to repay, but it will never be a high earner for the bank.

In that sense, banks are morally reprehensible and have displayed little social usefulness.

However, leaving aside the obvious 'some banks good, some banks bad' argument, banks in general have an important part in society, one which is part of the very woof and fabric of our being. They oil the wheels of industry. They provide the loans for hospitals and similar organisations. They provide mortgages for millions. Without a place to put money, even the smallest depositors would have to bury their money in the backyard or stick it in a cookie jar under the bed.

Thanks to the recklessness of a few, we're all affected: decent mortgage rates are harder to come by, MPPI comes with a higher premium, our jobs are tenuous and our interest rates, zero. But what choice would we have if there were no banks? Who would give us a loan, provide us with a mortgage, cover us for holiday accidents or supply us with cash-in-hand when we're out and about?

I'd challenge the good folks at NEF to try to live for a year without using anything to do with a bank: ask your employers to pay you in cash (and tell them that they cannot take that out of a bank). Don't use credit or debit cards for a year. Refuse to write, or to accept cheques. Put your money under the mattress. Raise a mortgage - and your children - without any loans. Pay for your expensive private healthcare using copper coins. Send your children to a school that has not been helped out by any bank loans.

Without banks, we'd be trading in beads and corn, or heading down to the wharf to find a nice money-lender who will charge an extortionate fee without any security or means of redress. He'll then launch into a diatribe about how 'sufferance is the badge of all his tribe' or climb a tree because he's short. No, wait, I'm getting Shakespeare and the Bible mixed up again - it was bad enough the last time that happened. Fake Scottish accents, witches and a talking donkey? Shrek has a lot to answer for.

Anyway, the banks may have shown little moral fibre, but by golly the economy needs whatever fibre it has.


El-Kevo said...

The question is do we need super-bonuses for banks to exist ? No we don't.

Bonuses get us the best bankers ? Well it really didn't stop them making a hash of things... in fact is was the bonus culture which CAUSED them to make a hash of things.

At least pay them in shares cashable only after five years so they are affected by the consequences of their actions.

The banking bonus culture has damaged our society in other ways too - it has diverted capable people away from their true vocations (for which they were educated) and drawn them into the City. It spawned a property bubble which made the non-productive, inward-looking, housing sector more attractive than outward-looking and productive entrepreneurialism.

Donn said...

What the Financial Institutions fail to recognise is that it IS our money..well in theory...Banks have operated on the interest of their interest for decades so it's easy to see why they are so immune to our whinging.

What has never changed is that 3% of the population owns 50% of the's always been that way and I have no doubt that it always will.

The ridiculous scenario that unfolded in the American Mortgage debacle is all part and parcel of America's obssession with money. True manifest destiny, as held by the great unwashed, is to be rich someday...and you're all on your own.

Most of the other developed nations have a kinder-gentler notion of how that works but my neighbours to the South seem to worship monetary success and it doesn't matter how you get it (gangster, self made businessman, or lottery winner) long as you geddit!

Personally I loathe Banks and prefer Credit Unions which atleast offer a glimmer of customer control.

Mermaid of Moorgate said...

Without a bank backing a certain technology developer, Mobile phones would not have happened.

Where would you be without your cell phones?

I'd be lost, that's for certain!

El-Kevo said...

We certainly weren't lost before the advent of mobile phones.

It seems that such technology has exposed us more to global competition. And there are times when I urge my friends (particularly on camping expeditions or in restaurants) to leave them switched off.

The Old Tarf said...

Life is a Beach. Esp when you are in Mexico. Only a week to Christmas

Love you Dad

The Old Tarf said...

you should update this once and a while. We are off to the dreams Tulem for the next week. Chck out my last 4 bogs aboaut the trip.

Trubes said...

I think the Bankers are much maligned by an inept Government and the FSA, which allowed the situation to happen in the first place...
The FSA is a Government backed board...The buck stops with Gordon Brown and his totally useless group of cohorts!
The NuLab 'dream' has ruined this country..
Thanks to them, our widely trusted and respected Banking Financial Systems are in tatters.


Mermaid of Moorgate said...

El Kevo, I do understand that mobiles can be switched off, unlike the bleating of those bankers whose bonuses have been temporarily tempered. And I'm not lauding the bank's recent performance.

But without the banks there would be no society as we know it, because the wheels that enable distributors to function, shops to stock food, car manufacturers to produce motors and so on and so on, would not be able to function. We'd go back to a time before Adam Smith, a time where there is no economy as we know it and trading must be done with beads and barleycorn.

What we do need, and I agree with you here, is a robust regulation that disables the idiot bankers and poor processes and prevents them from screwing up the system. As Di has said, the FSA and the government had let things get too bad, for too long, and then had to implement this knee-jerk reaction after everything went south.

I refer to Philip Stephen's column in the FT today - visit

Trubes said...

Hello Mermies,
Thanks for your ringing endorsement regarding my comments about the much maligned Bankers.
It is a subject I feel very strongly about.
As a youngster, working for Lloyds Bank, we were required to take difficult banking exams to qualify as Associated Members Of the Institute of Banking.
Then, and only then, were we allowed to take control of our customer/client accounts.
We were paid bonuses on our overall perfomances, on a yearly basis.
This was an incredible incentive which encouraged implementing proper procedure and the profitability of the bank.
If we produced good results we were paid our bonuses.
I can only remember, not being paid bonuses was when we had a Labour Goverment in power!
Wilson and Callaghan 'cocked up ' a thriving economy in the sixties as have Blair and Brown done to date.
It will take years to sort out the financial mess we are in all thanks to the profligate NuLab morons, who have tried, unsuccessfully, to govern this once mighty nation.
If Bankers terms and conditions state a relevant bonus will be paid then, so it should be .
Should they not be reaching their set targets then, of course, they do not deserve a bonus.
The metaphorical, 'boot rests firmly on Gordon Brown's foot'.
He caused all the problems by his meddling in financial matters when he is ill qualified to do so...
How degree in History squares with being called a 'Financial Genius' doesn't 'add up'!!!

Typical NuLab....
All spin with no substance.

Brown should have stuck to teaching in a local 'Poly' and left the financial management of our Country, to those most qualified to do so!


P.S. Mermies I've a posted a little seasonal yarn on my site should you care to take a peek!

Have a wonderful Christmas and a peaceful and prosperous new Year. Dx