The march of the middle men

A new breed of intermediary, who manipulate the market economy for their own interest, is on the ris

The spectacle of Southern Cross, the privately owned care homes operator, teetering on the brink of bankruptcy whilst its 31,000 elderly and vulnerable residents worry about being thrown onto the street, is a potent symbol of much that is wrong with the model of the market economy as it has developed in the UK.

Four senior executives sold their shares at the top of the market,, netting £35 million between them, whilst private equity owners traded up the company's debts and restructured it in a way which has now been shown to be totally unsustainable. Doubtless they also took generous commissions and fees for this miracle of financial re-engineering. Private equity after all claims that it makes failing companies stronger by restructuring them. The recent collapse of Focus DIY has highlighted the behaviour of one private equity firm, Duke St Capital, which took a staggering £700 million out of the stricken company after an initial investment of a mere £68 million.

These are examples of the behaviour of a new breed of intermediaries and agents who act in their own self interest rather than in the owner's interest -- much less in the public interest. They concentrate on extracting what economists would call "rent" for themselves (those fat fees and commissions), rather than doing what they are supposed to do in a properly functioning market economy -- which is act in the interests of the shareholders and beneficiaries they are meant to serve. Their focus is all too often concentrated on the short term and their measurements of "success" for the purposes of their own fees and remuneration are almost always the near term share price which is used as a convenient proxy for value.

Pension fund managers are responsible for looking after billions of pounds of members' money. And the size of the funds under management is likely to carry on rising. In 2009, the total assets of UK pension funds, insurance and trusts was £2,669 billion. This struck me very forcibly when, as minister for pensions, I found myself speaking at the annual Gleneagles pension conference and realised I was in the presence of a hundred or so men (there was only one other woman in the room) who between them controlled about half of the UK's GDP.

It is increasingly important therefore, as the campaigning group Fair Pensions has pointed out, that the fiduciary duty owed by these fund managers to their pensioner beneficiaries and the companies they effectively own is properly discharged. Those entrusted to act on behalf of others must not be tempted to abuse their position for their own ends. Yet the increasing complex and specialist nature of investment decisions has led to the rise of "investment consultants" and other agents who have plenty of opportunity to act in their own self interest. They have become a charmed circle, difficult to keep an effective check on. Their accountability has tended to centre on their ability to generate short term returns. They tend to be very handsomely rewarded irrespective of their actual performance.

The potential for these conflicts of interest to arise in financial services was greatly increased by the big bang deregulation of the City in the 1980s. This created large financial services conglomerates which combined asset management operations with investment banking, only erecting the flimsiest of Chinese walls. It is no coincidence that the huge increase in income inequality dates from precisely this period, rising by 40 per cent during the Thatcher/ Major governments as their remuneration levels soared.

Analysis of the causes of the global banking crisis in 2008 highlights the malign role of intermediaries and similarly dubious "financial innovation" which just happened to make billions in fees, commissions and bonuses for these middle men too. They invented financial products which consisted of packages of increasingly dubious mortgage debts and sold them as if they were risk-free assets. Their reassuring triple-A ratings signalled that these "products" were virtually risk-free and so they were traded across world financial markets, infecting the entire banking system with toxic debts and inflating property bubbles in many countries. More of these apparent assets were "manufactured" by the expansion of mortgage finance in the US -- especially to those with no jobs and no or low income. This was done precisely because these financial instruments were so lucrative to those investment banks which packaged them up and sold them on for huge commissions.

Few noticed or commented on the direct conflict of interest inherent in the sellers of such financial instruments paying for the risk assessment process which in turn directly inflated the price. The ratings agencies got bigger and more profitable as a result. The investment bankers walked away with billions and the entire financial system had to be bailed out by governments worldwide to the tune of $14 trillion.

As a direct result, millions of people have lost their homes, their jobs and their security while a privileged few walk away with fortunes. Action to pay down the resulting government deficits means that the benefits were privatised by the tiny few but the losses were socialised to the hundreds of millions. The government's oddly named Project Merlin final deal with UK banks does not even begin to respond to the challenges presented by this march of the middle men.

There is now a widespread recognition that not enough was done by institutional owners to curb the excessive risk taking and poor corporate governance which nearly destroyed the global banking system. Ed Balls has apologised for the last government's failure to regulate the banks more effectively (as have the regulators), but we have yet to hear any meaningful contrition from the middle men or the banks.

We need a banking system which operates in the interests of the real economy and the customers rather than in its own self interest. In its anxiety to embrace the market and accommodate to the Thatcher Reagan orthodoxy, New Labour was naïve about this particular strain of free market capitalism. Markets have to be regulated in the public interest. The march of the middle men needs to be checked.

Angela Eagle is the shadow chief secretary to the Treasury and Labour MP for Wallasey.

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If there’s no booze or naked women, what’s the point of being a footballer?

Peter Crouch came out with one of the wittiest football lines. When asked what he thought he would have been but for football, he replied: “A virgin.”

At a professional league ground near you, the following conversation will be taking place. After an excellent morning training session, in which the players all worked hard, and didn’t wind up the assistant coach they all hate, or cut the crotch out of the new trousers belonging to the reserve goalie, the captain or some senior player will go into the manager’s office.

“Hi, gaffer. Just thought I’d let you know that we’ve booked the Salvation Hall. They’ll leave the table-tennis tables in place, so we’ll probably have a few games, as it’s the players’ Christmas party, OK?”

“FECKING CHRISTMAS PARTY!? I TOLD YOU NO CHRISTMAS PARTIES THIS YEAR. NOT AFTER LAST YEAR. GERROUT . . .”

So the captain has to cancel the booking – which was actually at the Salvation Go Go Gentlemen’s Club on the high street, plus the Saucy Sporty Strippers, who specialise in naked table tennis.

One of the attractions for youths, when they dream of being a footballer or a pop star, is not just imagining themselves number one in the Prem or number one in the hit parade, but all the girls who’ll be clambering for them. Young, thrusting politicians have similar fantasies. Alas, it doesn’t always work out.

Today, we have all these foreign managers and foreign players coming here, not pinching our women (they’re too busy for that), but bringing foreign customs about diet and drink and no sex at half-time. Rotters, ruining the simple pleasures of our brave British lads which they’ve enjoyed for over a century.

The tabloids recently went all pious when poor old Wayne Rooney was seen standing around drinking till the early hours at the England team hotel after their win over Scotland. He’d apparently been invited to a wedding that happened to be going on there. What I can’t understand is: why join a wedding party for total strangers? Nothing more boring than someone else’s wedding. Why didn’t he stay in the bar and get smashed?

Even odder was the behaviour of two other England stars, Adam Lallana and Jordan Henderson. They made a 220-mile round trip from their hotel in Hertfordshire to visit a strip club, For Your Eyes Only, in Bournemouth. Bournemouth! Don’t they have naked women in Herts? I thought one of the points of having all these millions – and a vast office staff employed by your agent – is that anything you want gets fixed for you. Why couldn’t dancing girls have been shuttled into another hotel down the road? Or even to the lads’ own hotel, dressed as French maids?

In the years when I travelled with the Spurs team, it was quite common in provincial towns, after a Saturday game, for players to pick up girls at a local club and share them out.

Like top pop stars, top clubs have fixers who can sort out most problems, and pleasures, as well as smart solicitors and willing police superintendents to clear up the mess afterwards.

The England players had a night off, so they weren’t breaking any rules, even though they were going to play Spain 48 hours later. It sounds like off-the-cuff, spontaneous, home-made fun. In Wayne’s case, he probably thought he was doing good, being approachable, as England captain.

Quite why the other two went to Bournemouth was eventually revealed by one of the tabloids. It is Lallana’s home town. He obviously said to Jordan Henderson, “Hey Hendo, I know a cool club. They always look after me. Quick, jump into my Bentley . . .”

They spent only two hours at the club. Henderson drank water. Lallana had a beer. Don’t call that much of a night out.

In the days of Jimmy Greaves, Tony Adams, Roy Keane, or Gazza in his pomp, they’d have been paralytic. It was common for players to arrive for training still drunk, not having been to bed.

Peter Crouch, the former England player, 6ft 7in, now on the fringes at Stoke, came out with one of the wittiest football lines. When asked what he thought he would have been but for football, he replied: “A virgin.”

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage