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10 September 2013updated 07 Sep 2021 12:21pm

Banks are still too big to fail, jail, manage and regulate

Five years on from Lehman Brothers.

By Economia

The Five Years After Lehman event, organised by ICAEW and the New Economics Foundation (nef) pulled together activists, campaigners and mainstream and alternative finance professionals for a critical look at the financial system post Lehman – asking the burning question, Can Finance Reinvent Itself?

The panel featured Leo Johnson (PwC), Rod Schwartz (CEO Clearly So), Tony Greenham (nef), Marloes Nicholls (Move Your Money), and Michelle Giddens (Co-founder Bridges Ventures).

Sunday 15 September 2013 marked the five year anniversary of the Lehman Brothers 2008 collapse and the onset of the global financial crisis and epoch of austerity. For anyone living in the UK in 2008/09, few will forget the images of the infamous collapse of Lehman, and the general hysteria as global financial markets descended into turmoil.

For commuters on the Jubilee line at rush hour, the week-long exodus of Lehman staff carrying their possessions in non-descript cardboard boxes as the investment bank shed its workforce, brought with it a chilling sense of impending systemic collapse.

US and UK regulators and governments were literally forced to step in by the global banking cartel, and either commit taxpayer to bailouts of the financial system, or step back and watch the whole capitalist system implode and live with the consequences.

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Commentators noted that the collapse of Lehman represented the death knell of laissez fare capitalism, and the brand of light touch regulation championed by Brown and Blair, set firmly in play by Thatcher’s ‘big bang’ preceding them. It marked time to rebalance the economy away from financial services and rent-seeking activity, towards productive value-added industries. Or so we thought…

In the immediate aftermath of the crisis, the media generally, and BBC specifically facilitated a remarkable rear guard action on behalf of the financial services sector.

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Faces like Angela Knight, then CEO of City lobbyists the British Bankers Association were omnipresent as the media allowed narrow financial interests to absolve themselves of blame for failure, and begin to transfer blame onto immigrants, the young and unemployed and the welfare state.

Meanwhile City of London lobbyists returned quietly to their task, of beating back the banking reform agenda, opposing the separation of retail and investment banking, and controls on speculation such as the Robin Hood Tax. Rather than reform and transition to a balanced economy, the UK set upon a path to reflate the housing bubble that triggered the 2008 crash.

The August 2011 riots gave a brief insight into what happens when those in society least able to bear the burden of “austerity” are forced to pay for the bankers crisis. The governments own Reading The Riots report – noted that rioting was concentrated in deprived areas where cuts to youth facilities were highest, targeting banks and businesses deemed responsible for austerity. A political message conveniently ignored by the corporate media.

Following the riots, growing UK Uncut and Occupy protests brought rampant inequality, systemic crisis of capitalism, and tax avoidance into the public conscious.

A seemingly endless string of banking scandals emerged, to completely erode trust in the City, including interest rate swaps and payment protection insurance (PPI) mis-selling, money laundering for terrorists and drug cartels and LIBOR rigging, with yet another fixing scandal now brewing with the appropriately called “ISDAfix” swaps benchmark.

Despite the huge scandal that erupted over cartel like manipulation of the Libor benchmark, which sets the global price of borrowing money, there was no talk of winners and losers. Libor is a zero sum game, yet the victims in this scandal are yet to emerge…

Despite Libor having a potentially devastating impact on public finances for housing associations, local governments, NHS trusts, pension funds, and PFI contracts – we are yet to hear a word about it in the mainstream media, or from UK regulators the Financial Conduct Authority, and the Serious Fraud Office. Why…?

It transpires just two firms have a monopoly position on public sector financial advice. Sector and Arlingclose – advising councils to invest our money in too big to fail banks, are the same firms advising councils they lost no money when these banks rigged LIBOR!

Problem? You bet; but one the Parliamentary Commission into the Icelandic banking crisis identified way back in 2009, in calling for an urgent investigation into the industry.

Sector, who merged with Butlers in 2012 (and owned by Michael Spencer, the former Tory Treasurer), was the organisation responsible for advising councils to invest in Icelandic banks.

If we look at the makeup of the financial system from 2008 to the present, we quickly find that systemically, little has changed. The government has reshuffled the deck, but the jokers of the financial system are still in play, and the ‘too big to fail’ banks that caused crisis are still too big to fail. What’s worse, we are now informed by US regulators at the Department of Justice that banks like HSBC are also ‘Too Big To Jail.’

It is only if you look closely at the fabric of British financial regulatory authorities that the evil genius of the financial sector doth emerge. See no evil, hear no evil, speak no evil.

All of the major financial scandal investigations in the past decade have been brought by US regulators, despite the crimes being centred in London. AIG, Bernie Maddoff, Lehman Brothers, LIBOR – these financial rackets were all run through London.

If no-one is directly responsible in terms of regulation and enforcement, then no-one is legally accountable. In short, the UK has won a competition in regulatory laxity. As if to prove this point, Hector Sants – the former CEO of the FSA who famously refused to investigate Libor was Knighted for services to the financial industry. He now works at Barclays and sits on the board of City lobbyists the BBA.

Despite a chorus of voices for a judicial inquiry into City cesspit of fraud from Ed Miliband and commentators including Ann Pettifor, government was able to escape full banking reform with an MP led inquiry into Libor.

The Parliamentary Commission on Banking Standards (PCBS) reported its findings and a watered-down adoption of the Vickers review in the so called ring-fence between retail and investment bank divisions. 

Dave Hartnett who oversaw systemic tax avoidance deals with Vodafone and Goldman Sachs at HMRC is now plying his trade for HSBC and Deloitte. Sir Hector Sants who refused to investigate Libor whilst head of the Financial Services Authority has been rewarded for his servitude with a knighthood, a plush job at Barclays and a seat on the Board of the British Bankers Association. Meanwhile Angela Knight, CEO at the BBA, has now moved on to energy lobbyist Energy UK, whose members coincidentally are also under investigation for gas price rigging, to be replaced at the BBA by Anthony Browne, a personal friend and former advisor to Boris Johnson.

Since the fallout from the Libor scandal, regulatory responsibilities have been split between the Financial Conduct Authority and Prudential Regulatory Authority with the PCBS noting “the two bodies will have to coordinate how the regime operates given the potential for overlap or conflicts.”

The PCBS further concludes, “Greater priority needs to be placed on the role of enforcement, with adequate resources devoted to this function, and leadership with a willingness to pursue even the difficult cases, often involving larger and more powerful players, in order to build up a credible deterrent effect.”

The whole elaborate system of complex regulation has been designed to fail. If Britain has won the ‘global race’ that David Cameron frequently speaks of, then that race is to win the competition in regulatory laxity.

This piece first appeared on economia