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On the topic of political meddling, RBS and the like can shut up On the topic of political meddling, RBS and the like can shut up
(4 months later)
The silly response to Stephen Hester's exit as boss of RBS is to say that politicians should not meddle with banks. The truth is the opposite. Banks should not meddle with politicians.The silly response to Stephen Hester's exit as boss of RBS is to say that politicians should not meddle with banks. The truth is the opposite. Banks should not meddle with politicians.
Remember who started this. The banks in the early 2000s behaved with a recklessness I believe should still be regarded as criminal. A number went bust and ran pleading to the state, hollering that they were too big to fail. The terrorism proved effective. The banks told the politicians that, if taxpayers did not bail them out, then taxpayers would suffer, which meant that politicians would suffer on their behalf. They were indeed bailed out and their bosses laughed all the way back to their respective safe deposits, their pockets stuffed with other people's money. On the topic of political interference, banks can shut up.Remember who started this. The banks in the early 2000s behaved with a recklessness I believe should still be regarded as criminal. A number went bust and ran pleading to the state, hollering that they were too big to fail. The terrorism proved effective. The banks told the politicians that, if taxpayers did not bail them out, then taxpayers would suffer, which meant that politicians would suffer on their behalf. They were indeed bailed out and their bosses laughed all the way back to their respective safe deposits, their pockets stuffed with other people's money. On the topic of political interference, banks can shut up.
Hester may feel personally bruised. He was quietly turning an honest penny wrecking London's skyline when he took the Queen's shilling to rescue RBS. It was an awful task, to salvage Britain's biggest finance house from the wreckage left by Gordon Brown's City favourite, Fred Goodwin.Hester may feel personally bruised. He was quietly turning an honest penny wrecking London's skyline when he took the Queen's shilling to rescue RBS. It was an awful task, to salvage Britain's biggest finance house from the wreckage left by Gordon Brown's City favourite, Fred Goodwin.
By most accounts Hester has done the right thing. He has turned a £24bn loss into a modest profit. He has isolated some £200bn of "bad bank" debt and shrunk it to £40bn in four years. He has set the rest of RBS on the road to becoming what he this week called "a normal bank".By most accounts Hester has done the right thing. He has turned a £24bn loss into a modest profit. He has isolated some £200bn of "bad bank" debt and shrunk it to £40bn in four years. He has set the rest of RBS on the road to becoming what he this week called "a normal bank".
All this Hester did while enduring the cacophony of political static that now curses his business and his vocation. He has a bunch of amateur economists at Westminster holding 82% of his shares. He has ministers, MPs and committees snapping at his heels, telling him how to do his job. Hardly a month passes without some new horror emerging from the rotting entrails of his empire, such as insurance mis-selling, crashing computers and the Libor scandal.All this Hester did while enduring the cacophony of political static that now curses his business and his vocation. He has a bunch of amateur economists at Westminster holding 82% of his shares. He has ministers, MPs and committees snapping at his heels, telling him how to do his job. Hardly a month passes without some new horror emerging from the rotting entrails of his empire, such as insurance mis-selling, crashing computers and the Libor scandal.
He has even had to suffer the archbishop of Canterbury, like the Renaissance Italian preacher Girolamo Savonarola lecturing the Medici, telling him his staff should be motivated by "the fear of hell and the hope of heaven" rather than by filthy lucre.He has even had to suffer the archbishop of Canterbury, like the Renaissance Italian preacher Girolamo Savonarola lecturing the Medici, telling him his staff should be motivated by "the fear of hell and the hope of heaven" rather than by filthy lucre.
Hester studied politics, philosophy and economics at Oxford. He should know that to run a British nationalised industry is to experience a madhouse. He did not help himself by catching the City's occupational disease – helpless greed for "incentive" bonuses. Friends might protest that he was not carrying off shed-loads of loot like his colleagues at Barclays and elsewhere, but he was running a state industry. Not even NHS bosses get £5.6m to soften the blow of departure. Yet within the terms of his deal, Hester deserves credit and some sympathy.Hester studied politics, philosophy and economics at Oxford. He should know that to run a British nationalised industry is to experience a madhouse. He did not help himself by catching the City's occupational disease – helpless greed for "incentive" bonuses. Friends might protest that he was not carrying off shed-loads of loot like his colleagues at Barclays and elsewhere, but he was running a state industry. Not even NHS bosses get £5.6m to soften the blow of departure. Yet within the terms of his deal, Hester deserves credit and some sympathy.
Where push apparently came to shove was whether RBS's path to privatisation was as swift as George Osborne wanted, and whether RBS had done as much for small businesses as Vince Cable wanted. Hester was planning an orderly return of the bank to normal City status, including a retained overseas and investment arm and a bonus culture. The government wanted none of this. It wanted RBS to lend like mad, shovel bad debts into a separate "bad bank" and have something lucrative to sell come election time.Where push apparently came to shove was whether RBS's path to privatisation was as swift as George Osborne wanted, and whether RBS had done as much for small businesses as Vince Cable wanted. Hester was planning an orderly return of the bank to normal City status, including a retained overseas and investment arm and a bonus culture. The government wanted none of this. It wanted RBS to lend like mad, shovel bad debts into a separate "bad bank" and have something lucrative to sell come election time.
The reality is that ministers are desperate for growth and thought they had a vehicle to promote it – a bank of their own. Hester was under pressure to lend. He and his fellows were showered with cash under quantitative easing. But as long as Osborne and Cable, purveyors of austerity to the working classes, chose to starve firms of consumer demand, the banks were wary of resuming the crazy lending of yesteryear. Instead they sheltered the cash in the bond and stock markets, which are enjoying an unsteady boom.The reality is that ministers are desperate for growth and thought they had a vehicle to promote it – a bank of their own. Hester was under pressure to lend. He and his fellows were showered with cash under quantitative easing. But as long as Osborne and Cable, purveyors of austerity to the working classes, chose to starve firms of consumer demand, the banks were wary of resuming the crazy lending of yesteryear. Instead they sheltered the cash in the bond and stock markets, which are enjoying an unsteady boom.
Osborne's March budget was a glaring illustration of this clash of government and banks. He pleaded with the latter to join his Help-to-Buy scheme, heading for precisely the sub-prime risk that led to the housing bubble in the first place. He even promised guarantees for new "bad bank" loans. Hester might have quoted Rudyard Kipling's warning to the capitalists of his day, as "the burnt fool's bandaged finger goes wobbling back to the fire".Osborne's March budget was a glaring illustration of this clash of government and banks. He pleaded with the latter to join his Help-to-Buy scheme, heading for precisely the sub-prime risk that led to the housing bubble in the first place. He even promised guarantees for new "bad bank" loans. Hester might have quoted Rudyard Kipling's warning to the capitalists of his day, as "the burnt fool's bandaged finger goes wobbling back to the fire".
Yet it was the banks that kindled the fire in the first place. They might be cautious now in not wanting to see it re-stoked, but they can hardly be surprised if ministers are frantic. RBS is a politicians' bank, one that must respond to political imperatives. Hester might have wanted to turn it into a normal bank, but it is not his bank to turn.Yet it was the banks that kindled the fire in the first place. They might be cautious now in not wanting to see it re-stoked, but they can hardly be surprised if ministers are frantic. RBS is a politicians' bank, one that must respond to political imperatives. Hester might have wanted to turn it into a normal bank, but it is not his bank to turn.
The banking community has enjoyed extraordinary intellectual sway over Downing Street and the Treasury since the early years of the Blair government. It promoted the expansionary policies of the 2000s, lending with abandon and resisting tighter regulation. Banks seconded their executives to Whitehall, to secure billions in consultancy fees and PFI contracts. It was banks that boosted the deficit. When the balloon burst, it was banks that orchestrated the bailouts, shamelessly demanding bonuses to continue.The banking community has enjoyed extraordinary intellectual sway over Downing Street and the Treasury since the early years of the Blair government. It promoted the expansionary policies of the 2000s, lending with abandon and resisting tighter regulation. Banks seconded their executives to Whitehall, to secure billions in consultancy fees and PFI contracts. It was banks that boosted the deficit. When the balloon burst, it was banks that orchestrated the bailouts, shamelessly demanding bonuses to continue.
Many politicians, the chancellor included, are plainly fed up. Having sunk £45bn into RBS, they feel entitled to tell it what it should do: to get out of casino banking; stop paying reckless bonuses; and hive off its bad-bank arm. Whether the motives are short or long term, economic or political, £45bn gives ministers the right to say what they want and have someone obey.Many politicians, the chancellor included, are plainly fed up. Having sunk £45bn into RBS, they feel entitled to tell it what it should do: to get out of casino banking; stop paying reckless bonuses; and hive off its bad-bank arm. Whether the motives are short or long term, economic or political, £45bn gives ministers the right to say what they want and have someone obey.
Economic policy is at present like policy in war. When Hester went to RBS in 2008 it was a reprise of Earl Haig arriving at the western front in 1915. He faced catastrophe and the heat of public expectation was intense. Ministers were bound to second-guess every decision, tactical as well as strategic. Their futures depended on it. The stakes were too high for the delicacies of "hands off" delegation.Economic policy is at present like policy in war. When Hester went to RBS in 2008 it was a reprise of Earl Haig arriving at the western front in 1915. He faced catastrophe and the heat of public expectation was intense. Ministers were bound to second-guess every decision, tactical as well as strategic. Their futures depended on it. The stakes were too high for the delicacies of "hands off" delegation.
Europe's current recession – surely soon to merit the status of depression – has its roots in the failure of one industry, that of banking. It has had to be rescued, at what is still an appalling human cost, by politicians across the entire continent.Europe's current recession – surely soon to merit the status of depression – has its roots in the failure of one industry, that of banking. It has had to be rescued, at what is still an appalling human cost, by politicians across the entire continent.
Britain's bankers may not welcome Osborne, Cable and others to the ranks of their profession. But at present there is only one stance they can adopt with any dignity: one of abject, unbounded, grovelling humility.Britain's bankers may not welcome Osborne, Cable and others to the ranks of their profession. But at present there is only one stance they can adopt with any dignity: one of abject, unbounded, grovelling humility.
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