Bankers Refusal

Welcome to 2011. A new year, a new start, but the same old problems. Financial regulation and bankers bonuses will be high on the agenda this year across the world as governments of all stripes try to put the recession behind them.

Bankers have been the evil face of the recession, with billions in taxpayer’s money being funnelled into failing organisations across the world, but it has proved difficult for any government to make headway in regulating both the actions taken and the bonuses given by financial institutions.

Why is this? Most, if not all, people agree the actions of the bankers involved in sub-prime mortgages and high-risk investment strategies were, at the very least, a catalyst for the problems now being seen world wide. So how come no government has been able, as yet, to heavily crack down on them.

Take the UK as an example. Currently the new coalition government is rolling out its austerity measures with the hope of eliminating the deficit in five years. This has included slashing the budget of almost every government department, a hike in university tuition fees and an increase in VAT to 20%.

Essentially what has happened is the ordinary people have to pay off national debt, put up with public service cuts and pay more for everyday goods because of a problem caused by the banks.

It is true large budget deficits are not good for any economy. They reduce business confidence, discourage foreign investment and can lead to unemployment and high inflation.

Financial services are also vital to the economy. The countries most affected by the credit crunch all have, or maybe had, large financial sectors, generating huge quantities of money, tax revenues and investment.

The question continually arising here is why the banks continually refused to take responsibility for what they caused and accept the part they should play in helping countries out of their current predicaments.

This time last year The Royal Bank of Scotland, which received a huge bailout from the government, defended its bonus strategy saying it had to attract and keep top bankers. Many people, myself included, criticised them for this arguing its current predicament showed they had no banking talent to keep.

On 11 January this year the new head of Barclays Bob Diamond said it was time for the public to stop blaming the banks and bankers and allow them to get on with their job as they see fit.

Their economic importance aside, this is just arrogance of the highest nature. A lack of regulation allowed the banks to cripple themselves, and every global economy, because of unnecessary risk taking, and the bonuses they are still receiving are several times the national average income.

Let us face facts, bankers are not badly off, and while people are all in favour of annual bonuses being paid to those who have earned them through hard work, it is ridiculous to have them written into a contract.

The Oxford English Dictionary defines a bonus as a sum of money added to wages for good performance or an unexpected extra benefit. How come etymologists understand more about how benefits should be paid than bankers?

So far this has been a bit abstract and a repetition of what most of the general public feels about bankers currently, so lets have a bit of perspective.

Public transport ticket prices in London have risen 8% on 2010 prices. Although this might not sound like much a monthly tavelcard for all zones in London cost around £170. Per month they now cost £13.60 more, £163 more annually. A 2.5% increase in VAT to 20% is a regressive tax as it cost low income earners more in percentage terms than high income earners. University fees will now be doubled to slash the government budget for higher education, but this means children from lower income families will be put off entering higher education due to the debt levels they will incur.

At the same time bankers still have bonuses written into contracts, many of which would allow them to buy and run a luxury car, write off any price increase and send their child to university without even having to break into their basic salary.

This issue has always had the second thread of regulation. The political right will tell you increased regulation is bad for business, while the left tells you less regulation means organisations will not act responsibly. As with most things spilt along ideological grounds, both are wrong.

No business will act responsibly unless they are forced to. Privet companies, as utility companies have shown us, act only to make a profit. However, if you hem in companies to act a certain way it takes any fluidity out of the market and punishes innovation.

Again we must look back at the causes. Excessive risk taking, with the sole aim of making a larger profit, caused a crisis which crippled almost every economy in the world.

For bank now read power station. If a power station had burnt down or exploded because the company was trying to make power faster to make more profit would the operators still be running the company. Of cause not, they would be serving prison sentences for criminal negligence and the inspection procedures at all power station would have been ramped up.

What if an international delivery company had lost several thousand packages? This would not have led to criminal prosecution, but would certainly have led to a revamp of the process and additional supervision.

Governments have issues with attacking banks. They are generally very powerful organisations which have high stakes in national debt, generate huge tax revenues and encourage investment in the country.

One of the major fears has always been banks leaving the country if increased regulations were implied or bonuses were taxed leaving the country in an even worse state.

However there are ways of dealing with both the regulatory issues and bonus culture without damaging the banks.

With bonuses there should not be a tax, plain and simple. The bankers will receive their bonuses in shares in the bank. This would mean their bonus value is directly linked to the performance of the bank. This has been thrown around before, but has never been implemented or properly discussed and no reasons have been given as to why this would not work.

In terms of regulation many people would argue it is time for the bankers to get off their high horse, admit they were to blame and to stop acting like petulant children.

No other industry in the world would expect to cause a global crisis and not get punished, and the banks have not been punished. Yes, we understand the burdens of regulation, but a lack of regulation allowed this to happen so surely it is the only option.

Problems do arise though. As already mentioned banks can move abroad to countries with lesser regulation causing a sudden plunge in tax revenues and investment, not a good thing for countries limping out of recession.

What needs to happen is a global deal on how to regulate the banks. This was a global crisis and as such requires a global solution, not 50 different ones varying from country to country.

The nuances of any deal are more difficult to explain, but independent auditing of records, stronger penalties for those who take excessive risk and an end to sub-prime lending are obvious places to start.

It is time the banks realise they work not just for themselves, but for the people, understand if it was not for intervention many of them would no longer exist and accept their greed caused the problems everyone is now facing, including unemployment, rising prices and public spending cuts.

Cyrano de Bergerac said “The insufferable arrogance of human beings to think that nature was made solely for their benefit, as if it was conceivable that the sun had been set afire merely to ripen men's apples and head their cabbages.” We appreciate the role the banks play, but nobody likes to pay for other peoples mistakes, and it was the banks mistakes.

To have the arrogance to turn around afterwards and claim you should be left alone with no punishment is an insult to the millions of people who now struggle to find work, cannot pay the mortgage and find it impossible to get a loan from a bank bailed out by their money

What the public feel now is not malice, but utter disappointment and frustration at the lack of action taken and the problems they must now face all because the banks want to get back to making obscene profits.

Nobody else in the world would be able to get away with doing what the bankers have done or as Napoleon put it “Never ascribe to malice that which can adequately be explained by incompetence”.

By the way, this is not a new issue. Chief Justice of the US Supreme Court Earl Warren once said “I hate banks. They do nothing positive for anybody except take care of themselves. They're first in with their fees and first out when there's trouble.”

Previewing 2011

With 2010 drawing to a close it is very easy to look back and reminisce about what has been an extraordinary year across the world and forget we are still heading into the unknown in many areas of the world in 2011.

Floods in Pakistan, the rescue of the Chilean miners, the Deepwater Horizon explosion, a change of government in the UK and terrorist attacks in Moscow and Sweden have all made front page news.

Elsewhere President Obama has faced a backlash against his healthcare reforms, a major factor in the Democrats poor showing in the mid-term elections. Afghanistan and Iraq both held elections this year, but due to widespread election fraud the results are still unknown.

The result of the presidential election in the Ivory Coast looks set to plunge the country into civil war at a moments notice while there was rioting on the streets of Kingston, Jamaica over the deportation of suspected drug dealer and gun runner Christopher ‘Dudas’ Coke.

This is not to mention the worsening situation between Israel and Palestine, the global economic crisis and the increased tensions between North and South Korea.

So what can we expect in 2011? Of cause many things are unpredictable, but there are many things on the political, economic and business scene which may see large changes in the next year.

The Conservative-Liberal Democrat coalition in the UK is still looking strong, but cracks are starting to show. The student fees protest and the recent covert recordings showing Lib Dem cabinet members true feelings about Tory colleagues has shown it may not be all plain sailing.

In the New Year the public will face a referendum on the alternative voting system, a key Lib Dem campaign proposal. A failure on this could cause many problems amongst backbenchers uneasy about the coalition. It currently looks unlikely such a proposal will pass, but the result depends greatly on how the Lib Dems are allowed to promote the issue, while any gagging by the Tory’s will defiantly cause problems for the coalition.

Spending cuts will also start in 2011 and could certainly lead to a rise in protests in London and across the UK while police tactics, such as ketteling, will certainly be called into question.

Europe is another issue which could cause problems on the political scene in the UK with many Conservatives being notably Euro-sceptic, while all other sides of the house are on the other side of the issue. Anything major to do with European involvement or spending will undoubtedly cause problems for the UK government.

It is not all bad though. We have Will and Kate’s wedding to look forward to and 2011 means it is only a year until the London Olympics. This means commemorative plates and news stories about how unprepared the venues are.

Across the Atlantic they will be heading into the presidential primary season in January 2012 with Obama still under pressure regarding the US economy and his healthcare reforms. It is not all good for the Republicans though. The tea party movement has split the conservative right in two and front runners for the Republican nomination will face competition from a tea party candidate. Will it be Sarah Palin? In the rest of the world we will be keeping our fingers crossed it is not.

Looking forward to the presidential elections in 2012 it is fair to say Obama is in trouble. However, there is an easy way out. If the economy does start to improve in America he, and his economic policies, will be vindicated making it easier for him to get re-elected. If the US economy does not improve he will be out of a job, and if it has not started to improve by 2012 maybe he should be.

Fallout from 2010 will also figure heavily in the news this year, most notably for BP. After the explosion on Deepwater Horizon all drilling was suspended in the Gulf of Mexico. This situation cannot continue indefinitely and there will certainly be hearings into what exactly went wrong resulting in repercussions for BP and the global oil and gas industry.

How serious these problems are in the long run depend entirely on the findings of any investigation, but BP certainly are going to face a tough year.

The banking industry too will look at 2011 as a year with many potential pitfalls. New banking regulations are going to come into force across the world with many people still complaining about the levels of bonuses still available and the lack of any punishment for the banks regarding there part in the global recession.

These incoming regulations will force banks to rethink locations and operations resulting in some countries potentially losing the lucrative financial sector and the jobs associated with it.

One of the most noticeable elements of the financial crisis has been the companies going bankrupt. From Lehman Brothers to travel agents companies closing down have been a problem. There will certainly be more casualties in the coming year, the only question is where and when.

Wikileaks has shot to fame this year amongst the general public after a series of high profile leaks regarding the wars in Iraq and Afghanistan and cables reporting the personal views of the US and other diplomatic figures across the world. This has culminated in founder Julian Assange being arrested regarding sex offences in Sweden.

The sex offences will likely get little press but this does leave potential for him to be extradited to America to face charges over the leaked material. Assange himself could face jail time in the US, but not very much. If he is forced to name his source there could be a very high profile charge made resulting in serious jail time.

Elsewhere in the world there are numerous issues to keep an eye on. Problems following the presidential election in the Ivory Coast are now being reported as being close to genocide. The UN has already declared the winner of the election as challenger Alassane Outtara, but incumbent Laurent Gbagbo has refused to stand down.

This is not a new issue in many African states, but the UN has a poor reputation in the region following issues with peacekeepers, or a lack of, in Sudan and Rwanda. They will be keen for this situation not to escalate and for any UN forces to play a positive role.

Former Soviet countries in Asia are also facing many problems. Earlier this year Kyrgyzstan saw rioting and killing on the streets as the people ousted its now former president. This ended up with thousands of refugees fleeing the country and reports of human rights violations across the country. Although the tensions seem to have died down there are still various problems in this area of the world which will undoubtedly flare up again in the next 12 months.

One issue certain to dominate the news in the coming year is the global economic recovery, or lack of it. In the west, most notably the EU bloc and America, the news will be dominated by rising unemployment, spending cuts and stagnant growth figures, but there is another side to this story which is also likely to make headlines.

Brazil, Russia, India and China, or the BRIC economies, have shown spectacular growth while the established economies have shrunk or stagnated. This is certainly not a passing trend. Over the course of 2011, and the rest of this decade, these countries are set to become amongst the most powerful in the world.

Russia, India and Brazil do have one huge advantage, they are not seen as a threat in the same way China is. However, China is by far the most powerful of these countries and America especially is hoping for a lot of Chinese cooperation on a number of issues such as trade, patent observation and North Korea.

North Korea has had an especially odd year with leader Kim Jong Il naming his successor and later in the year choosing to shell a South Korean island. This sabre rattling on the Korean peninsular is not new, in fact quite the opposite, but as always it has the potential to boil over into direct conflict between the two nations forcing America, Japan and China to take sides.

There is a belief this is unlikely to happen as North Korea has become increasingly marginalised by its closest ally China and is desperate for any legitimacy on the international stage, but the South is not above throwing the first punch forcing the North to retaliate.

South America and Africa to are still dealing with tensions amongst themselves and other nations. The UK and Argentina are still arguing over Falklands oil, an issue unlikely to cause any problems in the short term. In Africa problems in Sudan are likely to come to a head this year following elections this year and a proposed annexing of the south for its oil. This could lead to further loss of life and renewed waves of refugees heading for Darfur.

As with any year there are many potential problems with the potential to dominate the headlines, but it is likely to be the unforeseen ending up being the story. Natural disasters such as earthquakes and floods are still a major risk to countries and, as has been seen in Pakistan this year, can cause untold suffering to million along with massive loss of life.

There is, as always, the hope of a better 2011 for all of us with the problems we currently face fading away. The best wishes to all of you for 2011.

Wikileaks: Friend or Foe?

Controversial whistle-blowing website Wikileaks has yet again attracted the wrath of the international diplomatic community by, this time, releasing cables reporting what the personal views of officials.

This follows the equally contentious leaks of classified information about civilian casualties in Iraq and Afghanistan and the video of a US helicopter killing reporters from Reuters.

Political leaders, and more than a few members of the general public, have condemned the website and its founder, Australian Julian Assange, for endangering servicemen across the world and have described its latest coup as an attack on the international community.

But how true is this and have the disclosures really put anybody at risk?

The whole point of journalism throughout history has been to uncover the truth and question what we are told by our leaders. Admittedly these documents have been discovered through and illegal breach of national security, but the public have a right to know what is going on in the world behind the closed doors of power.

The revelations about civilian casualties in Iraq and Afghanistan can hardly be called surprising. It was assumed by pretty much everyone, especially after the atrocities at Abu Ghraib ahs been discovered, that this was going on and not being reported.

Cable Gate, as it is being called on the Wikileaks website, is more embarrassing than controversial and has revealed some very interesting information including the possibility of China abandoning international relations with North Korea.

Yes, the US State Department is not going to be happy about the world knowing it thinks French President Nicolas Sarkozy is said “thin-skinned and authoritarian” or about its attempts to spy on United Nation officials, but what are you doing putting these things down in writing anyway. Did the US Government learn nothing from Watergate?

Maybe it is naive of the public to assume high-level officials have personal views of each other. How many of us have poked fun at Sarkozy or Italian President Silvio Berlusconi?

One of the major leaks involves the prompting by governments in the Arab world calling for the US to attack Iran. This was a view put around quite a lot in the journalistic world after 2003 when many believed the invasion of Iraq was a pretext was an invasion of Iran.

Wikileaks first came to prominence earlier this year when they released a video of a US Army Apache helicopter engaging with suspected terrorists in New Baghdad, but instead ended up killing around 12 people, including two reporters form Reuters, and injuring two children.

What was most shocking about this was not so much what happened, although it was undoubtedly terrible, but the video game attitude adopted by the men inside the helicopter.

No matter how much respect you have for the armed services and the vital work they do, the western world is supposed to stand for freedom. It is certainly debatable how much we can stand for freedom when soldiers start shooting at civilians without any provocation.

It is surely flat-out hypocrisy for the US, and world leaders, to condemn the release of this material just because they do not like the content.

George Orwell wrote “political language is designed t make lies sound truthful and murder respectable, and to give the appearance of solidarity to pure wind.”

Maybe it is time for the ‘leaders of the free world’ to start acting like they live in a free world and accept these revelations are not revelations at all, but are part of what people hate about our governments.

The people have a right to know how their armed services are acting around the world, to not have their leaders hide behind diplomatic confidentiality when they are making sarcastic remarks about other leaders and to know the direction the world is heading in terms of diplomatic relations.

Shadow Cabinet Miscalculations

There were really only two questions in the aftermath of Ed Millband’s election as Labour leader. Would David stay in front line politics and who would end up with the challenging task of opposing George Osborne’s cuts as Shadow Chancellor?

Ed Balls had to be top of most people’s lists serving as Gordon Brown’s right hand man at the treasury and being rewarded with a front line cabinet post during his ill fated premiership.

However, when his wife Yvette Copper topped the cabinet vote many started to suggest Balls would be overlooked.

It turned out we were all wrong. Alan Johnson, the former Home Secretary, came out for arguably the second most important job in opposition.

Surprising choice yes, but as this shock new choice was analysed many started to believe this was in fact a stroke of genius by the young new leader.

His humble background as a postman and union leader are certainly in stark contrast to his opposite numbers background which was referred to by many Labour MP’s as aristocratic.

Having served as health and education secretary during the Labour administration he is certainly more used to spending rather than saving cash and his lack of economic background may hinder him in a knock-down-drag-out with Osborne.

Like him or loath him, Brown was a gifted economist with the facts at his finger tips and the type of analytical mind suited to commons debates over financial issues, think back to Brown challenging Nigel Lawson as stand in Shadow Chancellor in 1988.

There are of course other issues here as well. Balls has a reputation for confrontation, admirably and useful maybe in defending any Labour stance in protesting any spending cuts as is his economic and treasury experience, but are these as useful as Shadow Home Secretary?

Theresa May is not universally loved (understatement of the century). She is a bit too far to the right for any Labour or Liberal Democrat supporter and, although many Conservative backbenchers may love her, a lot of moderate Tory’s have their reservations.

Under these circumstances is not Balls exactly the right man to take her on? His combative nature and more left wing stance could contrast May in exactly the right way.

Although not as widely reported as the shock of Johnson’s new position, the other shock appointment was making Copper Shadow Foreign Secretary.

If this had been the story of the day the public’s reaction o this would have surely been similar to when Baroness Ashton was elected as the EU’s foreign representative.

Has she any foreign policy experience? She has served in the cabinet as Chief Secretary to the Treasury and Work and Pensions secretary.

Admirable and important positions granted, but more economics based than foreign relations.

It is certainly true the Conservatives have said they will continue British presence in Afghanistan on the basis of a coordinated pull-out with the US making it one of the few points where there is little tension between the parties.

She is, however, being asked to take on William Hague, one of the most experienced politicians in the house. At what level is she going to be able to highlight the differences so important in making Labour electable again?

But let us play out a scenario. The coalition does not go well or the public are so furious about the spending cuts the Labour party are re-elected in 2015 and Ed Milliband becomes our new Prime Minister.

Are we to believe we will have a Chancellor with no economics background, a Foreign Secretary with no diplomatic experience and a Home Secretary more comfortable in combat than in forcing social change?

Yes, you can reshuffle a Shadow Cabinet, although there is the risk it will look like an initial miscalculation and be seen as a sign of chaos.

Admittedly on closer inspection Johnson and Balls may seem well suited to these new roles, with the possibility of Balls taking over later at the Treasury, and Cooper may turn out to be a fantastic states…person.

There will, however, remain fears that Milliband has made a big miscalculation not equipping the Shadow Cabinet with the best people for the roles but instead showing a transparent line of party unity.