Wednesday, September 08, 2010

UK BANKING HAS NOT CHANGED DESPITE THE PROMISES AND BAILOUTS

The appointment of Bob Diamond as the new chief of Barclays is just one more annoying, disappointing but not unexpected sign that UK banking has not changed, despite all the bailouts and promises.

Study after study after book after book has shown that the financial crisis of the last few years was caused by derivatives that were built upon a deliberately inflated massive credit bubble. Reports, even from the inglorious BBC, state that banks like Barclays did not receive bailouts. True, they did not receive bailouts from the British government, but they did receive billions from the Federal Reserve. So what does this show? It shows that Bob Diamond, despite the fawning of the media, is not God. It shows that Bob Diamond does make errors. It shows that given more power any further errors that Bob Diamond makes could mean BIG trouble for us...AGAIN!

The casino banking system is based on a branch of mathematics called Financial Mathematics. Ten years ago very few mathematics departments had any staff working in this area. Mathematics was then dedicated to science. But when I went for an interview a few years ago at a highly regarded UK scientific computing establishment I saw something that churned my stomach, something that deterred me from going there. That establishment was pleased to have used British supercomputing facilities, meant for scientific research and paid for by you the British taxpayer, for financial modelling for JP Morgan Chase! To me this was scientific prostitution. It would be of some irony if that collaboration with JP Morgan Chase contributed to the current financial crisis in some way so that it may have been paid £X for the work but receives £5X in cuts. Remember what happened to Mussolini? Paid by British Intelligence to support war in WW1 and recipient of hundreds of millions of dollars in loans from JP Morgan, but at the end of WW2 when he required the MI6/JP Morgan cavalry most they were nowhere to be found, because he was surplus to requirement and had done his job for "them". Mussolini was hung by an angry mob.

Today you can find financial mathematicians in most mathematics departments. This topic has also been and still is a recipient of significant amounts of money from you, the muggins British taxpayer, through a research council that is supposed to support engineering and science, not derivatives, although some call it financial engineering (uugh). Surely it is the job of an economics research council, or dare I suggest even the job of the banks themselves, with all their hundreds of billions in bailouts, to finance such research and the purchase of their own HPC facilities? Vince Cable is about to announce massive cuts in British scientific research, cuts imposed to pay for the bailouts of the banks. It will be very interesting if this branch of quasi science called financial mathematics is cut, and if orders are given to restrict the use of British scientific computing hardware to British scientific research only, and not for glorified gambling. In fact I'm going to write to Vince about this.

And today, the same banks are threatening to move abroad if the UK banking system is changed significantly as a result of Vince Cable's study of UK banking. They claim to be one of the largest sectors in the British economy and thus one of the biggest contributors to the Treasury. Yes, they are so big that after they completely wreck the British economy with their reckless arrogant gambling financial "engineering" we, the muggins British taxpayer, bail them out, and will be paying for the privilege for decades! We fought for them in WW1 and WW2, and for what? To be buggered again? And we are supposed to get down on our knees, crying our eyes out, begging them not to leave, like a confused terrified battered wife begging her violent husband not to leave? Er, I don't fink so. If they want to go gambling they can do it elsewhere and use their own money, and not the hard earned Pound Sterling of British workers, expecting to be bailed out again while we end up killing little old grannies through NICE and the LPC to save a few bob!

The head of HSBC Stephen Green, another protected grinning glorified gambler who was bailed out with billions from the Federal Reserve, is about to become Trade Minister! And his replacement is expected to be yet another protected grinning glorified gambler, Stuart Gulliver. This explains why there has been such an explosion of gambling on TV. Just like Big Brother conditioned you for total surveillance, the TV gambling programmes have conditioned you to the gambling economy.

No, despite the media protection, the crocodile tears, the broken promises and trillions in bailouts, it's business as usual, screwing the muggins British taxpayer again and again and again...

Heads they win. Tails you lose.

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From http://www.guardian.co.uk/commentisfree/cifamerica/2010/sep/07/two-years-on-bob-diamond-barclays

Deborah Hargreaves
guardian.co.uk, Tuesday 7 September 2010 22.00 BST

Two years on and all we get from the banks is two fingers

The appointment of the risktaker par excellence Bob Diamond at Barclays throws down the gauntlet over banking reform




If anyone had any remaining doubts about the resurgence of the City's wheeler dealers, today's appointment of Bob Diamond to lead Barclays should remove them. As another banker – HSBC's Stephen Green – prepares to join the government as trade minister, Barclays has elevated its arch dealmaker to succeed John Varley next March. HSBC is also believed to be grooming one of its investment bankers, Stuart Gulliver, to take the helm. It is a far cry from two years ago when investment bankers were reluctant to leave home for fear of being heckled in the street. It was left to the GMB union to try and stoke the fires of public anger, calling Diamond's appointment "insulting and divisive".

Diamond's rise to the top is a remarkable endorsement of his risk-taking: lucrative investment-banking activities now account for more than 80% of Barclays' profits. It is also a sign of an industry's renewed confidence in its ability to take on the government and face down cries for banks to be broken up.

Barclays appears to be throwing down the gauntlet over banking reform. The pugnacious Diamond is about as removed from the conciliatory Varley, as credit derivatives are from high street banking. City analysts say it is good news for the industry as a whole to have this powerful new champion.

In his 14 years at Barclays Diamond has never been involved in the retail side, for which the bank is best known. Over the past 10 years he has built up the investment side into an international player of some redoubt, recruiting high-flying bankers to the staid ranks of the high-street stalwart, offering bonuses to match. They transformed Barclays' business into a force that could rival the best Wall Street had to offer.

Diamond's coup came in the chaotic aftermath of the financial crisis when he negotiated a deal to buy core assets from the US arm of the collapsed investment bank Lehman Brothers, at a knockdown price of £1bn. That purchase has proved so lucrative that Barclays is now being sued by Lehman's defunct shell for a £3bn profit that it says the British bank made on the deal – a deal that epitomises the generation of bankers who turned Britain's conservative retail branch networks into global dealers in derivatives, bonds and exotic financial transactions in an era of easy money.

This brought burgeoning profits to support cheap mortgages for homebuyers, but also meant taking big gambles with the cash cow that was the deposit base. Barclays was lucky to avoid coming to grief over its international expansion after it started the bidding for the Dutch bank ABN Amro. The Royal Bank of Scotland snatched it away in 2007 with a higher bid that almost brought RBS down. In its pursuit of international esteem and rampant profits Barclays abandoned its roots in the high street. That was all going to change. Two years ago, banks were nursing large losses – all required some form of government support, whether a bailout or indirect aid, and ministers pledged to rein them in.

Mervyn King, the Bank of England governor, called for banks to be broken up, their casino arms hived off to protect the deposit base from the risk-takers. Vince Cable, now business secretary, wanted banks cut down to size. Bankers were in the uncomfortable position of being forced to apologise publicly for their risk-taking. When Alistair Darling introduced a tax on their bonuses last year, it looked as if ministers were finally prepared to take on the City.

And yet, two years on, banks are back in good spirits. They have returned to profitability – partly due to the reduction in competition caused by the financial crisis – and pay, only slightly trimmed by Darling's tax, is rising. The return of self-confidence has seen them shrug off government criticism over the lack of lending to small businesses, setting up a taskforce to look into the issue and kicking it into the long grass. George Osborne, the chancellor, is still talking about reining in the banks through his banking commission, but it has got off to a slow start.

A healthy banking system is certainly desirable. But the structure of the industry remains substantially unaltered from the setup that caused the last financial crisis. Barclays is proud of the fact that it remained outside the government's bailout programme, but the elevation of Diamond appears to draw a line under the idea of co-operating with a government that wants to cut the banks down to size.

Diamond is fiercely protective of the bank's operations and will resist any attempt by the banking commission to break them up. That is not to say that Diamond will be a bad boss. He is charming, gregarious and keen to reward talent; and although he is a taskmaster, he is solicitous of the most junior intern.

But the government should be in no doubt that his appointment means that Barclays is back as a force to be reckoned with – and is, moreover, evidence of a newly resurgent banking sector.

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