FizzogBlog: A dance of communal greed

I think I am a pretty liberal-minded sort of person, willing to give and take with the best of them.

But this banking crisis has incensed me deeply.

As a former serious fraud investigator and prosecutor, I have to wonder why there appears to be no firm political will to make an example of some of the cynical, grasping, amoral senior bank executives who have done so much damage, and gained so much financially, by their actions.

Polly Toynbee’s article today in the Guardian is a masterpiece of prevarication. Reflecting on the Sir Fred Goodwin farrago of hypocrisy and dishonesty, basically she says:…

Yes, New Labour have got much wrong, and they have not seriously addressed the endemic greed in our society so wooed and courted by the Thatcher government.
Yes, it feels as if the gap between rich and poor is widening.
But it’s not really: see the forthcoming Hills report.
And just think what we would be like if the Tories had stayed in power.
So, when the time comes, don’t dismiss too easily the idea of putting New Labour back into government…

When I was a public prosecutor, I wasn’t one of the hang-‘em types. Far from it. But all of this has got my blood truly boiling.

This is how it goes. Banking executives of the type who speculate chronically with others’ money are the top of a pyramid, in terms of the cultural acceptance of greed. And the rest of the pyramid is… British society at large.

Dave Brown's cartoon in the Independent

Since Thatcher, it’s all right – indeed it's regarded as almost exemplary – to speculate, even in areas where speculation is highly unwise. Areas of life which should be about simple common sense provision have become an opportunity to make a buck or two. A mortgage is designed to help people buy a house for them and their families. It is not meant to be an investment opportunity, and still less a speculative one. So why did we not see that it's plain foolish to buy a bigger house than you can afford if things go wrong for you financially? And why did we not see that 105% mortgages were always going to be a stupid idea?

And – I know it’s boring – the idea of a bank is to hold our money safely for us, giving us a reasonable return of interest – while we decide how to save it or spend it. Not to allow executives to run riot with half-baked ‘creative’ ideas which are likely to – and indeed have - put the whole sector into crisis.

And then for them to slice off huge settlements and pensions and bonuses is such an act of effrontery. It’s based on a version of what Hitler is supposed to have said: if you’re going to do something cynical and hypocritical, you might as well make it a big one.

But, before we point the finger entirely, we had better think why this has happened. In the late 80s I was part of a team investigating a massive gilts fraud. It was quite apparent to me, then, that these frauds happen for a reason. They only happen because we, the public, give permission for them to take place.

A fraud of this sort is based on a public acceptance of greed as an acceptable way of going forward as a society. And so too with this banking crisis: bankers have only been able to act like this because we have encouraged them to do so.

This is how fraud can work, just as an example. A fraudster designs a convincing financial argument by which s/he can offer people, say, a few percent over the base rate. S/he has no intention of delivering, but, when punters bite at the hook, will use funds coming in later to pay off earlier customers (“robbing Peter to pay Paul”), staving off his or her Armageddon in the process, and creaming off money for him- or herself.

The only reason this works is because people are attracted to an unrealistically better return, and they forget to engage brain. Greed, pure and simple. In this particular case, it was often pensioners who suffered. I felt for them. But I did not agree with them when they expected Government to put it right again for them. No: it is sad, but they were greedy, and that’s what happens when you think no further than getting richer quicker than seems possible by other, more cautious, means.

And it's not only individuals who are affected by this cultural greed, but institutions also. Local councils, for example, who regard it as wise investment policy to place public money, for a better return, with Icelandic banks, over whom they have less control than if the money were to be kept onshore.

I think some of the actions of some of the senior bankers must be, if not deliberate fraud, then fraudulent by virtue of their cynical gross negligence and recklessness. And I think we ought to investigate them, and prosecute them, hard and fast. Not because we are, at root, any better than them, or any less greedy. (We are no better - except in degree, in the limited opportunity afforded to us for outright peculation.) But because we need to say loud and clear as a society that, today, we do not desire our culture to be based on this kind of corrosive, out-for-oneself, sod-the-rest-of-them, avarice.

We need urgently to re-set our public financial ethics. Banks are for holding money safely. Mortgages are for providing a roof over people's heads. People shouldn't earn silly money at all, and certainly not for doing things badly, or for silly things.

We need to grasp the nettle. People have earnt vast fortunes for sending money spinning ever more giddily round the world. Meanwhile, teachers and nurses, firefighters and paramedics, home care assistants and other care providers - the people who really keep our world on its feet - are paid a relative pittance. Surely there is something very wrong there?

These bankers should hang their heads in shame. But so should we... for being just plain damn greedy. We have - all of us, communally, publicly - got away with this for a long time. Now it needs to stop.

[Update 1: since writing this, I have spotted this BBC news piece on the Prime Minister promising a banking clean-up.]

[Update 2: according to the BBC, the UK government is getting (1 March 09) very troubled about Goodwin's refusal to hand back any of this payment, and is sabre-rattling loudly. Whether this will achieve anything is very moot.]