“Here’s something to remember when you hear what bankers do dressed up in talk of ‘senior tranches of collateralised debt obligations’ and ‘off balance sheet special purpose vehicles’. However much they try to make it sound like rocket science, what is happening is only a variation on lending money at interest.”

Do try: SM Reinhart + Kenneth Rogoff: This Time is Different – Eight Centuries of Financial Folly (Princeton UP, 2009)

Rogoff is an economics prof at Harvard and was previously chief economist at the IMF.

Let’s not forget that it’s ordinary workers who actually create wealth.

How about we stop thieving so much money from the cleaning lady, and then what’s left of the state’s income will then seen to be mostly funded by the rich? We’re taxing the hell out of the poor due to fiscal drag, which is evil, and we’re using this as an argument why we should also increase the tax on the rich, which will probably have negative consequences.

The argument is weak that the financial services are not wealth generators, if the bailout has taken us back to 2005 then you’ve got to ask what our GDP would have been in GDP if we hadn’t had the financial services sector in the years before that? You can’t ignore the times of positive growth and just look at the periods it’s gone backwards, by that reasoning nothing creates wealth.

@3: “You can’t ignore the times of positive growth and just look at the periods it’s gone backwards”

Actually, around here, you really can.

Taxing the bankers won’t make much of a dent in the £64 gazzillion debt they owe the rest of but even if this is amounts to little more than crude gesture politics I say the cruder the better – preferably accompanied by a resounding raspberry.

In the meantime, can we dispense with the notion that the financial sector somehow ‘creates wealth’?

no we f’ing can’t! Jesus Wept how can you be so obtuse? Dave Osler didn’t you once say you’ve taken some economics courses? Where? Were you conscious at the time?

Intermediating between savers and borrowers, and doing anything that improves the allocative efficiency of the economy is the epitome of any sensible definition of ‘wealth creation’, complementing the workers and the entrepreneurs who produce the economy’s output, and this wealth creating function extends from local small business banking up to having a capital market capable of floating billion pound companies, and there is mountains of research to back this up.

Yes the dratted sector has just vaporized billions and destroyed wealth all over the place, yes we’d all be a lot better off if they charged a lot less for their services, yes you may be able to identify segments of the finance industry which operate more like rent extractors than wealth creators, and wouldn’t it be wonderful if the left wing in this country was capable of doing some proper analysis of what’s what, and coming up with some viable legislative responses to help us destroy the bad and preserve the good… instead we get passionate article written about the financial sector written by people who don’t even know what the financial sector is for

“If we had a Labour government even remotely committed to the ‘class war’ the rightwing press laughably accuses it of waging, they would soon know about it.”

Couldn’t agree more

Luis – Do you not think you’re being just a tad pedantic?

AP

guilty of an excessive response to small section of an otherwise admirable article … on the other hand I think he means it (the bit I picked up on) and I think lots of left-wingers think it too.

The top 5% of the population generate 40% of tax revenues.

All the spitting, sniping, gnawing leftie envy of success in the world won’t make that uncomfortable truth go away.

Some rich people do create wealth. For example, Sergey Brin, Larry Page, and Steve Jobs. Consequently they deserve to be rich. Unfortunately, the people who run Britain’s failed banks don’t fall into this category — if anything, they’ve destroyed wealth (by the amount which the GDP is less than it would be if the recession hadn’t happened) and they’ve had to be bailed out with vast amounts of our money. These people shouldn’t get bonuses, and if they all leave, good riddance.

As to private-sector banks, such as Barclays, that haven’t needed to be propped up, they should be allowed to pay their workers whatever they like.

Sign the petition on windfall taxes at http://www.38degrees.org.uk

Sorry Dave, you can moan about how unfair it all is that the rich can essentially hold the government to ransom but at the end of the day that’s the real world. This isn’t just a right-wing scare argument to keep taxes down, if you raise taxes on the top 10% too much, they WILL up sticks and leave, and then you get no tax from them. Perhaps it is unfair, but that’s the way it is.

What it essentially means is that the only way to have ‘fair’ taxes (i.e. you pay the same proportion as your cleaner) is to lower taxes on the lower earners. It makes sense really. The poor unemployed get a pretty good deal (they do nothing and get paid for it), the rich get a good deal (low taxes or else they leave). That means the only people who you need to ensure get a fair deal are the lower/middle earners.

Well Luis, for your information, yes I am studying economics at Birkbeck and I got 85% in my financial markets exam . I suspect I came top of a class that including a lot of City Boys.

So yeah, I have read Buckle & Thompson’s ‘The UK Financial System: Theory and Practice’ and Valdez’s ‘An Introduction to Global Financial Markets’ cover to cover.

And guess what? I still think the ‘wealth creator’ argument is bullshit. The working class creates wealth, the other classes live off the back of what the working class does. It really is that simple.

That probably makes me a Marxist fundi in your book. Sorry about that.

@14: “I still think the ‘wealth creator’ argument is bullshit. The working class creates wealth, the other classes live off the back of what the working class does. It really is that simple.”

Tried writing “ehh, feck those bankers, it’s all about them working class, innit” in your exams? Good luck with that.

Dave,

We have that in common – I studied economics at Birkbeck too. A great place.

So let’s say agree for sake of argument that the working classes do create the wealth and the other classes live off the back of them.

What do you think the existence of a large sophisticated financial sector living off their backs does to the quantity of the real output (the simplest definition of wealth) created by the working classes?

Do you think it makes no difference, reduces it or increases it?

What are the possible counterfactuals?

1. a capitalist economy in which the financial sector is smaller (say, no equities markets, much smaller retail banks without access to wholesale financing, access to credit generally rationed to the already wealthy)
2. a non-capitalist economy where the function of the finance sector is performed by some other means (say, central planning).

I guess if you are a Marxist fundi, you might say the quantity of wealth produced would be greater under 2. That would be a position based on faith rather than empirical evidence, I’d suggest.

I’m talking about the difference between the quantity of wealth created by the working classes when complemented by a modern financial sector, relative to the counterfactual 1. This difference is what I’m referring to when I say the financial sector helps create wealth – that it is a wealth creator. Maybe you’re using the term in a different way.

Perhaps you think there’s no difference, or even that the quantity of wealth would actually be greater without financiers living off the sweat of the workers.
I don’t know what those books you’ve read have in them, but I’d be surprised if they don’t contain some simple theory and evidence that suggests otherwise. You have obviously proved impervious to it, as I suspect you will remain if I start providing links to empirical research concerning the relationship between finance and wealth, or explaining the basic theory of what financial intermediation and capital markets contribute to the productivity of the economy.

@phillip

“As to private-sector banks, such as Barclays, that haven’t needed to be propped up, they should be allowed to pay their workers whatever they like.”

Wrong.

Do you really think that Barclay’s and other non-bailed out banks have not benefitted from the bail-out?

Taxpayer’s money allowed bailed-out banks like RBS, HBOS and Lloyds make good on their financial obligations. Many of these obligations were to other City institutions that were not bailed out like Barclay’s.

Without the bail-out, Barclay’s et al would have lost lots of money as these bets would not have come good.

Their “good investments” that bankers are being rewarded for through bonuses are only good because the taxpayer have paid for the return. Why should the taxpayer subsidise bonuses instead of clawing back as much of our money as possible.

Instead, the people who will be given a good kicking because of this are the poor (advert on telly as I speak about cracking down on the small beer of “benefit fraud”, plans to cut disability benefit, plans to cut the services on which the poor disproportionately depends) and public-sector workers (those damn nurses eh- all their fault for being paid too much). The reward for bankers is state-subsidised bonuses and inheritance tax cuts on their ill-gotten gains.

It’s a load of shite. I don’t hold out much hope of the Government’s windfall tax bring more than window-dressing though. The bankers will just do what they normally do and play off different countries against each
other in a destructive race to the bottom to win the prize for allowing bankers free reign.

Stop bitching about banker’s bonuses.

By bailing out Northern Rock, RBS and HBOS Brown acted like a rape victim who asks the attacker back for another go. And is then surprised when they accept. They should have been allowed to go under- like any other business that messes up and goes bust.

If the government wanted to help, they could have used some of the billions saved to encourage Mutuals, Friendly Societies etc to take up the retail slack.

Having got to where we are, where the government has no stake in a bank they should keep out of their affairs.Where they are the key shareholder in a bank, they should not cave in to boards of directors telling them their bonuses are essential.

Let’s see how many really want to trade their salaries for JSA……

Shorter pagar

Depression and catastrophic financial collapse – a price well worth paying to teach the bankers a lesson.

Seriously.

I’m glad that we are not governed by nose-cutters such as yourself.

I hope we are governed by people who will take the necessary action to sort out the woeful corporate governance that has allowed technocratic bankers to demand entrepreneurial remuneration and charge for the insurance we know that taxpayers provide banks with in the face of the inevitable loud whining of the banker lobby. Labour are making noises – we’ll see if there’s action behind it. The Tories blame the public sector and minor and irrelevant points about where regulation sits and as they’ll undoubtedly win a slim majority at the next election they will not end the banker gravy train

“If we had a Labour government even remotely committed to the ‘class war’ the rightwing press laughably accuses it of waging, they would soon know about it.”

Nor would that Labour government last long. The electorate aren’t Thatcherite despite what the Daily Mail may like to think but nor are they a bunch of chippy class warriors.

“The working class creates wealth, the other classes live off the back of what the working class does. It really is that simple.”

Oh dear, you’re not trying to resurrect the Labour Theory of Value are you?

“Depression and catastrophic financial collapse – a price well worth paying to teach the bankers a lesson.”

No, a price to pay to purge the economy of bad investments and avoid keeping it artificially afloat along with a load of zombie banks. We can either get the pain over and done with ASAP or look forward to years of stagnation or yet another boom and bust.

@ 19

Depression and catastrophic financial collapse

You are buying into the government/corporate meme and there is no reason to think that would have been the outcome. Barclays, Lloyds and HSBC were basically solid- not dominos waiting to fall.

If I bet everything I have on red knowing that if the ball lands on black the casino owner will give me my money back (because I am a big punter), why would I stop doing it?

Where were the competition authorities when virtually every mutual building society and insurer was sold off and then bought over by the big corporates?
Over the last twenty years the financial sector has been the crucible of a major swindle and a chance was missed to draw a line under it.

the woeful corporate governance that has allowed technocratic bankers to demand entrepreneurial remuneration and charge for the insurance we know that taxpayers provide banks with

As long as we promise to provide the insurance, we will get more of the same.

@pagar

“As long as we promise to provide the insurance, we will get more of the same.”

I see where you are coming from, but it would have taken us decades to recover if we let our major financial institutions to collapse a la Iceland. It’s already going to take us a decade to recover from this.

Surely the answer is to reform to make sure these things do not happen again eg to move to a sensible remuneration policy for bankers in the interests of shareholders and financial stability), sensible regulation to reward prudent risk management and avoid the sidelining and sacking of the rational voices within banks as happened during the boom, ensuring that banks are restructured to protect retail deposits from the gambling side of the business
and charging banks for the insurance they have and restructuring the current oligopolistic banking industry. Maybe even re-mutualisation.

To say that we should not have intervened in the first place so we should give up and let it happen again just seems perverse to me.

@10.

That’s pretty unremarkable, given that the top 5% of the population hold well over half of all wealth in the country.

The fact remains that the top 20% still hand over a smaller share of their income to the taxman than the bottom 20% do.

If bankers think it jolly unfair that they have to pay tax, due to them being ‘wealth creators’, can doctors and nurses argue that they should be exempt from tax as ‘health creators’? Or should women go tax-free, given that they’re ‘life creators’?

This “wealth creators” routine is just special pleading guff.

By bailing out Northern Rock, RBS and HBOS Brown acted like a rape victim who asks the attacker back for another go. And is then surprised when they accept. They should have been allowed to go under- like any other business that messes up and goes bust.

Probably a more apt comparison would be rape victim turned prostitute. “Everything you were doing was dangerous and immoral. Here’s some more money to keep doing it, but this time I want a piece.”

“It has of late succeeded in destroying wealth on a massive scale. Even City AM Allister Heath – a prime exponent of mindless bonus culture boosterism – points out that the recession has sent the British economy back to where it was in 2005. In other words, all your hard graft for the last four years is up the swanee.”

Well, given the general view around here that this bastard neo-liberalism started in 1980 and has been responsible for everything since then…..we should be celebrating that over 29 years we’ve seen a huge amount of economic growth then, shouldn’t we?

Dave

You might be right that the working classes create the wealth. The problem is that the entrepreuners and the businesses provide the opportunity for them to work to create the wealth.

Bankers are going to carry on earning big bonuses – the only question is whether they do so in the UK and pay tax here or they do so abroad. My mates at Goldman and JP Morgan are right now moving to Geneva, booking into rental apartments and beginning a weekly weekend commute back to their families here (they dont need to sell their houses or relocate their families).

The UK government is just as exposed to their banks as it ever was….but now the tax revenues are going to the swiss. I hope this situation appeals to your sense of morality….The only net result is that we are worse off. It really is as simple as that.

My mates at Goldman and JP Morgan are right now moving to Geneva, booking into rental apartments and beginning a weekly weekend commute back to their families here

Thank heavens for that.

Cheerio, losers.

“My mates at Goldman and JP Morgan are right now moving to Geneva”

Funny, last I heard they were going to Dubai.

They are leaving for the four corners of the globe………!

Have you noticed what the pound has done since Darling’s announcement? Probably not as economics generally only hits guys like you when it is too late……Down 4% over 2 days. As we import almost everything that’s an extra 3% on the price of everything or 3% off the profits off every business or shop who sells it to us

I can’t wait until a few years is up and you guys are forced into factory or farm work in a UK with no benefit, with a vastly weaker pound that makes everyday items cripplingy expensive and with few employers still left here….

Andy – I watch the pound pretty regularly at the moment, it’s been at about the same level against the dollar and euro for ages now. Reading something into a one off day to day currency movement is pointless.

Plus of course a fall in the value of the pound will actually benefit our exporters.

But not a sector you city boys worry about too much, eh Andy?

The movement of the bankers overseas is good new. As Will Hutton pointed out in an article at the weekend our economy just isn’t big enough to bail out the banks again. A further really large bailout would probably destroy our currency and our economy. We desperately need to shrink the investment banking sector and reduce its liability to the taxpayer. At the moment we are the line for potentially umimaginable sums of money if it were to implode.

“I can’t wait until a few years is up and you guys are forced into factory or farm work in a UK with no benefit, with a vastly weaker pound that makes everyday items cripplingy expensive and with few employers still left here”

And he wonders why the general public don’t have much time for bankers right now…

I can’t wait until a few years is up and you guys are forced into factory or farm work in a UK with no benefit, with a vastly weaker pound that makes everyday items cripplingy expensive and with few employers still left here

It really is astonishing that someone like Andy had the chutzpah to write this. There is a possibility that our economy could end up really, really screwed. But it will be a consequence of bailing out the banks for the mess that the bankers made. It is highly unlikely that UK Plc will struggle to finance the current level of state borrowing. However if it were to rocket due to a further big bailout all bets are off

bubby

We are MASSIVE net importer! Far more so than almost any country in the world being almost completely dependent on exports for our fuel, food and other essential items. And our manufacturing industry is pathetically tiny…….

A weak pound is something we can tolerate only for short periods. The pound’s drop in the last few days follows a 25% drop over the last year (and that against a weakening dollar). Are you trying to say that is a ‘fluctuation’ Andreas?

Andy – To tell the truth, I can’t find the 2day/4% fall you’re referring to (what currency are . The figure I tend to watch is pound vs euro and thats not shifted away from around 1.10 for a while. The pound has fallen against the dollar since the weekend, but that behavoir has been mirrored by the euro and the yen which would indicate a rise in confidence in the dollar rather than a decline specific to the pound.

I personally wouldn’t start reading anything into it unless we see a sustained rise/fall over several weeks.

Dunno if you’d see this as relevant as it’s about brokers rather than bankers, but hey ho:

In 1885, William R. Travers, prominent New York businessman and builder of Saratoga Race Track, was taken out for lunch by a Wall Street broker anxious to impress him and win his business. The broker took Travers to a nearby marina to show off his yacht and those of the other brokers who worked for his firm. The businessman looked down the line of beautiful craft and asked, “Where are the clients’ yachts?”.

The broker didn’t have an answer. Travers took his investment business elsewhere.

If Goldman Sachs or Morgan Stanley or any bank other than the big UK banks goes under it will be another government who will have to bail them out (as was the case last time). So what exactly is the benefit to the UK in driving out their bankers to another country where they will perform the same job, create the same risks/benefits for the global economy but will merely pay tax to someone else?

The UK banks are too large for our economy and should be separated into retail and investment banking arms as has been effectively proposed by Mervyn King. It would then be possible to allow an investment bank to collapse without a bailout if their bankers screwed up.

Someone please explain to me the benefit of punishing bankers abroad when they would only provide benefit to you without risk? If you can’t provide a clear answer to this then the only explanation for your sentiments is pure, infantile, envy

Andy,

Can you please enlighten us on what non-zero rated items you have spent your hard earned money on in the last year, which have directly contributed to the coffers of UK businesses?

The ‘bankers commuting from Geneva’ argument is also fairly fatuous, as most people spend most of their money on the weekends anyway, and wives and children (who will remain resident) also spend most of the money.