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We need a system that will work for us, not the bankers

AT last. Bankers are going to be banged up. At Prime Minister’s Questions yesterday, David Cameron promised to amend the Banking Act to implement the recommendation of the Banking Commission that “reckless mismanagement” should become a criminal offence, punishable by a custodial sentence.

 

So, could we soon be watching crooks from HBOS, RBS and HSBC being rounded up to spend time at Her Majesty’s pleasure? I wouldn’t bank on it. The 500-page report by the crossparty commission is damning of the sins of omission and commission by bankers and regulators alike in the crazy years of the noughties. Everyone is to blame, just about.

 

Though rightly the cross-party commission refuses to accept the “Orient Express” defence that because everyone is guilty, no-one can be prosecuted. Banking bosses were guilty as hell, says the report, and should be punished because they were in the front line, knew what they were doing and should accept responsibility not bonuses.

 

But a question arises here. Why haven’t they already been punished? We have seen MPs and lords going to jail for fiddling a few thousand pounds in the “duck house” parliamentary expenses scandal. But five years on from the banking crash, which destroyed much of the British economy, no guilty banker has been sent to jail. Not one.

 

Oh, you say, but no-one saw the crash coming. It was just that they got carried away selling those “liar loans” to home-buyers with no income; those 125% mortgages; the “with-profits” endowment policies that left savers with less than they put in. Everyone was at it. Payment Protection Insurance, sub-prime mortgages, “precipice” bonds.

 

You can’t punish people just for being greedy and paying themselves colossal bonuses for selling dud financial products to people too stupid to read the fine print. (And just in case anyone thought the bonus culture was a thing of the past, it emerged yesterday that bank bonuses went up this year by 64% – largely because the crafty banksters had held over their previous year’s bonuses to evade the 50% tax band that George Osborne abolished in April.)

 

But wait a minute. This wasn’t just a culture of greed, a culture of irresponsible marketing – there was real and actual fraud perpetrated by the banks. UBS, RBS and other banks were involved in one of the biggest financial frauds in history in the Libor rate-fixing ring. Traders conspired to rig the key interest rate upon which is based, quite literally, trillions of pounds’ worth of financial contracts, not to mention small business loans and mortgages. They lied about the true cost of their borrowing in order to manipulate the markets for their personal gain and to misrepresent the health of their own banks.

 

This was fraud, plain and simple. If a teller at a bureau de change was caught lying about the rate of exchange on foreign currencies they would be locked up for fraud. If you lie about the interest on a bank loan in your annual tax return, you could be prosecuted. Yet none of the individuals involved in the Libor ring have been jailed; none of the bank executives who allowed it to happen have been arrested.

 

And this, along with many other fraudulent activities, had been going on since the big bang deregulation in the City of London in 1986. Nor has the Bank of England been investigated for negligence in allowing it to happen.

Forget reckless – some of this mismanagement also involved money laundering. The British-based HSBC helped to wash hundreds of millions of dollars of drug cartel money, and gave financial assistance to organisations believed to have links to al-Qaeda and Russian mobsters. It was fined $1.9 billion dollars for criminal activities that put TV show Breaking Bad in the shade.

 

Yet not one HSBC executive has been cuffed – because the authorities decided not to press charges. HSBC developed its drug habit a long time ago, after the Opium Wars when Britain went to war with China because it was threatening to ban British firms selling the drug. Plus ca change.

It doesn’t inspire confidence that the full force of the law will be applied in future. We were told yesterday “reckless mismanagement” is to be a criminal offence. But reckless mismanagement is already an offence.

 

Recklessness comes under the heading of what lawyers call mens rea – the legal doctrine that an offence has been committed deliberately and the perpetrator is therefore guilty of a crime. If you recklessly mismanage an NHS hospital or a primary school you can be prosecuted. Why should reckless mismanagement of a trillionpound bank be any different?

The irresponsible lending by HBOS was on an heroic scale, and the banking commission report makes clear the people at the top knew what was going on. HBOS bosses knew they were continuing to trade while insolvent – a heinous financial offence. They just assumed someone else would come along to pick up the pieces when the house of financial cards collapsed. Which they did. Us.

 

The Bank of England estimated that the bail-out of the banks after 2008 involved £1.3 trillion of public funds. Not all of that was lost money, of course. Most of it was in the form of short-term loans, liquidity injections and swaps – though if you are a small business try asking for similar help through a difficult patch and you’ll find the banks don’t want to know you. But there are still hundreds of billions of dud loans, collateral debt obligations and other toxic waste that has been quarantined by the bank rescue. RBS alone has an immediate liability of £40bn that it wants to get rid of in a so-called “bad bank” – and guess who gets it? It will be handed to the bank of you and me.

 

That no-one has paid any penalty for these activities is shocking. Even more shocking is that executives of state-owned banks like RBS have continued to pay themselves bonuses. How stupid can we be to allow people to behave like this with impunity.

Why is it that criminals with briefcases seem to be above the law? How can behaviour like this be tolerated in a supposedly law-abiding society? What kind of lesson does this set for the rest of us? If people with great wealth are seen to be above prosecution, how can you expect ordinary people to respect the law? This week we have seen one of the greatest recorded reductions in crime in decades. We are becoming a much more law-abiding society: except where probity and honesty really matter – at the top of our financial system.

 

Forget new laws. If the old ones haven’t been applied, what hope have we that new sanctions will be applied to these people who have robbed society and continue to rob society today. These people should have been sitting in holding pens in the Old Bailey, like the mafia, while the charges are read out.

 

Only then will we get a banking system that works for society’s interest instead of the personal enrichment of a banking kleptocracy.



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