JAMES MAX: Why we should stop bashing bankers
Radio presenter James Max, a former investment banker and semi-finalist in the first series of The Apprentice, believes it's time to cut bankers some slack. Despite the fact banks continue to take support while simultaneously paying staff huge bonuses, Max believes blame for our ills lies elsewhere.
It's time to stop bashing the bankers. Wholesale criticism of an industry that regenerated our country is not only pointless but it's also counter-productive.
It's convenient to point the finger at those who earn a lot of money, especially when there is a view that it's your money that is paying them: tax is rising and public spending is being reviewed leading to job losses.
Fighting back: James Max defends banks
In every other business your money is being used directly and indirectly to line company and people's pockets and no one cares.
Yet the media, politicians and the general public have decided that public enemy number one must be banks and bankers. Their greed, they say, caused the global financial crisis and they must be punished.
To take that view is as stupid as it is naïve. Before you dash off
to find my address and send me dog dos in an envelope, let me explain.
As a former investment banker you might just think that I am here to protect an industry I once worked for. You'd be wrong.
You might also think that everyone from the sector is blameless,
again that's wrong.
What I would like to see is a better understanding of the financial
crisis, targeted blame (if you must) to ensure that the rest of the
industry is able to get on and do what it does. We'll all benefit if
There is some confusion as to what caused the financial crisis in
the first place. It's easy to blame the overheated and over-lent
housing market in the US. Indeed that's part of it. People who could
never pay back mortgages or unsecured loans were lent money anyway,
mostly in the US but to an extent here in the UK. But that was the
problem, not the cause.
Two events set the causes in motion. The first was the dotcom
bubble. When that burst there should have been a recession. Huge sums
were sucked out of the economy due to the stupidity of investors after
a gold rush for technologies that were too far in the future to be
valued. Yet to avoid a recession, the US Fed lowered interest rates.
This was the first step in creating a consumer-led borrowing boom.
After 9/11, what did the Fed do when recession looked inevitable? They cut interest rates. The wall of money was relentless. Cheap finance became available not only to business but to private individuals. Setting aside the stupidity and futility of the Iraq War and the huge cost to our international standing, damage to the economy was being done. At that time, we had a chancellor who liked to spend. He spent money he didn't have by putting huge expenditure off balance sheet.
The PFI building schemes were a scandalous abuse of the nation's
wealth. Meanwhile the huge glut of cash that was coming into the UK via
the financial system was being frittered away, not invested. It was
frittered on foreign wars and frittered on public expenditure that
didn't produce results; just a short-term fix.
If we had not spent so much on foreign wars, building programmes, computer systems that didn't work or ridiculous numbers of public sector workers who buy paper clips or shuffle papers from one side of a desk to another whilst considering diversity, ticking boxes whilst creating empires and fiefdoms, then perhaps we could have weathered the inevitable storm. Just look at Germany. When they made money as a nation, they invested and they saved. Whilst I hold the George Bush administration largely responsible for the economic boom and subsequent bust, let's remember who was in charge over here - a Prime Minister who followed the Americans into Iraq. A PM that gave his chancellor a blank chequebook.
They filled the Bank of England with cronies who followed suit on a
low-interest rate agenda and our chancellor believed he could end boom
and bust; a chancellor who raided pensions to such an extent that a
whole generation will suffer when it
comes to their retirement: a whole generation whose education was
damaged due to eroding educational standards, conned into thinking
their qualifications meant something and that their university
experience would put them on track for a stellar career.
There are so many contributory and seemingly unconnected issues that have led to our problems that I despair when I hear that it's all the banks and bankers' fault.
Banking system: Regulation needs to be effective but mindful that we are but a small cog in an international monetary system, says James Max
Yet before explaining why we need to change our attitude it's worthwhile looking at those who got away. The boards of Northern Rock, RBS, Lloyds and HBOS are all guilty: guilty of buying market share; guilty of gross incompetence and guilty of ripping off the public. Yet all the banker bashing has done is to divert attention from reforming the real problems.
High street banks continue to charge their customers too much for their services. They behave as if 18% - 40% interest rates on credit cards are acceptable. They think that don't have to lend to small business or to first time property buyers. Meanwhile there has been no change to the way these people recruit and pay their people, no change to a system that still rewards failure and no wonder the public thinks that all banks and bankers are bad when a few have abused the system. It is system governed by a framework put in place by Gordon Brown, a system that failed.
Yet investment banks, hedge funds, private equity firms and other
financial services companies are all caught up in this blame exercise.
Just because they make big profits or pay their people a lot of money
doesn't mean that they are wrong to do so. Those people, if they are
based in the UK, pay a lot of tax. Personally, I'd rather have that
money supporting our businesses, going into our tax coffers and
generating expansion in our otherwise knackered economy.
Yet the debate has lumped all these organisations together. What do
investment banks really do? Is it responsible for politicians to
describe their activities as 'casino banking? No. Much of their revenue
emanates from advisory work or transactions based on a specific client
requests. Merging companies, raising debt or equity in public and
private markets. They don't put the money on roulette wheels. They
don't 'casino bank'. They do take risk, but all business is about
taking risk. Risk is very different from gambling.
For all of the talk – investment banks and the financial services
industries are the best exports we have. However, they are footloose
industries. Make their lives too difficult and they will be gone. Good,
some might say. But I'd rather like to see that huge chunk of cash they
pay in corporate and income tax going into the coffers of UK PLC.
This utter nonsense that Britain will become a green economy and
that's where our future lies is just that, lies. We don't have the
educational system to produce the high calibre of students capable of
developing these new technologies or ideas. We don't have the workforce
that's trained and poised to manufacture. We don't have the tax system
to encourage investment and enterprise and quite frankly we are a
generation away from earning any money from such endeavours.
We have a world-class financial system, we have world-class talent too, yet due to our stupidity we are throwing away the opportunity to earn and grow our way out of this recession.
In fact the solutions are simple. Regulation needs to be effective
but mindful that we are but a small cog in an international monetary
system. Rating agencies should understand what risk is and price it
appropriately. Asset back securities should go back to relying on the
underlying strength of the asset and retail banks should get back to
basics. Understanding that they have customers. Customers want service
and value for money and are not there to be ripped off.
We also should remember that profit isn't a dirty word. People who
make profit should be rewarded for doing so and the tax system
shouldn't be punitive to those who succeed. Tax should raise money for
doing the things that as a society we want rather than as an instrument
to punish those that some feel should be punished for doing well. And
that word 'fair' should be banned from use by any politicians. They
would not know what fairness meant if it came and slapped them across
Yet the other thing that many people don't understand is the remuneration system in banks. You might think the salaries paid are high. Yet in effect what banks have done is to reduce salaries and pay bonuses. Those bonuses are based on performance. That method of payment is good for employees because they are paid according to their own performance and the performance of their part of the business and the business overall.
It's good for shareholders too as they only see cash leave the
business to those who have performed. Big base salaries are wasteful
and ultimately lead to laziness and a lack of performance. Just look at
the public sector to see that in operation. Yet all we are doing by
pushing bonus payments down is increasing fixed costs of running a
business and encouraging mediocre performance at every level.
We also need to review how people who manage organisations are paid.
I have no problem with rewarding success. Yet it's time to end the
rewards for failure. Bonuses for people like RBS chief executive
Stephen Hester at this time are totally inappropriate. He is yet to
perform. If and when he does, then that's the time for him and his ilk
to be rewarded.
Lloyds boss Eric Daniels presided over the worst performance of any
bank, yet he's being paid off to the tune of millions. He and other
faceless individuals have got away with an appalling travesty. Being
paid and rewarded for making bad decisions and poor judgments. It's
these rewards for a few who have not performed that are undermining the
many who do. Stop paying for lacklustre performance and stop punishing
those who do perform. It really is that simple.
Most importantly we should understand that our way out of this mess is to get the nation's finances back in order. Raising our educational standards is key to our future success. Increase opportunity, bring competition back into our markets and most of all to work out what we are good at and get on with making our financial sector the most robust and profitable in the western world. Do that and all those other things we so desire for our society will once again become affordable.
To achieve that we'll have to improve our financial literacy and
our assessment of what really went wrong. In time, you'll see I'm
right. By all means stop rewarding failure but do stop bashing the