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Jun 21 2011

Bankers – the enemy within

Published by at 1:02 pm under Europe,Opinion,Top Stories

This post is about senior managers in financial services institutions around the world. Or, bankers and banks, as the media lazily call them. In “normal times” that would have been no problem. But, times are not normal and in the unstable, dangerous, post-economic crisis times we live, it is important to be very clear about who pushed us over the edge in the first place.

Namely, everyone in the financial services sector who was senior enough to influence financial services legislation and regulation for any period since the early 1990s – but elected not to rock the boat.

Next time your banker friend sits down next to you in the changing room after your squash game, ask him politely: have you ever worked in the industry at a level where your views about banking regulation were (or would have been) taken seriously? And if he says yes, ask him whether he had tried to change anything in the past decade, or so. If he says no, then you’ll know he’s “one of them” – one of those who pushed the world over the edge in 2008. Even though it’s the last thing he’ll ever admit: that he is co-responsible. “Who me? No, never. It was the US bankers who extended home loans to every Tom, Dick and Harry.”

But, he is guilty. Because he did nothing to influence banking legislation when he could have – and should have.

That everything was not honky-dory in the world of financial regulation has been an “open secret” since at least the early 90s. For instance, that hedge funds went unregulated. For instance, all those “over-creative” financial products with Fukushima character which still slosh around the system.

Responsible financial sector managers would have ensured the regulatory environment was sustainable at all times. Instead, everyone simply tried to milk it for as long as there was something to milk.

So, now that we have in place the proper, far-wider definition of “banker” and “who is to blame”, we can move on to what I really wanted to do today: publish a translation of the Financial Times Deutschland commentary in today’s paper. So, here we go.

Selfish obstructionists

German banks were very quiet in recent weeks as they watched finance minister Wolfgang Schäuble struggle to get the support of the Bundestag and German taxpayer for a new plan to save Greece. A plan in which Germany’s private banks  and insurance institutions played a part. Yesterday the institutions decided to leave Schäuble hanging in mid air.

Not in their wildest dreams did the banks and insurance firms think of voluntarily helping to save Greece from bankruptcy. Instead, they cheekily set conditions for the German government, which came pretty close to extortion: Either the government should guarantee that the institutions will in any event be able to get rid of new loans, or the government should give the institutions preferential creditor status, for the event Greece goes belly up.

This has nothing at all to do with private participation in the solution of the problem. This is pure state liability.

Chancellor Merkel is also partly to blame for the pig-headed refusal by private institutions to participate in the saving of Greece. The banks might have been strengthened by the deal which she made with state president Sarkozy last week. After that, not much remained of the Schäuble idea of holding private institutions responsible for their own investment decisions.

Since then, the keyword has been “voluntary”. In other words, when the banks feel like it, they can exchange their old Greek loans for new loans.

Schäuble expected private institutions would voluntarily “roll over” about €30 billion in this way.  But, that he can write on his belly. Sarkozy elected to stand up for his banks (in the pre-election period) and Merkel offered no resistence. No wonder German banks insisted the German taxpayer should help them pay for saving Greece.

As much as Germany’s private institutions benefit from the common financial market and the euro, as little are they willing to get involved in it. As part of the first plan to support Greece private institutions had agreed to hold their Greek loans and not to unload them in an already unstable market. Recently it came to light the banks had reneged on their own undertaking and had secretly sold about €4 billion.

Anyone who acts so indifferently on the one hand, and so selfishly on the other, should not be surprised when sentiment against the banks continue to grow.

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