The boys in the (banking) bubble
We are in danger of losing the plot and momentum with banking reform in this country. Populist calls to curb bankers’ bonuses (http://www.ft.com/cms/s/0/3733afa4-c276-11de-be3a-00144feab49a.html?nclick_check=1) are cheap and fail to grasp the real nature of how we got into the credit crunch and the future challenges we face. We cannot blame what happened to the economy solely on bankers’ bonuses . They were part of a complex system and culture – and only a small part.
Global economic developments – like the trade imbalance between China and other economies, and the greater interconnection of global finance – were overlaid on the ways that we had structured and promoted our national finance system, which in turn were interwoven with the financial culture we developed over the last thirty or so years – expectations of credit and consumption beyond our means, something too many of us were happy to play along with in the bubble.
How then are rhetorical demands to curb City bonuses going to get us out of this? They aren’t. They won’t work. They are cheap headline grabbers. Which is not to say we should not examine more closely the issue of bonuses, but not in this tin drum banging way.
The Midlands has been bearing the brunt of the recession as its manufacturing industries are once again pounded. The area needs a reformed banking system which is more connected to and supportive of the manufacturing economy. We need banks that can take longer-term investment decisions to support manufacturing and the innovation we need for a more economically and environmentally sustainable future.
Part of the banking system needs to turn away from the seduction of quick profits from financial innovations and look to investments in greener technologies and other innovative sectors. We need our politicians to play a leading role in drawing together the intellectual understanding of how to do this, such as examining where investment and commercial banking could be separated to manage risks and how the investment side could then be encouraged to support the development of manufacturing. Wasting their time, the media’s time and our time on cheap grandstanding about banking bonuses is irritating and distracts from these real issues.
