An idiots guide to arguing with bankers

Posted on October 17, 2011



I was recently drawn into a petty dispute with a total stranger on Facebook about the causes of the financial crisis. Although the individual (who I will allow to remain anonymous) has some pretty bizarre views on the EU and the welfare state, his positions on the cost of the bailouts are illuminating. The exchange has some useful lessons for anyone who becomes embroiled in an argument with a financial whizz kid who thinks they can explain away the crisis using the same bankrupt thinking that caused it. I have posted the (rather long) exchange below, but I would summarise the key lessons as follows:

1) Do not get sucked into number crunching – the key point is that the numbers are essentially meaningless, and as soon as the markets lose faith in the validity of the numbers they cease to count. If you put positive assumptions into the number generator you can make the cost of the bailouts sound small (ie. a quick return to growth, the avoidance of another crash, market stability, and of course placing no price on the erosion of the welfare state or the social costs of at least a decade of austerity.) If you put negative assumptions in they become impossible to calculate. And the future is unknowable, particularly in an age when individual governments have so little influence over the economy.

2) Do not allow the discussion to be about a particular government or national context if it implies that the local impact of the global crash were primarily that government’s fault. The crash was the result of contagion from the American sub-prime housing market which everyone from UK pension funds to Norweigan municipalities were exposed to. State spending as a cause of the crisis is a red herring, as large and small welfare states are equally affected. You can quite fairly say that the more deregulated national banking sectors (UK, Iceland, Ireland) were more exposed, but this only supports the case for much better regulation now. The best thing governments can do (as the Facebook Banker implicitly acknowledges) is reduce exposure to the wild swings of the market through proper banking regulation.

3) It is very difficult to change the minds of people who despise the poor and actually believe that our monopolistic economy is built on meritocracy (usually based on an assumption that their incomes show that they are more able or hard-working than others.) Rather than try to convince them otherwise it is more useful to expose the ways in which the financial crash (not to mention MPs’ expenses, phone hacking etc.) has shown the elite to be the most consistently anti-social, corrupt and selfish sector of society. We may not be able to change their minds about the undeserving poor, but we can show them that there is an undeserving rich which takes a much bigger piece of the pie. This needs to be repeated again and again if we don’t want the national discourse to degenerate futher. Otherwise we will spend half our time having to deny that Romanian immigrants to living in Knightsbridge on benefits (one of the Facebook Banker’s more colourful claims) is responsible for Britain’s economic plight. This does not stand up to scrutiny. Be confident and go on the offensive!…

Facebook Banker [In response to a posting by a friend calling for the occupation of the London Stock Exchange]  Its not the bankers that are to blame for the current crisis, its a myth that the politicians have spread. Bankers did not force anyone to buy a house they could not afford. Main street was as greedy as the bankers and bought houses as they though they could make easy money. Its Politicians and regulators job to set the rules bankers simply played by them. The truth is people like tony blair were happy to keep regulation light and take away the regulators powers as they knew more leanding meant boom and when people are doing well they don’t ask tough questions on government policy like the questioning f this country could afford iraq war or the afghan war. the banker did what they were suppose to do dance to the music. the music was suppose to be controlled by the regulators like the fsa. Dr Kings waring were ignored the bank of englands power systematically reduced. This crisis was not brough about by banker but greedy politicians. Occupy Westminister not the poor stock exchange when only provides jobs and tax revenue.

Matthew Richmond I’m sorry I don’t know who you are, but you’ve said is mostly nonsense.Yes people shouldn’t take loans that they don’t think they’ll be able to pay back, but those loans were structured and sold in such a way that they gave often uninformed people the impression that they would be able to repay. The purpose of banks is to make loans to families and businesses that they are confident will be repaid as they become more successful – ie. to promote growth in the REAL ECONOMY. Their purpose is NOT to use superior knowledge and information to lure the weak into debt bondage so they can profit on the margins through devious financial instruments that it turns out not even they actually understood. Of course politicians are also to blame – for allowing government to be captured by minority elite interests and bending to the childish demands of the financial lobby not to be regulated. And if you are still clinging to the idea that we should be grateful to the financial sector for jobs and taxes take a look around you – there are no jobs and the state is broke BECAUSE of the enormous sums needed to prop up the banks (when all of a sudden they didn’t want to be left alone any more, that is). Occupying Wall St/LSX is not asking anything of the banks – what’s the point when they clearly are incapable of anything other than greed, hubris and destruction? It is a symbolic gesture to government to start tending to the concerns of the 99% instead of the 1% (and their deluded supporters.)

Facebook Banker No need to apologise for not know who i am buddy, i don’t know you either however i can prove you are wrong. You need to get your fact write first bailing our UK banks cost the UK tax payer 75Billion Pounds (Some of which has already been paid back on the rest the UK tax payer stands a chance to make a profit ultimately from the sale of the Shares bought). Now the reason UK is bust is because Labour enouraged putting people on benefits and waging wars instead of enhancing the skill set of the average british worker. Before 2007 the banks were paying on average of 12 Billion pounds in tax on their profits alone. Not counting the tax they paid via the income tax on banker pays and bonus. Which if i might remind you is 40%. Before the imposition of 50% tax rate. The reason the UK is bust is because the State in 2010 paid out more in benefits alone then was collected by income taxes. So will all the tax we pay on our income not even the benefits can paid. While all the time the talk is keeping non EU immigrants while leaving the doors open for people from romania and other shit european states to come here and take benefits for free. We work they live the good life. Why should people have houses paid for in knights bridge on the government when me who is paid quite well can’t even afford the rent of a place in that locality. Surely as a tax payer i have the right to demand my money does not go on illegal wars and paying 50K a year in someone else rent. If you are poor society should help you but not pay your 50K rent but a house in cheaper area yes for sure.

Facebook Banker Turkey is not allowed into Christian Europe but the bankrupt greeks and other were more than welcome. Every MEP who by why do nothing what so ever(except the one piece of legislation i respect the human rights acts which the Conservatives are trying to take down right now.) Each MEP has 250K of benefits and compensation a year do you really think that is deserved. May i remind you of the benefits issue now forgotten which showed what the average MP was stealing.

Facebook Banker I am not saying banks are blameless but as someone who started working in 2007 on the very structures that blew up i can tell you it was the politicians that built this crisis. Before the Basel reform banks had to keep a lot of capital. Now basel was not the banks but politicians who did not understand finance yet wanted to dictate to the banks how to do business brought in. Canadaian regulator forced its banks to keep more reserves than the rest of western world result not a single bank failure now they are out and about buying anything of good value. The UK, US and Europe did not they wanted the banks to lead and lend more. How would you as a business CEO react if one guy was making a 1000 bucks for free by following what the government was proposing, while you were making 100 by doing the good old business. The party was started by the government they were out giving out free punch and also being the DJ you would have been crazy not to dance. It was Nash equilibrium as its best the prisoner’s dilemma. The problem is most of the MP don’t even know the difference between budget deficit and total debt. These people are out managing the economy the truth is they are responciable for this mess and yes may 1000 bankers (at max) the rest were just doing their job. Its our job to short the market if we think its gona fall we are just making a buck we are also happy to go long when we think it would rise.

Matthew Richmond Let me correct you on a few things. The cost of bailouts to the UK taxpayer was not £75bn it was £850bn. I was totally against the war in Iraq, but the entire cost of the war was £20bn, which is negligible by comparison. Most of the £850bn is still outstanding and it could rise. Equally it might also eventually be paid back, but probably not for twenty years, during which time the population will get more unequal, less healthy, less well educated and skilled (where do think the magical money to upskill the workforce is going to come from?) and less cohesive. How do you put a price on that? And that is in the BEST case scenario. More likely is that there will be a bigger crash in the next few years, because we have still not corrected the underlying causes of the first crash: reducing the size of the banking sector relative to the rest of the economy, breaking up the banks – which are even bigger and more concentrated than before – not just ringfencing retail from investment, raising capital requirements to more like 20% and correcting an upside-down incentive system which rewards huge bonuses for loss making bankers. If there is another crash (and it may be sooner than we think) the banks will not only be too big to fail, but too big to save and then we’ll really be fucked. Let me paint you a picture: no money coming out of cash points, businesses collapsing, millions becoming homeless, public services overwhelmed. Will the apologists then admit that the financial sector has become a monstrous parasite sucking the life out of the real economy? No, they will say ‘they were just trying to make a buck, and it’s your fault for not regulating them after the first crash’. That’s exactly what the Occupy movement is trying to do, so why are you opposing it?

Matthew Richmond Secondly what do you mean ‘the reason the UK is bust is because in 2010 it paid more in benefits than it made in tax’. You are confusing cause and effect. Why do you think the state is paying so much in benefits? It’s because of the rise in unemployment!!! I lost my job as a direct result of the crash so had to go on Job Seekers Allowance in 2010 – I had a masters and 2 years’ work experience, so I am hardly at the bottom of the pile, but was unable to find a job in my area. Of course women with young children, and people with health problems, and fresh graduates, and those who did not finish school are on benefits – there are no jobs for them! Yes the welfare bill before 2008 was already high, but not in per capita terms – it is the very minimum you can live on. If you think living on benefits is fun, then you haven’t done it, and if you really think that poor Romanians are living it up in Knightsbridge then you need to stop reading the Daily Mail before it rots your brain. Those cases are negligible – practically all people living on benefits live in shit flats on almost nothing, and East European migrants overwhelmingly come to the UK to work. Even if you think that £60 a week for the long-term unemployed is a waste of money, you have to recognise that we live in an economy based on structural unemployment – mainly because it holds down the cost of labour, which helps employers. It is inevitable that when you have 5-10% of the population permanently out of work, half of them will become discouraged and unemployable. If you want to live in a country where the poor have no shoes or teeth and survive by begging in the street then there are probably other places that would suit you better. I don’t.

Matthew Richmond Lastly you seem to have a very rose tinted view of what your employers do. Why do you think Labour and Conservative governments have consistently cow-towed to the banks? It is because finance holds them to ransom. Furious lobbying by the banks watered down the Project Merlin requirements (which are now defunct anyway as they are still not lending) and secured delays to the modest ringfencing reforms, so that they will not come in until 2019 (by which time it will probably be too late) – and that is since the crisis, when the government actually has a bit of leverage! Governments made a faustian pact with finance because they lost faith in their ability to stimulate other parts of the economy, and attracting banking to the UK seemed like a win-win. Yes taxes on banks paid for New Labour spending (which was well within standard deficit levels until at least 2004, and was not unusually high in 2008), but that is because the entire economy was geared to facilitating their profits. It is a circular argument – if you create the conditions for a parasitic financial sector to thrive of course they will be the largest growth sector and will be the ones paying the top rate of tax. There may have been a 40% rate before the crash and 50% now (long may it last!), but perhaps as much income as is taxed escapes HMRC through tax evasion and avoidance – if you disagree I suggest that you read Treasure Islands by Nicholas Shaxson. In any case corporation and wealth taxes in this country are extremely low by western standards, so even during the boom years you can hardly say the banks were paying more than their share. What I think you have to come to terms with is that you may have just been doing your job, but the people you were working for were systematically and deliberately eroding British democracy and economic stability in order to line their own pockets. To the extent that government is responsible, it is for failing to stand up to them in the interests of the majority.

Facebook Banker Here is the source of you 850B this is british tabloid journalism. “The commitments include buying £76bn of shares in Royal Bank of Scotland and the Lloyds Banking Group; indemnifying the Bank of England against losses incurred in providing more than £200bn of liquidity support; guaranteeing up to £250bn of wholesale borrowing by banks to strengthen liquidity; providing £40bn of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme; and insurance cover of over £280bn for bank assets.” Now for the 200B liquidity Support thats the BOE Job being lender of last resort. The charge punitive rates for these loans 8% in some cases for loans on a 30 day basis. So they are not doing the banks any favours they are giving cash in return for collateral not for free its a loan not anything else so please use the masters degree before quoting figure. The 250B in gurantee again is not cash as nothing is paid out at all, they only say if your bank goes down we will pay you the depositor. However they charge banks for this so its only insurance the banks have paid for so the tax payer is only on the hook for the insurance it sold to the banks not a favour. So far not a single cent has been paid out by the tax payer on this so they are in profit as all of the 250B has now matured as it was 12m to 18m funding in 2007. To Bradford and Bingley the loan was then paid back by santander when it took over the firm with a small amount still out standing. The 280B in insurance cover cost RBS and Lloyds over 5B with no draw down on the insurance so far. With majority of RBS bad bank having being wound up. So again if i am say the cost is effectively now less than 50B with even that being recovered in the next 5 to 10 years even if the shares are not sold. The Shares are being lent to anyone who wants to short RBS and lloyds so they pay a fee for that and then also return the shares back.

Facebook Banker The amount being paid out in benefits was greator than tax collection even in 2006. So no cause and effect its simply a benefit system that pays people to remain lazy and not get jobs in the measurable economy but the black economy. I have had the unpleasurable experiance of living in a flat above some of these so called hard working migrant workers and one british family. I can assure you they take the benefits by claiming they can’t work then they do odd jobs here and their paying liveable wage and that is what i think is unfair. Some of them claim they are single mothers when their thug boyfriends are always around selling drungs. It was enough for me to move out. If they have money to party and take taxi’s to and fro from central london they can pay a little tax. Boom and recessions have always been a part of all economy so yes people live through tough and good times the social effects have always been their so lets not make it into something its not. The banks only did what the rules said they should do not what they wanted to do. As for the cash machines they will have money as the monetary base would simply be expanded. Everyone gained when stocks rose via pension increased tax or simply their holding and same was the case when house prices rose the banks did not get a share of that yet when they fell the banks were on the hook for people walked away. As for the 20B you qoute for the iraq war is simply the cost of getting the men and machines their. The loss of life and then the payouts and wages for the soilders etc come out of the defence budget that is how the darkhole that is the ministry of defence works. Its own government appointed auditors have for the past 5 years refused to sign its accounts do you really want to quote figures form them.

Facebook Banker The truth is labour encouraged people to be greedy, and it made the incentives as such that even good banks like HSBC were forced to lend more. It sold the mantra gamble it all if you fail the state will take care of you or don’t work at all and we will take care of you as well. Why is it so difficult to understand that they did the same with banks. When it came to pay the piper they run faster that speedy gonzales. Let me paint you a picture when you walk into a bank brach and talk to a bank employee he needs to be paid for him to spend his time their and help you. So the bank can charge you for you account a monthly fee lets say 5 or 10 pounds that to you would seem so unfair but that is what ringfencing will do it will force the consumer bank to charge a monthly fee as its a low margin business.

Matthew Richmond It’s very convenient that you’re able to see the off-balance sheet costs of the Iraq War but not of the bailouts, where you only count cash used to buy up shares. You are picking the numbers you want to fit your argument. What about lost output? What about the declining market value of the shares? What about increased spending on welfare? What about the impacts of those guarantees on the behaviour of both banks and government? What about the opportunity cost for the hundreds of thousands of people who will now spend their late teens and 20s out of work and probably never be able to afford a house as a result? The truth is that no one knows what the cost of this all is – just like no-one knows what the value of pensions will be in two years’ time. If you think you do you are making exactly the same mistake that you and your colleagues were making in 2007. You are still seeing the world through a paradigm which has collapsed, but which survives because governments have become so dependent on the banks that are destroying them. The financial system was incapable of correctly valuing even its own products, let alone off-balance sheet goods like public services, like social relationships, like the value of having a balanced and stable economy, which are the invisible conditions which underlie a good society and a prosperous economy. If New Labour was the problem only Britain would be in crisis, but so is the US and so is most of Europe. Small states (US, Japan) and big states (France, Spain) are all in trouble because global finance has been allowed to grow so large that it can attack entire economies, or bring them to their knees when they get their sums wrong. And by the time the taxpayer is left to pick up the bill most of the fictitious profits which they’ve conjured up have found their way into offshore bank accounts. And forgive me for not seeing much difference between the benefit cheat who makes £60 a week and the tax cheat who makes millions – the only difference is scale and the fact that the latter are genuinely beating the system, while the former are just getting a few pathetic crumbs which have fallen off the table.

Facebook Banker Look i will say you and i will probably never agree however your last post has some valid points however a lot of false points as well. I am not counting on or off balace sheet items. Cashout flow in wages for soilders is an actual flow jus t that they hide it under a different flat on the governments balace sheet. However gurantee’s are like insurance you can’t say the recovery will be zero so the cost is 850B because its not. Its confusing notional with the loss given default. I agree this crisis should not have happened however have you ever though why peoople run to the us dollar when they think the markets is gona crash. Its simply beacuse UK had labour, the continent had socialist and the tax doging greek and italians. The result everyone over borrowed the governments and the firms. Now to blame the banks for this is plain wrong. People and governments wanted to borrow the politicians put in place rules that meant banks could earn more from just taking on more risk. The politicians and the regulators were to blame. I point to canada once again you can see a good regulator kept the banks in check result no major losses. However you cannot have dumb politicians who don’t understand economics and markets trying to run them. That just leaves an emperor without clothes as can be seen in the continent right now. Now as to the lost output that is part of all economic ressions, was the 70 not bad, was the 1930 not bad yes they were and the world is a place were these cycles take place. Stop picking on bankers as that is just the popular thing to do start asking your politicians to do a better job rather than taking bribes. Get rid of people like liam fox who are cought with their pants down and are still claiming he did not do anything wrong. Look this myth of the all powerful bankers is not very true their are some really powerfull people but still they have a limit. Your problems are the result of political and economics mismanagement not these unseen boogymen called the banker. As for tax cheets all up for grabing those basturds but also grabing anyone who cheats on benefits nad not giving them the slight slap on the rist when they are cought. Just as an example under current UK law if you are cought having rented out you council supplied house the penelty is you losse the house nothing more no fine no nothing thats just an invitation to cheat. So fix tax avoidance and cheats both hand need to be used to clap not just one.

Matthew Richmond No we aren’t going to agree on who was responsible for the crisis – and I seriously recommend that you investigate the role of the financial lobby in deregulation, which will show you that the part played by bankers is much closer to my characterisation than yours. In any case we clearly both believe that a properly regulated banking sector like Canada’s is a desirable goal and absolutely urgent if we are to avoid a bigger crash – a crash which will once and for all expose the costs which you think you understand as meaningless. If you agree with this then you should also Occupy LSX today. It is not asking anything of bankers, who as you point out are incapable of anything but the blind pursuit of profit (within their fatally flawed understanding of the concept). It is a symbolic gesture to government, who for all their faults ARE actually capable of acting on behalf of the 99% if we demand it of them. If I see you there I will shake your hand.