Gritted Teeth

The London Paper  –  7 Aug 2009

I never thought I’d say this but I’ve recently felt that some people might have been getting just a little bit too mean towards bankers! I say this because this week the media seems to have decided that banks should not even be allowed to make profits. There has been a general wave of shock horror that Barclays and HSBC both dared to report £3bn of earnings in their first half results. This seemed a tad perverse to me so I listed the possible reasons for this position:

1) Big bank profits generally mean that big bonuses are coming. Since ‘bonus culture’ is usually blamed for the excessive risk-taking that resulted in the credit crunch people are peeved. Fair point

2) Banks have been making lots of money partly because the mean buggers haven’t been passing on lower interest rates to customers. The nasty toe-rags have also been using small print loopholes to not pay recently unemployed customers’ mortgage payments despite them having taken out mortgage insurance for that very purpose. True.

3) Investment banking divisions have minted it recently mainly because of the crisis they caused. Their traders are loving the asset price volatility, their capital markets divisions are digging the lucrative financial restructurings that near-bankrupt companies are having to undertake and surviving banks are enjoying the disappearence of certain competitors like Lehmans and Bear Stearns. Some even claim big banks like Goldmans Sucks engineered the crisis to clear out competitors. Valid.

4) Whilst the government didn’t directly bail out Barclays and HSBC these jokers still owe their continued existence to the huge government expenditure that stabilized the financial system yet only their employees and shareholders (and not taxpayers) will directly reap the reward. Good point.

5) The banks are populated by scurrilous criminals who are now somehow profiting from their crimes while we all suffer. They are raking it in whilst the unfortunate people whose lives they screwed up are having their homes repossessed … which just isn’t fair! Less intellectually coherent but who cares?

OK, on reflection I can see why people are narked off! However, let’s not forget that once banks have improved their financial ratios they probably will start lending cash out a bit more freely and that should help get us out of recession. Also, since we taxpayers now own banks like LLoyds, RBS and Northern Rock their profits are ultimately ours. Indeed, if these banks start performing half decently then the government may even be able to sell its stakes in them at reasonable prices which will reduce the need for future tax increases / expenditure cuts.

Despite my heart being unable to deal with our banks’ miraculous recovery my head tells me that we’ll all ultimately benefit from it. That’s why we should welcome news of higher bank earnings … albeit with gritted teeth!

Thoughts ?

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