Monday, October 25, 2010

the cuts, the banks, grrrrrrrrr .....

I’m going to try and drag a post about the banks and the credit crunch round to the subject of this blog - the media - it’s a bit of stretch but bear with me.

The BBC, the DCMS, the Film Council and a number of other bodies in our sector have just had a limb hacked off or been shot in head by the Coalition in the name of financial prudence. 490,000 people look like losing their jobs as a result of the cuts in the UK. I don’t doubt the need for the government  to balance the books, I’m pretty sure that the Coalition is putting ideology before economics but that’s not what I want to write about.

It’s the bankers. They have so much to answer for in this and they seem to have got away it.

I’ve recently read two books on the banks and the credit crisis; The Big Short: Inside the Doomsday Machine by Michael Lewis and Too Big to Fail: Inside the Battle to Save Wall Street by Andrew Ross Sorkin. Both are very readable and both made me spectacularly angry, but in different ways.

‘The Big Short’ describes with tremendous clarity how the mortgage, insurance and investment banking industries built the house of cards that came crashing down around the time of the very visible failure of Lehman Brothers.

Interestingly the book looks at the crisis from the point of view of investors who saw it coming and who bet on the failure of the system. It describes a hideous feeding frenzy with the financial services industry gorging itself on products it knew to be defective but which generated previously unheard of commissions and bonuses.

The collusion of almost every institution in what would appear to the outsider to be the fraudulent sale of mortgage products to people who could never afford them is sickening. From the salespeople going to door to door selling sub-prime mortgages to the poor and vulnerable right through to the heads of investment banks repackaging these toxic debts, washing them clean through the credit ratings agencies and then selling them on to greedy third parties, the process stinks to high heaven and Michael Lewis unflinchingly exposes the greed and incompetence that allowed the situation to get out of hand.

As long as fees were being made and bonuses collected people ignored the consequences that they must have foreseen.  By virtue of the banks being ‘too big to fail’ and by virtue of having ‘fuck off’ money themselves, the bankers could afford to play fast and lose with their balance sheets and be reasonably sure that when the shit hit the fan they would be both bailed out and still unfeasibly personally wealthy.

It’s a shame that if the 490,000 turn into an angry mob, which they might, they will probably vent their spleen on the government. It’s the bankers who should be looking fearfully out of their windows at the pitchforks and flaming torches when they day of retribution comes. They’re lucky that we don’t live in a revolutionary society. When the Cubans, the Sans-culottes or the Bolsheviks overthrew their grasping elites they took them outside and shot them.

I recommend the book, especially if you are only going to read one about the crisis. Michael Lewis worked at Salomon Brothers for 4 years in the 80’s then left and wrote Liar's Poker, a best seller which shone an uncomfortable light on the inner workings of the investment banking industry. He put the boot in then and puts the boot in with this book. It’s a good read.

‘Too Big To Fail’ does something else. It portrays the machinations of the regulators and the financial community around the time of the collapse of the banks as a heroic struggle against the chaotic forces of a financial meltdown. What made me angry was that the book all but accepts the crisis as inevitable and casts the players in it as victims rather than perpetrators. The author appears to have gained incredible access to the key players in the crisis - be they the regulators or bank CEO’s.  He must have had to cosy up to them to get that access and it feels like he drank their cool-aid.

At one point the book pins the blame for the final collapse of Lehman Brothers on the British government for failing to enact a piece of emergency legislation over the course of a weekend to allow Barclay’s to buy Lehman Brothers. Never mind that the Republicans antipathy to any bail-out was what has led Lehman to talk to Barclay’s in the first place. It’s the books pre-occupation with how ‘the system’ coped with the crisis that holds it back from excoriating Lehman Brothers for being up there with the worst of the toxic debt guzzlers.

Sorkin talks in detail about the regulators paranoia of the perception of bias in favour of the banks in general and  Goldman Sachs in particular because many of the regulators had worked and made fortunes there. Accusations of bias are probably wide of the mark, it’s the fact that the industry relied on its own alumni to regulate it at all that somehow normalised the whole crisis for them. This was business as usual for the the banks and regulators - OK a particularly stressful and dramatic episode but all part of the game .... witness how quickly the status quo has been restored with the banks making gargantuan profits again and paying out record breaking bonuses,

Again, ‘Too Big To Fail’ is a good book - well written and researched  - but for me it’s an insiders story and it lacks the perspective of how we, the public, perceive the crisis, its causes and consequences.

But back to the matter in hand. The BBC has just had to agree to a 5 year freeze on its license fee income and to fund the World Service, S4C and BBC Monitoring which were previously funded by central government. This amounts to annual savings of £340m that the BBC has to make over the next 5 years. This is a huge sum and it won’t all come from administration and overhead reductions. Content will be affected. The Film Council has gone and DCMS arts project funding is being reduced by 15%.

As a result of the cuts our cultural life is going to suffer, as are our cultural businesses. It’s difficult to get an accurate fix on the cost of the bank bailouts to date. It seems to be £110b with another £500b of potential liabilities on top of that.  It’s a big number. The current budget deficit of £972b needs to be tackled somehow - there may be fairer way of balancing the books than the Coalition is proposing but I doubt there’s a way of doing it painlessly.

I don’t think the banks have shouldered their fair share of the financial burden that they have left us with and unless the LibDem part of the coalition pushes hard they might never. I’m not sure what to do about it but I’m glad I voted LibDem. They seemed to have tempered the Tories desire to saddle the BBC with the cost of free TV Licneses for the over 75’s and they are the party that may just have the will to break up the banks, to prevent a meltdown happening again and they may not be done with making them pay. I hope not.

Next post - back to bitching about the media, I promise.