What?

It is most of us who are paying for their foolhardiness, as the pricking of a financial bubble they created has a negative impact on all our prosperity. Months, possibly years, may go by before banks are prepared to lend as freely as they had been doing. The price of money is going up for all of us, and the economy is slowing down, because regulators and governments did not dare stop the over-exuberant behaviour of greedy traders, bankers and financiers. In fact, the Government encouraged the excesses of these super-rich individuals and their financial servants because they were thought to be good for London and good for Britain.

This is the sort of rant I\’d expect from an 18 year old student organiser published as a joke at CiF. Apparently not though, it\’s from Robert Peston and it\’s in the Telegraph.

has the freedom of investment banks, private-equity firms and hedge funds to buy and sell what they like, when they like, gone too far?

No? You know, this freedom and liberty thing?

In a whole range of businesses and industries, the talent of individuals is rewarded in tens of million of pounds, while the relatively poor are getting poorer.

The poor are getting poorer? Really? Got some figures to back that up? That living standards are actually falling?

For a variety of reasons – technological, regulatory, economic – increasing amounts of wealth are sticking to individuals with special talents, rather than being dispersed to the owners of public companies or being siphoned off by the state in the form of tax.

Excellent, isn\’t it? If the returns to talent rise then talent will be encouraged to exercise itself. Known as "incentives" and it\’s the very thing that drives the human race ever onwards and upwards.

In other words, globalisation has been wonderful for anyone with a special talent capable of generating incremental revenues. The crucial word here is \’incremental\’. If you can demonstrate that you have the magic to generate additional revenues, then you can do very nicely. The reason is that the market for the fruits of your talent is bigger than it has ever been. For many products and services, an almost seamless, all-day-and-all-night, worldwide marketplace with billions of customers has been created by the internet and the dismantling of barriers to trade.

Have to agree with him here, it\’s a point that I\’ve been making for some time. Globalisation does indeed increase income inequality: because those few who can make it on hte world stage can export their talents to 6 billion people.

But the biggest cost from the swelling of the super-rich class is an erosion of the fabric that holds together communities and the nation.

Been reading Polly T again?

And they would never surrender their right and ability to move somewhere else should the financial tariff for staying in the UK rise above an unspecified threshold.

Of course. Nor would anyone else: known as freedom. If you don\’t like the way one State is treating you, leave and go to another one more to your liking.

Only a limited number of very big businesses or stunningly talented entrepreneurs can actually up sticks to anywhere in the world, if the tax rates here are not to their liking.

Bollocks: your humble blogger has done it. There\’s another half a million just over the border in Spain as well.

I don\’t think I\’ll be bothering to buy this book: it\’s tripe.

Really: a very Tory denigration of trade and the way it upsets the established social order.

5 thoughts on “What?”

  1. For an alternative assessment of the downstream consequences of a lighter regulatory regime in the City of London:

    “The City of London is globalisation in action. It is, first of all, thoroughly international, handling more of the world’s deals in over-the-counter derivatives, global foreign equities, eurobonds and foreign exchange than any other financial centre (see chart 3). Second, its firms specialise in innovative, high-value-added products. Third, the City is living proof that clusters work in the way that economists claim. Capital can move like mercury. The main reason why international finance has made London its home is that everyone is there, making it easier to do complicated deals and to trade quickly in large quantities. The City offers a cluster of talent—financial whizz-kids, lawyers and due-diligence accountants—that is second to none, and self-renewing. It helps that English is a near-universal second language and that London’s time zone makes it possible to trade in a (long) working day with both Asia and America. Regulation is mainly deft but not lax, and the taxman takes a hospitable view of foreigners’ personal earnings.”
    http://www.economist.com/specialreports/displaystory.cfm?story_id=8582323

  2. “because regulators and governments did not dare stop the over-exuberant behaviour of greedy traders, bankers and financiers”

    It was a recently as earlier this week you were saying exactly the same thing re:Northern Rock, that the wiser heads at the Bank of England should have intervened in its business. Now you’re saying that’s an 18yr old student rant?

  3. With the media and political frenzy over the Northern Wreck and the losses at Societie Generale, we are overlooking the string of stupendous losses from subprime loans made by the top American banks as well as the downstream global consequences, which have yet to fully work out:

    “US banking giant Citigroup has reported a $9.83bn (£5bn) net loss for the last three months of 2007. Chief executive Vikram Pandit said the loss had been caused by a $18.1bn exposure to bad mortgage debt and was ‘clearly unacceptable’. The company, the largest banking group in the US, said revenues during the fourth quarter fell 70% from a year earlier to $7.2bn.”
    http://news.bbc.co.uk/1/hi/business/7188909.stm

    “Wall Street banking giant Merrill Lynch has unveiled a huge loss for 2007, crippled by exposure to risky investments in the US housing market. It made a net loss of $7.8bn (£3.9bn) in the 12 months to the end of December from a net profit of $7.5bn in 2006.”
    http://news.bbc.co.uk/1/hi/business/7193915.stm

  4. With views like that I can see why he works for the BBC.
    I would like to see evidence that “regulators and governments did not dare stop the over-exuberant behaviour of greedy traders, bankers and financiers.”
    It looks like the FSA was totally unaware of problems at NR rather than frightened to act.
    If I was looking to point the finder of blame it would be a the Fed for holding interest rate down for too long.

  5. In recent months there has been a protracted debate in the FT – access mostly subscriber restricted now – in which there is an emerging consensus that incentive systems in the pay of bankers is largely to blame for these periodic crises in banking. Try:
    http://www.ft.com/cms/s/0/18895dea-be06-11dc-8bc9-0000779fd2ac.html

    Basically, the argument made is that bankers tend to be hugely well-rewarded by bonuses for taking successful investment risks but suffer little downside penalty when the results of past decisions turn sour. At worst, they lose their jobs but they don’t have negative pay and they retain previous bonuses. In short, the reward systems for bankers are asymmetric.

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