Tyndale: Bank sharks get another bite in sea of scandal

Sep 22 2008

SO now we’re all agreed on the madness that caused this mess. In an economy based on debt, a mob of shysters built massive businesses by selling worthless pieces of paper to each other.

Quite predictably those empires of make believe have now collapsed.

You won’t find a banking expert who doesn’t now admit that selling mortgages on overpriced properties to people who had no way of making the repayments was idiotic.

That wrapping these dodgy deals into packages of debt and selling them on to banks was immoral if not actually criminal.

And that for apparently respectable financial institutions to actually buy this worthless junk was either breathtakingly irresponsible or shamefully incompetent. Or both.

You’ll find no one prepared to defend the obscenity of the multi-million pound bonuses paid to those who did this sleazy business and put our way of life – our jobs, our homes, our pensions – into jeopardy.

Trading

And nobody has a good word for “short selling” the means by which vast profits have been – and still are being – made by trading in shares with a falling value.

You sell holdings you don’t own in a company with a falling value and then buy the shares when their value has dropped below your selling price. And if the price does not fall far enough or fast enough you speed up the process by spreading malicious rumours that the company is in trouble. This deceit even has a name. It’s called “trash ‘n’ cash”.

It turns out that the City – that institution that you and I were expected to regard with awe and which we were constantly told was the powerhouse of our nation’s economic success - was not a shining citadel of entrepreneurship and business acumen.

It was, all the time, a garbage heap of greed and dishonesty. But if we’re all agreed then the question is what’s going to be done about it?

And the biggest scandal in this whole deranged shambles is that the answer looks like being next to nothing.

The new rules on short selling announced by the Financial Services Authority mean simply that a mere handful of financial companies have been removed from the grasp of speculators and only until January.

Until then, they can just focus on all the other targets.

The Lloyds TSB and HBOS merger confirms our “hands off” approach. The competition legislation which would normally protect consumers from such a move is being suspended in order that the “super bank” can be created. The choice of banks on the High Street will be reduced and banking costs will inevitably rise.

And since the new giant will control a third of all mortgages in this country it will be so large it can never be allowed to fail. In other words a monster created by a rotten system has its future guaranteed with our money whatever lunacy it indulges in.

We might have expected our Prime Minister to be behind such a deal. As Chancellor of the Exchequer throughout the last 10 years he not only turned his blind eye to what was happening but actually fueled the frenzy by allowing the money supply to grow at a rate that (as we are now all agreed) was suicidal. Not to mention running up a national debt of staggering proportions.

We could be having a discussion on the need to separate retail banking, in the places you and I do our financial business, from the lurid investment banking world that is currently falling apart at its expensively tailored seams.

Investigation

There could be an investigation into how much criminality has been involved in dealings over the past decade or so, as is happening in the US.

There could be urgent plans to overhaul the obviously flawed financial regularity system – introduced by the Scotsman – which allowed the recklessness that led to the collapse of Northern Rock to go undetected and paved the way for the current debacle.

There could be but there isn’t. Instead there is talk of “the market correcting itself”. Of a natural decline in derivatives trading – that’s the multi- million pound deals done on nothing more than guesstimates.

In other words the sharks and shysters are going to be left alone to get on with their shady dealings. Presumably in the hope that out of the ruins of the mess they have made they will be able to create a new boom out of some new found fakery, as long as we don’t ask too many questions.