Ian Fraser: On Banking, Cameron is Clueless

By Ian Fraser, a financial journalist who blogs at his web site and at qfinance. His Twitter is @ian_fraser. This post has also appeared at Huffington Post UK.

David Cameron displayed an astonishing lack of understanding of the banking sector in his interview with Sarah Montague on the BBC Radio 4 Today programme on Tuesday morning (as I’m afraid did Sarah, given her blinkered obsession with “bonuses”).

If Cameron’s stumbling performance was due to ignorance, then it’s simply inexcusable. If it’s down to him attempting to gloss over a situation he knows to be far worse than he claims, then it’s sinister.

On a positive note, Cameron started out by saying:

“We’re completely dissatisfied with the way the banking industry behaved over the last decade.”

But it was what Cameron said afterwards that suggested the prime minister was either totally out of his depth or just mendacious. For example Cameron said:

“there are those banks that we effectively own, like Royal Bank of Scotland, where actually we have put in some pretty tough controls on pay and bonuses and quite rightly so. ….

This is simply untrue. If any statutory controls actually were put in place (and I don’t think they were; all we’ve had are the woolly and elastic voluntary agreements that came with ‘Project Merlin‘) then RBS has ridden roughshod over them, with the acquiescence of its apparently brain-dead majority owner, UK Financial Investments.

The under-performing Edinburgh-based institution continues to dole out massive pay and bonus packages to hundreds of third-rate investment bankers in Global Banking & Markets despite the losses they are making. Whether it continues to do so, given that GBM staff have apparently badly miscalled the eurozone sovereign debt crisis and are currently said to be losing hundreds of millions of pounds daily on cack-handed forex and fixed-interest trades, remains to be seen (I’m writing a more detailed piece on their current losing streak in the near future). Irrespective of their current performance, it is farcical for Cameron to claim bonuses are “toughly controlled” at RBS.

Cameron then said:-

“Let’s look at what we actually did with the banks. We sat down in a room with them and we drew up Project Merlin which was to say right we won’t go for an extra bonus tax if you agree the bank levy – now raising more than Labour’s bonus tax – if you agree the lending targets to small and large business, done, and if you also accept some rules and some restrictions on bonuses, which they did.

“So I think we are effectively regulating the banks after years of ineffective regulation and the bigger picture is we’ve also got the Bank of England now properly in control of the banking situation which wasn’t the case in the past.”

This is just plain hogwash. For a start, Project Merlin was always a charade which even Cameron’s colleague, business secretary Vince Cable, admits has failed, both in terms of persuading bankers to rein in their pay and to lend more to small businesses. Otherwise, why would chancellor George Osborne bother to announce the launch “credit easing” in his conference speech on Monday?

And for Cameron to claim that the coalition is “effectively regulating the banks” is simply laughable. The Fundamentally Supine Authority remains in sole charge of financial regulation until 2012-13. Remember that this is the organisation that has failed even to publish the findings of its supposed “investigations” into why banks like Royal Bank of Scotland and HBOS failed, largely, it seems, due to its own complicity in their collapses.

Worse, it’s highly probable that the FSA continues to conspire with several large British banks to cover up their pre-crash misdeeds. Indeed, if the UK had a properly functioning democracy and judicial system, it’s possible that some of the regulator’s senior officials would be found guilty of conspiracy to pervert the course of justice. I believe the justice secretary Ken Clarke knows this.

Given this background, can the FSA really be expected to “effectively regulate the banks”? I doubt it.

Cameron’s claim that the Bank of England “is properly in control of the banking situation” is also factually incorrect. The Bank of England hasn’t controlled UK banking since Labour introduced the tripartite system since 1997. And it’s fairly clear that the Old Lady made a bit of hash of the bits it was supposed to oversee — assessing systemic risk and macroprudential oversight — in the critical years of 2006-08. It was so obsessed with monetary policy, it seems to have had blindspot where such things were concerned.

Regretably, therefore, and contrary to Cameron’s claims, the FSA remains the sole regulator of the financial sector until the new regulatory structure, which is still going through the consultation phase, takes effect in December 2012 (at the earliest).

These are just some of the reasons why my jaw hit the floor when I heard Cameron’s remarks about the banking sector on Tuesday morning. He came over as so glib, so blandly complacent, and so ill-informed it bordered on the terrifying.

And while Cameron claims the coalition has the banks under control, Lloyds and RBS continue to prey on some of their small businesses customers with alacrity (see: RBS seeks to destroy its own SME customers and Lloyds remains in denial about massive HBOS fraud).

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    1. 123

      This is the typical case of politics without principle. I feel like leaders today overlook the fundamental problems of our economies in order to gain a political advantage. I hope something gets done soon.

  1. Antifa

    “It’s not particularly silly, is it? I mean, the right leg isn’t silly at all and the left leg merely does a forward aerial half turn every alternate step.”

    “Yes, but I think that with Government backing I could make it very silly.”

  2. R Foreman

    It seems cluelessness is chronic regardless of which side of the pond you’re on. Based on our leaders’ actions there are only limited possible motives. They’re either clueless, or they’re hoplessly corrupt… or both.

    Have I missed any possibilities here ? Perhaps they’re being extorted by threat of violence to their families, or they’re just part of a system that is so corrupt that even though they know what is right they can’t do it without being taken out by the Rubin banking cartel in a nanosecond.

  3. Paul Wyndale

    I mean, come on, they called it Project Merlin. Unfortunately the shit pile they are stewing in is so unbelievably huge and sticky not even the Great Wizard himself could make it disappear.

  4. Blurtman

    There are businesses that train politicians and business leaders to stay on point, to keep to the narrative, even in the face of overwhelmingly contradictory facts. One trick when presented with information that directly contradicts what you have just stated is to, without blinking an eye, repeat your narrative verbatim.

    When the narrative significantly diverges from reality, and that divergence cannot be hidden, then the narrative is seen to have little to no credibility.

    Since the narrative was carefully designed, one can conclude that the divergence from reality was purposeful. So why purposefully design and deliver a narrative that does not reflect reality? Perhaps to deliver a narrative that would be consistent with beliefs that are fundamental to the country’s view of itself, for example, equal justice for all.

  5. chris

    RBS also includes National Westminster Bank, Charter One, and ABN AMRO NV.

    Perhaps a portion RBS’s problems are purchased similar to BofA purchasing Countrywide.

  6. Schofield

    Cameron announced that in his forthcoming Conservative Party conference speech that he would be telling British citizens to pay down their private debt. When it was pointed out to him that Keynes had argued this was bad tactics in a recession (Paradox of Thrift and all that) Cameron has hastily denied he intended the citizens should immediately set to and start paying down their debts as quickly as possible. Net result is that it is now very clear that this Austerity Hawk is an economic illiterate who is rapidly destroying his country’s economy through sheer ignorance. Much I suppose as a Tea Party led Republican party will be doing once they achieve power.

    1. chris

      The Tea Party/Republican Party serving the plutocracy will have a slightly different appearance than Barack’s servitude of the plutocracy.

      We have always been at war with Eurasia.

  7. avgJohn

    I’m beginning to get suspicious that there are a few people, that are making a lot of money, front running this European- rumor-driven, equity market. There seems to be these mysterious leaks of information followed by wild gyrations in the markets all of the time, anymore.

    It would be interesting to see when and how these “financial ministers” and European bank officials, who are leaking this information, are trading on this European bank bail out situation. When and what THEY are shorting, when and who they are buying and selling. But of course, it could be easily hidden in family and offshore accounts.

    It’s too bad, and I hate to be so cynical, but I just don’t trust any bank or government official anymore. None of them seem to have any sense of a fiduciary responsibility towards their positions or an obligation as a servant to their public. Perhaps it’s unfair to suggest that there are some insiders making a lot of money manipulating headlines around the crisis, but it all just seems so strange.

  8. JimS

    I don’t believe Cameron is ignorant. This looks like him going in to bat for his rich friends to keep the money going into their pockets a little longer even while working people suffer. This is Comical Ali stuff.

  9. Mark P.

    He really is an ass, isn’t he? This from Thursday’s UK Guardian —

    “David Cameron calls for Britain ‘to show some fight’

    “In his speech to the Conservative party conference, the prime minister said that there was ‘too much sogginess around'”


    ‘David Cameron has urged Britain to shun “can’t-do sogginess” and instead lead itself from recession by tapping into Britain’s indomitable bulldog spirit.

    ‘Speaking against a chilling backdrop of ever gloomier economic news, on the day that new official figures showed Britain’s economy had flatlined over the past nine months, he sought to lift the country’s mood by saying: “Let’s show the world some fight”, adding: “We can turn this ship around.”

    ‘Closing the Conservative conference in Manchester, the prime minister said: “Frankly there’s too much can’t-do sogginess around. We need a sharp, focused, can-do country” that would form the basis of a new economy built on fairness.

    ‘In a patriotic speech suffused with one nation rhetoric and promises to tear down educational “apartheid” in Britain, he repeatedly hailed the country’s historic capacity to recover from reverses, such as the loss of empire, the threat of communism or economic decline in the 1970s.

    ‘”Britain never had the biggest population, the largest land mass, the richest resources – but we had the spirit,” he said. “Remember it is not the size of the dog in the fight, it’s the size of the fight in the dog. Overcoming challenge, confounding the sceptics, reinventing ourselves, this is what we do.” He said: “It’s called leadership,” a phrase that occurred 17 times in his speech….’

    Blah blah blah. All while the economic policies of his government have done exactly what everybody warned they would do. The “one nation” and “educational apartheid” rhetoric is particularly droll given the savagely punitive sentences thrown at those arrested after the UK riots– for instance, six months in prison for stealing a bottle of water for one kid — and the rises in educational fees.

  10. Don Pitman

    Am sure our Dave knows Plenty on Banking
    From Wiki
    Cameron’s paternal forebears also have a long history in finance. His father Ian was senior partner of the stockbrokers Panmure Gordon, in which firm partnerships had long been held by Cameron’s ancestors, including David’s grandfather and great-grandfather,[8] and was a Director of estate agent John D Wood. David Cameron’s great-great grandfather Emile Levita, a German-Jewish financier (and descendant of Renaissance scholar Elia Levita) who obtained British citizenship in 1871, was the director of the Chartered Bank of India, Australia and China which became Standard Chartered Bank in 1969.[13] His wife, Cameron’s great-great grandmother, was a descendant of the wealthy Danish Jewish Rée family on her father’s side.[14][15] One of Emile’s sons, Arthur Francis Levita (died 1910, brother of Sir Cecil Levita),[16] of Panmure Gordon stockbrokers, together with great-great-grandfather Sir Ewen Cameron,[17] London head of the Hongkong and Shanghai Bank, played key roles in arranging loans supplied by the Rothschilds to the Japanese Central Banker (later Prime Minister) Takahashi Korekiyo for the financing of the Japanese Government in the Russo-Japanese war.[18]

  11. Ian Fraser

    Thanks very much for all the quality comments.

    avgJohn – hmmm. A very interesting theory.

    Schofield: you said: “It is now very clear that this Austerity Hawk is an economic illiterate who is rapidly destroying his country’s economy through sheer ignorance. Much I suppose as a Tea Party led Republican party will be doing once they achieve power.” Agree with first bit of this but do you really believe second bit is going to happen??

  12. Ian Fraser

    Also, I should of mentioned in the piece above that Cameron’s “ignorance” may well be feigned (as I think some of you have suggested).

    It’s incredible how dependent the Conservative Party is on the City of London (the UK’s answer to Wall Street) for its funding.

    A recent report from the Centre for Investigative Journalism found that 51.4% of the ruling party’s £12.2m funding in the past 12 months has come from donations from the City and banking.

    See this story from Saturday’s Guardian:- http://www.guardian.co.uk/politics/2011/sep/30/city-conservatives-donations?intcmp=239

    See also today’s piece by commentator Seamus Milne:- http://www.guardian.co.uk/commentisfree/2011/oct/05/david-cameron-conservative-party-city-of-london

  13. Henry Motyka

    Isn’t this beautiful. Just like here in the US. No real controls and plenty of trouble. And we may not have seen the worst yet.

  14. Fiver

    Without London’s sustained global financial rent collection, the UK’s true economic position is desperately exposed. It has bet the farm on the US prevailing in this intense financial war to maintain the strongest of the criminal status quo by sticking it to much of the world, and that the attending global race to the bottom can over time be marketed as a victory of relative position – as in, “Yes, most of us are getting poorer every year, but it’s better than over there in … Wherever”.

    It’s a good bet right up to the minute emerging market populations conclude their resources and production might serve ends other than providing massive one-way subsidy to First World services and consumption. That to me is one of the unreported elephants in the room – we are completely unprepared for a world where we are not the arbiters of value – one that is right around the corner.

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