----- Forwarded Message -----
From: Geoffrey Gardiner <geoffrey.gardiner(a)btinternet.com>
To: gang8(a)yahoogroups.com
Sent: Friday, 6 July 2012, 11:10
Subject: [gang8] Report on Select Committee proceedings
Select Committee session on 4th July 2012.
Report by G W Gardiner
I was able to watch almost all of the questioning of Bob Diamond by the
Select Committee. I missed only ten minutes while I took a phone call from our
local radio station which resulted in being interviewed myself the following
morning.
Diamond showed self-control that was an example to all. Even when faced
with the most vicious insults he did not for a moment come anywhere near losing
his temper. The members of the committee had already in their minds convicted
him of being the epitome of all that was wrong with modern banking, so he was on
a very tough wicket. His tactic was to admit all the sins of the past and try to
show he had dealt with them, which indeed he has. He told them he had ended
‘proprietary trading’, i.e. gambling, and that decision returns investment
banking to the boring, tame, safe affair it used to be. Although he did not say
so, I believe he has ended all cross-selling in the retail banking, and the
targeting which went with it and corrupted the morals of the staff.
Interestingly that morning a friend told me about how his account (not at
Barclays) was changed to a more expensive one as a result of a bonus-seeking
clerk forging his signature on a form.
After two and a half hours of getting nowhere in achieving his personal
agenda an exasperated member of the committee likened Diamond to Geoffrey
Boycott, a famous cricketer who was notorious for his ability to stone-wall for
hours. The stone-walling in Diamond’s case was his refusal to name names or
accuse the authorities of malpractice. Because he had lost his job, everyone
thought he would be out for revenge, but he was not. He would not admit - what
is obvious - that the conversation he had with the Deputy Governor of the Bank
of England should be interpreted as a request to Barclays to fall into line with
all the other banks and make a false submission of the Libor rate. He would not
name the government official or officials who also lent on him. The official
most likely to have done that was the one who was in charge of the banking
crisis management, Shriti Vadera, Gordon Brown’s nitwit economic adviser. He
referred to her as ‘Shriti’ as if she were a benign friend, but then he called
all the members of the Committee by their first names as if they were all old
friends.
Why did he not take his revenge as many expected? My first thought was that
he was fearful of the B of E and the FSA taking their revenge in turn on
Barclays, but then an even better reason for his action occurred to me and I
used it in my broadcast. Diamond, by miles the most successful banker in the
world at the moment, would already have in his pocket one or more offers from
continental or American banks worth millions a year to become their CEO. If the
prospective employers are operating in London, any appointment of Diamond
requires permission; he has to show he is a ‘fit and proper person’ to the B of
E and the FSA.
Diamond split the Libor manipulation into three eras, two of which are
significant. There was the attempt by 14 traders in New York to influence the
setting of the Dollar Libor. The official report suggests the change required
appears to have been half a basic point. That is a two hundredth of one per
cent. The report contains no proof that Libor was affected. Barclays’ submission
to the committee of the British Bankers Association which sets the rate is only
one of many. One would expect the rule ‘De minimis no curat lex’ to apply, but
the charges were brought in New York where there is enormous resentment that
Barclays has become the top dog, and it won the race to take over the rump of
Lehmans at a bargain price. There has already been one unsuccessful attempt to
get a court to overturn that deal. The rate difference at the time of the
banking crisis was 36 basic points. Many have made the point that at that time
there was really no Libor as no-one dared to lend to another bank. Anyway the
setting of Libor is a theoretical exercise of a nature I have described
elsewhere as ‘a knockabout’. The rate is nonsense as it is a sort of vague mean
between many deals, each individually negotiated. I suggest Libor is no more
than a figment of the imagination and it is crazy that it is used as a
benchmark. One wonders if it matters what it is. The rate setters must be
tempted to leave it the same and save themselves trouble.
The reason why it has become important is that there has been a cult of
mucking around with interest rates for half a century, and lenders and borrowers
have to assume that anything might happen to interest rates. They dare not use a
fixed rate or they will go the way of the US Savings and Loans. So a benchmark
rate has been needed. There is nothing official, like Bank Rate, so something
had to be concocted and everyone turns a blind eye to the nearly nonsensical way
it is arrived at and its unofficial nature even if it does receive the impress
of the BBA.
Diamond has cleaned up investment banking and turned his attention to
retail banking for which previously he had no responsibility at all. His policy
has been to be first to admit there was wrongdoing (in retail and investment
areas) and to settle fast, which has unfortunately led the public to assume
Barclays is worse than the other banks, the opposite of the truth. The Committee
never tried to ask him what was the reason for the frauds in retail banking. I
hoped he might have been able to answer and would say what I would say, and
indeed did in my broadcast. The money transfer business is costly, but when
interest rates were high that cost was covered by the endowment effect of high
interest rates on current account balances. In 1978 Barclays told me that they
needed a base rate of 9 per cent to cover the costs. Hopefully computerisation
has lowered those costs, but I doubt if it is much. When Bank Rate was 2 per
cent in 1950, a customer of a bank was charged 6d for every entry on his/her
account. Six old pence would be at least 300 today, that is £1.25 in present
money. Given computerisation I doubt if that amount is needed. In my broadcast I
said. ‘The first bank to introduce a charge of five pence an entry will soon be
out of business. There needs to be an agreement between banks all to introduce
charges at the same time. But such an agreement is illegal under competition
law. The government must therefore step in and say to the banks, ‘You will all
charge and here is the scale you will all apply.’
I explained how banks had filled the gap in their incomes by charging
fiercely those who take unauthorised overdrafts and by overpriced payment
protection insurance. I said, ‘Issuing a cheque which is not covered by one’s
balance is theft, and the accounts of people who do it should be closed, but the
banks do not close them down as they can make big money from them.’
We had some wonderful examples of politician-speak from the Committee, the
superficially clever-clever points. One called Teresa won the prize for nonsense
by saying she had done a word check on Barclays 283 page report and counted the
number of times certain words were used, like ‘profit’, but she could not find
the word ‘ethic’ used even once. If she had read the report and made sure she
understood it she could have asked some really good questions.
Just as Barclays suffers from anti-British sentiments in New York, the
Committee seemed to me to be affected by anti-Americanism. So much for the
‘Special Relationship’. Well the questioning did take place on 4th July.
In the whole three hours the only time they came near to getting Diamond
rattled was on the subject of his own pay and bonuses. He made no attempt to
justify them nor did he admit they were excessive; he just said that was a
matter for the board of directors.
I have watched several broadcasts of Select Committee question sessions,
and I have never seen one so bad. I would not say the members were without
cleverness and knowledge (one at least was an investment banker), but compared
with Jay’s questioning at the Leveson enquiry their efforts were pathetic.
But the really terrible ignorance has been shown in related interviews.
Alistair Darling, former Chancellor of the Exchequer, last night complained that
the Bank of England had given billions to the banks who ‘had not lent it on.’
The BBC then produced a graph comparing the huge growth of bank liquidity
(balances at B of E) with the tiny growth in bank lending. In my broadcast I was
again able to say that there is no connection between the two. ‘Every loan a
bank makes is money it has created, and is its own debt. If the banks have
£300billion on deposit at the Bank of England and they lend £300billion in new
loans, they will still have £300billion on their accounts at the Bank.’
Richard must be furious at hearing this nonsense called Quantitative Easing
I think I was very lucky that the interviewer allowed me to make such
technical points. He merely used them as an opportunity to point out to the
listeners how technical these matters were and I added that there were only a
tiny number of people in the world who understood the money and banking system.
I nearly added, ‘and those few who do are all friends of mine.’ !!! I did step
out of line once. After making clear that ‘mucking around with interest rates’
had not been felt necessary in past ages, 1746 to 1826, 1932 to 1951, I referred
to ‘an idiot called Milton Friedman who won the Nobel prize for economics’.
Perhaps I should have used more parliamentary phraseology such as ‘unsound
academic’. I described the setting of a 17 per cent Bank Rate by Howe in 1979 as
‘monstrous’.
Afterwards I made a review in my mind of what Diamond has achieved.
Barclays started a drive to get into investment banking back in the 1970s when I
was myself in the thick of things in the City of London. They took over brokers
and jobbers, and in particular De Zoote Wedd. The operation became ‘Barclays de
Zoote Wedd’ or just ‘BZW’. The ethical divide proved to be massive, and what
happened has been the subject of an account by an insider, Martin Van Der Weyer,
in a book called ‘The Falling Eagle’. (Barclays logo is an eagle; enemies claim
it is a vulture.) Diamond therefore succeeded where others had failed miserably.
He raised staff numbers by about 40,000 worldwide. Barclays moved up from around
a high double digit position in the world league to number one.
I get the firm impression that Diamond more than anyone else understands
what went wrong and wants to put it right. Whether he has the technical
understanding to be Governor of the Bank of England I cannot tell, but he could
be the best choice, though the job is well below his pay level.
I gave my interviewer a copy of TTM. If he reads no more than the blurb on
the cover, written by Chris M, I shall be content.
Geoffrey
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