Time to Stop "Bashing" Bankers? Not Likely I Say

Just over a year ago, in fact in January last year – Bob Diamond, the American citizen CEO Barclays Bank, and the UK’s highest paid banker said, in London “It was time to stop bashing the bankers,” during a grilling session in front of a UK Select Committee of MP’s.

He then went on to say, during the subsequent questioning and answering Ping-Pong session, “There was a period for remorse of banks but I think this period is over,” Mr. Diamond told a parliamentary committee. “The question for us is how we put some of the blame game behind us.”

My answer to that is quite simple…there is no way on this earth that this “blame game” should ever be allowed to be forgotten, forgiven nor even remotely put behind them. And, moreover, it was not, and is not a “game.” Using other people’s money, which is what banks do, is a serious thing – not a game.

The definition of the word “Bank”

A bank is essentially a financial institution and a financial intermediary which accepts people’s deposits and then channels them into other lending activities – either directly or through the capital markets. In a nutshell, a bank connects those who have capital deficits to clients with capital surpluses.

The earliest known state deposit bank in the world is, “Banco di San Giorgio” (Bank of St. George), and was founded in 1407 at Genoa, Italy and the oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.

The history of the word “Bank”

Modern-banking actually has its history rooted in the land of the pizza and the mafia – from the times of Renaissance Italy and the rich merchant families of Florence, Genoa and Venice; with the Barid and Peruzzi families dominating the scene in 14th century Florence and then establishing branches in many other European cities.

The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.

The Shadow Banking System

Usually these are highly and tightly regulated, because of their significance within the financial sector. However, over the years the banks developed a highly shadowy shadow banking system, which operated literally in the shadows of (existing) state regulatory systems.

These transactions operated in such a way that they (the transactions) did not show up on the banks’ balance sheets and therefore the accounting was not visible to the regulators or the unsophisticated investor and these practices started to grow dramatically after the year 2000. 

By the year 2007 size of the shadow banking system had grown to over ten trillion dollars – in the US alone. However, as a result of the 2008 financial crisis and new regulations, this amount has now shrunk considerably to about six trillion dollars.

The other reason for the shrinkage – apart from new regulations, stems from the fact that many investors, no longer want their funds associated with the SBS (shadow banking system).

In the year of 2007, just prior to the banking crisis, it was estimated – according to recent studies of the eleven major SBS that the money floating around in the shadow banking system totalled around fifty billion dollars. Overall, the world wide SBS totalled to about $60 trillion as of late 2011.

The risk factors of shadow banking

In a nutshell…due to the fact that shadow banks do not take deposits, they were (until the financial crisis) were not subject to the regulations of banks taking despots. Thus they were able to circumvent, in a completely legal fashion laws regulating usual banking transactions and day-to-day operations – designed to prevent system crashes and crisis.

However, there are now new laws being introduced to tighten up on the shadow banking system, as a result of of the 2008 financial crisis.

Why the anti-banker sentiment?

The answer is clearly this…that it was these highly dubious “shadow banking “practices of making relatively easy profit were designed and cooked-up by Wall St and City of London bankers, for bankers. Nothing more – nothing less.

Is it time to stop “bashing bankers?”

My simple answer is…no! Not when we are still seeing bankers behaving as if it is business as usual: now that the global credit crunch is seemingly behind us and especially not when we see enormous and totally disproportionate bonuses being paid out, which have no bearing on reality?

How could the likes of banks CEO’s still justify their huge bonuses, when it was the likes of these people which brought the world to near financial collapse and are now carrying on as on as it is “business as usual.”

Just recently the UK’s Bank of England Governor, Sir Merbyn King has publicly blasted the banks for, “Bringing the UK to the brink of ruin,” and suggested that that banks are broken up and/or separated from their retail and risky investment banking structures.

Added to that, it has been also discovered that the major UK banks have been caught red-handed mis-selling “complex interest rate hedging products.” All in the name of, of course: making another quick and easy buck…or in the case of the UK…a quid.

And also, not when the likes of Britain’s highest paid banker, Bob Diamond, CEO, Barclays Bank, Plc, admits to his bank, and on his watch, admitting, finally, to: “rate swap mistakes.” And, having just been rewarded with a   £17.7m package, which he was awarded for last year and, who Lord Mandelson has labelled as, “The unacceptable face of British Banking.”

The state of the banking industry, today, and the directors of the banks, who lead them need to be cleaned up and, if necessary, cleaned out and even, perhaps, prosecuted and have their assets and bonus payments stripped from them.

It is really saying something is clearly very wrong with the current system, when a departing Goldman Sachs investment banker describes his ex-banks colleagues as nothing more than “rip-off merchants,” who refer to their “awkward” clients as “muppets,” which in British culture means, idiots.

He then went on to say, "I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money," he said.

And he named chief executive Lloyd Blankfein, and President Gary Cohn as responsible for the change.

I rest my case.

By Victor Romain, Economics Correspondent
A special report for NTST Finance, Ltd

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