Thursday, February 07, 2013

Archbishop Justin on the virtues and vices of Mammon


It's awfully difficult being Archbishop of Canterbury - His Grace knows all about it. Not only is the new one busy moving house (does one 'move palace'?), interrupted by a constant stream of people - some stimulating; others irritating - dropping in for coffee, but he decided that in addition to being a husband, father, diocesan bishop, metropolitan archbishop, Primate of All England, primus inter pares of the Worldwide Anglican Communion, Joint President of the Council of Christians and Jews, and chancellor, visitor, governor, trustee, director and patron of a plethora of academic institutions, he'd keep his job as a member of the Parliamentary Commission on Banking Standards.

So, along with pastoring, writing, leading, visiting, teaching, preaching, governing, directing, patronising and politicking, he's still devoting a hefty chunk of his time to examining professional banking standards in the wake of the scandals of Libor-fixing and PPI-misselling.

It's good to have an Archbishop of Canterbury who's got a proper job in the real world.

The virtues and vices of banking and banks are something of a specialism for Archbishop Justin: he knows what he's talking about. So when he accuses bankers of hypocrisy for continuing to pay their staff big bonuses while insisting they're undergoing a cultural overhaul, you can bank on it being valid criticism based on true observation.

According to The Guardian, the Archbishop fired both barrels at HSBC's Chief Executive, Stuart Gulliver, and its Chairman, Douglas Flint. He said:
"I'm increasingly baffled at the discussion we are having. What is it essentially about bankers that means they need skin in the game (bonuses)? We don't give skin in the game to civil servants, to surgeons, to teachers.

"There's a whole range of people who don't have that. It seems to me that you are putting huge effort into a values-based organisation and yet at the end of the day, particularly for your most senior staff who are most important as regards setting values and culture, you seem to be saying the only way you can motivate them to any significant extent is with cash."
'Skin in the game'?

It's a wise theologian who bothers to speak Greek to the Greeks, even if the Hebrews haven't got a clue what they're babbling on about. Talking the lingo is, basically, the best way of cutting through the crap. Here we had HSBC bosses waffling on about 'transforming the culture' of their bank into one of 'courageous integrity', while Archbishop Justin skilfully inserted a probe to establish the precise nature of a culture which feels it has to pay massive bonuses in order to incentivise its employees to be virtuous.

What is peculiar about and unique to banking which requires a low basic salary topped up with cash and shares which can be up to six-times that basic salary?

The Archbishop needled away: "You seem to be wanting the high pay and the bounce at the end. I don't understand the relationship between that and a value-based, culture-based organisation... How do you deal with an internal contradiction which we don't hear in so many other sectors of our society?"

We are concerned here with financial ethics - a banking code of conduct which underpins organisational culture and transcends man's infinite capacity to love of Mammon.

But the Guardian, being The Guardian, focuses on the faults of HSBC and the chronic failings of its bosses. And that's not quite Archbishop Justin's style. He is more than aware that, under pressure, everyone is prone to make bad decisions. He's even made one or two himself. He might highlight the hypocrisies and inconsistencies of bankers and banking - and that might give the Guardian and the BBC a great 'Bishop beats Bankers' sound-bite - but his concern is with the organisational culture and human behaviour which leads to failure. His desire is to mitigate suffering and ameliorate the common good: not throw stones or curse scapegoats.

That isn't, of course, to absolve the sinner of responsibility. But while the media wallow in salacious stories of vice, the Archbishop is trying to inculcate virtue. And he won't get much assistance from the Guardian or the BBC in that pursuit. We are fed a few paragraphs of whited-sepulchre banker-bashing: Archbishop Justin is actually looking at the values of the whole financial-services industry; how market theory relates to taxation, employment, welfare, health and education.

It is important to state this clearly, now, at the outset of this Archbishop's ministry, so that it may be understood, if not remembered. Because the day will surely come (most likely very soon indeed) when the Guardian and the BBC will be joined by the Telegraph in a chorus of disapproval and self-righteous scorn aimed at the next alleged hypocrisy or inconsistency of the Church of England. No matter what the Archbishop's true motives in his desire to see society flourish, we will get self-regarding reports of flawed theology and crumbling structures. We will hear of poor leadership, fence-sitting, fudge and interminable compromise. Vice, vice, vice.

Yes, Archbishop Justin will have a few: he has made mistakes and suffered the consequences of ethical slips. He is not infallible.

But his desire is to serve, with humility, and pursue virtue, with the zeal to effect real change. Don't believe a few paragraphs in a Labour trade rag: the Church of England is about to be renewed with a return to simple principles. The necessary reform of the financial services sector is precisely that to which the Church must be re-dedicated - both must simply serve society in pursuit of the common good. The task is to give an account of love - that 'bond of perfectness'. It is a task which may seem to some to be either superfluous or impossible. There is 'something else' to ethics, and that is the evangelical proclamation. And we shouldn't expect much assistance from the Guardian or the BBC in that pursuit, either.  

53 Comments:

Blogger Mrs Proudie of Barchester said...

"Yes, Archbishop Justin will have a few: he has made mistakes and suffered the consequences of ethical slips. He is not infallible."

Goodness! He's made mistakes already? My my...it doesn't auger well, does it?

7 February 2013 at 10:12  
Blogger Jon said...

Surely the problem here is with the idea that HSBC owes any explanation whatsoever to anyone other than its shareholders?

This is where, I think, your faith and your politics come into conflict, Cranmer. Conservatives believe in the virtues of private ownership. The Church appears to believe it has a divine right to poke its noses into everyone else's business. But HSBC is a privately owned organisation. Why is this man being hauled before a parliamentary committee? HSBC wasn't even bailed out!

That it is answerable to a parliamentary committee whose knowledge of banking may actually peak with the AoC is sad, both in the paucity of real life experience which our politicians fail to possess, and as a sign of the creeping crony corporatism which is the real cause of our economic stagnation.

I'm can understand why you're happy that the new AoC has his first blood in the papers. But surely you see that the cultural transformation of a privately held organisation is actually none of Parliament's business at all?

7 February 2013 at 10:21  
Blogger Archbishop Cranmer said...

"This is where, I think, your faith and your politics come into conflict, Cranmer.."

Actually, this is where your your ignorance and naivety coincide, Jon.

These are not merely private institutions accountable only to their own shareholders for going about their personal business: they set policy (eg Libor) which affects millions of people, not least their own customers. Their corporate fraud contributes to widespread suffering - you know, heart-attacks, family breakdown, death - the sorts of things with which Christians might properly concern themselves.

When these private institutions collapse (eg Northern Rock) it is the taxpayer who tends to take the hit. There is no conflict in this piece: please read up on the ethics of moral hazard.

7 February 2013 at 10:32  
Blogger David Hussell said...

Your Grace, Archbishop Cranmer,
Pray tell me on what grounds you can state that , " the C. of E. is about to be renewed with a return to simple principles. " Sounds perfect, I would be delighted for you to be proven right, really, but can you throw any light on that or point to any evidence, please ?

7 February 2013 at 10:46  
Blogger The Way of Dodo said...

So why, as the nation's spiritual leader, isn't he taking Parliament and the Government to task for the arguably even graver sin committed on the 5th February?

7 February 2013 at 10:50  
Blogger Mr Integrity said...

Your Grace,
It has been on my mind that I did not hear the word MORALITY mentioned recently. It seems that the government didn't have to redefine that word, society has done on its own over many recent years. It is of course the decline of morality that has allowed integrity to be dismissed and many in parliament and in commerce do not understand the meaning of these terms. Only greed and self interest and a false compassion for those who feel aggrieved that their lack of morality leaves them discriminated against.

7 February 2013 at 11:05  
Blogger bluedog said...

His Grace writes with a freshness and vigour about ++ Justin that seems synoptic.

However;

'What is peculiar about and unique to banking which requires a low basic salary topped up with cash and shares which can be up to six-times that basic salary?'

Two words: Incentive, Competition.

The banks and bankers find themselves in a unique situation that is properly recognised in statute and in administrative measures, none of which are in anyway similar to those pertaining to civil servants, surgeons or teachers.

David Cameron has recently shown that he does not begin to understand macro-economics and by extension, the capital markets. We can reasonably assume that most of his peer group are equally ignorant. But what the politicians do understand is money, and money talks. In particular, money talks to the electorate, so politicians like lots of money circulating in the economy. When bank lending slows right down in fear of recession, the amount of money in circulation declines. What to do? Start printing more money to re-liquify the economy, and fortunately the Governor may even suggest that himself. The only concern is inflation, but hey, that way the money borrowed by the government as tax receipts collapse is inflated away. It's win-win, and as salaries rise to compensate for inflation, tax receipts rise too! It must be magic.

In the centre of this financial roundabout are the banks whose business is clipping tickets, and the more tickets there are to clip, the more money the banks make. And they compete with other banks for market share. There is of course a significant difference between high street banking and investment banking, but in every successful bank there is a group of very bright people. It is truly an IQ driven business; the brighter and more motivated the employees, the more money they will make for the bank. At least, that's one theory.

So where is the ethical failure and the moral deficiency? Aren't the banks just the meat in a sandwich made up of venal politicians on the one hand and a willingly gullible electorate on the other?

++ Justin may be an exceptionally astute oil-man, but if he is attacking the banks he is shooting the messenger. The banks merely reflect the body politic and society.

It that's what is rotten, so too will be the banks.

7 February 2013 at 11:41  
Blogger Jon said...

With respect, I think perhaps it may be you who is naive in this most rare of instances, Your Grace.

Libor is not "policy" - it is the rate at which banks lend to one another - private companies engaged in private activities. That others chose to use this benchmark (knowing how flawed it was - the methodology was on the BBA's website!) is another matter. It's corruption is certainly damaging to London's status as a financial centre, but it is still not a matter of public policy (yet). What is more, there exist measures in law to prosecute and imprison those who defrauded their customers. As such, I would have thought that this is a matter for the City of London police, not the financial illiterates of some Parliamentary Commmittee which exists for the promotion of its members' public profiles, rather than the advancement of London's economic interests.

As for Northern Rock - it simply ran out of cash, as banks are wont to do from time to time given the nature of their business. There was no policy necessity to bail it out - it was political expedience - a reward for failure amongst some senior managers, and an opportunity to expand the reach of the State. Both things that as a Conservative, I would have thought you would find troubling?

7 February 2013 at 14:04  
Blogger The Way of Dodo said...

bluedog
I accept most of what you've said. However, haven't the activities of stock markets and investment bankers become ends in themselves, rather than what they were intended to achieve - fund public companies and secure a return on investments in so doing?

Millions can be made or lost at the click of a mouse and the activity adds nothing to our economy. It is simply legalised gambling.

Modern capitalism's "finest hour"!

7 February 2013 at 14:09  
Blogger Jon said...

Bluedog, I think you've hit the nail on the head.

Dodo - actually, Investment Banks are trading on two accounts - those of their private clients (high net worths, funds etc.) and on their own accounts. The former obviously forms a useful function for the funds, otherwise they'd do it themselves.

Banks trading on their own account is something new, but it is controversial - especially where the banks take positions which are contrary to the ones they recommend for their clients (as happened in the US). It could be banned, I suppose, and argued that bank investors could get the same trading exposure by investing in the funds that the banks are investing on behalf of, if you see what I mean.

The stock market isn't an end in itself - even now. As Danj0 might say - trading is not a "moral" activity. It's simply a thing. The left has always attempted to portray the right's attachment to markets as an abrogation of responsibility, but really, all the stock market is doing is reflecting the collective wisdom of its participants about the future cash flows likely to come from a company.

By all means, question the collective wisdom (and the sources that are used to inform that wisdom (hello, ratings agencies...)) but decrying the model of price discovery through transaction is to question the merits of capitalism itself.

7 February 2013 at 15:04  
Blogger John Wrake said...

YG,
Am I not right in thinking that the bonus culture DOES extend to the Civil Service?

I have understood that Civil servants also qualify for bonuses
for just doing their job.

Should the new Abp be encouraged to condemn the practice wherever it
occurs.

John Wrake

7 February 2013 at 15:17  
Blogger William said...

Well put Jon. I agree with most of what you say! But as Cranmer alludes, the major grey area (and elephant in the room) is the huge moral hazard that is created when a large and economically important company suspects that it will be bailed out by the taxpayer.

However, I think that companies should have every right to remunerate their employees (on the upside) as they see fit. Both the government (and the church) should be free to ask questions, but ultimately the government needs to decide are these companies an arm of the state or not and legislate accordingly.

7 February 2013 at 15:24  
Blogger DanJ0 said...

Doesn't Corporate Social Responsibility come into this now? There's more than just a duty to shareholders at board level.

7 February 2013 at 17:58  
Blogger Jon said...

DanJ0 - CSR is a joke. BAT wins awards for its CSR reporting every year - their products still kill people!

I think it's arguable that a company really ought to have no wider responsibility than to its shareholders, provided that the legal framework exists to prevent abuse and bad corporate behaviour. CSR ought to exist to explain to shareholders the activities of multinationals in jurisdictions without the legal framework or political strength to prosecute bad corporate behaviour, so that shareholders can judge accordingly. Sadly, CSR is really just a tawdry PR exercise in too many cases.

7 February 2013 at 18:05  
Blogger The Way of Dodo said...

Jon SAID ...

" ... all the stock market is doing is reflecting the collective wisdom of its participants about the future cash flows likely to come from a company."

But is it? As I understand it, the exchanges between investors no longer relate to a companies bottom-line or premiums. They are about what other traders think what might happen. In addition, real time trading and the use of computers, means the whole thing takes on the air of a roulette wheel.

7 February 2013 at 18:14  
Blogger Office of Inspector General said...

One has always considered having fingers in different pies to be a rather continental trait. However, over there, each position obtained and bagged by your man would always have a deputy involved who effectively ran the show for him when he wasn’t around. So, with no one to do the day to day laundry other than himself, he’s going to find it hard going to be effective in ANY of his roles. And we really do need an AoC who fully commits himself to the job, don’t you think ?



7 February 2013 at 18:18  
Blogger Office of Inspector General said...



Jon, one finds your assessment of the banking industry somewhat cavalier. To be succinct, it has been recognised since the Middle Ages that a banking infrastructure is essential for a country. Now, that doesn’t mean anyone can go and set up a bank with a view to making a colossal amount of money from the capitalist system. You need to be licensed to trade as such. Licensing reflects the importance the government gives to this activity.

Thus, the state has invited / is inviting private enterprise to fulfil a role it would otherwise have to do itself, and nobody wants the state doing it itself, one might add. So, the private banks operate in a manner rather like privately run prisons. If the operation goes bust, they wouldn’t just let the prisoners out to fend for themselves, now would they ?

So essentially, the freedom of the banks to do what they do is tempered with responsibility. As ever, the only worthwhile freedoms are those with responsibilities attached.

Finally, one cannot let this comment pass As for Northern Rock - it simply ran out of cash, as banks are wont to do from time to time given the nature of their business. There was no policy necessity to bail it out.

Do you REALLY understand the position you are taking. To casually cast aside a financial institution to which hundreds of thousand, if not millions of people LOST the majority of their savings, save for a few crumbs ? And what about future investor confidence in financial institutions so resulting. It would have set this country back 100 years, and you could kiss goodbye the City…





7 February 2013 at 18:20  
Blogger The Way of Dodo said...

Jon said ...

"CSR is really just a tawdry PR exercise in too many cases."

Another problem with free-market, traditional liberalism. It assumes an 'invisible hand' works all these things out for the common good. It underestimates the drive for profit and the ability of individuals and companies to be "creative" and "resourceful".

Its the same thing too with liberalism as it applies to the social and political spheres.

Unless there is a culture guided by a commonly accepted morality that is internalised, it just doesn't work.

The solution? Answers on a postcard.

7 February 2013 at 18:21  
Blogger carl jacobs said...

Dodo

Modern capitalism's "finest hour"!

Yes, perhaps we can make speculation illegal. Why, come to think of it, there are all sorts of capitalist behaviors that could be criminalized. Hrmmm. And I think there is historical precedent. What was that nation called again? The Union of something Republics?

You can always tell an economic Leftist. He is the one insisting that renumeration should be detached from economic value and attached to something he calls 'social value.' Mostly because Leftists tend to be intellectuals, and Capitalist societies don't assign much value to the efforts of intellectuals.

carl

7 February 2013 at 18:32  
Blogger Pedant said...

Nationalize the banks and let the C of E run them. That's what they did to the RC Church, and see how well that's worked out.

7 February 2013 at 19:03  
Blogger Pedant said...

Carl,
Social value is an economic value.

7 February 2013 at 19:18  
Blogger The Way of Dodo said...

Carl

Very droll and an attempt at dry humour too.

I'm neither 'left' nor 'right' when it comes to economics, nor am I an intellectual.

And I thought you claimed to know the socio-economic teachings of the Catholic Church. These are neither 'capitalist' nor 'socialist'.

7 February 2013 at 19:29  
Blogger The Way of Dodo said...

Carl

Mr Cranmer has written:

"We are concerned here with financial ethics - a banking code of conduct which underpins organisational culture and transcends man's infinite capacity to love of Mammon."

You support the unfettered pursuit of profit in a fallen world. it seems. The ethic of gain over service.

"The necessary reform of the financial services sector is precisely that to which the Church must be re-dedicated - both must simply serve society in pursuit of the common good. The task is to give an account of love - that 'bond of perfectness'. It is a task which may seem to some to be either superfluous or impossible. There is 'something else' to ethics, and that is the evangelical proclamation."

Is it superfluous to you to attempt to instil and be guided by a culture of virtue as opposed to greed? Or perhaps its impossible to achieve?

7 February 2013 at 19:48  
Blogger Corrigan said...

Jon said,

The Church appears to believe it has a divine right to poke its noses into everyone else's business.

Uh...yeeesss...that's kind of the point of it, Jon. You do realize how stupid that statement is, don't you?

7 February 2013 at 20:11  
Blogger bluedog said...

Mr Dodo, the state licences banks and accordingly has the right to attach terms and conditions to those licences. Consequently the state assumes a responsibility to police the activities conducted by banks within their licences. The problem is that politicians have opinions about the way in which these functions of the state should be undertaken.

Consider the matter of the member for Cowdenbeath, Mr Gordon Brown. Brown had an antipathy for the Bank of England, not understanding that its power was tempered by responsibility and he being both jealous and afraid of that power. What if the BofE were to prove more relevant than the Chancellor of the Exchequer? In a triumphal innovation he stripped the BofE of its supervisory role over the British (includes Scottish) banking system, and consistent with Blairite practice devolved these responsibilities to a the Financial Services Authority. Staffed by jobsworths of no great ability, the FSA was good at process but devoid of judgement and executive experience. If the BofE had been in charge, Northern Rock would possibly never had got into difficulties because the BofE would have acted pre-emptively to stop NR lending at 105% of valuation on property. That FSA could ignore such irresponsible lending practice proves that the FSA was unfit for purpose. But then the politicians loved the illusion of prosperity created by rising house prices and no recently appointed jobsworth was going to prick the bubble.

Thus Brown created the pre-conditions for the banking crisis of 2008 in the UK.

Recall that under the previous regime that had evolved over centuries, not a single bank failed within the British Empire during the 1930's.

7 February 2013 at 20:26  
Blogger The Way of Dodo said...

bluedog

Yes but regulation will not cure modern ills. It generates a whole series of manoeuvers to find ways around restrictions. In turn, this causes more and more rules and regulations, more and more lawyers and more civil servants. What a waste of creative energy and resources.

Alongside regulation, as Justin Welby intimates, a moral, ethical culture is required. And methods of reward need to be put in [lace reflecting these values. Methods which in the financial services sector that do not promote self serving greed.

Its a Christian and radical evangelical message and one we should support. Its also being delivered with a degree of skill and wisdom that is impressive.

A way for capitalism to be modified by ethics and morality directed at the common good needs to be found. This is not a Leftist position; it is a Christian position.

7 February 2013 at 21:37  
Blogger david kavanagh said...

Carl,

No problem with your argument, but don't you agree that the bank bailouts in the UK and USA are the worst ever form of crony capitalism known in modern history and are stopping economic recovery?

7 February 2013 at 22:00  
Blogger bluedog said...

Mr Dodo says, 'Its a Christian and radical evangelical message and one we should support.'

Indeed, but try telling that to the 1.2 billion Muslims who want Islamic banking and 1.2 billion Chinese whose communist state probably wants Confucian banking (anything but Christian banking).

If banking is to assume an overtly civilisational identity one immediately applies limits to influence and good governance.

As it stands we are fortunate that English is the global language of commerce and that English corporate law has become the global standard for commerce. To the extent that English legal practice is influenced by Christian morals and belief, there is already a subliminal influence at work, globally.

Christian chest beating will derail the beneficial influences currently at work. Humility has its merits.

7 February 2013 at 22:02  
Blogger Edward Spalton said...

The most encouraging quote I heard about the new Archbishop was from his former boss in the oil business. When he knew he was entering the Church's ministry, he said "I was glad he wasn't going to my competitors"
So I guess he has the commercial wherewithal to question the bankers sensibly rather than from the usual semi Marxist mindset we have come to associate with today's Anglican bishops.

7 February 2013 at 23:06  
Blogger len said...

The sections of banking that were run as 'casino`s (to coin a phrase) are partly the reason that we are in the financial mess we are in at the moment.After asking the taxpayers to bail them out bankers then awarded themselves huge bonus`s.In practically any other business(except politics) these bankers would have been fired not rewarded for their incompetence.

Bankers seem to have a 'ring of protection' around them which appears to have led for a contempt for any sort of rules and regulations concerning their practices.
How can 'integrity be put back into business when' moral values' have' been reduced to 'relative values. (ie what is' moral' to me may be irrelevant to you).This is what happens when' moral codes' (particularly Christian moral values) are attacked by those with 'liberal attitudes' everyone will do 'what is right in their own eyes.''Greed is good' as the 'asset stripper' said and who is prepared to argue with him in today`s' moral' climate?
The Archbishop is in a perfect position to know exactly what he is talking about!.

7 February 2013 at 23:12  
Blogger The Way of Dodo said...

bluedog

Someone once remarked to a group of new evangelists. "Be as wise as a serpent and as pure as a dove."

Sound advice - even Divine.

7 February 2013 at 23:59  
Blogger The Way of Dodo said...

Brother len

We know the problem. What is the solution? A practical, realistic strategy. Not flights of fancy about the 'end times'.

8 February 2013 at 00:02  
Blogger non mouse said...

Thank you, Your Grace. Your Graces both offer some hope.


Well said also Mr. bluedog @ 22:02, especially: As it stands we are fortunate that English is the global language of commerce and that English corporate law has become the global standard for commerce. To the extent that English legal practice is influenced by Christian morals and belief, there is already a subliminal influence at work, globally.

The other subliminal influences have been mining away at our influence for some time... but, as His Grace suggests:
The necessary reform of the financial services sector is precisely that to which the Church must be re-dedicated - both must simply serve society in pursuit of the common good. Perhaps it may be possible to restore the foundations.

8 February 2013 at 03:11  
Blogger DanJ0 said...

David: "No problem with your argument, but don't you agree that the bank bailouts in the UK and USA are the worst ever form of crony capitalism known in modern history and are stopping economic recovery?"

Wasn't it the collapse of Lehman Brothers as the straw which broke the camel's back that precipitated the loss of confidence? All those Credit Default Swaps and debts wrapped up in complex financial "instruments spread across the international banking system?

I've often wondered what would have happened if the State had allowed banks runs and the eventual collapse of the banking system here ... and presumably elsewhere given the global nature of most of them.

Possibly the would have been widespread civil unrest despite the £35K, and then £85K, government protection per institution for retail deposits. I suppose many of the shareholders were private and corporate pension schemes and the underlying funds would have been hit hard.

The reputation of London as a financial centre would have been severely dented I guess. Iceland and Argentina could get away with stuff like that, including sovereign defaults, but I doubt we could. Of course, bank bailouts by the State and the subsequent "moral" hazard has hardly been positive.

I suppose the government at the time thought it was better to keep the whole house of cards standing and let time work it out by allowing the pain to roll out slowly and almost imperceptibly for many people. Perhaps we've ended up in much the same place, only without the mass panic.

8 February 2013 at 06:33  
Blogger IanCad said...

How refreshing!

A timely and perceptive post.

Thirty four relevant and informative comments.

Not one reference to any deviant sexual practise.

Things are on the upswing.

8 February 2013 at 08:47  
Blogger E.xtra S.ensory Blofeld + Tiddles said...

IanCad said..

" Whoosh..*holding breath*"

Ernst

8 February 2013 at 09:02  
Blogger bluedog said...

Of course, Your Grace, one of the major concerns in the financial services sector is that it attracts coke-snorting libertines, many of them homosexual or where not homosexual, sexually predatory.

See: https://twitter.com/gselevator

Okay, IanCad?

8 February 2013 at 09:23  
Blogger Jon said...

Wow - for a bunch of Tories, you lot sure sound like pinko commie socialists types to me! Inspector - I'm very disappointed in you. Now, where to start...

Dodo - the Stock Market has ALWAYS been focussed on speculating about the future. That's the point. The current value of a share is (by definition) the expected value of the future cash flows which can be derived from it. You may disagree about the value of those future cash flows and think that the market places too high a value on them, in which case you are free to sell shares in said entity, or even to short them (should you have the cojones for this - it's a scary business and you can lose a lot).

Inspector - no one lost a penny at Northern Rock (except shareholders - who ought to have understood when they bought their shares that there was risk). Everyone's savings were protected by the state - so I don't think you know what you're talking about, old chap!

By the way, before you draw a line from this to the bailout of Northern Rock - Iceland has protected its savers, it hasn't bailed out banks. There is a difference. Maybe some night time reading is in order. I recommend City AM - it's free and actually rather good, although maybe too libertarian for your tastes.

Dodo then said "It underestimates the drive for profit and the ability of individuals and companies to be "creative" and "resourceful"." What??? Creativity and resourcefulness (not to mention the profit motive) are the reason we have indoor toilets, TVs and iPads - I think these traits in humanity are awesome!

Corrigan - I don't welcome the Church poking its nose into other people's business where it has not competence (as bureaucratic types would say). In this rare case it may have, but an oil man is presuming to lecture the banking industry on ethics. He may be knowledgeable, but I would ask the Saro-Wiwa's which industry they would rather put their family's future in trust to.

DanJ0 - you've hit the nail on the head as to why, on balance, bank bailouts were regarded as necessary. I think the new proposals (to effectively force the mass conversion of creditors to banks to equity, and wiping out equity holders in the event of a future banking failure) actually looks sensible. It recognises the seniority of traditional fund-raising constructs, and it's a step towards getting banks of the state's books!

8 February 2013 at 10:23  
Blogger Jon said...

You've lost it again, Bluedog...

Also - there's a lot of confusion here between retail banking and investment banking. Conflating outsized bonuses (generally seen in investment banking) with banking failures (generally as a result of failures in retail, strategy, capital adequacy or Treasury - especially at LBG and RBS) is a mistake.

8 February 2013 at 10:26  
Blogger The Way of Dodo said...

IanCad said...

"How refreshing!
A timely and perceptive post.
Thirty four relevant and informative comments.
Not one reference to any deviant sexual practise.
Things are on the upswing."


What goes up .....

bluedog said...

"Of course, Your Grace, one of the major concerns in the financial services sector is that it attracts coke-snorting libertines, many of them homosexual or where not homosexual, sexually predatory."

One can't suppress a fact just to maintain the peace.




8 February 2013 at 11:58  
Blogger carl jacobs said...

david kavanagh

Institutions must be forced to carry the risk of their financial decisions to prevent the moral hazard of privatizing gain while pushing loss onto the public purse.

What I want to know is this? How did I end up on the same side of an argument as Jon? This might be a sign of the apocalypse.

carl
;)

8 February 2013 at 18:35  
Blogger carl jacobs said...

This comment has been removed by the author.

8 February 2013 at 18:50  
Blogger carl jacobs said...

Pedant

Social value is an economic value.

And how do you measure it? The amount a man is paid is determined by the marginal cost of replacing him. CEOs get large amounts of money because a good CEO is hard to replace. Unskilled laborers don't get paid much because they are easy to replace. No estimate of "social value" is going to break that mechanism. It would require the power of the state to deform the market and force it to act aginst its will. But that inevitably leads to lower economic performance as every experience with Socialism demonstrates.

People don't like the market because it tends to produce outcomes they personally dislike. But they have no real alternative other than coersion. Athletes get paid "too much." Teachers get paid "too little." "Social activists" don't get paid anything at all. So they apply concepts like "social value" to try to justify adjustments. And of course the market pays no attention. So they think "Let's get the state to make the market pay attention." For surely there are too many unemployed social activists in the world.

carl

8 February 2013 at 18:55  
Blogger The Way of Dodo said...

Carl

You opinion of humankind is dim and dark. Do you not believe men can rise above greed and selfishness? That morality and ethics, with a focus on the 'common good' is worth striving for? .

8 February 2013 at 20:51  
Blogger bluedog said...

Jon @ 10.26 said, 'You've lost it again, Bluedog...'

Sense of humour failure, Jon?

8 February 2013 at 21:57  
Blogger carl jacobs said...

This comment has been removed by the author.

8 February 2013 at 23:21  
Blogger carl jacobs said...

Dodo

Do you not believe men can rise above greed and selfishness?

We aren't talking about greed and selfishness. Look, consider something as basic as the minimum wage. It is a basic fact of economics that a man must earn more value for his employer than he is paid in wages. Otherwise, the man is a net financial liability to his employer. Employers can't sustain this kind of financial liability. A minimum wage raises the threshold of employability and (quite frankly) pushes some people out of the job market. They simply can't produce enough value to justify being hired. Is that "greed and selfishness?" Is a man entitled to a job simply because he breathes? Is an employer morally responsible to employ someone at a financial loss?

These examples multiply rapidly. Do you deliberately seek out higher-priced merchandise in order to support certain manufacturers? Is it your moral responsibility to do so? Have we suddenly made thrift an immoral act? And what of the hidden opportunity cost? Money you spend on higher-priced merchandise is not available for use in other places. Have you committed an immoral act by depriving those busineses of potential sales? This is a rat's nest of conflicting priorities that men are not smart enough to sort out. So men are wise to simply make rational moral decisions and let the market operate. We don't have the foresight to produce good outcomes.

carl

8 February 2013 at 23:22  
Blogger The Way of Dodo said...

Carl

Yes I know all that I have read economics. A long time AGO, just like you.

I'm not talking about the basic mechanisms of the market but about integrity in participating in them. A Christian ethic to run through it and oil it. Make a profit but make it reasonable and not exploitative, for example. As I recall, the Old Testament is strewn with a market ethic and in meeting the common good.

Do we avoid saying these things because we might be seen as 'Leftist'?

8 February 2013 at 23:33  
Blogger Phil Roberts said...

Carl

17 hour days, Children working from 6

Britain in the 1830s

People do work for me Carl

Yes I might make even more money if they worked for me for less. If your capitalism really worked I would always hire the "cheapest" person.

But I don't.

Phil

PS I do find that the strongest supporters of unfettered capitalism work for the state, usually the military.

Remind you of anyone?

9 February 2013 at 08:44  
Blogger bluedog said...

Phil Roberts @ 08.44 asks, 'Remind you of anyone?'

No.

'Yes I might make even more money if they worked for me for less. If your capitalism really worked I would always hire the "cheapest" person.'

Aren't you just recognising the difference between price and value?

And what metric do you use to determine the success of your business?

9 February 2013 at 11:17  
Blogger carl jacobs said...

Phil

I do find that the strongest supporters of unfettered capitalism work for the state, usually the military.

Heh. You need to spend some time around actual Libertarians, then. Militarists they are not.

I don't know what business you operate, Phil. But do tell us if you pay your employees according to skill level. Would you pay (say) a receptionist the same amount of money you would pay (say) a CPA? What would be the root cause of that difference in pay?

There is a reason that there are no toy manufacturers in the US anymore. They were not price competitive. They couldn't compete because people (being thrifty) wouldn't buy their products. You can't pay employees when you can't sell product. Now, you can say "That's terrible. Look at how the companies exploit their new workers. We should start a campaign to only buy from responsible companies." But if you trust your business to that model, you will soon have no business at all. That is the harsh reality.

Unions grouse about the necessity exporting their work rules to foreign countries, but they aren't really concerned about foreign workers. They are concerned about downward pressure on their own wages from lower-priced competition. They are seeking to protect their own rice bowl from low-price competition by raising the cost of foreign labor. And that is really the underlying message in all of this. It's really about self-interest. People make economic decisions by and large on the basis of self-interest. This isn't an immoral act. It isn't wrong to make good financial decisions.

It was not some form of enlightenment that created an easier life. Wealth and productivity allowed people the luxuries and leisure time we have today. They aren't natural, and they aren't an entitlement once achieved. The Government cannot simply decree a certain standard of living in the face of economic reality. You like an eight-hour work day. Well who told you it was a right? If someone else is wiling to work 12 hours a day what is that to you? If someone else is willing to work 6 days a week what is that to you? If he is willing to work for half the pay, what is that to you? He isn't doing anything wrong. He is simply threatening the lifestyle that you have come to see as an entitlement. You have to adjust to the competition. If he is willing to work for a lower cost, then you have to adjust accordingly. Otherwise you go out of business. You may resist the change, but your customers will not.

And that is just economics.

carl
Who hasn't been in the military for almost 30 years, and who doesn't work for the gov't.

9 February 2013 at 15:10  
Blogger Jon said...

Carl - you're often on the same side of an argument as me - you just find yourself there for different reasons.

The reason you think you shouldn't is because of the recent surge in posts on equal marriage, which has warped an otherwise natural affiliation under the virtues of liberalism and fairness. Why should political affiliation be decided on one issue only?

Bluedog, no sense of humour failure, just didn't realise you were joking. Hold up some kind of sign, next time, please! ;-)

11 February 2013 at 12:32  
Blogger Jon said...

Dodo said "I'm not talking about the basic mechanisms of the market but about integrity in participating in them..."

...Do we avoid saying these things because we might be seen as 'Leftist'?"

There's no harm in behaving ethically, obviously, but we have to accept that if our ethics cost us business, and others don't share them, then we will lose out. It's not a race to the lowest common denominator, it's a battle to explain to our customers the value (to them!) in our behaving ethically. Sometimes you'll win (like waitrose seems to do) and sometimes you'll lose - like the US toy manufacturers Carl mentioned). That's the market.

In any case, we have strayed from the topic of banks.

The key point here is the one Carl made - banks' profits have been privatised in the form of bonuses and dividends. The challenge to direct their losses onto the same place as their privatised gains (most especially bonuses) is one for them, and should not concern the rest of us as long as their total losses aren't socialised.

11 February 2013 at 12:44  

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