Surprise Choice for Bank of England Governor

George Osborne took the financial and political worlds by surprise yesterday when he announced his decision for the next Governor of the Bank of England. The two perceived frontrunners were current deputy governor, Paul Tucker and chairman of the Financial Services Authority, Adair Turner. Instead Osborne decided to look outside the UK for his choice, turning instead to the leader of Canada’s central bank, Mark Carney. Although Carney is hardly a household name here, the decision to appoint him was welcomed by much of the political world, including by the Labour Party! In a rare glimpse of unity amongst the parties, Ed Balls, Labour’s shadow Chancellor, greeted the decision to appoint him with warmth saying he is more than qualified for the job.

When Carney took over as Governor of the Bank of Canada in 2008 the world was about to enter the ‘great recession’ in which Canada emerged largely unscathed, an outlier amongst Western nations. The success of Canada was credited to two things, the regulations Canada had placed on its banks before the crisis and the actions of Carney during the crisis. This is why Carney’s appointment was greeted with much happiness. It is also important to note that the Bank of England is being given new powers of regulation to help prevent a repeat of 2008. Carney will be tasked with helping create structural reforms to help the system cope with the massive irregularities in the British financial system.

Carney’s job will be far from easy, Britain’s economy was one of the worst damaged by the recession of the major economies. Our massive dependence on the financial sector helped destroy the economy, if we were in the Eurozone we could be in the position of Greece. Unfortunately we’re haven’t begun repairing, the country has just come out of a double dip recession and could enter into a historic triple dip! Our output is still below what it was in 2008, that’s five years of declining living standards. Carney will have to get banks lending to help stimulate the economy whilst making sure they don’t take stupid risks. We don’t want Casino banking anymore.

The Collapse of the British Establishment

It has been over two months now since the Jimmy Savile abuse scandal was first made public, yet its affects still dominate news headlines. Accusations that senior politicians were involved in paedophile sex rings have been swarming on the internet for over a week. Yesterday one of those accused hit back, Lord McAlpine called the speculation “wholly false and seriously defamatory”. The rumours started as a result of a BBC Newsnight investigation into abuse in north Wales children’s homes. In the broadcast a man stated that he had been abused by a senior Conservative from the Thatcher era, although McAlpine was never named. On Twitter however, his name was banded about as the abuser, and it is true that Steven Messham (the victim) did believe that McAlpine was the abuser. He has since reversed his accusation after being shown a photograph of McAlpine and has apologised for falsely accusing him. This has led Newsnight into some serious trouble, what sort of shoddy journalism was at work when they didn’t even both to confirm that McAlpine was definitely the abuser?

It would seem like this scandal is intent on destroying the BBC and Newsnight’s reputation. Although I have no doubt that the BBC will continue as the world’s largest broadcaster, I fear for Newsnight’s future. The programme usually has excellent journalism and to cancel it would be a travesty.

If we move away from this scandal alone you begin to realise something: The British Establishment is collapsing. It really began back in 2007/2008 when the economy went into freefall, the institutions that had caused the crash saw their reputation plummet: Banks. Yet it also tarnished politics, why had the government massively deregulated the financial sector? And why did the opposition say nothing about it? Move alone to 2009 and politics has a scandal of its own, this time over expenses. Many MPs and Peers had made unfair, and sometimes illegal claims for expenses. Since then a number of politicians have gone to jail, destroying politicians’ already abysmal reputation. In 2011 the police, press and politicians all got caught up in one massive scandal. It all started with revelations that the News of the World had hacked the voicemail of murdered schoolgirl, Milly Dowler, in 2002. Soon it became clear that thousands of people had been hacked, the families of dead soldiers and victims of 9/11 and 7/7. The public’s complete revulsion of what was discovered resulted in the News of the World being closed. The scandal turned to police when people questioned their relationship with journalists and the possibility of corruption. Public anger also erupted over the closeness of senior Tory politicians with the press, particularly PM David Cameron and Jeremy Hunt.  Since then numerous branches of the press have shown to act unlawfully, particularly Murdoch papers; the Sun, the Times and News of the World all being implicated. As well as that, senior executives within Murdoch’s company News Corporation have been arrested surrounding the scandal. Then you move forward to this year, banks saw their reputation further damaged as three British institutions were found to have dodgy, and sometimes illegal dealings. The current abuse scandal threatens to further destroy the establishment’s reputation. The public are at record low levels of trust with banks, politicians, police, the press and now the BBC. The only nationwide institution still standing on high approval ratings is the NHS, let’s hope it doesn’t find a scandal of its own.  

Third British Bank Scandal

Britain’s thirteenth largest company, Standard Chartered, becomes the third British bank to be mired in controversy. This follows the LIBOR Scandal at Barclays and the HSBC Mexican gang controversy. Standard Chartered has been accused by American authorities of performing illegal transactions with Iranians. As you probably know, America has placed economic sanctions on Iran, so if an Iranian company wishes to perform a trade based in US dollars, it cannot do so. What Standard Chartered is accused of is hiding the fact that these transactions involved Iranian companies. Allegedly Standard Chartered has performed such actions up to 60,000 times. Standard Chartered completely refutes the accusations.

If it turns out that Standard Chartered has acted illegally then it would be devastating to the bank. It could lose its banking license in the US, considering that the dollar is the worldwide reserve currency, this would affect a significant proportion of transactions outside of the United States. It would also cause irreparable damage to the bank’s image; the bank prides itself in being ethical. Consistent reviews by organisations place the bank as one of the most ethical banks in the world, and Britain’s most ethical bank.

Another important point to note is that this is the third scandal involving a British bank that has been exposed by American, not British, authorities and regulators. There is a growing feeling in the City of London that the Americans are increasingly gunning for UK banks. This is somewhat unfair as the Barclays’ scandal is known to involve more banks, Barclays’ was simply the first to admit its guilt. Nonetheless London’s taking over as the worldwide financial centre from New York has left a lot of American banks less than happy.

LIBOR Scandal to go Global

The LIBOR scandal that hit Barclays could be about to go global, it is already known that many major financial institutions are under investigation over falsely influencing LIBOR. In America, JP Morgan Chase, Citi Group and Bank of America are all under investigation for it. It is believed that the fines levied at Barclays could be dwarfed by those levelled on these institutions, and other banks under investigation.

But the major problem for the banks might not be the fines themselves, Barclays’ fine of £270 million could be made back in a matter of weeks. Firstly the banking sector will take a massive nosedive in public trust and confidence, still recovering from the 2008 crisis. More worryingly for the banks could be the lawsuits arising from the scandal, many people’s loans and complex financial arrangements could have been badly affected by the rate fixing and as result could be eligible to sue the banks.

Professor of finance at Stanford University’s Business School believes that lawsuits arising from the LIBOR scandal could cost the banks billions of pounds, perhaps tens of billions of pounds! This would completely dwarf the payments made over PPI.

Another major problem for the banks will be the devastation to their top staff, at Barclays three major executives at the bank have lost their jobs, chief operating officer, Jerry Del Missier, Chairman, Marcus Agius and CEO Bob Diamond. If this spreads to other institutions the whole top class of bankers will vanish almost instantly. Personally, I won’t miss them. Although the banks might.

Although it is very difficult to predict what will be the outcome, considering that Barclays is the only bank that has confessed to any wrongdoing. The outcome has already been seismic here in the UK, if it spreads to German, Swiss and American banks, this will be the Banking Crisis Mark II.

Osborne Should Apologise

Yesterday a huge blow was dealt to the integrity of the chancellor George Osborne. The Treasury Select Committee had called Paul Tucker, who you should remember as the man that Barclays’ claimed instructed them to fix the LIBOR rate. In an interview with the Spectator Magazine, the chancellor had claimed that Labour ministers were clearly involved in instructing Paul Tucker to tell Barclays’ that their borrowing rate need not be as low. To be specific Osborne accused Ed Balls of involvement saying “he [Ed Balls] clearly has questions to answer.” This provoked a furious reaction in the House of Commons the next day as Ed Balls demanded that Osborne produce evidence to back up his claim, which Osborne was unable to do.

At the select committee hearing, Tucker said that Labour ministers had “absolutely not” instructed him to tell Barclays’ to fix the LIBOR rate. This completely clears Balls and the rest of the Labour party in the eyes of most people; as a result the Labour Party has demanded that Osborne issue a full, public apology. I highly doubt that Osborne will do this; instead he will rhyme off some excuses and try to ignore the issue.

Most people believe that Osborne was trying to regain some of his reputation that he lost following the disastrous budget. Instead he has managed to lose more of it, by falsely accusing a senior Labour minister of wrongdoing; Osborne has shown himself to be an idiot. He will pay for this mistake dearly.

Osborne Clashes With Balls

The House of Commons were pretty heated yesterday between the chancellor, George Osborne, and the shadow chancellor, Ed Balls. It all comes down to yesterday’s issue of the Spectator Magazine in which it interviewed Osborne. During the interview Osborne accused Balls of being directly involved in the LIBOR fixing scandal at Barclays, along with other senior advisors and ministers in Gordon Brown’s cabinet. He did this, with no evidence whatsoever.

This also took place in the context of the vote over whether there should be a judge led inquiry or a parliamentary inquiry. Labour is still advocating a judge-led inquiry whilst the Tories want the parliamentary version. The Tories did win the vote in the Commons, and Labour has promised to co-operate. The difference between the two types of inquiry is that the judge-led inquiry would reach deeper, look into the whole of the banking sector (rather than just the Barclays’ LIBOR scandal) and take longer. With this in mind it seems bizarre that the Tories are accusing Labour of trying to cover up the Barclays’ scandal. The Tories believe that the Labour may be implicit due to the recently leaked memo and the fact that Labour was in charge of the country whilst it happened. If Labour really were trying to cover up the Barclays’ scandal, why would they be advocating the more intrusive inquiry that would be more likely to uncover Labour wrongdoing?

The Front Cover of the Spectator titled: J'accuse

Cameron Calls Inquiry into the Banks

The Prime Minister has called a parliamentary inquiry into the Barclays’ LIBOR scandal, it will be able to question people under oath and call in politicians, bankers and other groups of people. Labour has disagreed with this move, when speaking in the House of Commons yesterday Ed Miliband said “We will continue to argue for a full and open inquiry, independent of bankers and independent of politicians.” Unlike David Cameron, Miliband and the Labour party want a Leveson-style inquiry into the whole of the banking sector.

The inquiry would be chaired by a judge and would be completely independent of parliament. It would not only look into the LIBOR scandal at Barclays but would look at the ethics and culture of the whole City of London. It would question big names from all banks as well as politicians and investors.

Confidence in the banking sector has reached record lows, having never really recovered from the dent to its reputation brought by the financial crash. Worse still for the sector is its reputation will only go down, the LIBOR scandal will almost certainly spread to other banks such as RBS.

Yesterday Osborne also announced in parliament that the fines brought on Barclays would go towards the public purse instead of into regulating the City. There is also huge pressure on the British investigators to levy higher fines on any other banks implicated in the LIBOR scandal. Many people believe that the fine levelled on Barclays by City regulators was simply too small, you have to remember that Barclays could easily claw that back in a few days trading.

                                          

The way forward for the banking sector is unclear, but I do believe it will have to involve tighter regulations. After all, lose regulations were what caused the financial crash, and loosening them won’t solve it. 

The Banking Crisis Mark II

This truly has been the worst week for the banks since 2008. So far this week RBS has had problems with customers’ accounts, Barclays has endured the LIBOR scandal and now all four big banks (RBS, Barclays, HSBC and Lloyds) have been found guilty of miss-selling complex financial products to small businesses.

The miss-selling scandal has caused many small businesses serious trouble as they struggle to keep up with payments to the banks. The City watchdog has now instructed the banks to cancel any contracts that were miss-sold and reimburse some businesses if necessary.

Worse thing is this new banking crisis is still not over; American and British investigators are still looking in to the LIBOR scandal. They believe that it was not limited to just Barclays; this could be a sector-wide scandal encompassing many banks.

Today Vince Cable has called for a criminal investigation into the scandal at Barclays, commenting in an interview with Sky, Cable said “They [the public] just can’t understand why people are thrown into jail for petty theft and these guys just walk away having perpetrated what looks like a conspiracy.” The business secretary also said that he believed the public would back a criminal investigation as the banks are increasingly unpopular.

The Prime Minister has rejected a call from Labour to call a Leveson-style inquiry into the banking sector, believing it is not necessary. But don’t give up hope! He also said there would be no inquiry into the press and look how that turned out. Personally I agree with Labour, there should be an inquiry. I believe the Leveson Inquiry has been a success, it has shown the public all the bad things the press have done. Now imagine what a banking inquiry would do! Ordinary people are directly affected by banking; almost all UK adults will have multiple bank accounts. We should know what the banks are doing with our money, the risks they are taking and the devious schemes through which they try to make money. We need a banking inquiry as soon as possible, to try and stop “bad banking” and help “good banking” to thrive.

Scandal at Barclays bank

There has been more embarrassment for the banking sector, yesterday Barclays was found guilty of trying to change lending rates to suit its business. The bank was fined £290 million pounds by British and American regulators.

United States Commodity Futures Trading Commission – “as a result of instructions from Barclays’ senior management, the Bank routinely made artificially low LIBOR submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.”

The reason why Barclays was fined so heavily is that by illegally changing the interest rate, it determined how much money Barclays could make or limit how much it could lose. The London Interbank Offered Rate, or LIBOR (despite the name, it is global), governs what is known as derivatives, which is a major international market worth 100s of trillions of pounds, more than global GDP! There were huge incentives for Barclays to fix the rate but in doing so they changed the rates of interest people paid on their mortgages and other loans. This has caused widespread anger amongst the political scene, Lord Oakeshott of the Liberal Democrats has called for the CEO of Barclays, Bob Diamond, to resign or be sacked, and he was joined in this by many Conservative and Labour MPs.

Unfortunately it looks like Barclays won’t be the only bank facing sanctions, Royal Bank of Scotland, the Swiss bank UBS, Germany bank Deutsch bank and the American Citi Group are all thought to have tried to change the LIBOR. The fear in government is that this scandal will seriously damage the City’s reputation for good banking, it is has been less than five years since bad loans caused the recession and this will kill off any reputation the banking sector had left.

Banking has to change as we know it or more scandals like this one and more recessions, like the one we are currently in, will keep occurring again and again. Change has to come before the public will begin to trust their banks.

Spanish Bailout Crisis

The Spanish economy is in tatters, and Spain has finally admitted it. Spain has asked the EU for a bailout, but they want one that is very different from the type received by Greece, Portugal and Ireland. In these three countries, in exchange for the money they had to accept crippling austerity and other restrictive measures. Spain does not want to humiliation of having to accept the extraordinarily harsh terms that would be imposed on Spain.

So what deal is Spain trying to get from Brussels and Germany? Well firstly the Spanish government is claiming that they’ll only need €40 billion worth of bailout money, most economists believe that they’ll need closer to €100 billion, with some economists predicting a bailout as big as €400 billion. Regardless, there is enough money set aside in the European system to cope with a big bailout, so that is less of the problem. It is how Spain wants to receive the money, as I’ve explained the Spanish government would be humiliated if told what to do by Brussels and Angela Merkel. Instead rather than the EU/IMF giving money to the Spanish government, which would in turn use the money to recapitalise the banks, the Spanish government wants the bailout to be given directly to the banks so that they don’t have to endure even more austerity.

Currently Spain is playing a game of brinkmanship with (mainly) Germany, neither of them want the destruction of the Spanish economy especially considering the contagion would spread extremely fast around the globe. Although I believe that the crisis will end in a compromise (a direct bank bailout with some austerity and restrictions) I do believe that Germany will be the first to blink as it has much farther to fall the Spain.