Banking - A Culture of Greed and Impunity

I make no apology harping on about this, but I live in a world where if you take stupid risks in business, you pay the price.

Why? Because generally you are playing with other people's money and most certainly with the jobs of others. I believe there should be moral and commercial responsibilities in business and that in this era of spectacular boom there has been a vast disconnect between Senior Executive sense of responsibility and their Accountability.

The Financial Crisis

If you knowingly run a company into areas of immense financial risks knowing that at some point the risks will catch up with you spectacularly and along the way you simply take the 'upside' and 'reward', then surely that has to be culpable 'Corporate Homicide'.

The mess the Banking System is in, the so-called Credit Crunch, is talked of as some sort of global economic malaise that was unavoidable if you had read books by long-dead economists. Not so - it was a massive explosion made by the people who worked in the financial sector.

Panic Over, Everything Back to Normal

This week, George W. Bush and his faithful henchman at the Treasury, Paulson, drummed up a package to buy back $800bn of mortgage bad debt. The stock market responded in stoic form and rose nearly 9% in the UK alone. Crisis over, let's get back to normal.

As Lloyds TSB avoided all competition scrutiny to become nearly 30% of the UK mortgage market, the former CEO of the newly merged HBOS, Andy Hornby, was given £2m for his troubles in driving a successful business down a toilet and get rescued by another company.

Adam Applegarth at Northern Rock, the poor lamb, was given just enough to get by a while as the UK Government stepped in to rescue the company he had busted to the tune of over £100bn of liabilities to the tax payers. But at least his batting average is looking better without all that worry.

In the US, Bear Stearns went into meltdown and was bought for a song by JP Morgan Chase, Merrill Lynch suffered spectacular losses and fired its CEO with massive payouts and then got rescued by Bank of America. Citigroup's CEO was fired after massive losses with a huge payout and then a huge chunk of equity was given away to foreign investors to save the bank. Freddie Mac and Fannie Mae, the lumbering giants of US mortgages with over 50% of the mortgage market in the US went bust and were rescued by the US Government and the poor CEOs were thanked spectacularly for their troubles. AIG was bailed out with $85bn and as far as I can see, not one Executive got fired. Lehman Bros has gone belly up and I am sure the Executives and Board will be be no worse off which is more than can be said for investors and staff. As we speak, Morgan Stanley, another great bastion of the banking sector, is rumoured to be in talks of merger and rescue with Wachovia and China Investments.

The Common Link

So if you take idiotic and mindlessly spectacular risks with other people's money in the banking sector, instead of being held accountable and being charged with 'Corporate Homicide', you in fact get paid off and allowed to walk away scot-free. Those poor executives at Tyco, Parmelat, Enron and NatWest must very browned off about it all. After all, they are paying the price in prison for their comparatively minor misuses of shareholder funds.

When you think about it, what is the point of an Executive trying to make long term honest return for shareholders and get 'compensated' for it when the person could get the same amount of 'reward' in less time and have a new job by failing spectacularly? You would have to be stupid to do it the right way.

This goes across many industries and not just banking and even into sport as two successive England Football Managers failed and got just as much money as if they had won a major trophy by being severed from their contracts early.

It's a Culture of Failure

While what the US Treasury has done, which will likely be matched by something equally expensive in the UK, is in the National Interest and so saving individuals from the potential fallout of a financial meltdown, it really is a parachute for the Executives and Officials who allowed this situation to develop.

Brown and Darling's first reaction to the Credit Crunch was to try and kick start the asset-backed securities markets with funds and so keep the 10 year boom that has seen the UK housing market rise 160% going. Like a pair of dummies, they were trying to add fuel to an engine that had ground to a halt because the oil had been spent. It did not matter how much fuel they added, the engine was going nowhere. Brown's current crisis of popularity and leadership would never have arisen had his follies as Chancellor for the last 10 years never been exposed.

Blair must have had an inkling but maybe his God whispered to that 'pure heart' of his and told him to let go, run, take a fat salary at Morgan Stanley for helping them go down the toilet, go support Team GB cyclists and go lecturing; when you get a moment, pop by the Gaza Strip and say hello to all those people you have no idea or intention of helping as you always were and will be a US puppet.

For Brown, he may suffer with his job. Blair has skipped away from the Labour car crash very much better off. The whiffs of scandal have blown away, Party funding is back on the straight and narrow thanks to the Wizardry of Harry Potter - that crisis is over.

The taxpayers and voters stand a little bemused as the numbers are rolled out. Perhaps the odd one might just think, so these guys royally blow up their companies and remain rich? So why doesn't that happen in the real world?