Thursday, 7 May 2009

Have We Started The Banking Bubble Again?

The biggest issue with bank bail outs is that there has been little or no reform of the banking and financial system to stop the whole bubble happening again. While it is good to see some recovery in bank performance, the danger is that all the new money is ploughed into exactly the same products as before and we just start the carousel again.

Barclays have just announced a great set of figures with income up 42% and profits at £1.37bn, 15% up on the same period last year. Total income almost doubled, thanks to a strong performance at their investment banking arm, Barclays Capital.

Alarm bells go off.

You do mean that in the last year, the bank has doubled income despite a decrease in the world markets? Ok, so that means they either go lucky or they were investing in something else like share shorting or these lovely products that just produce profit from nothing.

Barclays are not one of the banks we bailed out but that should not make us any the less concerned. The FSA should be all over these results like a bad rash. How can such profits be generated in such conditions? Barclays has not taken part in the Government's Assets Protection Scheme which allows banks to sideline toxic debt and have the taxpayer underwrite it, so where is the bad debt provision at Barclays?

It appears Barclays is one of the few banks in the world that has been run exactly as it should according to these numbers although they have had around £7bn of new capital injected into them from private investors. So now what happens to this profit?

Yes, you guessed it, it will go into the bonus pool and be shared amongst the executives for vast payslips. The carousel has started again and we just stand back and watch. Brown heaves a sigh of relief that the City will love him again and bank executives across the globe see that normal greedy service has resumed.

Meanwhile, we taxpayers sit here and watch in awe as all the bad debt resides with us, freeing up these greedy bankers to earn profits out of nothing again and their bonuses. How nice of us to be such grateful mugs and we have an awfully short memory too.

Of course, people will argue that Lord Adair Turner's report on regulation is the pinnacle of deep thought on the subject but it appears no lessons have been learnt. Billions will be earned again until the next time the markets freeze and we will have another set of recessions, deeper, harder and more profound each time we stagger, knowingly into it.

As much as I applaud Barclays for not exposing its debt to taxpayers, I am appalled that such profits can again be generated, bonuses paid and we haven't even finished sorting out the last mess. It angers me that the people of this country have yet to get answers to their last questions on how did this happen before we allow it all to start again.

History will prove that while propping up the financial system was necessary, setting it back on the same course will prove to be a cataclysmic mistake.

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