Disconnected Thinking

For most of us, the issue of things like bank bonuses are complex, and therefore distrusted, mainly as we are so far removed from them. They are of an unreal world that is hard to identify with.

That explanation would suffice in most cases. But what of credit to businesses and how banks are behaving in the current recession? Surely, that is much closer to home? And education, jobs and the mythical ‘Lost Generation’ that I have blogged on before, aren’t these real world issues right at our doorstep? Why is it then that it seems so easy to disconnect these issues from what we observe in life and paint a picture of what we think is right?

Of course, I am prompted in some way by Gordon Brown’s conference speech – so much of what he talked of was as if he had not lived it. The issue of free market corrections and bank bonuses seemed not to have existed in his life and yet they occurred right under his nose, on his watch and were the subject of his very policies. You cannot disconnect them and say they did not exist or because they were there you could not affect them. It is the job of Governments to impose law and policy to make our country sound and safe yet all that seems to happen is that politicians crow about getting their pet policies right while ignoring the real world. The reality was that the whole credit crunch, recession and bank crisis were phenomena which their policies not only contributed to but compounded.

Lack of action or ignorance is not an excuse.

But there is far more of these daft situations. In this month’s Director Magazine, Lord Mandelson contributes and gives some startling statistics on how banks and the Government are helping small businesses. No less than 6,410 businesses have been deemed eligible for the Enterprise Finance Guarantee (EFG) and have the potential to receive loans of £732m. By reducing bank risk on loans, he has obtained commitments from RBS and Lloyds to provide an additional £27bn in loans to SMEs this year. The HMRC have established over 191,000 agreements with businesses to spread more than £3.3bn of tax payments so increasing the amounts available to invest. With such amazing numbers, British businesses must be thriving and Lord Mandelson can rightly sit back and pat himself on the back for a job well done.

But in the very same issue of the magazine we get to know about the reality for businesses. The Bank of England has said that lending to small businesses is down by £14.7bn this year. Insolvencies are up 40% in the same category of business. The average overdraft rate to help businesses is 6.6%, over 13 times the base interest rate – it has never been more expensive in relation to the base interest to get a loan or a mortgage for that matter. The reality is, that the moment a business raises its hand to say it is encountering a problem, banks immediately make life hard, with many businesses getting the exact opposite of help like having loan or overdraft facilities withdrawn as well as interest rates hiked up by as much as twofold. Banks effectively hold guns to businesses’ heads the moment directors approach them, only making matters worse. For many businesses, by the time they have filled in the forms, sought approvals and gotten banks or the Government’s approval to help, it is six months further on and the business landscape has changed even more so the situation becomes even more desperate prompting knee jerk bank reactions.

The reality is that the Government may believe in their figures but the SMEs are suffering so there is a disconnect between the good news received by ministers and the world faced by businesses.

We talk of the Lost Generation or Generation Y as it is labelled. The prospects for those leaving school or university have never been lower and this category has been disproportionately hard hit by this recession in the unemployment figures. Yet, if we believe the Government figures, this generation is more intelligent than ever as they have higher percentage passes compared to my generation, which are improving year on year, and these pass levels are higher with more people getting A grades than ever before. Yet the same generation leave university with major debts and much lower prospects of employment compared to my generation – and I graduated at the time of Miners and Steel strikes, with no debt to talk of. All that money into education and fantastic pass figures mean nothing when the quality is actually poorer. I am no role model, but the average literacy of new graduate entrants into business is pathetic, numeracy skills are poor even with a calculator and basic communication skills are basic at best. Despite all the extra money and the apparent results, Britain is going backwards. The standard of taught French to GCSE level is dreadful and when you compare it to the standards on the Continent of how English is taught, we are far worse than we were 10 or 15 years ago.

Britain is going backwards and there is a disconnect between Government statistics and targets and reality.

Again, in the same issue of Director, Barbara Knight of the British Bankers Association (BBA), a perennial butt of my criticism, argues that we should not cap bankers’ bonuses. The argument against is presented by a Union man and it is wrong as it stems from jealousy. I don’t believe we should cap anybody’s pay if genuine profits are earned. But where Knight falls down in arguing for is that she claims we need to remain at the forefront of the financial world, stop talent from slipping our grasp, and we need to move to where the best deals are found.
That whole argument falls to pieces when we point to the incredible calamity the banking system has not heaped on itself but on us. As we watch the unemployment clock edge toward 2.5m showing no signs of slowing, as we count the £1.5 trillion cost of the bank bailouts, we can easily argue that these so called talented individuals actually earned nothing – they created no profit at all. All profit they actually ‘created’ was clawed back in losses – every penny of it. And more, as the long term cost of this whole mess will go on until 2032 for the mortals of this country who have to pay for it – and the interest alone by 2014 will be £60bn a year, the entire current budget for the NHS.

The disconnect here is that Knight has failed to connect the fact that the same bankers she defends are the ones who have clocked up untold losses. By conveniently disconnecting the two things, she is basically saying that we pay all bankers effectively guaranteed bonuses based on make believe figures forever – no matter what happens. Losses are not what banks should be concerned about, they should be focused solely on the pursuit of fictional profits based around products or instruments that serve no purpose in the real world.

The fundamental issue is that we should take away what these people are trading, focus them on core banking activities and outlaw the complex and unreal forms of investments they create out of basic debt. Only then will we start to curb the whole bonus scene by taking away the game of monopoly they play.

Banking, as Knight defines it, is the art of sweeping dirt under the carpet and getting paid well for it. When the dirt is discovered, we should not blame the cleaner as the house looked clean after all.

And here’s another to ponder. Due to defence budget cutbacks, our territorial reserves will be training without live ammunition. That certainly prepares them well to fight a war in Afghanistan. The major decision on spending by the Government amidst mounting criticism on the mobility of our Forces there as our Generals tell us there is not enough helicopters, is to blow our budget on upgrading existing ones rather than supplying more – so the will be out of commission to be upgraded when we need more of them. And as we send more kids into danger and see them get killed, maimed or injured daily, instead of treating them like heroes and helping them look forward to something for the rest of their lives as a thank you for their sacrifice, we take them to court to claw back compensation payments when we are at fault for not equipping them properly in the first place. Yet if we listen to the Government there is no problem.

The failure to connect what you want you believe with reality is a huge issue today. The gall that has been displayed by the present Government to try and hoodwink us into believing we are in good shape is wholly out of kilter with reality and we should hammer them for suggesting otherwise. Yesterday, we saw a Union Leader tear up a paper because it dared suggest the Labour Party was wrong – for that his 2m members should park their own free will and freedom to have their own opinions and follow his lead in boycotting the paper. I have never thought the Sun as an informative newspaper and they are not well regarded for their informed debate on real matters but they still have the right to express their opinion without being subject to public blackmail. But had they supported Labour, we would have had glowing endorsements.

Disconnecting reality with the virtual world stems from my age old themes – Accountability vs Responsibility and denial. I don’t have to spell it out for you, but if we continue to run our world with our head up our backsides, we are in for a far more serious fall than the one we have just had.