It's Just So Unfair

Life can be so unnecessarily hard sometimes. I mean it comes to something when you can't get a few grand of dry cleaning paid for by someone else or a bit of gardening or flat cleaning.

I should imagine there are a few angry people around tonight, feeling let down and cheated. It's not about the humiliation of having to pay money back, it's the principle of it. Heck, the Green Book of expenses codes could not be more clear - claim what you damn well like as it is down to your own idea of what is right. £116,000 is a snip when you think about the value for money we get from politicians. What is so wonderful is that the very people who make the stupid rules by which we have to live, don't like it when they are subjected to it. Try asking the Government to pay your dry cleaning bill or getting tax relief on your handyman. I got a call from HMRC today for being late with just one payment - they threatened legal action if it happened again. I am not kidding - all I did was select the BACS payment to go to the old sort code and account number at HMRC instead of the new one. I am sure Hazel Blears et al have not had similar calls despite their 'oversights'.

Anyway, one thing that has been unanimously applauded up and down the country is that pornography should be tax free. I should think many a lonely sales rep will want to present a few expense claims to HMRC and ask for 'relief'' on what their employer will not reimburse them for. As Jaqui's husband proved, they are essential for doing a good job and stimulating the grey cells.

You have to be some kind of person to be an MP or a Max Mosely. Life occurs to you in a very different slant to normal people. What is abhorrent to most sane, clean living, law abiding, tax paying people is perfectly natural to these people. Then take the Lehmans crew. A mere six European former executives are suing their former employer for £70m of unpaid salaries and bonuses.

The coffee machine is working over time but the aroma is not powerful enough. Hello, the bank is broke thanks to you guys - it was the largest corporate failure in history, thousands unemployed and taxpayers have stepped in to pick up the pieces. And you want money? That takes some front. One of them had only just started work there.

You have to laugh.

Meanwhile in the 'other' world where there are few gardens to charge for keeping, no dry cleaners and precious few meals let alone free ones, there are a few billion people sitting looking on bemused. How can sane people think the way we do? How can we justify going to war to defend this way of life? While millions starve and cry for help, we allow greedy people to take court action to extort money from people - £millions. The last 12 years of false profits and poor governing will be the biggest wasted opportunity in history. All those incredible £trillions could have solved the problems in Africa and the Third World in short order.

You have to cry.

This warped way of life is going too far. One minute banks are broken by their senseless activities, the next they pick up the very things that broke them before and trade them again for vast profits. Toxic debt one minute, perfumed profit the next. Profit from transactions that do nothing for anybody but the people who trade them. In Africa, it would be the same as creating grain from dry sand. They would be that rich if they could do it. They could eat.

One thing that has come out of the last two years is that for all our posturing as a civilised society, we are just a bunch of greedy, moral-less self interested and egotistical jerks - every last one of us. Africa can have what they want so long as we have our 42" inch TV, takeaway curry and a dream of a Porsche. They dream of survival.

For the bemused millions struggling to live, they must look upon us all as gorillas in a zoo. All muscle, hair, wind, chest beating and bullying - we are always right, we always get our own way and we get all the best things. And if we don't, we just fight.

One thing is for sure, we have the monopoly on bananas.

Post Crash Experts

If only Alistair Darling and Lord Adair Turner had ever visited a front bar of a pub nowhere near the City prior to the credit crunch and financial meltdown, they would have got their chest heartlity prodded and been told in no uncertain terms that there was a massive hole looming in Britain's finances and that our economy had become unrealistically dependent on over-inflated asset values which were being traded spuriously to raise cheap money on the international markets.

Of course, none of us armchair sages would have had an earthly idea about why this was so dangerous, what these derivative products actually were, how badly our economy would be affected by asset value falls but we all new that what went up HAD to come down. There was a bubble inflated to maximum and it was going to burst - and boy, didn't it just.

These Governemt and associated 'illuminati' like Turner sat back murmuring how beautifully under control everything was. Even when things started to go worng like the 'discovery' of sub prime in America, no one linked this with the financial system in general - not even the bankers. As the crisis got worse, Ministers told us that it can't happen to us as we had a 'robust economy' and then that recession would hurt us less as house prices were more stable here. But the whole vicious circle of finance catches you up - all you needed was one small puff of bad gas and the whole financial system would collapse like a house of cards.

So now that it has all happened, Lord Tuner has had an epiphany. After all that education, years in the Consultancy business, heading the CBI and sitting on numerous Quangos, he has suddenly realised that bankers were in fact trading products that had no real implicit functionor even value other than for them to earn money and that these bankers had little understanding of the implications of doing so. Other, of course, than the fact that they could earn sensational amounts of money by doing so. Mr. Darling has also suddenly woken up and has smelt similar coffee and now espouses the same 20-20 hindsight wisdom as Turner. We are all finally singing off the same hymn sheet.

Not as such. What has either the FSA or the Government done to outlaw the trading of these daft products? Nothing. In fact, as we piddle about fiddling with bonus cultures and wondering if everyone will do the same thing or else one us gets left behind, the written down toxic debts are being 'traded' for vast profits right in front of our faces. Stuff that we now guarantee or have written down in value with our taxpayer cash are actually being used to create vast new profits for banks as if they have suddenly reclaimed some value. The embers of Lehmans and some 94 other banks that have failed in the US are being raked over for little nuggets to trade while Barclays do not even use a white cloth to hide their toxic debt that they suddenly make vanish and create a $3.9bn profit by doing so while at the same time they make 45 former employees millionaires - overnight with one click of the computer and a swish of the pen - it even makes their capital ratio look better it such a good magic trick.

Despite all this post-crash wisdom, nothing has been done. And nothing will be. But talk is good - it helps us taxpayers get used to the fact that we can blame people who have added over a million to our dole queue who will this year be getting multi-million pound bonuses after a short technical hitch to their money making. The fact that the sails are set fair for the next crash seems to ellude their feeble minds and that talking is not going to get the problem fixed. It will take one of the leaders to confront the issue and make sure that his/her country's economy is no longer so dependent on a few people making more money each year than an average worker would make even if they won the lottery jackpot at least once a year.

The G20 starts this week, my bet is that nothing comes of it that will change the behviour and machinations of banks substantially and we will all forget the crash until the next one happens again. Then the same sages can act as dumbfounded as they were with this one.

In a cruel blow to Odgers, the recruitment company charged with headhunting the new CEO for UKFI who manage our 'investments' in banks, they have been fired as they took on an ex-RBS banker.

They learned the bitter lesson that headhunters and recruiting managers should all take on board - just because you have experience of an industry, it does not mean you know anything about it.

When Does A Bonus Drive The Right Behaviour?

The front page of the FT yesterday had an article which said that en masse 30 people from Societe Generale's Hedge Fund activities in France resigned and formed their own Hedge Fund.

The whole saga was triggered, allegedly, by the French President's stated desire to curb the bonus culture in financial institutions specifically by limiting the percentage of profits earned which can be set aside for bonuses. Defenders of current and future bonuses in the City, like Barbara Knight of the British Banker's Association (BBA), would argue this would be a growing trend if bonuses are curbed meaning that extraordinary 'talent' would migrate to other places or set up their own businesses in order to maintain their earnings.

I am not sure how much bonus was in question about these 30 individuals at Soc Gen but I think it is safe to assume that it is more money in a single year than most of us would earn in a lifetime. That sort of frames the context here. We are talking incredible amounts of money. This is only a snapshot of an industry that rewards a comparitively small number of their workers with more wealth each year than the average weekly lottery pay out in the UK. It would be easy to trivialise the work that they do - I would venture to say that their jobs are hard, require incredible levels of dedication, aggression, some skill (come on, give them some credit) and specialist knowledge and I am sure also that the work is highly pressurised. We have all seen the films and TV programs about these types of job, the peer pressure is immense, the relentess pursuit of profits is huge and the potential rewards are fabulous leading to a lifestyle few of us can comprehend.

Perhaps if we knew the kind of pressure these people worked under and the level of specialist 'skills' required to do their job, we would have some sympathy with the 'Soc Gen 30' who seem to be martyrs for the cause of freedom of the right to earn in the world of finance. Is their loss to Soc Gen going to change the balance too for the French institution? Will it affect France as an economy? These are important questions as we deal with the concept of bonus and its culture in order to understand how we deal with the issue in future.

We need also to ask ourselves, if the incredible bonuses which have been earnt, say, in the last 12 years had not been available, would the financial world have been any different than it is today? Would the Credit Crunch and the fallout which we have suffered ever have existed if such levels of bonuses be available?

It's an important and fundamental question on a very complex topic.

Many entrepreneurs' memoirs say their commercial acumen was evident at very early ages. People like Richard Branson started making money when he was a schoolboy. He is today the epitome of the successful man in Britain, perhaps only dwarfed by the bizarre pedestal on which Lord Sugar is placed as some kind of Enterprise Tsar who openly ridiculed his own Viglen products with Ratner-style comments and whose business practices have their own war stories, some of which I can attest to. Clearly, success is only measured by the money made in that context as surely Sir Philip Green could not have been knighted for paying himself, via his non-domiciled wife, a single one-off dividend of £1bn in a year when his company earned less than a fraction of that amount in profit. In fact, it is not only the fact that people are revered if they have a great deal of money, we do not care how they made their billions to be idolised by would-be entrepreneurs. Perhaps this is human nature.

There is also in innate desire within such people to keep earning more and more fabulous amounts of wealth even though they have more money already than they could ever spend in their lifetime. What makes Warren Buffett get up each day or Bill Gates? What makes Philip Green want to buy another company? It would be like me winning the lottery then going to the bank to raise a loan and then spending the loan on buying more tickets. Some of us know when to quit when we are ahead, the knack for these people is to keep on going and making much more. We all want a steady rise in our eranings but this is at a much higher level.

You do not have to look far to understand that bonuses are woven deep into our society. Hardly a job in Britain, particularly in the private sector, does not have an element of the total compensation available marked as 'bonus or commission' - the part of the annual remuneration which is termed 'at risk'. You can also look at the public sector and see a great deal of evidence of the same culture at work - only today there is an article about head teachers being paid sizeable bonuses and even 'golden handshakes' for starting jobs in a very similar vain, although the figures involved are orders of magnitude less, as the world of finance. In the world of teaching, there are zero profits to be made as in the same way as in the world of finance but there are Government targets to be hit and that's where bonuses were and are still designed to attain.

I am a sales animal at heart and a portion of my attainable earnings each year has been driven by attaining targets - in some cases it has doubled my annual salary. From the web 1.0 era I also had stock options which came to nothing but at one stage I could have speculated about possibly paying off my mortgage if not more if things had gone right. However, in all situations, if I did not reach minimum target levels or if the business collectively suffered then my bonus/commissions and stock options were completely at risk, if worth anything at all. In many schemes it was normal to have 'clawback' mechanisms that adjusted automatically my bonuses over a year-to-date performance so if one good month triggered a bonanza and then there was poor performance, over time I earned only the average amount. Such schemes are commonplace and can be very complicated, often have large caveats to reward specific behaviour and not unwanted ones and even be taken away at the discretion of the company for whatever reason they dreamt up. Some schemes in the IT business could see SAP or other big ticket software salespeople earn over £250,000 a year in total remuneration while in general people could have anywhere from 20 to 60% of their overall package geared on achieving certain targets. I am not talking about anything unusual which has not gone on in my business for a long while.

This is generally acknowledged to be a successful system - you pay for achieving but you don't pay for not achieving - some companies do get this wrong but that is in the minority. Also, in general, it has promoted the generation of profits based on product or service sales which have added value to the customers who bought them - and this is critical in our analysis. In the public sector, when profits are not at stake, then other performance measurements and targets are in place. Some of these are just silly as they are often handed out for no more than someone doing what is on their job description and that can lead to people believing that bonuses are some sort of guaranteed element of their earnings which in turn can lead to big issues when a recession arrives.

But the general principle is the same - in Britain today, bonus culture goes far, wide and deep in both the private and public sector.

So why are we so inflamed by the bonuses in the financial world? The Soc Gen 30 would argue that they are high performers in their field, they might argue that they have generated €billions in profits for their company, they might argue that they are the 'best in class' people in their field, they might even argue that they did not cause the credit crunch and associated losses and indeed, during that time, they continued to generate profits possibly. I am sure that this will be the basis of argument for the majority of traders in the financial world - it was someone else who lost the money or management's fault for not covering the risk. And we are talking $billions and billions of profit. In fact, the amount of money allocated to bonus pools is actually a small fraction of the kind of money these financial companies have earned - let us not forget that they have also distributed a great deal of wealth to their shareholders while handsomely rewarding other sorts of investors like bondholders. The base argument here is that such incredible profits cannot be generated without the vast bonuses available to be earned down at the traders' end and the management above. One does not go without the other. Before we argue otherwiese, you have to agree with the basic principle as it pervades in all business and even the public sector as I have argued above.

Bonus drives profit - that's the credo.

Well it is not always true. In the case of the financial world we have learned that it is not true. And let us be clear here - the incredible amounts of profits earned in the last 10 years by banks have all been written off with few exceptions. Most financial companies in the main stream of commerce have had to write off all, if not more, of the profits they have made over a period of around 10 years. If companies have not already done so, i.e. those who have not made such huge losses, then they probably will at some point in the future. The reality is that the financial system has regularly given back the proceeds of periods of huge growth as huge losses, and some more learned than me would argue that the only stable underlying profit banks make are from general lending, mortgages and insurance products. Almost all profits associated with investment banking or hedge funds are regularly wiped out.

But in those periods of huge profits, a comparitively small number of people make massive bonuses. It could be argued that our financial system today, our prosperity as a world even, cannot be as we observe it today without the world of finance driving such massive profit cycles to end in bust. In the last 10 to 15 years since deregulation of the financial system we have experienced an unprecedented period of 'sustained growth'. We have found, to our cost, this has been a false boom. Yet in that period, bank executives and traders have earned more in bonuses than they ever have. And as the trades got riskier, they earned more.

In fact, they are still doing so and more aggressively as now they have the safety net that if they do make huge mistakes that incur amazing losses there is an unlimited fund available to pay for their mistakes - they have the freedom to trade as hard as they like, risk more and get paid more without fear of losing. It's like playing the casino with fake money.

And these people are already fabulously wealthy. Many earn each year in bonuses the equivalent of an individual like me winning a single lottery jackpot which is a once in a life time experience and has a chance of one in 14 million of occurring. For these people, playing the lottery is a mug's game, they have a far more secure way of winning. It's called using other people's money and the financial system.

While I would expect, quite habitually, that if I did not acheive my goals that I would not get paid a bonus or, as in the case right now, I would not get paid at all, these people have no such level of accountability. The financial system has just been bailed out to the tune of $15trillion globally and the measure of accountability has been almsot zero with the odd exception and in reality the actual collapse, far from wiping out the stupid banks that caused, it has actually primed them again to believe they can make money out of the losses they incurred.

Think about that last statement as this is the essence of the argument. By wiping the slate clean for all these people and allowing them to keep their methods of working, they will make $billions on the fact that they made the losses. Lehman Bros derivative positions worth just fractions of of their original values are now potential gold mines in the eyes of financial people. Toxic debt will be worth billions in speculation that there are plenty of potential good bits in there. Bankers already speculated before the fall of the system that repackaged Government debt would be worth trillions.

Why? Because we underwrite the whole thing and these people simply do not get it. You cannot make money out of nothing - someone, somewhere pays for it. You can buy a derivative from Lehmans for 20 cents in the dollar without someone someone else paying for that loss. When Barclays bought the assets of Lehmans for less than $2bn, it has been now alleged that the structure of the deal allowed them to make $8bn immediately. We can sit here in awe that such daring and brilliance can occur or we can stand up and call a halt to this fantastic game that is being played with our money.

The point about bonuses is that it drives behaviour. In the public sector it makes people do only the the things that hit targets - if it is reducing waiting times in Accident & Emergency at hospitals then people will be registered minutes after they arrive and then wait hours to be seen by a medical person because the statistic records that they are not really waiting at all. If the target is 20 operations per day and ingrowing toenails operations take 30 minutes but heart surgery takes 5 hours, then only ingrowing toenails get done by surgeons skilled to save lives not nails.

You get what you pay for - you reap what you sew. You gear people to take incredibly high risks without fear of accountability or losing their bonuses by selling products of no real value then they will take ever more riskier options and they will dream up ever more creative ideas to create bonuses knowing full well that such profits that are earned have to be given back at some time as they are literally conjured out of nothing.

There is a price to pay. As numb taxpayers we can watch in awe as £1.5 trillion is added to the National Debt of which by 2014 the interest alone will be £60bn which is equivalent to the entire annual education budget. Do we scrap education or raise tax to cover it? You guessed it - and the whizz kids in the City will employ clever accountants so that neither the companies who incurred the debt or the traders who engineered it pay anything like their fair share of that £60bn.

It is that perverse. We sit here glibbly reading about the whole situation and we think that because we think we understand bonuses that the financial system should have them, it is just a matter of how much they are. But we don't get it as we are the only schmucks who pay for them - they are not, over the long term, paid back for the sustained losses made; these bonuses are paid for by the taxpayer to cover the losses that are really being made.

But banning or curtailing bonuses is not the answer as the Soc Gen 30 have shown. They simply will up sticks and go elsewhere. The economy does not lose out, France does not lose as they simply do the same eleswhere - maybe Soc Gen loses for a while. The point is that until we change the system at the fundamental level to properly define what these people can trade, then will we start to get to pay them for doing things which really help our economy rather than just helping themselves.

The time has passed when we could do this and so the new course has been set. The financial world is at the trough making vast profits out of the losses they made and maybe we can curb the bonuses but we cannot stop the damage they are causing.

It's like building your house with bricks of poor stone, it does not matter how much you pay for them, your house will fall over sooner or later.

Bonuses are not the problem. It's the industry that is the problem.

The Stakes Are Getting Higher

President Obama is determined to do something, Gordon Brown is ‘appalled’ but no one has seemed to have gotten the real message of what is happening in the newly invigorated financial system.

More intelligent people than me, such as Joseph Stiglitz, the Nobel Laureate in Economics, have pointed out that the bank bailout has effectively wiped the slate clean for banks and they can now resume their high risk activities with new, cheap, even free money. In fact, Stiglitz presents the argument I put forward yesterday with real credibility – that now banks have been written a blank cheque they can gamble more freely and with less conscience as they now know that the Governments will never let them fail. With the odd exception as we celebrate Lehmans Day.

Stiglitz asserts that Obama’s failure to rein in Wall Street will lead to further disasters and we hear only talk of potential curbs on bonuses and tighter regulations but not one single country is prepared to take the lead as they don’t want to be the loner that effectively rings the bell on their financial centres by spoiling the party unilaterally. All the big leaders are talking up the importance of the forthcoming Pittsburgh G20 meeting but the chances of getting any consensus for concerted action is slim. Someone, somewhere will sense an opportunity to win on this and it will only take one to not toe the line.

In a snippet in the Guardian yesterday, Bethany McLean who authored the book ‘Enron: The smartest guys in the room’, argues that far from financiers losing too much, they in fact lost too little. Meaning, on a personal and even company level, we bailed them out to an extent that it did not hurt – not one iota. In fact, like Stiglitz, she argues, with the exception of Lehmans, the lack of loss has embolden banks to be more aggressive in their ‘talent acquisition’ activities, salaries and bonus schemes as now the stakes are much higher and the potential rewards much greater as we exit the financial crisis and experience the inevitable bounce back.

Both of these observers claim that there should have been wider losses than Lehmans and in the UK there should have been at least one, if not more of the financial institutions we so gleefully bailed out that should have been left to fold. Only then, they claim, could the banks have really been convinced of the folly of their system. In the real world, bondholders, shareholders and those involved in the derivative contracts should have been left to face the consequences of their mistakes as most of the casualties in the business have done during this recession. By allowing these special cases we have given an unfair business advantage to companies who already have business by the short and curlies. The same people who would have no qualms about shutting down companies who default on their loans to them. However, that opportunity as been missed and now all we can talk of is curbing bonuses when everyone knows that banks will find a way to pay the high rewards for the high risks, somehow.

It means that banks are more than ever gearing their strategies and reward schemes to short term profits. This newly fine-tuned mindset is based on the simple maxim that if there are incredible short term rewards to be gained for taking huge risks which ultimately makes the rest of us pay for them in the long term, then unless there is an obvious barrier placed, they will take them. Banks are now working in the secure knowledge that we cannot let them fail and that they will get their free rein as Governments are so dependent on them to sustain economic growth. In short, the Governments want the rewards of the high risks too and are prepared to stake our taxes as collateral should the bets not come off. It is a highly dangerous joint strategy and, while the growth figures may look fine in the short term, in the long term it means that we are all progressively worse off. Amid burgeoning deficits and borrowing, there will be ever greater cuts in public spending and higher taxes in order to pay for all this, while the business world will be a great deal more uncertain with much higher unemployment.

Some argue that as early as 2010 could see the next financial crash, we can only hope that is too early as Britain will not have peaked in terms of unemployment by then and the effects of cuts in public spending to reduce the budget deficit will have not even kicked in. There could only be one course of action – the ‘TUC way’ which is to raise taxes, and then some as the need for cuts would be immediate and huge. While the TUC has a point about the super rich avoiding paying tax, to the tune of perhaps £1bn, it is still a drop in the ocean and it will mean higher tax for all above average earners under any such new scheme. One can only hope that we can get a few years in of decent recovery before the next crisis hits but it surely will.

The only effective way to stop these high risk bets from being placed would be to go to the source of the issue which is the free flow of money based around derivative products which are effectively a work of fiction. Only when we take away such products from the system will we get some stability in it which can be sustained. It will inevitably mean a slowdown or stagnation in growth but you cannot have it all ways – if the system has no real growth in it, you cannot just create it based on no good principles. It is better we find a way to grow our economies based on sensible risk than to get ourselves repeatedly into the same mess while just a small number of people reap incredible rewards for which we have to pay over the long term.

The wide consensus of opinion is that political leaders have learnt few lessons from this economic crisis and that their collective inaction has allowed banks to gear themselves for even more risk. On the anniversary of the Lehmans crash, we have the bizarre sight of the restructuring adviser for Lehmans, Alvarez & Marsal, putting the remaining Lehmans funds back ‘in play’ and they have hired many former Lehmans traders to do so. It is not just a high risk strategy, it is totally counter intuitive to the role of liquidators whose sole purpose is to maximise the remaining assets to make some return to creditors, shareholders and the like. It is as if people view the remaining monies as lost anyway, so they may as well buy a bunch of lottery tickets or back a horse at the 5.30 at Kempton Park. It is that stupid but it is precisely indicative of the new era we have created. Far from learning from their mistakes, the banks think they now have the secret formula to beat the casino. Only there is no formula but there is an unlimited benefactor who will supply all the money they need should they incur incredible loses – the taxpayers. They are now, in their own eyes, unbeatable.

The other obvious learning point from the Lehmans crash that has not been heeded at all is that banks build up their structure like an intertwined morass of interdependencies which makes any kind of proper accounting and scrutiny almost impossible. Lehmans had a web of over 3,000 companies which owed each other enormous sums of money and we have the idiotic situation of British subsidiaries suing American ones for hundreds of billions of dollars while liquidators try to unravel the ball of string that was Lehmans structure. It is a feature of the whole financial industry to build such impenetrable webs and makes the nirvana of banks having some kind of ‘Living Will’ a complete pipe dream. There is a strong case that the situation has got over complicated and is designed to keep prying eyes out and to shield the fact that banks are not really making any profits at all but playing some over elaborate game of ‘fantasy trading’ in order to generate virtual profits. It all looks great on the computer screens and spreadsheets but does not have the same credence in the real world.

As I sat on the plane at an unearthly hour, the music over the tannoy was ‘Road to Hell’ and there was prophetic line in there about credit being just bits of paper which I forget but it seems very apt – it goes on to say ‘This ain’t no technological freeway, this is the road to hell.’ I’m sure it wasn’t written with all this in mind but it might just apply.

It will take a bold politician to break this Mexican stand off as the G20 leaders all look at one another to get a nod of synchronisation before they all move together in perfect harmony. It will be like herding cats. Even then, I think we will barely have paper over the cracks rather concoct real remedies to the ills of the financial world but I believe that’s because they believe they cannot afford to change it and sacrifice growth.

In this foolish and unholy alliance, the bankers know they have the upper hand and a blank cheque. We have created the conditions for catastrophic failure for the future.

Shock News - Brown Is Appalled

Now they are in for it. Gordon Brown has gone public on the fact he is 'appalled' having found out that some financial firms are continuing - or even extending - their bonus culture.

The world must be a constant surprise to poor Mr. Brown. I mean, he thinks and says one thing and people do the opposite. He observes how things should be and then, blow him down with a feather, things behave very differently. It must make him very excited about getting up each morning as he would keen to find out what else has happened he didn't expect.

In the case of the banks, he clearly thought that because all those executives and traders who had been making millions had run up against a wall and lost the lot, that they would feel a great deal of contrition and not want to go through it all again and earn even more money than before. How it must have shocked him that, after he saved the world, and used the hard earned cash of his loyal and worshipping public to bail out the failed financial people that they did not kiss his backside for saving their rotten necks and then all become the financial equivalent of monks - living off the land, wanting no rewards save the joy of living, weaving baskets, treading grapes and distilling fortied green liquors.

Now it has come to his attention that indeed bank executives and other financial people are not behaving the way he had anticipated. In fact, the moment their companies were saved by the global $11 trillion of bail outs, of which Mr. Brown contributed £1.5 trillion on our behalf, it seems that they immediately whooped it up and started all over again. It turned out that the credit crunch had not dried up the flow of cheap money after all - these financial genii had found a new source, the public. Even better, they did not have to seek their permission to get the cheap money, there were no rules or nasty contracts attached, indeed there were no real requirements to pay any of it back - all they had to do was to lose a load of money and the public would continue to pay. If anything, the financial world had a new instrument that allowed them to take even more risks and try to earn even more money which they could pay themselves as they had discovered the one thing that was missing from their bold scheme/scam to make money - an unlimited underwriting of all debts they incurred should they fail, now or in the future.

Mr. Brown must be shocked indeed. After all he gave all that money in good faith. He did not ask for seats on the Boards at banks he had 'invested' in, instead he wanted them to carry on with much the same staff as before as he was convinced they would not want to risk all that again. He did not go to the regulator and sack him for total incompetence and sleeping on the job as that would be churlish - instead he asked the same incompetent fool to write up the rules again with slightly different language and give them a new grand name - Macroprudential Regulation - which would help make it abundantly clear to the public how banks could not overstep the mark again. The fact the public had no idea what the title meant but could plainly see that none of the regulations had changed did not seem to occur to him. It must have sounded different when that hopeless fop, Lord Turner and his willing but intellectually challenged sidekick, Hector Sants, had presented it to him like the characters from 'Pinky and The Brain'.

You see Mr. Brown has a head for dates. He knew that one year ago from today, Lehman Bros bank failed and was allowed to collapse. Inside, he knew that was a massive mistake by the Americans as he had stepped in and saved all the UK banks. Not one of them had been lost and every saver's bit of cash and mortgage had been saved. He even went after those nasty Icelanders who had 'stolen' the savings of many people including our Local Authorities who also had played gambling games with people's money. It came as a nasty shock to Mr. Brown that in a world of derugulation and globalisation, which he decreed should be saved at all costs, that if British subjects had put their money into foreign banks who went bust, then they would not get their money back.

15 September 2008 must have been a dark day for Mr. Brown, and as he went to bed that night with his mug of cocoa he must have thought, 'Now there's something new I learnt today - what went up must come down, particularly if it was traded on hot air.' Sadly, he failed to connect the very clear dots. The financial system he was hell bent on saving was only being set up to carry on, there was no understanding that the system was flawed at its very heart and merely giving the cancer victim an aspirin may only stave off pain for a short while but it does nothing to solve the problem.

But now he is back and fighting. The new eco-friendly light bulb has gone on in his head and he has decided that banks now must be regulated more vigorously. He is going to fly to Pittsburgh in his superman outfit and tell those G20 leaders exactly what for and demand that the world once again follows his fearless lead. In aggressive language he has said:

'Now I will want an agreement - because we are talking about banks in other countries as well as banks in Europe - at the G20.' Clearly Mr. Brown has read the Ladybird version of the banking system and discovered that other countries have banks too - this globalisation thing may have some credence to it, you know.

In a rare moment where he admitted that he was less than perfect, he said. 'It's true that the mood of opinion in Britain was that we needed less regulation and not more. Now we've found we need more.' It was a clear 'No sh*t Sherlock' moment and he obviously believed he is the only world leader that had discovered that banks were out of control in the past - thanks to his own personal 'light touch' approach because he did not want the poor lambs to become uncompetitive and leave the City of London as a third rate financial centre where people came for loans of last resort only.

'We should have all been supervising more,' said Brown sternly as he neatly deflected the blame to fictional others whose role also was supervising even though it was his fault that the FSA stuck their feet up on their desks and played online poker while the banks melted down. Now he wants us all to feel we can trust banks.

At this point, it seems that Brown has lost touch with reality. You see, the public never trusted banks as they watched young numbskulls make millions by creating and trading products that served no earthly purpose and had lost all connection with the assets they purported to represent. In our feeble way, we had already guessed that the banks were trading blocks of nothing and pretending they were worth something. We also know that the same is happening again. It must come as another terrible shock to Mr. Brown that banks are buying former Lehmans open derivative positions for anything from 10 to 50 cents in the dollar in wild speculation that when the liquidators have unravelled the mess, they might find some of them are worth something.

Now, maybe I'm being naive here. We have just bailed out the whole system, we have collectively paid trillions to do so, covering the immense losses that allows liquidators to write down such derivatives to virtually zero because we allowed such contracts not to be honoured - a debt obligation was forgotten about, a default swap was allowed to disappear. Now, in the aftermath of the largest corporate failure in his history, we are going to allow the vultures in the banks to pick over the failed pieces and find small nuggets of gold in order to make money again trading the very same products that ruined us.

We must be stark raving crackers, the lot of us.

It isn't regulation that is needed - Yvette Cooper's 'Janet & John' book on the financial system does not quite suffice in situations like this. The banking system needs a fundamental reform and the time to do it was when they needed the money to survive as they would have had no choice but to comply. Instead, the whole gravy train is back on the tracks again, the banks are making money, the leaders of the countries are satisfied disaster has been averted and the system is slowly reviving. The banks have all their power restored and the very people who ruined us are being paid for their thoughts and leadership on the solution. It is not a bit of wonder that they do not want change and now they are once again 'Masters of the Universe' and the types that Blair, Mandelson and Brown bent their heads and so very gently kissed the backsides of before, are once again calling the shots.

Mark my words, there will be few constraints applied to the system - reform will not come and companies will be allowed to make money out of Lehmans' losses. 15 September 2008 was a very dark day for the world generally. 15 September 2009 is even darker because we have just reset the House of Cards to be puffed over by the gentle waft of a butterfly's wings - again.

Parallel Universes?

The BBC contends that a report to published on the 'Phoenix Affair' where MG Rover was sold by BMW thanks to Government sweeteners in 2000 for a mere £10 then subsequently was run into the ground by the 4 members of its management team - allegedly.

The 'Phoenix 4', as they were known, are now known to have taken some £42m in pay and pensions before the company went belly up and the residual pieces had to be sold to the Chinese. It was a spectacular show as to how private equity can be not a good thing.

The Phoenix Four had somehow beaten off some heavyweight bidders to inexplicably 'win' MG Rover. To this day, no one really understands how this was achieved and I dare say that the report will, of course, not reveal which ministers actually contributed to what happened next by displaying consummate incompetence or, worse still, had a vested interest in making sure that a bunch of unproven, largely unknown private investors got to run one of the last decent British car companies. The rest is history.

The BBC's Robert Peston is spitting blood about how these individuals 'enriched themselves' while having no real interest in the firm's future or the workforce. It is at this point that my feeble brain clangs and I think, well surprise, surprise, there are real parallels with how banks acted in the last 10 years. I am sure financial people will beg to differ, but what the Phoenix Four did was to find something within the company that realised cash and they rewarded themselves with it. In reality, it wasn't illegal per se but it was a 'damned un-jolly' show. The parallels are there as the banking sector found something upon which to generate vast, effectively unreal profits that had nothing to do with the real worth of their banks or of real assets, to not show it on the their balance sheets and to effectively reward themselves lavishly and widely for their little scam.

So why are we spitting blood? I suppose in proportion, what the Phoenix Four did was highly 'geared' vs the eventual collapse. Put into context, the CEO of Lehmans, Dick Fuld, earned a mere $300m leading up to the spectacular collapse of the bank to the tune of around $700bn. But when you add up all the vast bonuses paid out in all the banks and the incredible losses they clocked up before having to be saved by taxpayers around the world, the principles are very similar. Banks borrowed money on the short term to fuel high risk gambling habits at rigged tables, and when someone found out the tables were rigged, we became liable for the full amount of profits they had previously made. Or have we yet paid the full dues? I would argue we haven't. Have we un-rigged the tables? Nope, we have refilled their vast wallets and allowed them to get on with it again. Only recently have some key people within the banking industry dared to break cover and revealed what the rest of us mortals already knew - banks were making money out of thin air.

The issues surrounding the Phoenix Four was that a great deal of jobs were at risk, the company eventually fell into the hands of the Chinese, ministers contributed to the incompetence and a small number of people made a lot of money in the process. That got a full independent inquiry in which it will likely be concluded that although the 4 individuals were rotten chaps to have taken so money out personally, in fact they were just rubbish businessmen who had no idea what they had bid for, couldn't run a company to save their lives, didn't know what to do when it went wrong but certainly knew how to realise some cash to pay themselves handsomely without a care for the workforce or the company. Where that leaves the idiot ministers involved, who are all around today, goodness only knows.

The parallels with what has occurred on a much more grand scale are there to be seen. In the case of banks, we bailed them out completely and, with few exceptions, the executives have either kept their jobs or have risen phoenix-like from the ashes. In their cases we will not get an independent inquiry which would reveal how we should not have allowed it to have happened or indeed how we can prevent it again for the future. The way the situation was solved was by the self-same people murmuring into incompetent ministers' and regulators' ears and persuading everyone it was a natural phenomenon and we must continue or else the world falls into oblivion and, heaven forbid, economic growth goes out of the window. The Planet Earth faced a fate that rendered the population as potential goat herders exchanging vegetables and beads for the future. To save us, there had to continue to be an incredibly small number of extremely wealthy people who make equally incredible sums of money while we watch in dumb satisfaction.

The Phoenix Four of John Towers, Peter Beale, John Edwards and Kevin Howe plus Nick Stephenson can rightfully claim that their clever accounting was chickenfeed to what ministers have allowed to happen and make us all personally pay for with the banks. It doesn't make any of it any the more palatable but it would be very good to get the names of all the individuals who benefited from the taxpayers' largesse over the last 10 years and get to know them equally well as a lot of people paid good money for them to have their lovely bonuses, fat lifestyles and to make sure they still have their glittering careers.

The poor chaps at Phoenix have had to make do with a paltry £42m between them and eek it out to cover the rest of their lives. Makes you feel quite sorry for them, doesn't it, when you put it like that?

Forfar 0 - Dunfermline 1 billion

I have been past Dunfermline a few times at the other end of the Bridge at Queensferry but I mostly know it from my curious fascination of listening to the Alexander Gordons reading out the football results. Much more about the place I cannot tell you other than the fact its building society went belly up with around £1bn of toxic debt.

Fortunately Nationwide has stepped in to buy the good bits but the debt is all ours - we the generous taxpayer. For some time, apparently, the CEO of the Society, Mr. Faulds, has been ranting at what he calls the 'faceless mandarins' at the Treasury to try and get a bail out sorted. As the glorious leader chaired the G20 summit after his rapid worldwide shuttle tour (what a waste of a round the world ticket), the Dunfermline gave up the ghost and went belly up after efforts by the FSA to get things sorted.

And so we end up with another £1bn of liability and another bank down the toilet - the Nationwide picks over the juicy bones and life in 2009 goes on.

Chalking One Up To Experience

The good news is that all savers and mortgage holders plus the staff at the Dunfermline are safe. The bad news is, of course, the taxpayer picks up the tab once again, but we should be used to it by now - I mean, what's one more billion other than a rounding error these days?

It's Mr. Faulds I feel sorry for. He had to shout and scream at the FSA and Treasury to get them, to listen. Presumably his shout was. 'Err, hello guys. Another one down the pan over here. Help me out here, I've spent money I did not have and bought debts I shouldn't have and killed a perfectly decent company and now I want someone else to pick up the tab.'

Ach, I just is a bit embarrassing this happens under our glorious leader's nose just when he is saving the world again. It just had to be his local, didn't it?

Along with Local Authorities investing their balances in foreign banks, quite what the Dunfermline was doing buying £274m of debt from Lehmans and GMAC is a little surprising. Then having around £500m of buy-to-let mortgages and daft business loans adding up to a total liability for dumbness in excess of £900,000 is beyond most of us. The cost of the debt from defunct banks alone was way more than could have been covered by their profits so this was just simply suicidal business practice.

The obvious is howling at me. As most Building Societies don't operate in such risky ways, surely regulators must have seen an exception floating by or were they too busy being 'low touch' as per the PM's asking? And secondly, why on earth are we saving companies from simple gross incompetence?

This may be a microcosm of the RBS situation and maybe we should have applied the same process but once again, the public are shown just how poorly let down we have been by authorities and how they continue to expose us to liabilities we cannot pay for.

Counting The Cost of Lehmans Bank

It really does astound me when, in the midst of the biggest banking crisis since the Great Depression, we still have greed ruling decision-making in banks while the industry takes a bath.

I was already appalled that Gordon Brown had personally intervened in the final hours of the takeover of HBOS by Lloyds TSB which gave the combined group over 28% of the UK mortgage market - not because it made a very uncompetitive situation but because Lloyds TSB did not have the financial resources to undertake the deal. It immediately required a bail out from the Government and consequently the taxpayer owns 43% of the new company. It simply should not have been allowed to take place.

But Barclays Bank - well, they are something else.

The Collapse of Lehmans Bank

Even before the aftermath of the crash of Lehman Bros had started to permeate through the system, Barclays Bank, almost with Fred Goodwin-style over-zealousness and like the proverbial rats up a drainpipe, steamed in to buy the investment banking remnants as a wise investment.

Even a circus clown could have told the executives that Investment Banking was not the 'strategic place to be' in the current economic climate - you know, a recession combined with a credit crunch, that 'Once every 100 years crisis' according to Alan Greenspan.

Nope, the diehard washouts at Barclays Bank decided that spending suicidally in a crisis is a really brilliant strategy, so two-fingered armchair sages and paid a fat wedge of cash for the defunct bank.

That was in September.

Fast Forward to Today

Oh yes, you guessed it already. The very same Barclays Bank today announced the loss of 1,300 jobs in Barclays Capital, the Investment Banking arm of their company. Bright, cutting-edge strategic thinking at work there then. In all 2,100 jobs are to be lost, some 7% of the workforce.

But these proud fellows don't come cap in hand to the taxpayer and expose us to their follies. Not this collection of Oxbridge-trained upwardly earning chaps, these boys are far more happy having Middle Eastern cash - and £7bn of it too.

It Beggars Belief

We are talking just 3 months from sinking a load of money into Investment Banking to grab the imploded Lehmans to announcing 1,300 job cuts in the investment banking business. It really does make you think how these people work and what they think as they hob-nob from meeting to meeting, power breakfast to power lunch and whizz across the Atlantic being the cream of British commerce.

I have blogged about planning for a recession to be prepared - the planning I meant was to avoid it. These boffins planned their way into it.

Frankly, I wouldn't give them a chip shop to run as they would buy parsnips because they look cheap when everyone wants potatoes, then fire the guy frying for cooking the wrong thing.

It's that stupid.