"Wall Street: Money Never Sleeps" is out this week (October 2010). As Michael Douglas reprises his infamous Gordon Gekko role from the 1980s, it seems that it is his "greed is good" mantra that previals even now in the financial sector, in spite of the international public bailouts so many of its members required just a short time ago. This piece was written in an old blog back in September 2008, just as the banking crisis was beginning. Looking back now, in spite of its subject matter, I ended on a hopeful note which, as events turned out, was more than a little misplaced - as the City of London and Wall Street re-establish their bonus culture, little if anything has been learned. A golden opportunity to forge a better society out of the crisis is slipping from our grasp...
Gordon Gekko: greed is back

We come to the end of a week of financial turmoil across the globe - since Monday, major banks have collapsed or required guarantees of massive bailouts; people’s jobs have effectively been lost; shares have tumbled by record margins…

And today, they have soared by record rises.

Funny old world, as Margaret Thatcher said. What can possibly have happened from the start to the end of the week? Have companies drastically upskilled? Have people suddenly found incredible new ways of working and producing things? A major technological breakthrough perhaps?

Of course not. Very little has changed in the world of real work.

But in the USA and the UK, as well as other countries, billions upon billions of dollars and pounds have been pumped out of taxpayers’ pockets and public treasuries into the hands of bank shareholders.

Why? Shareholders undertake no productive activity. They don’t even provide the capital for companies to function usually - they are simply trading stocks with other shareholders. The capital raised by the stocks was often issued many years ago to other shareholders entirely. Shifting and impersonal, the world of sharedealing has nothing to do with the efforts of billions of people, toiling round the world to make things, deliver them, use them. And yet it holds us to ransom, determining our taxes, our mortgage and savings rates, our jobs and our social order.
Today,two of Britain’s biggest financial instiutions, Halifax Bank of Scotland and Lloyds-TSB had to merge. The result will be the closure of hundreds of branches with job losses alongside, as many as 4,500 jobs in Halifax alone when the admin centre there shuts, as well as worries among many depositors in HBOS that their hard-earned cash might vanish if it went bust.

How did this happen? HBOS was perfectly sound financially. It even has a licence to print Scottish money.

Well, at least in part it was driven by a tactic called “short trading”. I’d never heard of it before today, but it is a key way our pension funds are used.

A trader rents stocks from a big institutional investor, like a pension fund. He (and it usually is a he) sells that to someone at say £10 a share. He then starts rumours that the share price is about to fall. Jittery traders then start to sell, making it a self-fulfilling prophecy. When the shares fall to say £5, the trader buys them back, having made a tidy profit before handing them back to the pension fund.

So the trader has gained, and even the pension fund has made a little. But meantime the buyer is out of pocket and the company that has been traded is being pushed by its remaining shareholders to do something to increase the value of shares. This can usually only be done by maximising dividends which in a panic situation means cutting staff costs and jobs. Hence HBOS.

But it doesn’t end there. This week’s developments have led to the Government rushing to intervene, providing guarantees to the ailing companies which have resulted in a rush to buy stocks in them, pushing share values back up again.

Many will argue this is the essence of a free market. This process, they claim, helps drive an economy which provides for all its citizens and rewards hard work and enterprise.

Really? From where I am standing if these traders were in a casino, they would be diagnosed as having a gambling addiction, maybe even be evicted for cheating; but because they are on the trading floor instead, they are deemed to be Captains of Industry.

They have been adept at making vast quantities of money for themselves - City bonuses have never been higher - for minimal effort. They have stripped companies of their capital and people of their livelihoods in a roulette-style frenzy, fully embracing the “Greed is good” philosophy of the Gordon Gekko character in “Wall Street” (Michael Douglas’s finest acting moment) which was first trailed as a virtue by the monetarist Milton Friedman, guru to Mrs Thatcher.

Tax avoidance has been rife - these leeches, living off other people’s efforts, have been adept at finding loopholes in offshore accounts and even, until Gordon Brown closed much of it off, being paid in tax-free gold bullion or crates of champagne! City traders often pay no income tax at all. Yet as soon as the system creaks and threatens to collapse, they are more than happy to stretch out their hands for a handout from the taxpayer - you and me - whilst playing fast and loose with our other money - the money we have saved into our pensions.

But what IS the Government doing? Even now, it is bending over backwards to accommodate these parasites. When Northern Rock over-extended itself by transferring its moneymaking from Newcastle to the USA sub-prime mortagage market (just how ridiculous was that?), they eventually nationalised it but only after allowing all the profit-making parts to be hived off into a separate company which continues to make huge profits for shareholders, while the taxpayer carries the burden of the loss-making bits.

Before its collapse, but perhaps in anticipation of it, the best book of Northern Rock’s mortgage business, comprising of mortgages worth £47 billion - some 40% of the company’s assets - was transferred to a Channel Islands based company called Granite, together with an ongoing obligation to continue to supply business. Granite was set up as a charitable trust to benefit a small charity, Down’s Syndrome North East; despite having assets worth an estimated £45 billion, Granite has never made a donation to the charity. It is legally able to demand all of its money to be realised - which would cost the taxpayer £45 billion.

Captains of Industry? More like Pirate Admirals living off the efforts and misery of others. The worst aspect of the tragedy is that society continues to collude with the lie that these people are somehow essential to our productivity, enterprise and wellbeing when in truth with their short-term buck-making and speculation they are more likely to be our nemesis.

But perhaps they simply reflect in an extreme way the world we have created around us. A chlling thought, but maybe closer to the truth than we would like to think.

After all, just 20 years ago, Halifax was a mutual building society and the TSB was a co-operative bank. Both were owned by their depositors - they existed to serve the community, not make profits. Job creation and providing financial security was at the heart of what they did. Now, as parts of big publically owned banks, they exist to make money out of people and use and dispose of employees at will.

How did this happen? Well, with TSB, Britain kept voting in a Tory Government under Thatcher which used dubious legal means to seize TSB and sell it off to the City. Bad enough. But with Halifax and dozens and dozens of other mutuals it was even worse - for the sake of a small handful of shares, sometimes worth as little as £200 or £300, their members voted to turn them into public trading companies. I really doubt people understood the consequences - had they not voted the way they did, HBOS would not have happened this week and a big part of the financial sector would be safe. As it was, they were enticed and invited in to share and accept the big lie that everyone can make it rich if they work hard or smart enough, and in doing so protect and excuse the tiny minority who really are.

We can’t undo what has been done.

But as Thomas Paine said, we even now have within us the means to remake the world. And perhaps soon we will have no choice but to do so.

I certainly hope so.