Andrew Rawnsley guardian.co.uk Saturday 30 June 2012
The restoration of integrity in the City will not happen without serious criminal sanctions against venal traders
It shows how much party conference speeches matter to leaders that Ed Miliband and his advisers are already worrying about what he will say in the autumn – an event that lies three months in the future. His inner circle have been debating whether he should try out some new ideas or instead build on the theme that he launched from last year's conference platform when he talked about "producers versus predators". Thanks to the bankers, I suggest Mr Miliband need not agonise any further. The latest, multiple scandals to erupt from the moral cesspit of the City should help the Labour leader to the conclusion that there is plenty of mileage left in making the case for radical reform of how we do capitalism.
He may, mind, have to find a stronger word for the City than predatory. We already knew from the financial crisis that the banksters were greedy, reckless and incompetent. We already knew from their reluctance to account for themselves or change their behaviour that they were shameless. The latest mis-selling scandals confirm something else we already knew: that they fleece their customers. What has changed over the past few days is that we now have proof that they are also corrupt and fraudulent. The rigging of Libor, the key interest rate which is used to value contracts worth trillions and affects everything from home loans to credit card charges, has shocked those who thought they were beyond being shocked. Sir Mervyn King has long held a scathing view of modern banking culture, but even the governor of the Bank of England seemed staggered that they had fallen so low. Barclays and the other institutions involved in this particular fraud were not just practising casino capitalism. They were rigging the wheel, loading the dice and marking the cards. The "few bad apples" defence will not wash. Some 20 further banks, including several other big household names, are also under investigation for perpetrating this scam. This could only happen in a City in which cheating and deception have become institutionalised.
A scandal of this magnitude demands a matching political response. That it has yet to receive. The politicians have done the easy, obvious things. First, they have competed to condemn the banks and then they have blamed each other. Happy are the Tories that the market-rigging scandal was perpetrated during a period, 2005 to 2009, when Labour was in power. In a notably partisan performance in the Commons, George Osborne seemed rather less interested in describing what he was going to do than he was in throwing rotten fruit at his opponents. The chancellor jeered: "The Labour party's trouble is that it is led by the cheerleaders for the age of irresponsibility, but they have yet to say sorry for it."
He's right that it is a problem for the Labour party that it is led by two former adjutants of Gordon Brown, one of whom was City minister. Ed Balls has issued some mea culpas in public and in private is more frank about how Labour failed. He likes to tell an anecdote about a tour he took of one our largest financial institutions when he was the man in charge of their regulation. He pointed to a group of traders and asked the company's chairman what they did. The chairman confessed that he did not actually know. At the time, Mr Balls thought little of it. He says now that this should have alerted him to something being terribly wrong.
In response to the Tory attacks on their record in office, Labour reminds us that throughout the same period Mr Osborne and other Conservatives were complaining not that there was too little invigilation of the City, but that there was too much of it. The Tory clamour was for even less regulation. Both are right about each other: Labour was not tough enough in policing the City and the Tories wanted it to be even feebler. The truth, which is acknowledged by the more candid and mature politicians on both sides, is that nearly all of the political establishment fell under the thrall of high finance. A Leveson-style public inquiry into the City would embarrass almost everyone. Labour would have to account for the appalling lacunae in its regulatory regime. The Conservatives would be confronted with their responsibility for Margaret Thatcher's "Big Bang", which tore down the firewalls between retail and casino banking and transformed the City from a generally staid profession into an increasingly spivvy one. From a mixture of fear and awe of the financial sector, both parties allowed themselves to be persuaded that "light-touch" regulation was necessary to preserve London as a global leader in finance and to sustain the flow of tax revenues from the City into the Treasury. The actual consequence of "soft-touch" regulation was to license the most rapacious misconduct with disastrous consequences for the City's reputation and the broader economy.
Examining the past may be useful, but only if it leads to a healthier future. The Conservatives sometimes talk a good game about confronting the excesses of the City. David Cameron has made occasional speeches deploring "markets without morality". While the Libor scandal is hot, the air will ring to the sound of the prime minister and other Tories flaying bankers. But when the furore cools, they will be prone to default back to defending the City against "banker-bashing".
David Cameron and George Osborne have delivered plenty of generalised condemnation of what the chancellor calls "systematic greed at the expense of financial integrity and stability". On specific remedies, they have been much more hesitant. The prime minister has said that responsibility should go all the way to the top of the organisation while declining to say explicitly that Bob Diamond, the boss of Barclays, should resign. Perhaps Mr Cameron is shy of making it personal after the criticism that he received for attacking the tax avoidance of the comedian Jimmy Carr. Perhaps he fears being drawn into a running commentary about the positions of many bank chiefs. Still, I do not see why the prime minister should be quite so timorous about saying clearly that Mr Diamond has to go. The starting point of addressing these City scandals has to be naming, shaming and booting those who have presided over them.
The public fury at the banks is enlarged because their crimes have never received any meaningful punishment. Fred Goodwin has been ritualistically stripped of his knighthood – and that's about it. The fine levied on Barclays is peanuts, a few days' trading profit. That is not an adequate penalty. Nor is the foregoing of bonuses by men who have already trousered millions.
One of the most shocking dimensions of this latest scandal is that no one may face prosecution. After last summer's urban disorders, the police were imaginative in the use of the law to apprehend those involved. The courts handed down sentences to looters which were designed to be exemplary. A college student, with no previous convictions, was imprisoned for six months for nicking a £3.50 pack of bottled water. Yet there is serious doubt whether it will be possible to prosecute banksters who perpetrated a massive con involving sums which would buy many millions of bottles of water.
The chancellor again finds his fall-guy in Labour for not equipping the Financial Services Authority with the power to impose criminal sanctions for market manipulation. It is a good point, but it would be a better one if the legislation he is currently putting through parliament contained such sanctions, which it doesn't.
In America, they do this better. Whatever you think of American capitalism, one of its redeeming features is the aggressive pursuit and condign punishment of those who abuse, rig and defraud markets. Mr Osborne has mused out loud that the US authorities are much more strongly equipped to bring perpetrators of financial fraud to justice. In the Commons, he wondered whether the Treasury select committee might like to look into it. Here's another idea for the chancellor: he could do something about it himself and do it quickly by making his own legislation much more robust.
One of the stock political responses is to say that "the culture of banking has to change". We were given some helpful pointers about that from Bob Diamond himself. "Culture," he said in a BBC lecture last year, "is difficult to define. But for me the evidence of culture is how people behave when no one is watching." Bankers are not going to alter their behaviour simply because they are told it is wrong. They already knew it was wrong and they did it anyway. Cultures are not reformed by transient condemnation and exhortation.
The restoration of integrity in banking will not happen without changes in the law to introduce serious criminal sanctions against venal traders and grossly negligent bosses. One of those involved in the latest scandal wrote to another: "Done… for you big boy." The endemic corruption of financial institutions will go on until they know they are being watched, they know the chances of being caught are high, and they know that the penalties for transgression are severe. These "big boys" have to be taught that they are not too big to jail.