The Banking Crisis......again !
Discussion
"There is a myth gaining traction that Margaret Thatcher’s deregulation of the City through the Big Bang in 1986 ultimately led to the crash of 2008. This is part of the reductionist approach of much of the left-leaning commentariat. The reasoning seems to go: something terrible happened in 2008; Thatcher was terrible; therefore the actions she took in 1986 must have led to the crash 22 years later."
"It certainly could be argued that this increase in regulation made the financial sector more opaque, created moral hazard and made a crash more likely. Though this is probably not what Thatcher’s critics have in mind."
"In short, the Big Bang transferred regulatory responsibility from institutions that developed within markets – which were independent and private institutions – to the state."
And what a State we were in prior to the crunch / crash.
http://www.cityam.com/article/thatcher-changed-cit...
"It certainly could be argued that this increase in regulation made the financial sector more opaque, created moral hazard and made a crash more likely. Though this is probably not what Thatcher’s critics have in mind."
"In short, the Big Bang transferred regulatory responsibility from institutions that developed within markets – which were independent and private institutions – to the state."
And what a State we were in prior to the crunch / crash.
http://www.cityam.com/article/thatcher-changed-cit...
I deliberately omitted Thatcher from my post. Laying the blame at her door would be stupid and simplistic.
Nor is my post remotely political in any way, and my sympathies are anything but left-leaning. Booth is a theorist and academic. My post was an honest personal assessment based on working in the City, with blue chip financial institutions and professional bodies from 1984 to-date. For half of that time I've been self-employed, which has given me exceptional access and the ability to cross boundaries in ways few employees can.
It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose.
Nor is my post remotely political in any way, and my sympathies are anything but left-leaning. Booth is a theorist and academic. My post was an honest personal assessment based on working in the City, with blue chip financial institutions and professional bodies from 1984 to-date. For half of that time I've been self-employed, which has given me exceptional access and the ability to cross boundaries in ways few employees can.
It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose.
Edited by 9mm on Sunday 30th November 12:33
Edited by 9mm on Sunday 30th November 12:39
Big Bang without Thatcher? OK, if you say so!
Perhaps you'll appreciate that the art of 'going back to the roots' usually means going back only as far as the time whenthe target somebody was around to take a pop at, if that's not the case this time then fair enough.
That said, what happened in that era is often misdescribed as explained in the City A.M. link.
Perhaps you'll appreciate that the art of 'going back to the roots' usually means going back only as far as the time when
That said, what happened in that era is often misdescribed as explained in the City A.M. link.
9mm said:
I deliberately omitted Thatcher from my post. Laying the blame at her door would be stupid and simplistic.
Fair enough - the less informed would be unlikely to make that distinction from your post however.9mm said:
Nor is my post remotely political in any way, and my sympathies are anything but left-leaning. Booth is a theorist and academic. My post was an honest personal assessment based on working in the City, with blue chip financial institutions and professional bodies from 1984 to-date. For half of that time I've been self-employed, which has given me exceptional access and the ability to cross boundaries in ways few employees can.
It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose
My point is that in a discussion about the recent credit crisis, seeking to point this at the Big Bang from 30 years ago is like trying to blame yesterday's car accident on the inventor of the wheel.It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose
The causes of the recent crisis were a combination of:
- Greedy banks focussed too much on profits and not enough on risk management (and an incomplete picture of the risks being accepted)
- Populist governments seeking to force institutions to take on risks which they did not want which encouraged the sharing of those risks with people not necessarily best placed to accept them
- Greedy governments keen to encourage an economy built on cheap credit for the (temporary and artificial) boost to GDP and tax income, allowing massive expansion of government spending to buy votes
- Interfering governments who wanted more 'control' of the regulatory environment (see above for why), taking control away from the institutions who were best placed to manage it
- Greedy individuals desperate to borrow as much as possible to buy material goods to keep up with their neighbours but, who seemed to blame other people when their circumstances changed and they could no longer afford the repayments.
9mm said:
The roots of the crisis can be found in Big Bang.
The roots of the crisi were varied. It's been posted a thousand times, by me mostly, but worth doing again because the numbers are quite shocking.http://online.wsj.com/articles/SB12229898255870034...
sidicks said:
9mm said:
I deliberately omitted Thatcher from my post. Laying the blame at her door would be stupid and simplistic.
Fair enough - the less informed would be unlikely to make that distinction from your post however.9mm said:
Nor is my post remotely political in any way, and my sympathies are anything but left-leaning. Booth is a theorist and academic. My post was an honest personal assessment based on working in the City, with blue chip financial institutions and professional bodies from 1984 to-date. For half of that time I've been self-employed, which has given me exceptional access and the ability to cross boundaries in ways few employees can.
It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose
My point is that in a discussion about the recent credit crisis, seeking to point this at the Big Bang from 30 years ago is like trying to blame yesterday's car accident on the inventor of the wheel.It's a mess and akin to changing all the components on a car and then being unable to pinpoint why it's no longer fit for purpose
The causes of the recent crisis were a combination of:
- Greedy banks focussed too much on profits and not enough on risk management (and an incomplete picture of the risks being accepted)
- Populist governments seeking to force institutions to take on risks which they did not want which encouraged the sharing of those risks with people not necessarily best placed to accept them
- Greedy governments keen to encourage an economy built on cheap credit for the (temporary and artificial) boost to GDP and tax income, allowing massive expansion of government spending to buy votes
- Interfering governments who wanted more 'control' of the regulatory environment (see above for why), taking control away from the institutions who were best placed to manage it
- Greedy individuals desperate to borrow as much as possible to buy material goods to keep up with their neighbours but, who seemed to blame other people when their circumstances changed and they could no longer afford the repayments.
As late as the 90s there were still people trying to hold onto some old fashioned good practice (such as the importance of using appropriately qualified personnel in key jobs) but the lure of more cash was always going to overwhelm them eventually. At a personal level, I observed the feeding frenzy that developed post Big Bang and it wasn't a pretty sight.
Remember all those cashiers at the Bank or Building Societies back in the 80s? They were employed for their nice smile, pleasant demeanour and the ability to do simple sums repeatedly and accurately. Just a couple of years later they were being asked to use their relationship with customers to sell mortgages, foreign currency, insurance and God knows what else. Behind the scenes, the bosses were insatiable when it came to ways of diversifying. Anyone remember the Building Societies foray into commercial lending? The fraud, losses and write-offs were breathtaking.
That diversification and feeding frenzy, driven by people who didn't know what they were doing, was largely sparked and facilitated by Big Bang. We both know it's even more complex than that but I just wanted to clarify that I wasn't making a simplistic claim that Thatcher = Big Bang = blame for 2008 crisis.
9mm said:
I don't disagree with any of the above. I'd just highlight that I'm saying the roots of the crisis can be found around the time of Big Bang, not that Big Bang was the cause.
As late as the 90s there were still people trying to hold onto some old fashioned good practice (such as the importance of using appropriately qualified personnel in key jobs) but the lure of more cash was always going to overwhelm them eventually. At a personal level, I observed the feeding frenzy that developed post Big Bang and it wasn't a pretty sight.
Remember all those cashiers at the Bank or Building Societies back in the 80s? They were employed for their nice smile, pleasant demeanour and the ability to do simple sums repeatedly and accurately. Just a couple of years later they were being asked to use their relationship with customers to sell mortgages, foreign currency, insurance and God knows what else. Behind the scenes, the bosses were insatiable when it came to ways of diversifying. Anyone remember the Building Societies foray into commercial lending? The fraud, losses and write-offs were breathtaking.
That diversification and feeding frenzy, driven by people who didn't know what they were doing, was largely sparked and facilitated by Big Bang. We both know it's even more complex than that but I just wanted to clarify that I wasn't making a simplistic claim that Thatcher = Big Bang = blame for 2008 crisis.
As late as the 90s there were still people trying to hold onto some old fashioned good practice (such as the importance of using appropriately qualified personnel in key jobs) but the lure of more cash was always going to overwhelm them eventually. At a personal level, I observed the feeding frenzy that developed post Big Bang and it wasn't a pretty sight.
Remember all those cashiers at the Bank or Building Societies back in the 80s? They were employed for their nice smile, pleasant demeanour and the ability to do simple sums repeatedly and accurately. Just a couple of years later they were being asked to use their relationship with customers to sell mortgages, foreign currency, insurance and God knows what else. Behind the scenes, the bosses were insatiable when it came to ways of diversifying. Anyone remember the Building Societies foray into commercial lending? The fraud, losses and write-offs were breathtaking.
That diversification and feeding frenzy, driven by people who didn't know what they were doing, was largely sparked and facilitated by Big Bang. We both know it's even more complex than that but I just wanted to clarify that I wasn't making a simplistic claim that Thatcher = Big Bang = blame for 2008 crisis.
fblm said:
9mm said:
The roots of the crisis can be found in Big Bang.
The roots of the crisi were varied. It's been posted a thousand times, by me mostly, but worth doing again because the numbers are quite shocking.http://online.wsj.com/articles/SB12229898255870034...
No argument from me that the roots of the crisis were varied and I wasn't looking at the international dimension. I'm just saying that there are roots and that in this country at least, behaviours which ultimately led to everything coming unglued began life in the period around big bang. I don't know what your work experience is but you really had to work in the industry pre and post big bang to fully appreciate the transformation.
9mm said:
I don't know what your work experience is but you really had to work in the industry pre and post big bang to fully appreciate the transformation.
My experience pre big bang was mostly lego based with some very important scalextric meetings with my big 4 friends. 
FWIW your experience chimes with the stories of plenty of the city old guard I know. It is only a part of the last crisis though. Economic manias and crashes predate the big bang by some years!
9mm said:
The roots of the crisis can be found in Big Bang. Up until then, the industry was run by well qualified, generally risk averse individuals and organisations stuck to what they did best. Generally speaking, Building Societies looked after savings and provided mortgages, insurance companies provided insurance policies and banks were where you kept money you weren't going to save and used for transactions. Other people, like solicitors and accountants had clearly defined roles in all this and people didn't tread on each other's toes. If you looked at the heads of financial organisations they were all Fellows of one professional body or other, had been in the industry for decades and had passed numerous professional exams along the way. Products were simple, easy to explain and understand and everyone knew where to find them.
Pretty much from Big Bang onwards, the above disintegrated, most notably exemplified in organisations moving into businesses they didn't understand (take Building Societies and Banks buying Estate Agent chains), products became much more complicated, technology befuddled the bosses, governance and supervision went out of the window (Barings) and anyone who could be seen to make money got the keys to the sweet shop. Customers were lied to or deliberately deceived (Endowment Mortgages) and miss-selling became endemic. Qualifications didn't matter any more. You were good at selling cars? Come and run a bank. Directors (old and new) didn't understand what was going on under their watch and governments turned a blind eye because the tax revenues were huge. Eventually of course, the music stopped and a lot of people found they were holding an unexploded bomb.
It's pretty easy to understand how we've arrived at this point and it will take decades to resolve it. I do have a lot of time for Carney though and I think he has made a very good start - an example of someone who isn't an old industry fart but is not a disciple of excess either.
Agreed and said the self same things many a time, you may find some who will disagree though.Pretty much from Big Bang onwards, the above disintegrated, most notably exemplified in organisations moving into businesses they didn't understand (take Building Societies and Banks buying Estate Agent chains), products became much more complicated, technology befuddled the bosses, governance and supervision went out of the window (Barings) and anyone who could be seen to make money got the keys to the sweet shop. Customers were lied to or deliberately deceived (Endowment Mortgages) and miss-selling became endemic. Qualifications didn't matter any more. You were good at selling cars? Come and run a bank. Directors (old and new) didn't understand what was going on under their watch and governments turned a blind eye because the tax revenues were huge. Eventually of course, the music stopped and a lot of people found they were holding an unexploded bomb.
It's pretty easy to understand how we've arrived at this point and it will take decades to resolve it. I do have a lot of time for Carney though and I think he has made a very good start - an example of someone who isn't an old industry fart but is not a disciple of excess either.
Edited by 9mm on Sunday 30th November 12:36
crankedup said:
9mm said:
The roots of the crisis can be found in Big Bang. Up until then, the industry was run by well qualified, generally risk averse individuals and organisations stuck to what they did best. Generally speaking, Building Societies looked after savings and provided mortgages, insurance companies provided insurance policies and banks were where you kept money you weren't going to save and used for transactions. Other people, like solicitors and accountants had clearly defined roles in all this and people didn't tread on each other's toes. If you looked at the heads of financial organisations they were all Fellows of one professional body or other, had been in the industry for decades and had passed numerous professional exams along the way. Products were simple, easy to explain and understand and everyone knew where to find them.
Pretty much from Big Bang onwards, the above disintegrated, most notably exemplified in organisations moving into businesses they didn't understand (take Building Societies and Banks buying Estate Agent chains), products became much more complicated, technology befuddled the bosses, governance and supervision went out of the window (Barings) and anyone who could be seen to make money got the keys to the sweet shop. Customers were lied to or deliberately deceived (Endowment Mortgages) and miss-selling became endemic. Qualifications didn't matter any more. You were good at selling cars? Come and run a bank. Directors (old and new) didn't understand what was going on under their watch and governments turned a blind eye because the tax revenues were huge. Eventually of course, the music stopped and a lot of people found they were holding an unexploded bomb.
It's pretty easy to understand how we've arrived at this point and it will take decades to resolve it. I do have a lot of time for Carney though and I think he has made a very good start - an example of someone who isn't an old industry fart but is not a disciple of excess either.
Agreed and said the self same things many a time, you may find some who will disagree though.Pretty much from Big Bang onwards, the above disintegrated, most notably exemplified in organisations moving into businesses they didn't understand (take Building Societies and Banks buying Estate Agent chains), products became much more complicated, technology befuddled the bosses, governance and supervision went out of the window (Barings) and anyone who could be seen to make money got the keys to the sweet shop. Customers were lied to or deliberately deceived (Endowment Mortgages) and miss-selling became endemic. Qualifications didn't matter any more. You were good at selling cars? Come and run a bank. Directors (old and new) didn't understand what was going on under their watch and governments turned a blind eye because the tax revenues were huge. Eventually of course, the music stopped and a lot of people found they were holding an unexploded bomb.
It's pretty easy to understand how we've arrived at this point and it will take decades to resolve it. I do have a lot of time for Carney though and I think he has made a very good start - an example of someone who isn't an old industry fart but is not a disciple of excess either.
As to the actual roots of the crunch and crash they were covered in detail in a couple of PH threads.
avinalarf said:
I really cannot get my head round this.
I have been in business for forty years and the buck and responsibility has always stopped with me.
If I feck up I have to take the hit.
The banks' owners did take the hit. They lost over 90% of their investment - in some cases 97%.I have been in business for forty years and the buck and responsibility has always stopped with me.
If I feck up I have to take the hit.
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