The Banker

A lot of theories are being advanced about the precipitants for the London riots. The list includes futureless youth, a culture of defeat, criminal sub-cultures, racism, reneging on the social contract, irresponsible parents and austerity measures, and all may be true, but what springs to mind is William Montague The Third.

The government adopted the predictable hardline approach with David Cameron saying:

As to the lawless minority, the criminals who’ve taken what they can get, I say this: We will track you down, we will find you, we will charge you, we will punish you. You will pay for what you have done.

A determined looking Cameron also announced that police can use rubber bullets if they wish, water cannon will be available at 24 hours’ notice, courts will keep sitting overnight to deal with riot cases, and photographs of rioters will continue to be published to allow them to be identified: “Picture by picture, these criminals are being identified and arrested, and we will not let any phony concerns about human rights get in the way of the publication of these pictures and the arrest of these individuals.” The government says it is also working with the police, the intelligence service and industry to work out whether it would be right to stop people communicating via websites and services when “we know they are plotting” violence, disorder and criminality.

Inevitably and almost invariably, government reaction to events like this is force and violence and the stripping back of civil liberties instead of a close look at how and why its own institutions and structures have failed. What’s next? A colour-coded curfew? The model for the UK government’s reaction could have been V For Vendetta.

But speaking of the looters – criminals who’ve opportunistically taken what they can get – reminds me that it wasn’t so long ago that some of London’s now-concerned citizens – the archangels of private property and the free market and small government – were the first to put out their unclean, invisible hands and whisper those sweet little words, ‘bailout please’.

It was reported that:

… the commitments include buying 76 billion pounds of shares in the Royal Bank of Scotland and the Lloyds Banking Group; indemnifying the Bank of England against losses incurred in providing more than 200 billion pounds of liquidity support; guaranteeing up to 250 billion pounds of wholesale borrowing by banks to strengthen liquidity; providing 40 billion pounds of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme; and insurance cover of over 280 billion pounds for bank assets … the NAO ruled that the “unprecedented” 850 billion of support for banks was “justified” to head off the potential damage of one or more of them going bust, and preserving people’s savings and confidence in the financial system…

Paid for by?

The perpetrators of the financial rape and pillage that engendered that global financial crisis were saved, along with their still-teetering institutions, but somebody had to pay the piper.

According to Bank of England governor Mervyn King, “The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I’m surprised that the degree of public anger has not been greater than this.”

Last year the British government unveiled the largest cuts to public spending since World War II in a bid to bring its huge debt burden under control. It confirmed that there would be 81 billion pounds in spending cuts through 2015, and tax increases to wipe out a spending deficit of 109 billion pounds. As many as 500,000 public sector jobs will be lost, about 18 billion pounds axed from welfare payments and the pension age raised to 66 by 2020. In March this year King said:

If it’s possible [for financial services firms] to make money out of gullible or unsuspecting customers, particularly institutional customers, [they think] that is perfectly acceptable. We’ve not yet solved the ‘too big to fail’ or, as I prefer to call it, the ‘too important to fail’ problem. The concept of being too important to fail should have no place in a market economy… Why do banks in general want to pay bonuses? It’s because they live in a ‘too big to fail’ world in which the state will bail them out on the downside … the institutions bailed out were those at the heart of the crisis. Hedge funds were allowed to fail, 3,000 of them have gone, but banks weren’t…

Although we all await the final report of the UK Independent Commission on Banking into improving regulation in the banking system, it remains to be seen whether the UK government will be as prompt to pursue the bankers as it is to pursue the people on mainstreet.

In May, The Interim report of the High Pay Commission was released which confirmed that:

The UK’s top earners are taking a bigger slice than ever of the national income. If current trends continue, by 2025 the top 0.1 per cent of earners will take home10 per cent of the national income and by 2030 we will have gone back to levels of inequality not seen since Victorian England. The winners – those who make up the lion’s share of the top 0.1% earners – are finance workers (30 per cent), those working in business (38 per cent) and company directors (34 per cent), with FTSE 100 chief executives also topping the scale with average total remuneration of over 4.2 million pounds in 2009/10… Average salary for workers compared to FTSE 100 CEO total pay in 2010 was 145 times the average salary and 214 times projected in 2020… Businesses and government has failed to tackle the dramatic growth in pay at the top of the income distribution amid growing public disillusionment and a hardening in attitudes towards business. High pay in the financial sector naturally generates the strongest feelings among the British public and trust in the banking sector has plummeted… But public anger over bank bonuses has not stopped staff in 11 European banks increasing their pay by 7 per cent in the year from 2009. Nor has it stopped Barclays giving bankers three times as much in bonuses as it paid investors in dividends…

So the losses were socialised and the marketeers permitted to continue on their merry way while average working people had to tighten their belts and pay off the debts.

The burden of the parlous financial state of the United States, the UK and most of the eurozone is being borne by the citizens of those countries, and on mainstreet the problem doesn’t just involve losing some of your assets: you end up losing the roof over your head, your job and income, the prospect of a future for yourself and your children and eventually your dignity. It’s little wonder that rioting youths are stealing the very things for which advertising whetted their appetites but which the system gave them no opportunity lawfully to acquire. Repressing them with violence and locking them up isn’t going to solve anything, and when the financial crisis that is just around the corner hits things are going to become much worse.

And a further question of interest is, when do popular riots against an unpopular system become “legitimate”, like the riots we have seen and are seeing in North Africa?

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