I’d say the financial sector had been supping long and deep in the last chance saloon for many months before today’s bombshell from SocGen landed on our heads. Five billion euros gone missing. That’s three point eight billion pounds sterling. Say it slowly. Let it sink in.
Many have now completely lost what little faith they had left in the banks – both those who work in them and those who run them. For the last few years the bankers’ art has become darker and more arcane as their financial instruments become ever more abstruse and their risk-taking ever more outrageous. The man in the street’s uneasy suspicion of swaggering, bonus-laden fat-cats now threatens to develop into a widely-held contempt and anger that their excesses threaten to drag us all under. And who can be surprised when the explanation for today’s SocGen calamity is couched in gobbledygook language like this: ‘his positions were in vanilla futures hedging on European equity market indices’ that were ‘beyond his limited authority’. What in god’s name does this mean? In fact, he was actually up to something relatively rudimentary.
As the BBC’s Robert Peston correctly observes: ‘Here’s the scandal: many of the bankers who created this poison trousered massive rewards, running to tens of millions of dollars each. They can sit on a beach and need never work again, whereas we are paying the price.’
And when you have dry-as-dust commentators like the FT’s Martin Wolf expressing doubts that the banks can keep their own houses in order when it comes to remuneration levels, you know there’s a proper swell waiting to come ashore. They have been allowed to get away with it for too long because the rest of us just didn’t understand what they were all up to. As Wolf says, banking is sui generis: ‘In no other industry is it as hard for outsiders to judge the quality of decision making.’
In other words, they are far too smart for the rest of us to understand. But what we do understand is their indignation if we get upset when they come a cropper and get the rest of us to bail them out. As Wolf notes sourly: ‘No industry has a comparable talent for privatising gains and socialising losses.’
I cannot pretend to know what the solution is. Beer and sandwiches at Number Ten with the heads of Goldman, Merrill Lynch etc plus a couple of representatives from the TUC to discuss what will be acceptable traders’ bonuses for 2008? I don’t think so.