Bank Bailouts: Is the business funding crisis an unintended consequence?

shamed businessRecently, I was with some friends and business colleagues when we met another contact of mine who was unknown to the wider group.  All were in business in some form or another and I was shocked by the reaction. When my contact told the group he was a banker, there was actually some booing.  It was light hearted and only meant in fun, but nevertheless it was booing!!!

With all that has gone on since the bailout 5 years ago, the latest round of banker pay and bonuses still rising and recent revelations that Goldman Sachs was planning to delay its bonuses so employees didn’t have to pay a higher rate of tax, is there any wonder that ‘reviled’ is not an overstatement about the banking industry?

I have always suspected that the real price for the bailout in 2008 was still to be paid.

The subconscious effect that these actions had on the country, and indeed the world, was significant. Those in the business world understood the bailout. It wasn’t a good option; it was just the least worst.  There was arguably little option.

But many people who are not in the business world just saw ‘Greedy Bankers’, who in their eyes had been taking massive bonuses, pushing the boundaries too far, failing and then being rescued by the taxpayer.

I understand their resentment because we did bail out some failed businesses, and that is not how a free market economy is supposed to work – is it?

The massive paradox is that many of those doing the complaining were public and private sector employees with supposedly ‘safe’ jobs and pensions that, to facilitate the best return, were invested in mainly blue chip, FTSE 100 stocks, often heavily weighted towards the banks! They were all very happy with the stock market gains from a low in 2001 up to the crash in 2008. There was a clamour for the big companies to drive home their advantage and make ever bigger profits and increase their share price, meaning better pensions for all.

Using RBS as an example, Fred Goodwin did what he did in buying ABN Amro because he was incentivised by others within RBS, who were in turn incentivised by shareholders (lots of Pension Funds), to grow the RBS balance sheet and make more profit to increase the share price.

I believe there was a bit of a greed factor here, but I also believe we all have that to some extent. It is part of what makes us human.

Unintended consequences

Now, developing my point that there have been, and will continue to be many unintended consequences resulting from these actions, I do not think it is a coincidence that we have seen so many apparent breakdowns in acceptable behaviour come to light over the past 5 years.  It was almost as if we had had enough, some said if they can do it so can I, others said I am going to put a stop to this by spilling the beans; and some said both!

The August 2011 Riots – While these weren’t directly related to the financial situation in the UK at the time, I believe the situation with the banks helped to contribute to the feeling of ill will that caused this terrible behaviour. T he hardened criminals, the youths from challenging backgrounds and even the malcontent children of the middle classes are all saying, possibly subconsciously; if they can get away with this why can’t we?

MP’s expenses scandal – This previously accepted methodology was suddenly brought out into the open and stopped immediately with some even going to prison!

The Media – Practices that had been going on for years were suddenly made public and culminated in the closing of the News of the World (the most widely read Sunday newspaper); several prison sentences and the Leveson enquiry!

The list goes on, Jimmy Saville, G4S etc. etc.

Lack of Bank funding

And finally the Banks.  Since the financial crisis we have had the following brought to our attention: Libor Rigging, mis-selling of PPI, mis-selling of Interest rate Swaps to SMEs, Money laundering and some very shoddy lending practices ahead of the crash are currently in the news.  This has naturally culminated in a serious bout of so called bank bashing.

For the 99.9% of bankers who had nothing to do with any of the above, or were simply acting on orders, this anti bank feeling must be a nightmare.  From being proud to say that they worked in the industry in 2005, I find people almost apologising for it when they are asked what they do.  I have come to realise that the 99.9%, who are being lumped in with the so called bad guys, must be in some form of slow releasing shock.

It is no wonder that we hear the stories of good businesses being refused finance. There has been a complete about turn in risk profiling, surely as a result of the banks wanting to keep their heads down and play it safe.  Who would want to put their head above the parapet when they risk being shot down in the way that Fred Goodwin and Bob Diamond have?

What do you feel the unintended consequences of the bank bailout have been? Are they worth it? We’d love to hear your views.


Image by: BlueRobot