Cantillon
Inside the world of business
Can society get the banking monster safely back into its cage?
THE ENDLESS series of scandals emerging from the banking sector has become farcical with the beleaguered Irish citizenry, having already put €64 billion into the banjaxed Irish banking sector, now being faced with a (non-Irish) bank that won’t give people in this State their money.
Despite bringing about a recesssion/depression of 1930s proportions, the international banking sector has
remained unreformed in its essense, a point emphasised by the billions in losses disclosed by a JP Morgan trader in London some months back.
The fact that the head of that bank, Jamie Dimon, wasn’t thrown out on his ear spoke volumes.
The losses arising from that ill-placed bet are now, reportedly, rising towards $9 billion, and still Dimon remains in position.
In his effort to explain what had happened Dimon said the bank’s London unit “embarked on a complex strategy” that exposed the bank to greater risks even though the original intention of the operation had been to minimise its risk.
All of which goes to show that five years into the crisis, banks are still taking depositors’ money and throwing it into complex , high-risk gambles they don’t understand. Heads they win, tails everyone loses.
The debacle engulfing Ulster Bank is due to technical glitches but comes as its parent, RBS, is having to deal with being implicated in the Libor, interest rate fixing scandal, which itself has all the signs of being another symptom of an industry that is out of control.
The British prime minister, David Cameron, has announced an inquiry into the banking industry but is stuck with the fact that it is such a key component of the UK economy (while also posing a threat to that economy).
One of the major problems with the sector seems clear. The division between retail and investment banking which operated up to the 1970s and 1980s was based on sound reasoning. Its undoing has created a monster. The question now is whether society can get the monster back in its cage.
Daly discreet on Nama lifestyle management role
FRANK DALY, chairman of the National Asset Management Agency, used his speech yesterday to Royal Institution of Chartered Surveyors to cover plenty of old ground on the State loan agency’s past work and future challenges.
Again, he referred to the somewhat nebulous exercise of developers readjusting their lifestyles from the boom-time opulence when bank loans were easily got and property profits easily made.
He said that Nama believed it could work with about two-thirds of the agency’s 800 or so clients or debtors where it feels there is sufficient trust and goodwill. One of the criteria that constitutes “working with Nama” is where there is a “significant readjustment in terms of lifestyle for debtors”, Daly said in his speech.
Giving a State agency the authority to decide what is an appropriate lifestyle raises all sorts of conundrums. Clearly, flying about in private jets and helicopters is not on, given how many high-profile Nama debtors have been grounded.
Asked whether Nama had a criteria on whether debtors could chose private education for their children or private healthcare, Daly said it didn’t intrude in the lives of its debtors to that degree. It would be “a minefield to go there”, he said. Instead, Nama allowed debtors a “reasonable amount of overhead for their business” and from that they could fund their lifestyle. “The level of those overheads are not such that would, to my mind, support an ostentatious lifestyle,” Daly said.
