Economics

Barclays, bonuses, and backdoor bailouts

Bob Diamond gave a spirited defence of himself and his industry yesterday at a Parliamentary select committee hearing. Surely it is hard to disagree with him too much?

Barclays did not take a bailout from the tax payer, instead securing funds via the free market. Diamond acted audaciously in catching some of the dismembered limbs of Lehman’s that others were too scared to go for, and generally has been a pretty effective manager of his business. That’s it then.

Whoa, hold on. That is most certainly not it.

Barclays may not have taken direct tax payer investment, but it has supped (gorged, really) at the Bank of England’s special liquidity scheme. Without this pork geyser of state aid, Barclays would surely have gone to the wall. This was not some magical money of no consequence that was whistled up out of thin air, it was the taxpayer taking on the very worst risks that they had on their books, in return for freshly printed (electronic) cash, debasing the rest of us in the process.

Secondly, Barclays took a bet, not that bits of Lehman’s were being thrown away at rock bottom prices, but that governments would step in and bail out the banking industry as a whole, explicitly as well as implicitly, thus making those bits of Lehman’s worth something. Without the trillions of US taxpayer dollars thrown at Wall Street, those bits would surely be worthless.

Thirdly, the banking industry, Barclays included, have benefited from a hidden bailout. Quantitative easing: a process where the central bank buys assets directly from the banks (often the same bonds the banks bought from the treasury at a lower price some days before), to the engineered ‘positive yield curve’ where banks can buy longer terms assets earning high rates of interest, and then fund them at absurdly low rates at the funding windows of the central bank. The money-making opportunities given to the banks by the state, in the name of ‘balance sheet rebuilding’, are truly obscene.

Can any individual or small business benefit from interest rates at close to zero? Is any normal person able to borrow at those levels? No, of course not, we all know we’re paying many points over the base rate for our overdrafts, credit cards, mortgages and so on. Barclays and others are now raking in mountains from borrowing at close to zero and lending it out at 4, 5, 10 and 20%. And the market is rigged to allow this to happen. Are your hard-earned savings paying much? No, but Barclays takes your money, and uses it to fund its own smart trade ideas – the profits of which it, and Mr Diamond, get to keep.

So, Mr Diamond, I can respect your talents, your chutzpah, acumen and entrepreneurial flair, but please, go and do it in the real world, with a real business, where your talents would, via enlightened self interest and the invisible hand, benefit society enormously, instead of feeding the giant vampire squid attached to all our faces.

2 comments to Barclays, bonuses, and backdoor bailouts

  • With respect to the banks, many people are all too keen to nationalise the profits (tax) while privatising the losses.

    Whatever you think of the bailouts in principle, the government surely shouldn’t be micromanaging companies, or changing the rules half-way through the game.

    The government agreed to provide credit to banks, and banks took it in various forms as per those terms. If banks pay back what they borrow they should be able to run themselves as they see fit (for profit).

    It’s unreasonable that taking a government loan, or being in a market where the state is interfering in your favour should come at the cost of having to run your business decisions by the chancellor from then on.

    • Ade

      ‘Alessandre’ wrote:
      “It’s unreasonable that taking a government loan, or being in a market where the state is interfering in your favour should come at the cost of having to run your business decisions by the chancellor from then on.”

      The state hardly “runs” Barclays’ business decisions.
      Barclays can and often do crush their customers & their families lives into a pulp…