Savings rates have dropped to a record low in the week after the Bank of England cut interest rates to 0.5%. Business groups have attacked the recent cuts in interest rates, saying they have done little to encourage banks to lend more.
Our City Diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.
They will be giving us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.
Laura (not her real name) works for a commercial bank in London.
Economics is great as a theoretical tool but as with communism, its principles fall down when people are added to the equation - a variable which no one can account for. What level of chance would you take with £10 of your own money when lending it to someone else if there was an increasing chance they couldn't pay it back? What if that figure was £10 million for an unsecured overdraft to a company with declining sales and profit due to the recession? The paradox of thrift can be applied to our banking market in the current climate even if consumers are taking a while longer to follow suit.
There has been a growing trend for non-traditional lenders dipping their toe into commercial lending in recent months - whether they be niche lenders or investors. While this is not at a high enough level to pick up the slack it may be just what the doctor ordered to bring competition back into the lending market in the medium term.
Many of the colleagues who have been pushed out from their jobs in recent weeks are looking in a completely new direction for their careers. The all encompassing culture of banking has finished and they have exited blinking into the sunlight, and are spending much more time with their kids as a result. However, I worry that we are storing up mass post-traumatic stress for the future as the ostrich mentality in the office is (for now) continuing.
Mark (not his real name) works for a stockbroker outside London.
Sir Fred Goodwin has dominated the business pages as well as the front pages as his near £700K a year pension was revealed. This has caused outcry from business leaders, politicians and the public. Sir Fred, you may remember, was christened a cheetah by myself in this column and we continue to see parallels between the two. Sir Fred secured a fat pension pot, just like a cheetah often secures a decent sized kill. But in the plains of Africa, the cheetah will lose between 10-13 per cent of kills to other animals, such as lions. Sir Fred, not in the plains of Africa but in what continues to look like a hostile environment, is trying to fend off the government from his pension. It remains to be seen what will happen, but Sir David Attenborough would do the voice over!
The government's recent comments have been very interesting. In the press, we were treated to the comments of Harriet Harman. She said [the pension contract] "might be enforceable in a court of law but it's not enforceable in the court of public opinion and that's where the government steps in". One thinks she might regret such a bold statement. For a starter, this blogger is unaware of a "court of public opinion". Furthermore, I was not sure a government was there simply to provide guardianship of this fictional public opinion court. The Liberal Democrats entered the discussion and bandied about a figure of £27,000 a year as acceptable, based on what one wonders. The Conservatives, cleverly, have simply blamed the government for agreeing to it in the first place and for once, I have to agree with them. I also wonder, should the economy continue to flounder with Labour at the helm, if the 'court of public opinion' would vote against the pensions of the current ministers?
Perhaps Harriet is looking for a prime television slot like other MPs who have graced the likes of Big Brother and Ant and Dec's Saturday Night Takeaway? I can see it now, BBC Television Execs get your pen and paper ready, and tonight, on BBC1, "Court of Public Opinion" with your host, Harriet Harman MP. Harriet would introduce that week's hot topics and viewers, as we like to do this in this country, would vote by text and the government would then draft a law based on the outcome. Votes after the end of the show will not count but might still be charged! We could have Premier League footballers' wages or criminal sentences as the first topic. It sounds ridiculous, but so does our government at this present time!
I only hope, that in the future, we learn from our mistakes. As I have said, this correction in the economy will hopefully foster change for the good. On one final point, interesting that a certain former prime minister, now making millions across the globe, is not attracting much attention as he continues to pick up £64k a year as a pension. In this climate, should he give it back? Don't answer the question, vote on "Court of Public Opinion", this Saturday, 7pm, BBC1!
Stephen (not his real name) has worked in the City of London for over a decade.
If Brown seems incapable of assessing his own role in the bust, the overwhelming feeling in the City is that he never really grasped what goes on here during the good times either. He shows little understanding of the true nature of what is unfolding - which might explain the tirades we keep hearing. Economist Tim Congdon explained recently, on Radio 4's Today programme, that monetary economics remains an enormously unfashionable subject, despite its pivotal importance to the present crisis. It's hard to emphasise just quite how important this subject is, probably because the label "monetary economics" sounds so extraordinarily dull, but failing to bring it into any discussion about booms and busts is, quite simply, like describing breathing without acknowledging air.
We can gripe about Brown's faults or fantasise about who else might lead us but, even if leaders change or governments fall, the City view is that it will not make slightest difference until public attention turns to the biggest issue of our age, the nature of money itself. The absence of political, or even public, debate on the topic is reminiscent of the lack of general awareness of climate change before Al Gore made his movie. In that light, it's prescient that the full force of the crunch was followed by the coldest winter in a generation.
So whilst Brown can easily be criticised for the gaps in his understanding and is viewed here as ineffective, talking only about one leader is wide of the mark. Politicians in general, through their economic ignorance, are seen as almost pitiful figures within the City; the attributes that get them to the top of the political pole serve little practical purpose in tackling deep economic or financial questions. So what's the point engaging with them when they don't understand either their part in this disaster, or what needs to be addressed to make sure it never happens again? Since the monetary system can be used to serve the electoral cycle, why would our politicians ever choose to abandon it? Would they ever be the turkeys who vote for Christmas?
Until the debate moves on to what caused the bubble in the first place, namely the paper money system itself, Brown and any other leader will be condemned to produce new booms and busts by printing more money and stacking up more debt, exactly the two things that got us into this mess in the first place. What makes us City folk despair is that politicians of all colours - Brown, Bush, Obama - just can't see this and so it goes on, the familiar pattern of needing to "do something", increasing debt further and laying the seeds of the next crisis when the new bubble pops.
What should be done? I can't see an alternative to a fundamental revamping of our monetary system, with the concomitant political change that would provoke - but I give that even less likelihood now than a year ago, as our leaders have already chosen the other path: more of the same.
In the meantime talented people continue to leave London; the French people want to go home and the Americans want to go to Switzerland, but other destinations are popular too. Everyone leaving seems happy to be escaping the hassles of urban life and the depressed atmosphere - "what's the point of staying here if everyone hates me and the weather is awful?" said one. Once, financial work could only be done in big financial centres or with a satellite link, but the internet has caused an explosion of new ideas and opportunities for those with a pioneering spirit. It's unlikely that London's dominant position is going to end, but this phenomenon should be a factor in the government's thinking.
Indeed, many of those leaving are not home-owners. They came here for the good times while they lasted, and now they're off. So they're the lucky ones, not handcuffed by negative equity; British bankers are more likely to be stuck here by debts they now have no chance of paying off.
The comments from Stephen are very much to the point. Prominent economists and advisors to both the US and UK governments are, by and large, Keynes influenced. They are blinded by consumption and think this is the cure for all of the present ills. It is like fighting a fire by pouring petrol on the blaze. It was not lack of consumption which got us into this mess but an unregulated consumer boom fuelled by unsustainable levels of debt. Creating more of the same is not the answer.
There is no single culprit to this mess, but rather a circular chain of responsibility. This circle includes the bankers (meaning the executives, the heads of desks, and the whiz kids who design new products), but also the regulators, the governments, the non-execs, the shareholders, the institutional shareholders (pension funds), the ratings agencies, the mono line insurers, the unregulated shadow banking industry, Nobel-prize-winning economists (who told us we could control risk absolutely), and even parts of the media (especially the purveyors of broadsheet "property porn"). All these are targets of public enmity, and deservedly so. But along with all these others, the public are equally responsible. It was the public who did the borrowing, the leveraged property speculating, the underlying hot gas that inflated the bubble. If you need a culprit for this, look no further than your mirror.
Simon, London and Zurich, Switzerland
It is true that some bankers earn substantial sums of money, but it is far more accurate to say that most do not. My girlfriend is a 'banker' and like most bankers earns nothing comparable to what is implied by the media. Furthermore, she works very hard and absurdly long hours; her hourly wage is disturbingly lower than the eighteen year old plumber with six weeks training who fixed my mother's toilet last week. Nearly all bankers have worked incredibly hard to get where they have got (all banks require top grades from top universities such as Oxford, Cambridge and UCL) and all those I have encountered thoroughly deserve their salaries. The bad press bankers receive is wholly unfair and if the same unfairness was applied to various other groups of society the front page of every newspaper would read racism, discrimination et cetera. On a separate note, are Lloyd's being serious? Step
up old boy and take control of your people's money.
It's not all doom and gloom out there. I work for a UK bank that was taken over by a large Spanish bank late last year. We are very optimistic that we can support UK businesses that need help with funding. We are expanding all over the UK right now and just about to hire more staff. There are still a lot of good businesses out there that feel very unloved by their banks. They should cast their net wider as there are banks who are willing to help.
I have worked for a bank and a hedge fund. The government has done a very good job of turning the bankers into the bad guys who created the UK's housing bubble. In actual fact the UK government deliberately created the housing bubble - they excluded house prices from the official inflation figures to allow house prices to appreciate unchecked. This caused the Bank of England to set interest rates too low. The banks had no option but to lend at the Bank of England's interest rate level. Their only other option was to stop being a bank. So they lent. And when house prices in America collapsed 50% the banks were technically bankrupt and had no more money to lend. Then began the credit crunch. With the government trying to encourage more lending as the 'solution'.
John Mak, London
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