The banking system was rotten to the core – Clegg

The deputy prime minister is interviewed in tonight’s Evening Standard, where he speaks about, among other things, his attitude towards the British banking system. Here’s an excerpt:

“There is no doubt in my mind that what we saw, what peaked in 2008, was rotten to the core,” he says. “We cannot afford as a society, as a country, to have a banking system that is like a cuckoo in the nest, which pushes everything else out and which causes huge costs for millions of  British taxpayers.

“Yet again the lid has been lifted on a culture which appeared to be permissive of behaviour that may prove to be downright illegal, but was certainly downright wrong.

“That’s why I think the people at the top set of the culture of organisations … particularly people like Bob Diamond who are paid huge amounts of money when the going gets good, [who] received socking great bonuses when the returns were good, it is perfectly reasonable to ask them to take responsibility for the team they led when things go bad.”

No sympathy for Diamond then. Does Clegg think the chief executive deserves his pay-off, of an estimated £20 million?

He curls his soft lip. “It seems to me that a pay-off is, you know, just a cherry on the top of a cake, a vast pile of bonuses and remuneration … I don’t think Bob Diamond is going to end up rattling a bowl on a street corner somewhere. They are not Masters of the Universe. That name somehow implies that they can operate according to rules which don’t apply to anybody else. They are not impervious to the law or normal ethical standards.

You can read the full interview here.

* Nick Thornsby is a day editor at Lib Dem Voice.

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10 Comments

  • Why does Nick say that corruption in banking “peaked in 2008”? What is the evidence that there’s been an improvement in the last four years?

  • Richard Dean 4th Jul '12 - 9:22pm

    Let’s hope it’s not so very rotten that something valuable can’t be salvaged from it.

  • Howard and Lorraine 4th Jul '12 - 9:41pm

    @Richard

    That sounded rather Micauber-ish. What had you in mind?

  • Surely that’s meant to say “IS rotten to the core”?

  • Richard Dean 4th Jul '12 - 11:04pm

    Howard and Lorraine

    Mr.Micawber was really quite wise.

    Banks perform some very important functions – allowing some people to save while others borrow , transforming many small savings into one large amount that can be invested for jobs and growth, and transforming currencies and so facilitating trade. Without these functions the economic world as we know it would simply not happen. The fact that it does happen demonstrates that there is much that is valuable in the world’s banking systems.

    But the people who designed the system have not understood what banking is at all. LIBOR was designed by the BBA and it is a weighted average meaure of a very special interest rate. That is the rate at which a banker thinks another banker would offer if s/he asked that other banker for a loan. This invites a fiddle, because those other bankers do use LIBOR to set their rates!

    Bad design leads to functional failure, and you only have to look at the Eurozone crisis for evidence of that. And it can lead to corruption. The world does need the functions provided by banks. So, I would argue that our task is not to destroy willy nilly, but to find and keep what’s valuable, and to re-design the way banks work, interact, measure, remunerate, incentivize, comply, monitor, are monitored, regulated, …..

  • Bill le Breton 5th Jul '12 - 8:57am

    On form last night, Richard.

  • jenny barnes 5th Jul '12 - 5:26pm

    “I think the people at the top set of the culture of organisations … particularly people like Bob Diamond who are paid huge amounts of money …. it is perfectly reasonable to ask them to take responsibility for the team they led when things go bad.”
    As I understand it he was the boss of the piece of the bank that did this. If he didn’t know, he should have. That’s what you get the money for, as a manager, knowing what’s going on, who to trust. Wandering round with your eyes wide shut is nothing to do with culture, it’s dereliction of duty. There need to be criminal charges laid against the dishonest people who did these criminal things.

    It’s very reminiscent of the parliamentary expenses scandal, or indeed a recent incident where a minister “didn’t know” what his spad was doing.

    It’s not culture, it’s criminal irresponsibility. I thought LDs were in politics to make a difference. A different kind of politics, wasn’t it? Where did that go? We are in the middle of major changes in the economic and political society we live in – where’s the vision?

  • Richard Dean 5th Jul '12 - 7:00pm

    The culture certainly has its quirks. BREACH OF CONTRACT is apparently called a TIME CONSISTENCY PROBLEM. Does this make it ok? You promise to make a payment if and when a defined set of unlikely conditions arise in the future, but you don’t make the payment when those conditions do actually arise.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2080361
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2080362

  • If that is Clegg’s thinking, then why did the Lib Dem MP’s not back the vote for a judge led public enquiry into banking. I’m afraid its a question of saying one thing and doing another.

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