News – Two years on

Simoney Kyriakou
Simoney Kyriakou Simoney Kyriakou is editor of the Financial Adviser and an award-winning financial journalist.
01 November, 2009 3 min read

Two years on

In November 2007, the world knew the sub-prime party had ended. When nearly a year later Lehman Brothers collapsed, all the big financials rocked – Citigroup, Goldman Sachs, RBS, Merrill Lynch, Bear Stearns, Morgan Stanley and HBOS. Trading all but ceased; hedge fund activity was frozen as speculators bought and sold against falling share prices; and stock prices around the globe plummeted.

International monetary policy spun into hyper-drive to control fears of deflation, recession and depression. The G20 meeting of world leaders in April 2009 fought to resolve the crisis by tough legislation and huge injections of money (so far, more than US$1.1 trn has been fed into the world’s financial systems).

Regulators consulted with industry and there were widespread calls for fundamental change.

The proposals were that there should be: greater capital adequacy for banks and financial institutions; harsh penalties for reckless risk-taking; an end to excessive borrowing among institutions; measures in place to prevent customers borrowing more than they could reasonably afford; an end to the idea that ‘some institutions are too big to fail’ – taxpayers should not have to shore up banks; and no more disproportionate bonuses.

Where are we now?

Two years have passed since the run on Northern Rock when on 14 November 2007 one of the nation’s biggest mortgage lenders had to be rescued by a last-ditch nationalisation.

Bank bailouts seem to have worked. The UK has had millions of pounds printed and pumped into the system to free up cash. Interest rates are low and the stock market has been crawling back upwards. However, insolvencies are still in their thousands.

Unemployment hovers at the 3 million mark and government debt is more than £750.3 billion. Meanwhile, ill-advised calls for the City regulator Financial ­Services ­Authority to be scrapped are putting UK financial services in danger of regulatory fragmentation, just when the most important sector of the UK economy needs stability.

Yet people are still after their rewards. Bonuses are back. Goldman Sachs, which almost went bust in 2008, has paid out record bonuses. Last year, 973 bankers received $1m or more each; this year’s payouts are expected to be up to half the value of Goldman’s £1.2bn first-quarter profit.

So far, in the UK, nobody has been tried for reckless mismanagement of public finances, although Sir Fred Goodwin, CEO of RBS, was shamed into handing over more than half his £16.9 ­million pension pot.

Lack of repentance

No one now would stick their heads out in agreement with Oliver Stone’s Wall Street character Gordon Gekko and declare that ‘greed is good’. But it does seem that few people have learned their lessons.

Some sage financiers beg for reason, integrity, ethics and professionalism, but the majority of City workers seem to be saying: ‘Forget the real economy; let’s get back to business and try not to be too greedy’.

There has been too little repentance and too much capitulation to industry. This is something which the Archbishop of Canterbury stated on BBC2’s Newsnight this September when he said: ‘There hasn’t been a feeling of closure about what happened last year. There hasn’t been what I would, as a Christian, call repentance’.

Last year, the Archbishop decried the bonus culture as ‘idolatry’. Yet despite G20, the Walker Report and Turner Review all calling for changes to the bonus culture, the government’s Banking White Paper has achieved little.

In his final ‘City Boy’ column for the last issue of the London Paper, banker-turned-critic Geraint Anderson hit the nail on the head when he wrote: ‘Politicians and regulators, who initially seemed keen on banking reform have succumbed to the lobbying of powerful financiers. They’ve watered down their proposals, bonuses are back and money has been reinstated as the one true god’.

Idolatry has set money upon the throne, but God will brook no competition. Exodus 20:3 says: ‘You shall have no other God but me’. Is it any wonder that financial crises happen when man makes mammon his idol?

Inward change

Anderson also quotes the Scripture (accurately) saying that the love of money is the root of all evil (1 Timothy 6:10). No amount of legislation – nor a whole new banking system; nor even a change of regulator – can alter the real problem, which lies in the hearts of men and women.

Alan Greenspan, former US Federal Reserve Chairman, said in a speech to Congress: ‘Unless somebody can find a way to change human nature, we will have another crisis’.

But we never will be able to change human nature. That’s not our job: it’s God’s – thankfully. God controls the heart of man: ‘The king’s heart is like water in his hand’ (Proverbs 21:1). And he changes it from within. What man needs is not more regulation, but an inward change wrought by the one who sits on the throne. Only then can the temptation to covet wealth be overcome.

J. C. Ryle, first Bishop of Liverpool, said: ‘Greatness and riches are a perilous possession for the soul. They chain the affections down to things below’. We need to look upwards to Jesus, not to the G20.

King David, for all his wealth and power, still had to cry out, ‘Restore in me a clean heart, O God, and renew a right spirit within me’ (Psalm 51:10). Let us pray for those who control the nation’s finances, and for ourselves, that we will have experienced such a heart change and be able to avoid covetousness and idolatry.

Simoney Girard

Wardour Group Editor

Simoney Kyriakou
Simoney Kyriakou is editor of the Financial Adviser and an award-winning financial journalist.
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