Martin Vander Weyer's Any Other Business
Having spent more hours than I care to remember chairing voluntary committees of all shapes and sizes, I am firmly of the view that generous benefactors do not necessarily make good board members.
By all means butter up the moneybags, offer them naming rights on the new toilet block, whatever it takes to make them feel suitably appreciated. But remember that those who write cheques freely
usually give strong opinions with them — and expect to be listened to. So it’s best to maintain a courteous arm’s length, and to give the job of treasurer in particular not to the
richest supporter but to the quiet retired bank manager with the sharpest pencil.
Strangely, the Conservative party has never sought my advice on this issue. But the parting volley of criticism of David Cameron’s election campaign from Lord Ashcroft, the megabucks donor
who is stepping down as deputy chairman (having been treasurer from 1998 to 2001), ought to give the men in grey suits pause for thought — coming as it does after their latest nominee for
treasurer, former tax exile David ‘Spotty’ Rowland, had to pull out before he had even found his desk, apparently in response to negative vibes from elsewhere in the party.
The rollcall of recent Tory treasurers, most of them elevated to the peerage for their efforts, would make a colourful entry in any ‘fantasy boardroom’ competition. Imagine the noise
level if you put this lot together: bon viveur Alistair McAlpine, who defected to the Referendum party and now runs a bed-and-breakfast in Italy; Dixons tycoon Stanley Kalms, who went on to urge
voters to back Ukip; carpet salesman turned academy funder Philip Harris; insurance broker and Hunter wellies entrepreneur Jonathan Marland; hard-dealing City money broker Michael Spencer; and the
incumbent Stanley Fink, so-called ‘Godfather of hedge funds’, who had to stay on after Rowland’s withdrawal. I’m not saying they’re rogues, and having encountered
several of them I can attest that they liven up any dinner table. It’s just that great wealth, especially when self-made, makes people tricky to manage in any voluntary sphere and creates a
smell when it seems to buy direct influence on the workings of the organisation concerned, particularly if it’s a political party.
Next time, the Tories would be wise to pick a public-spirited chap with a persuasive manner but without sufficient fortune or ego to make waves, in office or afterwards. The party is full of men
(and women) of that ilk, waiting for the call — and perhaps there’s a nod in their direction in the fact that the Birmingham conference is about to be chaired by Charles Barwell, who
really is my bank manager.
Casinos vs utilities
‘In our debate in London last week, Martin used a forceful metaphor to describe the impact of the development of financial conglomerates — a utility is attached to a casino,’
wrote the economist John Kay in September 2008, shortly after the collapse of Lehman Brothers, and I hasten to point out that he was not referring to me but to Martin Wolf, his fellow FT columnist.
The significance of the quotation is that it was, I believe, the first appearance in print of the ‘utility versus casino’ imagery which now seems to provide the framework for all public
discussion of the future of finance, including the work of the Independent Commission on Banking.
The late J.K. Galbraith wrote of ‘casino manifestations’ in stock market behaviour, but it is Wolf and Kay who have damned the entire investment banking profession with the Las Vegas
connotation, and they must be kicking themselves for not patenting the idea in order to be able to charge Vince Cable and Robert Peston a royalty every time they make use of it. But how valid is
it, I wonder, on closer examination?
Other commentators have already pointed out that the comparison is offensive to casino owners, whose business models are based on strict controls combined with odds perpetually loaded in their own
favour. The most egregious of the investment bankers and hedge fund players before the crisis were those who behaved less like skilled croupiers and more like deluded punters, piling chips on the
table when the game was bound to turn against them — and they were the ones who went bust. Thus Lehman multiplied its bets on mortgage-backed paper, and the best book about its collapse
happens to be called The Devil’s Casino (by Vicky Ward). Likewise Bear Stearns were casual gamblers who did not even have an accurate picture of their firm’s total exposure to toxic
securities — and again the best book about them has a telling title, House of Cards (by William D. Cohan).
But the more robust and still-dominant survivors, such as Goldman Sachs, actually are akin to well-run casinos — and Goldman does not even have a ‘utility’ attached to it. They
offer their client-punters many different ways to risk their stakes, then bet smartly against them and stay on top of every game. Indeed, in the heat of the crisis a diversified
‘casino’ bank such as Bob Diamond’s Barclays Capital, which unlike Goldman does not engage in proprietary trading (placing big one-way bets in securities markets with its own
capital), turned out to be a lot less risky than a ‘utility’ bank such as HBOS which had chosen to lend excessively into an overheated property sector.
John Kay argues that the increase in the ‘Tier 1’ capital requirement for banks recently announced from Basel will contribute much less to financial stability than would a
‘permanent separation between utility and casino’, even if the Independent Commission on Banking hears ‘a lot of tosh’ in submissions to the contrary. He is of course fully
entitled to go on using a metaphor he helped to invent, and I agree with him that ‘a larger number of [banking] institutions, individually specialised and more diverse in their business
models’ would be a good thing. But I don’t agree that every conglomerate bank must be broken up, because I think the science of risk management is far more complex than that. And I wish
everyone else would stop using the lazy and misleading cliché of utilities and casinos.