The President of the Liberal Democrats, Tim Farron MP, has spent the last few weeks pre-empting Sir John Vickers’ report on banking reform. Tough legislation to split up the banks must now be passed “before the next election”, he insists: it is “right for the country”, and “must happen as soon as possible”.
Reading Masters of Nothing – the new book from Matthew Hancock and Nadhim Zahawi on the banking crisis – the ex-NUS officer may have found some unlikely allies in the new crop of Conservative MPs. Although there is still a debate about the timing of reform, Masters of Nothing is an authoritative and scathing critique of financial services, and its conclusions are broadly similar to those of Mr Farron. The City is failing, it argues. The Government must step in.
Quite surprisingly, for a tract on behavioural finance, Masters of Nothing is readable. Over 274 pages, historical polemic is mixed with the odd sugar-rush of gossip (or “human interest story”). In 2007 for example, we learn that the insurance giant Munich Re paid for 100 staff to go on an “incentive trip” to Budapest. In the hotel, 20 prostitutes were made to wear colour-coded armbands: yellow for sex, white for “senior executives only”. As the book says: “The women were given a stamp on the arm for every service they performed – to ensure there was no haggling over payment at the end of the night.”
Masters of Nothing is littered with colourful insights such as these. But it has a wider and more serious call for gender equality. Hancock and Zahawi want more women at board-level, equal childcare, and equal pay. Banking is overly masculine and testosterone-fuelled, they argue, and it is hurting Britain.
Fundamentally, their position can be summed up as “Osborne+”. They are fans of Osborne’s Office of Budget Responsibility and a beefed-up Bank of England, but would go further, with bonus clawbacks, shareholder activism, and prison for senior bankers who have been professionally negligent.
The case for prison is actually quite compelling. A friend of mine put it like this. Suppose a junior bank cashier were allowed to take depositors’ money out of the till, and go gambling at Ladbrokes. Suppose then one day an old lady comes and asks mildly to make a small withdrawal, and the junior bank cashier shouts “Shut up! I’m a wealth-creator!” And then he immediately resigns his position and moves to Spain. The old lady is left destitute and penniless. Yes, the legalities are more complex. But in a moral sense that is what a few bank executives did. Why should they escape jail? It is not Communism to think that our banks have behaved appallingly. We have been swindled: not by capitalists, but by thieves.
Another Masters of Nothing fact: the UK bank bailout cost £26,000 for every British household.
And yet. And yet. Shockingly, in 2011, there is still no early warning mechanism to save us from financial meltdown. As the book says: we urgently need “a clear picture of the state of the system at any moment.” We must “force the banks themselves to have full real-time management data to hand.” I find myself echoing Tim Farron: This is right for the country. It must happen as soon as possible.
Sir Francis Bacon advises us, that we are “much beholden to Machiavel and others, that write what men do, not what they ought to do”. Masters of Nothing is squarely in this tradition. Its goal is to frame policy around a realistic assessment of human behaviour – rather than an impossibly high standard. (Hence, prison.) For this alone it is worth reading. Of course, Matt Hancock used to be George Osborne’s Chief of Staff, and Nadhim Zahawi founded YouGov, so the book will sell. But it will sell on its own merits too. I would particularly recommend it to City financiers. They should know that the tide is turning against them.
Paul Abbott is Senior Researcher to a Conservative MP. Follow him on Twitter @paul_t_abbott
Comments