When the dust settles, governments around the world need to reflect on precisely how a situation arose, where taxpayers were required to bail out struggling banks and insurers. This should be wide ranging and lead to both regulation and prosecution.
It is insufficient in the extreme to state that the stock markets require regulation, the truth is that executives of some of the largest banks and insurers in the world have acted recklessly and in return, have profited through bonuses and dividend payments. They have manufactured products that could be traded for profit, even though 10 years or so ago, these types of trades did not exist, in fact, some are so complicated, that even financial experts and city observers have struggled to explain how they worked.
It must be remembered, that the executives of these banks and insurance companies were charged with a fiduciary duty to look after their shareholders interests and act responsibly. From what I can see, they have created products that allowed them to make short-term profits on traded mortgage securities and the like. In many cases, shareholders have lost everything, many of whom are pension companies, which means that the ultimate losers will be all those that have invested their hard earned money in a pension fund and of course, the taxpayer.
Few can argue, that the actions of many of these top executives has been reckless in the extreme, because previously solid businesses have now had to be bailed, whether through nationalisation or central bank loans. With the position, salary, share options, dividends and bonuses, must come the responsibility. Anyone who has been party to the decisions that have lead to the failure of the business they were responsible for, should be required to forfeit any profits they received.
During these tough times, there is a need for cool heads, particularly from government, but we will come out the other side. The government’s however, must act now, by freezing the assets of all executives who are believed to have been party to this reckless behaviour, before they are allowed to salt away their assets, as they surely will. The public will not forgive government, for allowing these people to protect their assets and avoid paying the price for their reckless behavior.
This is not about starting a blame game, nor is it a witch-hunt, both of which may even be justifiable. It is a method by which government, on behalf of the people, can make clear, that reckless behaviour, for short-term profit, which leads to business failure has a price. In the UK, company directors can already be held personally responsible if they have continued to trade whilst insolvent, based on some of the recent examples of spectacular business failures, it is difficult to see how some of the banking executives could claim that their business was solvent.
Government must use existing legislation to investigate and if necessary, charge reckless company executives. If necessary, they must introduce further legislation to increase their powers in such circumstances, but in a first move, they must seek to freeze most or all of the assets of these failed bankers and their cronies. It does not matter if they have been donors to party funds, politicians responsibilities are to the electorate, not a few failed bankers. The predict, that the first party to promise to freeze the assets of these bankers, pending an investigation, will receive a massive boost in the polls, so even if they don’t do it because it is right, they could try it for the poll boost!
October 2nd, 2008 at 6:20 pm
Re “the executives of these banks and insurance companies were charged with a fiduciary duty to look after their shareholders interests and act responsibly” - their objective is the “maximisation of shareholder value”, which banking management translate as “maximisation of share price”. This immediately becomes a short term target as “every little helps” - a few hugely successful dodgy deals here and there… Sure, they feel responsible - until the year end banking line of business results and the banking bonus. The challenge is to change to culture to move away from this suicidal short-termism. Now that is not easy due to the fast moving nature of the banking world. The regulators have also not proven themselves independent enough, or having the instinct to sniff out the smell of rot on time. This needs to change.
I like your idea of freezing directors’ assets. Want to see more of them facing legal action for what they allowed to happen.
October 2nd, 2008 at 7:39 pm
I agree, the regulators also have a case to answer, given they are charged with ensuring that surprise such as the type we are experiencing now, are forseen. The duty of the executives has to be to increase and sustain shareholder value, short-termism at the expense or risk of the business is a failure. They need to understand, in a tangible way, that there is a cost, both professionally and financially for getting it so wrong.
October 8th, 2008 at 4:41 pm
It does matter if Chief Executives of Banks have been or are donors to the Labour party or the other two opposition parties. It provides a classic case of motive; motive is where politicians could have acted earlier with regards to the mortgage products that maintain the vulnerability within the most vulnerable people in our communties. Instead, the Government watched and kept silent. Maybe because their main objective was to ‘Protect’ their interests - political donors from financial institutions. It is an appalling situation that could have been prevented. The ONLY reason why there is an emphasis that this is a Global Crisis is because ALL Governments maintain this relationship with financial inistutions - it’s a political party thing!
My frustration is why our news media reporters do so little to put the ‘politician’ under REAL scrutiny. John Snow (Ch4 News) was the ONLY news reporter who put George Osbourne, Shadow Chancellor, on the spot by saying “you guys are as bad as Labour as you both are in bed with financial institutions who donate funds to your parties”. Yes, Mr Osbourne stumbled to respond. Why are our politicians, and this relationship between themselves and financial institutions, not being addressed by the News Media? I am perplexed and frustrated at this. Is this about protecting the establishment?
FACT: It is obvious that a ‘conflict of interest’ exists between political party funding and financial institutions. How, therefore, are these monsters allowed to get away with pumping tax-payers funding to re-ignite the banking system without questioning these politicians HARD about this ‘conflict of interest?’
Futhermore, why hasn’t the News Media been particularly active in questioning both the PM and Chancellor about what package is to be developed to help & support those who are now severly vulnerable, while being homeless, get back on their feet given the £multi-million bonus packages these Banking Exec’s have earned throughout the ten-year period that Gordon Brown was receiving a ‘pat on the back’ from his colleagues for being responsible for a GREAT economy?
These vulnerable individuals are no longer able to receive any form of credit due to their recent eviction and homeless status. IT’S AN APPALLING STATE OF AFFAIRS! IT’S ALSO AN UNFAIR SITUATION FOR BANKS TO BE BAILED BY THOSE VULNERABLE INDIVIDUALS WHO ARE NOW HOMELESS AND DISADVANTAGED!!
October 8th, 2008 at 5:16 pm
IAS: I agree Jon Snow is one of the genuine interviewers who is genuinely probing whilst not overtly partisan, he does tend to say what he thinks, I also accept that there is potential for and therefore serious risk of, a conflict of interest. However, the truth is, whichever party you look at, they are all funded by some special interest or pressure group, so unless political parties are centrally funded, which may be the answer, it is difficult to stop.
In terms of the unemployed/homeless and I am assuming that you are referring to the recently homeless and unemployed, as opposed to long-term, then if the problem gets much bigger, the government will have to intervene. They could also be in the unenviable position of turfing people out onto the street, as a consequence of defaults on taxpayer owned mortgages, then having to provide social housing with taxpayer money, how do they square that?
In terms of helping the unemployed, this government has not done too well on previous initiatives, therefore, I strongly suspect that anything needed in a time of crisis will also fail!