Bankers and fairies

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The headline in yesterday's Business and Money section of the Sunday Times proclaimed that “City tells Reeves: we can lend you £80bn”. It’s an example of the way that the basic facts aren’t always presented in a neutral fashion, because the headline could equally have read, “City tells Reeves: We have £80bn that we want to save with the government”. In the preferred version, the banks and financial institutions are doing us (through the government) a favour by lending us money; in the alternative version, the banks and financial institutions are asking us (through the government) to do them a favour by accepting large deposits of ‘spare’ cash.

They both represent different aspects of the ‘truth’, underlining the way that what looks like a debt to one person will always look like an investment to another. But which is actually the best representation of the underlying truth? Imagine that ‘the City’ is a single corporation here, and that the Chief Financial Officer is talking to the collective board. Is (s)he going to say, “Look chaps, the government has got itself into a bit of difficulty, but I reckon that we can probably divert around £80bn from other places to lend them in order to help them out”, or is (s)he going to say, “Look chaps, there’s something of a dearth of safe and profitable investment opportunities at the moment, and the best thing that we can do would be to deposit £80bn in government funds”? When deciding how best to manage their money financial institutions are always looking for a balance between risk and reward, placing some of their money in high risk, high reward investments and some into lower risk, lower reward investments, such as government bonds. To put the question another way, when they are deciding on that balance, do we believe that they operate on the basis of a community-friendly altruism, or do we believe that they decide on the basis of what’s best for their shareholders?

Those who believe in altruistic bankers might like to come and meet the fairies at the bottom of my garden.