Useless bankers

Tweet Lord Turner's criticism of "much of the City's activities" as being "socially useless" is something with which I can disagree only in the sense that it is too mild. "Socially useless" suggests only that it doesn't achieve anything of value to the wider society; I think that it is positively damaging to the wider society, and the phrase which I have used repeatedly is that the activities are the high finance equivalent of anti-social behaviour - except it typically gets rewarded rather than punished.

Still, given the background and role of Lord Turner, it's a pretty stinging criticism, even if he doesn't go as far as I would.

Even if the activities themselves are 'merely' "useless", the fact that so many people are involved in activities which contribute nothing of any social value is in itself damaging. But it's actually much worse than that, for those activities have contributed to undermining, and eventually came close to destroying, the whole economic system. Whilst a few have enriched themselves through gambling and irresponsible risk-taking, they have done so at the direct expense of those who depend on pension funds and stability.

The response of some of those involved was pretty predictable. But I don't understand why they expect us to be frightened by their threat to go and destroy someone else's economy if we don't let them destroy ours. It sounds to me like the most socially useful idea that they've come up with to date. My biggest problem with it as a solution is that I wouldn't wish them on anyone else either.

Quitting the day job

Tweet Tory MPs are rushing to quit their lucrative day jobs before 1st July, when they will have to publicly declare their earnings. Apparently as many as 40 of Cameron's top team have other jobs as well as being MPs, and there is some concern that they may find themselves embarrassed when the details emerge.

Interestingly, it seems that about 10 of these people hold directorships of hedge funds. It's been public knowledge for some time that the Tory Party has been benefiting from the activities of these funds, but I hadn't realised that so many of their MPs were active participants as well. It's no great surprise that none of these MPs were particularly keen to discuss their roles.

Whilst there is scope for debate as to how far the activities of hedge funds caused – rather then merely benefited from – the collapse of the banking system, there is no doubt in my mind that short-selling financial stocks on a large scale was a contributory factor.

I don't know which MPs held these directorships or with which hedge funds; perhaps that will become clearer over the next two weeks. But there is surely something very wrong when an opposition party can benefit financially from the collapse of the financial system – and it's even worse if some of them may have had a direct involvement in causing it.

I'd like to think that any members of Cameron's top team who are found to have been involved in short-selling shares in British banks would rapidly find themselves as ex-members of the team – but I'm not holding my breath.

Different Planets

Tweet It seems that one of the hedge fund managers who made a fortune last year by short-selling British banks, and thereby helping to wreck the economy, is now planning to emigrate. He gives two reasons - the new higher rate of tax, and the proposed new regulations on hedge funds. Other hedge fund managers are apparently thinking along similar lines.

Now, many might feel that a person who managed to pay himself £28 million last year might feel able to afford to contribute a little more to the tax revenues of the government to put the economy right. But I find myself wondering how much tax he's actually paying in the first place.

His company, like many other similar companies, is a Limited Liability Partnership rather than a plc. LLPs are effectively exempt from Corporation Tax, so the company probably paid no tax at all on its profits. And generally speaking, profits from this sort of activity are treated by the Inland Revenue as capital gains rather than earned income, and therefore attract a lower level of tax anyway. So, all in all, the new rate of tax probably won't affect him very much.

As for the other reason, he apparently feels that his 'industry' has been abandoned by the Government, who are allowing the wicked French and Germans to drive through new regulations which will prevent his company and others like it from doing some of the things that they were doing previously.

Presumably these people feel that once we as taxpayers have finished bailing out the banks which the short sellers helped to wreck, they should be allowed to start all over again. I think not.

It's also interesting that some of these companies describe their activity as 'wealth generation'. It is not - it creates no new wealth at all, it merely redistributes existing wealth. Mostly redistributing our wealth to themselves.

A missed opportunity

Tweet I was disappointed, but not really surprised, at the decision last week to allow the short-sellers to start trading bank shares again. Nor was it any great surprise that the announcement was rapidly followed by further large falls in the price of banking shares. It's not yet been entirely clearly demonstrated that the two are directly connected, but there can be no doubt that the recommencement of short-selling in bank shares will inevitably make them more volatile.

No doubt the Tories – largely funded by profits on this sort of activity – will be pleased that their donors can start their gambling again, but it's bad news for the rest of us. Most of all, it looks like a major missed opportunity to reconsider what the markets are for, and how they should be organised and controlled.

To listen to some free market supporters, one might think that 'the markets' have some sort of existence independent of human society, and that we should all accept that we have to do whatever 'the markets' tell us. It's not true of course, and never has been.

Markets are a human invention, and they can often be an efficient way of trading goods and services. But we should never forget that markets are there to serve us, not the other way around; and we should be ready as a society to regulate and control the activities in our markets in order to make sure that they serve our needs as humans and societies.

The problem is – and although this isn't the only cause of the current financial disaster, it's certainly a contributory factor – that some markets, particularly financial markets, have become more akin to casinos than places for the exchange of goods and services. Gamblers and speculators have been betting on future movements of prices – and not just betting on them, but speculating in such large sums that they actually influence prices in a way which enables them to make money. They may become wealthy as a result – but they haven't actually created the wealth which they accrue, they have merely redistributed it – to them, and from the rest of us.

Best of all, from their point of view, is that they seem to have found a way of betting with our money. When they win, we lose, and when they lose – er, we still lose. Now, I don't have any great moral aversion to people betting, as long as they do so in places where they are staking their own money, where all those involved understand that they are betting, not investing, and that they can lose as well as win, and where their betting does not cause problems for the rest of us.

Using the markets as a casino adds no value to human society and works against the interests of most of us. There should be no place in an orderly market for people to use them in this way. Rather than re-opening the flood gates, the government and regulatory authorities should be using the opportunity to look again at how we can ensure that markets are made to operate in the interests of society as a whole.