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The Banks: Symptoms or Causes

    Kieron O'Hara, University of Southampton and CPS Research Fellow, argues that we are all complicit in the actions of the bankers and should share some of the blame.

    The protesters occupying Wall Street, the London Stock Exchange and all the other evil places in the world got a surprisingly easy ride from the press, and not only from the usual suspects. Even the Economistwas sympathetic, to the protesters’ gripes if not their non-existent positive agenda.


    Quite right too; I’ve criticised the banks elsewhere for their ludicrous strategies and their monumentally inadequate risk models. Nothing should irritate a conservative more than a blasé attitude to risk. Their offensive bonuses also deserve attention, as the second most irritating thing for a conservative is rewarding failure or inadequacy.


    And yet the banks should not be scapegoats for the problems that followed the revelation of the basic unroadworthiness of their super-brainy innovations. They did the daft things they did, because we – policymakers and voters – demanded them.


    I was particularly struck by an anti-banker column last week by thoughtful Tory blogger Graeme Archer in the Telegraph, which pressed the government to “Make them start lending to homebuyers and businesses again, or make their boards redundant” because “Too many banks were greedy, stupid and wicked – yes, wicked, when we look at the impact of their strategies on our pension plans, on the ability of families to get mortgages, on the capacity of small businesses to grow.”


    Well, I wouldn’t have a great problem if their boards were made redundant – but for incompetence and naïveté, rather than for wickedness or niggardly lending.


    Why not wickedness? Because their strategies had no real impact on our pension plans, apart from to expose their unsustainability. It is harder now to get a loan or a mortgage, but haven’t we just decided that too many people and businesses were lent money? No-one has a right to spend money they have not yet earned.


    We had a long boom based on over-easy credit, generous pension promises, high public spending and low taxes. We felt rich. It was a misperception. The inevitable collapse of the house of cards did not make us poorer; it made it evident that we were not as rich as we felt. That is not pleasant, and the bankers played their part in helping us fool ourselves. But they did not cause our foolishness.


    Why not niggardly lending? For the obvious reason that the stringent capital requirements that have been placed on banks were intended to curb lending. Banks will need to build up their capital to sensible levels before credit becomes easier. We can’t surely demand safer balance sheets for banks and at the same time expect mortgages and small business loans to be as plentiful as they were. Isn’t that the point?


    As I argued in a blog on this page recently, we are still in a bull market mindset. Yet for various reasons – the need to deleverage, the massive hole in pension funds, declining asset prices, increasing commodity prices and the costs of climate change – a bear market will be with us for some time. We save too little, and we have spent too much. We have demanded services from our governments and refused to pay taxes to support them. In all sorts of ways, we have borrowed from future generations on the blithe assumption that growth will be continuous and large. As this interesting article indicates, when we as citizens are asked to accept austerity (which is often merely a slowing of rising incomes, as opposed to a genuine reduction), we become more surly.


    The bankers were our accomplices, and deserve contempt for that reason. But they should not shoulder the blame that, rightly, lies with us.


    Kieron O’Hara is a senior research fellow in Electronics and Computer Science at the University of Southampton, and has a DPhil in philosophy from the University of Oxford. His latest book, 'Conservatism', was published in May 2011 by Reaktion Books.

    Kieron O’Hara is a senior research fellow in Electronics and Computer Science at the University of Southampton, and has a DPhil in philosophy from the University of Oxford. His research interests are:
    the politics and philosophy of technology, particularly the World Wide Web; transparency and open data; privacy; memory; and conservative philosophy.

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