Monday, October 29, 2012

Bishop of Durham: more prophet; less profit


Last week the Bishop of Durham The Right Revd Justin Welby (widely tipped to be the next Archbishop of Canterbury) addressed a conference of financiers in Zurich. He spoke of the issues which face the financial community as it decides whether to 'repair or replace' existing systems of control.

Bishop Justin sits in the House of Lords and is a member of the Banking Standards Commission which was established to investigate the culture and performance of banking in the United Kingdom, and to make recommendations for the new banking act which will be brought before parliament next year. With a background in business, the Bishop is perhaps uniquely placed in the Episcopate to comments upon the behaviour of the financial markets. He observes:
In the case of the financial markets and infrastructure of the world, what has been obliterated is not physical, plant, property and equipment, but confidence. There is no longer confidence in banks as safe, in banks as virtuous, or in bankers as being part of the same world as the rest of us and with the same values and desires as the rest of us. That loss of confidence may be unfair, in many cases I would argue that it is, but it is a reality.
According to the bankers, the finiancial crash was brought on by 'an unfortunate moment of carelessness'. According to the people, the only response is 'à la lanterne' (a reference to the French revolutionary lynching of the nobility and the clergy from a lamp post). Whatever the reaction and wherever the truth, the Bishop is of the view that 'too much effort is going into putting Humpty back together again, and it can't happen'. He expounds his own observation of the cause:
Activity without purpose is anarchy. It may not look like anarchy, it may in fact be very well organised anarchy but unless it has a serious and clear purpose activity is merely random. One of the biggest faults in the pre 2008 financial markets was essentially they were exponents of anarchy in this sense. They involved wild and frantic activity, often by exceptionally intelligent people, working very long hours, but they had no socially useful purpose. The industry was referred to as financial services, but in fact it served nothing. In the UK, where most of it was housed, SME's (small and medium-sized enterprises) still struggled to find finance, although they were based within close reach of the largest financial centre in the world. Martin Wolf, the Financial Times columnist, said in 2009 that the UK suffered from having a 'mono crop economy'. By that he meant, that like Nigeria with oil the UK had finance. Far from being the goose that laid the golden egg, it was in fact the cuckoo in the nest that pushed all the other fledgling industries out to die. The same can be said of much finance in other places around the world. Certainly, it was true of the hedge fund industry in the United States, and of much dealing activity across Europe and in the Far East. Finance had become a feature of its own, rather than anything with intrinsic value.
This is good stuff: Mammon has been worshipped above God, and the material has supplanted the spiritual. Bishop Justin asserts that 'there is a need for socially useful purposes for banking and financial services'. And, quoting Pope John Paul II, he reminds us that a company is 'a community of persons in service', and financial services have 'huge potential as vehicles of the common good in order to unite increasingly autonomous and disparate societies'.

The primary question is 'what can be done in the financial markets to bring them back to being tools for human flourishing and development, and for uniting deeply divided societies and parts of societies?'

The Bishop rails against one of His Grace's favourite themes of justice when he observes that our banking culture has 'socialised losses and privatised profits', (indeed, His Grace made the same point three years ago). But Bishop Justin goes further:
Our bit has concentrated banking only where transactions provide large rewards to the banks and ignored areas where relationships are needed to unite communities and help lift them out of poverty.
This is Phillip Blond / Red Tory stuff: in Cameron's 'Big Society', local banks might have served their local communities, helping to alleviate poverty by investing in local businesses and serving the people. Thus does banking become a cohesive force for good in society, redistributing surplus savings at modest rates of interest in order to draw people together for the common good of all. But this shouldn't be achieved through stifling regulation, but by community inspiration, rather after the fashion of what David Cameron once told us he was about.  

Of course, the Prime Minister lost his way: his vision perished. Despite his best efforts to 'decontaminate' the Tory brand, he has recontaminated it by poorly communicating his philosophy, acquiring a reputation for U-turns and incompetence, and permitting the narrative of 'cuts' to permeate the public consciousness. Into this vacuum of government, enter the Church. Bishop Justin lucidly proposes:
• Government support should be limited only to those banks and financial institutions that have a clear and explicit social value. At the same time they must be allowed to fail, the process of defining resolution is if anything more important than defining regulation.

• There must be formal banking qualifications which are required for anyone involved in investment or commercial banking who is dealing in more than minimal amounts of money.

• Banks that demonstrate social purpose could receive an easier tax regime and a lighter regulatory touch. The reverse could be true for those who do not fit these principles.
He acknowledges that these are 'merely ideas in the mist', but His Grace likes what he hears. Of course financial recklessness must be permitted to result in failure: by bailing out profligate banks, we stoke moral hazard. When we do not bear the consequences of our actions, there is the creation of a false sense of security, which only encourages more reckless behaviour.

The Bishop is of the view that 'we cannot repair what was destroyed in 2008, we can only replace it with something that is dedicated to the support of human society, to the common good and to solidarity'. These are eternal Christian themes of justice and compassion, and they exalt a nation. We might pray that Bishop Justin soon finds himself in a position to reify his 'ideas in the mist'. Financial services are indeed crucial to human development, 'but they only do their job when the work they carry out is done in a way that is truly a service'. It is time to depose Mammon and return to the old paths of righteousness and holiness.

34 Comments:

Blogger AnonymousInBelfast said...

I'll admit to some scepticism when I read those extracts - especially the opening one refering to Anarchy. Going to the full article, I was expecting to see more Philip Blond - poorly thought-out wishful thinking that doesn't adequately detail an awareness of the pragmatics of getting to the kind of nation envisaged.

In fact, this was much better than Red Toryism (please don't continue labelling it that: it will die a death if it's pinned as The Big Society). Welby's experience in finance is evidently going to be invaluable to him whether he ends up on the Throne of St. Augustine or not.

The one thing that remains is my chief concern with the Blond project: how does one achieve the necessary change in culture away from the centralised State and disconnected industry, from the centralised State and the boardrooms? Even the most successful cabinet minister to tackle this - Michael Gove - has ended up doing so using central power. This inevitably leaves any changes open to reversal the minute someone else enters the Ministry, but more damagingly it doesn't reverse the dependence on government to order everything - precisely what is trying to be curtailed!

I wonder whether the real problem here is that to achieve the kind of society that Blond feverishly grasps towards, and Welby argues for with sense, we don't need politicians who will lead on this issue, but leaders who will follow.

I hope they may have a shepherd in Welby.

29 October 2012 12:13  
Blogger carl jacobs said...

I shudder to think what some people would consider "socially responsible." The Good Bishop argues as if this phrase represents an objectively quantifiable concept. It isn't.

carl

29 October 2012 13:18  
Blogger Hannah Kavanagh said...

Hi Your Grace,

Carl is quite right -how do we define what makes a social good and how would you force banks to lend in such a way? Is 'free' banking a social good, if so why is it likely to be abolished in the near future? Is investing in green technology a moral good? Why not nuclear power?

Banks are out there to make a profit, whether or not they are stockholder companies or mutual ones. They are not charities, although in the article he seems to think that credit unions are charities. They are not. They do what any other financial company does, expect they distribute the profits on the interest to their members.

Also, the point about banking qualifications. Well, don't forget that some of the big investment banks, such as government Sachs, employed people with mathematics PhD's to help with their-flawed - risk models, which led to CDO's, NIJA loans and the sub-prime housing bubble in the states, which led to the 2007 (onwards) financial crisis.

29 October 2012 15:24  
Blogger AnonymousInBelfast said...

If you see social responsibility primarily as a public good to be fostered by the authorities, then you're looking at something which can go off piste very very quickly. If you take social responsibility to be a private good that results in public goods, you're looking at traditional models of economic and social justice as advocated in Christianity and Judaism (and actually, quite a bit of Islamic practice too).

29 October 2012 15:38  
Blogger Bred in the bone said...

Is cohesive force the latest catch word for more forced intergration

Red Bishop stuff and nonsence using the banking crisis for social engineering

29 October 2012 17:49  
Blogger carl jacobs said...

AIB

If you take social responsibility to be a private good that results in public goods ...

But this presumes that I should recognize social responsibility - that it is a defined concept. It also assumes a prior definition of both private good and public goods. What are these things? And what is a 'private good' to a publicly traded corporation?

... you're looking at traditional models of economic and social justice

Ah, see you have just induced my right knee to jerk uncontrollably. What is economic justice? What is social justice? I know what justice is. Justice is defined as "right conduct properly rewarded and wrong conduct properly punished." I don't see how that relates to the concepts vaguely in view in the above sentence. I suspect that the word 'fairness' will be found at the core of the concept - that an equivocation between 'justice' and 'fairness' is being used to cast the argument in terms of rights instead of desires. And yet the best definition of fairness I have found is this:

Fair: "I like it"
Unfair: "I don't like it."

That isn't much of a foundation for determining proper conduct.

carl

29 October 2012 17:53  
Blogger Office of Inspector General said...

hmmm. The starkest face of capitalism, the financial sector, “dedicated to the support of human society, to the common good and to solidarity”. How darling twee. Couldn’t you just hug Durham for that. Let’s throw in the lion and the lamb while we are here. The lion won’t get hungry and the lamb won’t suffer acute depression from being in his company. Amen.

Anyway, back to cold reality. Yes my Lord Bishop, you can achieve that at gun point alright, but lets ‘get real’ as those Americans would say.

One’s libertarian views would like to see the banks operate outside of state interference, but they are no longer banks in the old sense. They belong, in a loose sense, to all of us who have a vested interest in the survival of capitalism. It is vested capitalism that created them. This is the message Cameron has failed to put over. Inviting questions afterwards, say from someone asking what use capitalism is, he would answer, “it’s what puts food on your table”. This is statesmanship, fellows. It removes the slur that making money through financial services is somehow immoral and only of benefit to the super rich.

Money will continue to be sent to the UK as long as we remain one on the safest places on this earth to be trusted with it. A greater transparency, as much as can be commercially in confidence allowed, cannot but be a greater reassurance that our stewardship is by far the best option. Along with this transparency should be the promise of mandatory prison sentences (and not suspended) for wrong doing. Such high rewards on success tempered by the severest penalty for scoundrelness. It’s greed that makes banks fail. Nothing else.



29 October 2012 18:26  
Blogger William said...

I agree with Carl and would add that the main issue is really about the socialisation of losses and privatisation of profits. Regulation should be primarily about getting the bankers to carry their losses.

29 October 2012 19:09  
Blogger AnonymousInBelfast said...

"Fair: "I like it"
Unfair: "I don't like it."

That isn't much of a foundation for determining proper conduct."

I wouldn't dispute the extent to which that holds true. But that's where I'd place responsibility as a private, individual good. It's the ability to take the "I don't like its" of the world and to say, nonetheless, "That is Just". It means shouldering the costs of the good of others even if there is no apparent benefit to oneself in doing so. That's why it can't work very well as a kind of public good - it is an inherently moral act, predicated upon individual choice.

29 October 2012 19:29  
Blogger Hannah Kavanagh said...

This comment has been removed by the author.

29 October 2012 20:04  
Blogger Hannah Kavanagh said...

This comment has been removed by the author.

29 October 2012 20:06  
Blogger The Way of Dodo said...

The theme of Bishop John's address appears Anglo-Catholic in terms of the concept of social justice.

Carl Jacobs said ...

"I shudder to think what some people would consider "socially responsible." The Good Bishop argues as if this phrase represents an objectively quantifiable concept. It isn't."

Of course you shudder; its a Catholic concept, not a Calvinist one. It challenges the idea that secular success is an indication of favour with God. It places a responsibility on individuals to express love for neighbour in tangible ways. It also challenges capitalism and socialism. It has its basis in theology, not in objective quantification.

You ask: "What is economic justice? What is social justice?". Grab a hold of that knee and have a read of Catholic social teaching on 'Distributionism'.

29 October 2012 20:34  
Blogger Marie1797 said...

I can't help but feel sorry for the people in America who were fired with enthusiasm to own a house and given mortgages by the banks who knew they hadn't a hope in hells chance of ever being able to repay it. That was socially irresponsible.

The banks didn't care because they knew they could sell the bad debt on, at a profit. So it would continue being sold on each time increasing, but the buck had to stop somewhere and with the banks doing little or no due diligence in their frenzied buying and selling. Someone had to pay and unfortunately it was some of our banks, but I don't see why our banks should punish responsible customers here for the banks' own hedonistic decision making of the past.

Debt makes money but only when the end user can repay it, it seems they had forgotten this little fact.

30 October 2012 01:48  
Blogger carl jacobs said...

Marie

Some of those mortgage holders deserve no sympathy at all. They contracted a huge loan to buy a house they knew they could never afford. They expected to flip the house in two years (before that balloon payment came due) and realize a quick $100,000 in capital gains. The whole scheme depended upon a continuous inflow of new buyers willing to pay the artificially inflated price of the house. Eventually that pyramid had to collapse, and being the last one into the pyramid scheme doesn't warrant a lot of sympathy.

carl

30 October 2012 02:09  
Blogger carl jacobs said...

There seems to be some confusion on this thread between the responsibilities of individuals and the responsibilities of corporations. Let's assume Bob the Financial Manager, Inc receives money from Bill so that Bob can manage the money in Bill's best interest. Does not Bob have a fiduciary responsibility to deliver to Bill the best possible return on Bill's investment? Isn't this in fact a moral responsibility that Bob owes to Bill? On what grounds then could Bob say to Bill "I am going to give you a 'fair' return on your investment of 5%. I am going to take the excess and use it to do social good as I see fit." What ground does Bob have to take Bill's money in such a fashion? Only Bill has the right to make that determination. This is the public good that seems to be advocated - that Bob use Bill's money for Bob's understanding of social good.

Companies have a fiduciary responsibility to their investors. That is a moral responsibility as well. It is a primary moral responsibility. We like to forget that and say "They can afford it." But that isn't our decision to make.

carl

30 October 2012 03:11  
Blogger Phil Roberts said...

Carl

I ususally agree with your posts. (Except when it comes to money)

"Does not Bob have a fiduciary responsibility to deliver to Bill the best possible return on Bill's investment?" Well no not really if it Bob would have to behave unethically, immorally etc in order to do so. Otherwise presumably we should all be investing in the local whore house in order to maximise our returns

Phil

30 October 2012 10:19  
Blogger Hannah Kavanagh said...

Hi Belfast,

I've reflected on your posts and agree that you are correct and that I am wrong.

30 October 2012 10:34  
Blogger Hannah Kavanagh said...

Hi Carl

So the US sub-prime crisis had nothing to do with the de-regulation of the financial services industry, the greed of mortgage brokers (who were clearly not acting in a prudent or moral manner) or wall street investment bankers willing to make massive gains (again neither prudent or moral) and as a result practically tore the financial system apart?

30 October 2012 10:51  
Blogger AnonymousInBelfast said...

Carl:

"Companies have a fiduciary responsibility to their investors. That is a moral responsibility as well. It is a primary moral responsibility. We like to forget that and say "They can afford it." But that isn't our decision to make."

I'd agree with you entirely that there is a responsibility to ensure proper return for clients - indeed, it was not a small aspect of the present banking crisis. Many investment firms did not take that responsibility seriously (see the Goldman Sachs resignation letter).

But your concern arises from conflating responsibilities. I'd not argue that it is banker Bob's responsibility to insist on socially responsible investments for Bill's money. It is his responsibility to invest the profit he makes doing so in a socially responsible manner. It is Bill's responsibility to ask Bob to invest his money in a way that is socially responsible.

Many of the problems arise when we see social responsibility as something which others have to step in and do on your behalf, or force you to do. We can all point out the speck in our brother's eye - it's the log in our own that needs tackling.

30 October 2012 10:58  
Blogger William said...

Hannah

I think that the huge debt crisis we find ourselves in is primarily because of cheap money. What the bankers did/do was carry on playing their game of heads they win, tails we lose (this cannot be allowed to continue). Leveraging up with repackaged tranche upon tranche upon tranche. Was this because of deregulation or in-effectual regulation, or, as I strongly suspect, colluding regulation? One doesn't want to ruffle the feathers of the golden goose when there's an election to be fought.

Governments wanted cheap money so that they could fake economic growth. Institutions wanted cheap money so that they could lend in more ingenious ways. People wanted cheap money so that they could have now and pay later. A perfect frankenstorm.

30 October 2012 11:47  
Blogger AnonymousInBelfast said...

"
Governments wanted cheap money so that they could fake economic growth. Institutions wanted cheap money so that they could lend in more ingenious ways. People wanted cheap money so that they could have now and pay later. A perfect frankenstorm.
"

Hit the nail on the head there!

30 October 2012 12:31  
Blogger Jon said...

Not to defend banks, but didn't this guy used to be in the oil industry before he joined the Church?

Oil is the very definition of privatised profits and socialised losses (except the losses are social and environmental externalities).

What a hypocrite!

30 October 2012 16:01  
Blogger Office of Inspector General said...

Ah Jon. Another fellow to wallow in the luxury a petro-chemical world provides for him but has a bit of a problem with the extraction of oil. Don’t worry son, there are millions like you. Millions, I tells ya. In the meantime, put these random words together to form a coherent sentence...

I
Am An
Even
Bigger Hypocrite
Than
I Thought
I Was

30 October 2012 16:41  
Blogger Jon said...

Inspector, in spite of your best efforts to paint me as a pink pinko liberal state handout addict, I remain an entrepreneur and someone who has no problem with private profit.

However, I think you should have a little look at how many people have died in accidents caused by banking, and how many people have died in accidents caused by petrochemicals.

Then try to suppress your own personal instincts to discount the numbers killed, injured or otherwise disabled by the races of those involved, and present me with an answer.

That should keep you out of public toilets for a while....

30 October 2012 17:34  
Blogger Office of Inspector General said...

Jon. You sad thing. The world is indeed a place to be on your guard, but it’s not THAT bad.

If the Inspector doesn’t communicate again with you tonight, sweet dreams, petal. You grab hold of hubby tonight beneath the sheets, and don’t let go...

30 October 2012 18:46  
Blogger len said...

Can the good bishop take the 'Leviathan' by the tail and tame it?.

He stands as much a chance of persuading 'Mammon' to behave in a reasonable and responsible way.The financial markets'casinos'took our money entrusted in pension funds etc and gambled it all away.Of course they will not pay it back it will be the poor the disadvantaged and those on low wages who will have to make good the deficit.
Does' Mammon'care?...not one bit... greed is good ..greed works.. (to coin a phrase.)

30 October 2012 19:55  
Blogger Tony B said...

Dear chaps, can anyone recommend a good book covering the reigns of Henry VIII, Edward VI, Mary and Elizabeth I? Something that covers the politics, the persecutions, the religion etc?

Many thanks in advance

30 October 2012 20:16  
Blogger William said...

Tony B

Have you tried this?

30 October 2012 20:39  
Blogger Tony B said...

William. Very funny, I don't think.

30 October 2012 20:50  
Blogger Office of Inspector General said...

Tony B. The ‘Horrible History’ series of books are really enlightening. The Inspector joshes you not...

30 October 2012 20:51  
Blogger Tony B said...

I like those Inspector but I'm looking for something I can really get my teeth into.

30 October 2012 21:14  
Blogger Hannah Kavanagh said...

Hi Inspector,

Wow you like horrible histories too? I didn't realise you were a fan?

30 October 2012 21:43  
Blogger John Magee said...

This comment has been removed by the author.

31 October 2012 04:50  
Blogger lifeafterdebt said...

This comment has been removed by a blog administrator.

31 October 2012 17:10  

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