Following a damning report from a Parliamentary committee, Sir James Crosby, the former CEO of HBOS, one of Britain’s biggest banks, which collapsed in 2008 and had to be rescued with £42 billion of taxpayers’ money, has nobly volunteered to cut his £750,000 annual pension by 30 per cent and hand back his knighthood.
What brought about the banking crisis? Clearly, MPs want to pin it on the folly and incompetence of management and the general climate of greed and stupidity fostered in the post-Thatcher years – although greed and stupidity were characteristics the sharp-eyed, frugal housewife in her would surely have despised. In some experts’ view it was a structural failure, in part the result of rapid internationalisation causing exposure to uncontrollable risk. In many other people’s eyes it was criminality, pure and simple. Evil bankers getting rich at our expense. (They always have! That’s the nature of their business.)
Ultimately, however – and where we might blame The Blessed Margaret – it was a crisis of value brought about through the relaxation of laws on both sides of the Atlantic governing competition.
Monetarism, the economic principle dreamed up by Hayek, Friedman and the Chicago school and espoused by Lord Young and Sir Keith Joseph, Thatcher’s chief henchmen in her early years – allowed the value of money to float and promoted free market competitivism. Both those factors, in my view, led to bankers having less regard for the value of their assets. They came to regard money as a commodity, rather than a utility. This loss of seriousness was reflected in the marketing of money, a subject on which I have heard almost no comment in all the tumult of media analysis. We hear of markets, we hear of marketisation – but we hear nothing of marketing: those activities by which the ultimately worthless ‘products’ of the banking system were packaged and sold to businesses and the public like cans of beans, or soap powder. My contention is that the banking crisis was at least partly caused by the dumb optimism of the marketing industry.
Selling money was something I was peripherally involved with in the late 1980s. I worked for an advertising agency that specialised in promoting savings schemes, pensions, mortgages, insurance, business finance and consumer lending for banks and building societies. Our clients were some of the big names of the day, many of which have since vanished or adopted aliases: Lloyds, Friends Provident, Equity and Law, Cheltenham & Gloucester, Allied-Dunbar, Lombard. Our methods principally involved what is known as ‘direct response’ media – junk mail, to you.
Junk is an unfortunate description: to me, it only became junk if the recipient threw it away unread. A lot of research and creative effort went into producing informative materials that people would read, and hopefully act upon. Usually, the junk mailshot was designed to elicit sufficient interest to attract some follow-up activity, a request for further information or a meeting, rather than a direct sale. And it could produce good results: readers of Investors’ Chronicle magazine might reflect that one mailshot we created attracted so many new subscribers, it saved the ailing weekly from being closed down by its owners, Pearson Group.
But the conventions of marketing required us to turn what had been a simple, boring proposition, that a bank was where you lent or borrowed, or for a time parked your wage, into a colourful, high-street bazaar where an increasingly complicated and confusing range of competing branded finance products were advertised, bought and sold on commission. For the bankers, marketing was an alien world, of which they had known little. But it was new, improved, exciting! They queued up for the ride. A whole industry of intermediaries and advisors and ‘secondary bankers’ (formerly known as loan sharks) sprang up almost overnight. It wasn’t the marketing that was junk, so much as the products we were selling that turned out to be pretty valueless; and the complicit watchdogs who licensed them.
Somewhere along the line, commonsense got turned on its head. While to the rest of us, debt was a liability, to a banker it now became the prime asset. The more money the banks could lend, i.e. the less they had in the vault, the wealthier their accountants told them they were, and the bigger the fees paid to the accountants became. That was fine, as long as the debts were repayable in time. But also somewhere along the same line, debt got rebranded as credit or, in the weasel words of the copywriters, ‘How to have the things you want, when you want them!’. The idea of credit was empowering: it made the chronically indebted feel as though they were in control of their lives. Orwell would have recognised the inversion of meaning.
The marketing of debt meant the marketisation of credit, and as competition pushed the banks to more and more extreme frenzies of lending (free pens!), consumers with worse and worse credit scores were sucked in to the ‘live now, pay later’ culture. The bigger the debt asset became, the bigger the bankers’ bonuses got. But what were these bonuses, other than commission paid on incremental sales of worthless products to worthless consumers, or even other worthless bankers, using an increasingly worthless commodity as the medium of exchange?
Credit has undoubtedly helped to raise the material standards of living for most ordinary people, while less helpfully enslaving us with debt obligations to capitalists. By replacing valuable money with worthless plastic bearing notional value exchangeable for debt-laden goods and services, sold at very high rates of interest, debt itself became the currency; a situation that could not continue indefinitely. Like the Roadrunner cartoons, people running ever faster to keep up suddenly looked down and realised there was nothing between them and the canyon floor but thin air. Credit had been absorbing real monetary inflation, until the aneurism burst and the bloodbath ensued.
A knighthood is not something you can simply take back to the shop and exchange for public sympathy or forgiveness, or whatever Sir James Crosby’s PR advisor has told him will mitigate his lack of sound judgement. While a knighthood is a reward for service, it also bears obligations to the Crown, which in turn is the servant of the people. ‘Sir’ James owes us £42 billion, along with the reputation of the banking industry. Of course, he is not solely responsible for the mess. There are many others. He is, in his way, just as much a victim of circumstance and the system as the rest of us are. But his knighthood, I fear, is very small compensation for our loss. And, seemingly, of little worth to him.