I think we may look back on 2011 as the year we gave up on financial services as a growth engine. A pretty strong statement but I feel the last year has shown the industry to be little more than a house of cards. It’s not that the Occupy Wall Street protests have shown us the way; it’s not that we have all turned from capitalism to some form of social enterprise ‘love in’. It is simply that we now see it as vulgar and impotent. As Wilde commented on conflict “As long as war is regarded as wicked, it will always have its fascination. When it is looked upon as vulgar, it will cease to be popular.” This is how I feel we now see this industry. Spoilt, common, dirty. This is not to say this sector does not play a vital role and certainly not to say it is staffed by incompetents – I have many friends in the industry I would happily trust with my wealth. What I feel is the industry is now tainted too badly to recover.
We have tired of complaining of bonuses and excess, with a Government looking only for post-parliament jobs in ‘The City’ these fall on deaf ears anyway. No, I feel that we have come to see the sector as incompetent, bumbling and bloated.
Let me give you a case in point. Back in August there were reports that “FOOTSIE will rise by end of year”. Who was stating this? Goldman Sachs, Citigroup, JP Morgan, UBS and Investec amongst others. Their claims ranged from 5,800 to 6,200. It ended at around 5,572. So even the best estimate was 4% over and the worst 11%. What they were in fact predicting was that the market would return to where it was at the start of the year, in fact pass that and see a return of 20%. Ok so we all make mistakes, it is a predication after all. But who in August felt we were pulling out of a recession, felt the sovereign debt crisis was near an end? Based on simplistic fundamental analysis what would posses someone to predict the year would end on a boom?
Let’s roll back the clock. The European sovereign debt crisis has turned into a debate on the Euro. This of course misses the point. All that has happened is institutions have leant money to countries that are struggling to pay. The reason I say this in a blasé way is that this is the simple function of bond traders – to lend money to people who can pay it back. Not rocket science. So with all these data available how did they come to lend to countries that struggle? What lazy thinking was this? Well part of the problems stem from the bond markets treating the Euro zone like a homogenous whole but lending to specific countries. This is like a bank lending to one of your friends based on a credit check averaging all of your friends. Now that may well suit that individual well – we all have friends who we ‘lend’ money to save in the knowledge it is a gift – but surely those who buy bonds are a little more sophisticated than this? It would seem not. They adopted lazy thinking, that if one country failed the others would have to bail it out. They abandoned notions of moral hazard and capitalism and adopted a benefits culture.
Next we have the continued myth that the financial sector is central to our economy, that it pays for everything with the taxes that are so unfairly levied on it, that without it we would be derelict. I have commented elsewhere on the folly of this. The ‘City’ amounts to about 9% of GDP, the investment arm about 3% and the risky end of that about 1%. Important clearly, we need every percent at the moment, but clearly the risky end of this industry contributes little proportional to its damage potential. Look directly at the FTSE100 itself and you can see this. Within the top 10 companies we find HSBC. Within the rest we struggle to get to the 9% represented by GDP.
Returning to tax it is worth noting that the taxes that companies in this sector bemoan amount to a staggering £48bn. Of courses that is the total take for all business, not just this sector, and is eclipsed by the £158bn we all pay in income tax, the £100bn in VAT, £26bn in Council Tax and £101bn in NI payments, but then we can afford to pay more, can’t we?
We have already handed out billions to this industry and I am sure there is more to come. We have undergone ‘austerity’ so as to assure a low rate of interest the Government seems bent on not using. Overall we seem to be devoid of a Plan A let alone Plan B. Unfortunately it would seem we will bumble forward for a little longer yet. “Steady as she goes” never really was a plan............
We have tired of complaining of bonuses and excess, with a Government looking only for post-parliament jobs in ‘The City’ these fall on deaf ears anyway. No, I feel that we have come to see the sector as incompetent, bumbling and bloated.
Let me give you a case in point. Back in August there were reports that “FOOTSIE will rise by end of year”. Who was stating this? Goldman Sachs, Citigroup, JP Morgan, UBS and Investec amongst others. Their claims ranged from 5,800 to 6,200. It ended at around 5,572. So even the best estimate was 4% over and the worst 11%. What they were in fact predicting was that the market would return to where it was at the start of the year, in fact pass that and see a return of 20%. Ok so we all make mistakes, it is a predication after all. But who in August felt we were pulling out of a recession, felt the sovereign debt crisis was near an end? Based on simplistic fundamental analysis what would posses someone to predict the year would end on a boom?
Let’s roll back the clock. The European sovereign debt crisis has turned into a debate on the Euro. This of course misses the point. All that has happened is institutions have leant money to countries that are struggling to pay. The reason I say this in a blasé way is that this is the simple function of bond traders – to lend money to people who can pay it back. Not rocket science. So with all these data available how did they come to lend to countries that struggle? What lazy thinking was this? Well part of the problems stem from the bond markets treating the Euro zone like a homogenous whole but lending to specific countries. This is like a bank lending to one of your friends based on a credit check averaging all of your friends. Now that may well suit that individual well – we all have friends who we ‘lend’ money to save in the knowledge it is a gift – but surely those who buy bonds are a little more sophisticated than this? It would seem not. They adopted lazy thinking, that if one country failed the others would have to bail it out. They abandoned notions of moral hazard and capitalism and adopted a benefits culture.
Next we have the continued myth that the financial sector is central to our economy, that it pays for everything with the taxes that are so unfairly levied on it, that without it we would be derelict. I have commented elsewhere on the folly of this. The ‘City’ amounts to about 9% of GDP, the investment arm about 3% and the risky end of that about 1%. Important clearly, we need every percent at the moment, but clearly the risky end of this industry contributes little proportional to its damage potential. Look directly at the FTSE100 itself and you can see this. Within the top 10 companies we find HSBC. Within the rest we struggle to get to the 9% represented by GDP.
Returning to tax it is worth noting that the taxes that companies in this sector bemoan amount to a staggering £48bn. Of courses that is the total take for all business, not just this sector, and is eclipsed by the £158bn we all pay in income tax, the £100bn in VAT, £26bn in Council Tax and £101bn in NI payments, but then we can afford to pay more, can’t we?
We have already handed out billions to this industry and I am sure there is more to come. We have undergone ‘austerity’ so as to assure a low rate of interest the Government seems bent on not using. Overall we seem to be devoid of a Plan A let alone Plan B. Unfortunately it would seem we will bumble forward for a little longer yet. “Steady as she goes” never really was a plan............
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