In his menacingly humorous manner, Mark Steel told readers of The Independent this week that punishment for bankers should be proportional to that meted out to rioters and looters:
"....we could apply the same sentence to bankers as to looters for each pound's worth stolen. So as one looter was given four months for stealing two bottles of water, the average banker would be jailed for around eight billion years, though obviously they could be out in four billion for good behaviour".
If Mark Steel makes it onto the bench, then Kweku Adoboli, the latest "rogue trader" to surface at UBS in London, had better watch out. Adoboli appears to have incurred losses of about $2 billion for his bank, and his transgressions only became known when he 'fessed up to his "supervisors": as usual in such cases, the bank's own systems had failed to alert management to what was going on.
Last evening on BBC News 24, Fred Studemann of the Financial Times was on air for the usual preview of the morning newspapers, and the UBS story was front and centre. The newsreader, Chris Eakin, asked Studemann to explain in more detail what had happened. Studemann said it was all to do with ETFs (exchange traded funds), but basically told Eakin, who is nobody's fool, that it was all much too complicated for a mere newsreader to understand.
Allow me to help out, Chris. ETFs are a useless innovation, based on repackaging outstanding securities; they only exist because they allow investment banks to make big fees from putting the deals together. Regulators, as Studemann correctly pointed out, have been worried about them for some time, because a lot of the misguided genius that went into creating CDOs and the like at the height of the housing boom has been redirected into creating ever more complex ETFs.
This latest debacle has come along almost on the exact anniversary of the collapse of Lehman Brothers in 2008, and just a few days after the UK government announced it would proceed with "ring-fencing" the retail operations of domestic banks to shield them from this sort of depradation in their investment banking divisions. Intriguingly, Robert Peston has a story on his blog that suggests that the Swiss government may impose a similar split on UBS, or may even insist on the bank being completely broken up.
So for every cloud, a silver lining. The folks over at the British Bankers Association are probably contemplating slitting their wrists about now, while the likes of Vince Cable and Sir John Vickers, as key advocates of the retail/investment split, are no doubt enjoying the warm glow of smugness, with just a hint of Schadenfreude. Back at the BBC, Fred Studemann rather wearily suggested last night that banks "can never be protected" against rogue trading events of this sort. Perhaps they can't; but taxpayers can. Unfortunately, on the government's current slack-ass timetable, it's going to take eight years to put that protection in place.
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Posting will be less frequent than usual for the next couple of weeks, as I will be travelling.
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