Forget the BNP - the financial fascists are in the City of London

The BNP leader Nick Griffin was predictably awful on Question Time . He exposed himself as a tongue-tied demagogue whose repellent views on the holocaust, race and homosexuality are thinly concealed beneath a New Labourish veneer of respectability. What did come as a surprise was how dreadful the rest of the panel was. 


Baroness Warsi, the Tory communities spokeswoman, Chris Huhne, the Liberal Democrat MP and the Justice Secretary Jack Straw spent much of the programme trying out do each other on how tough they would be on immigration, thus doing Griffin's job for him. As did the deputy director of the British Museum, Bonnie Greer, who claimed that we were all Africans because that's where the British came from after the last ice age. Presumably, the European and British collections of the British Museum will be reclassified accordingly. At times I wasn't sure who was more barking, the fascist or his detractors. Fortunately, the audience and David Dimbleby saved the day. 


The BBC's decision to allow Griffin to appear on Question Time was vindicated, and not just because the BNP is, whether we like it or not, a legitimate political party with elected members and a million votes, but because it forced Griffin out of his comfort zone. The BNP leader is a plausible, even fluent performer in conventional news interviews where he's only required to craft a soundbite or two. But when he was exposed to debate, and a live audience, he turned into a guilty schoolboy trying to disguise the fact that he'd been bullying kids with special needs. Really, we have nothing to fear from these people except fear itself.


But what really annoyed me about this particular edition of Question Time was that it ignored the most important issues of the week - the postal strike and the Governor of the Bank of England's devastating commentary on the banking bail out. The Royal Mail has taken leave of its senses and seems determined to commit hara kiri before Peter Mandelson privatises it. Everyone attacked the BNP for quoting Winston Churchill, but it was governor Mervyn King who adapted Churchill's rhetoric to most devastating effect last week. 


“Never in the field of financial endeavour” King told a gathering in Edinburgh, “has so much money been owed by so few to so many. And, one might add, without any real reform.” The £1trillion banking bail out was, he went on, “the greatest moral hazard in history” adding: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector." In other words, the behemoth banks need to be broken up or taken into public ownership, just as this column has been arguing all year. I'm not used to finding myself on the same side as the guv'nor, but these are not normal times. 


It was an unprecedented intervention by a figure who is generally regarded a spokesman for the City of London. King condemned the government and the regulators, not just for handing taxpayers money to people who don't deserve it, not just for racking up the biggest public debt outside wartime, but for endangering the future financial welfare of the country by allowing a banking oligarchy to take over the economy. It was like the chairman of the Equalities Commission accusing the government of being racist. 


Now, I'd all but stopped writing about the banking crisis because people seem to have lost interest in it. There's a mood around that the worst is overand that the economy is back on track again, which as King points out is very far from the truth. We are still mired in recession - the longest since records began in 1955 - and the Bank of England is still electronically printing billions of money to try to prevent another financial cardiac arrest. Meanwhile the government is borrowing  13% of GDP with no clear idea of how it is going to pay this money back. 

But it's business as usual in the City where banks are preparing to award themselves a staggering £6bn in bonuses this year, 50% more than in 2008.  Yet, had it not been for the £1 trillion in public money devoted to rescuing them from their own folly, most of these banks would have ceased to exist.  This is not far short of legalised theft. It is not only just the bigglest bail out in history but the biggest bank raid in history by a caste of financiers who clearly believe that they are no longer accountable to anyone but themselves.  The billions the banks are blowing on bonuses are only there because of direct and indirect subsidies from the tax payer. This is most obviously the case in semi-nationalised banks like RBS. But even banks like Barclays, which didn't take cash from the government, have been beneficiaries of the biggest bail out in history. Without the government's asset relief programme, Barclays would be bust, because all the big banks would be bust. 


I'm at a loss to understand why the public has been so quiescent on all this. Why were there no demonstrations outside the Royal Bank in Gogarburn or Lloyds in London? We've developed a very strange set of political priorities, getting worked up about one of the petty criminals of the political world, like Nick Griffin, when the real villains are getting away with grand larceny.  One of the main reasons the government hasn't been tougher with the banking kleptocracy is that public opinion does not appear to demand it. Meanwhile, the banks have been lobbying assiduously behind the scenes, persuading government ministers that if they only allow them to go back to their old ways they'll fill the hole in public finances and start lending to first time buyers. 


I suppose the answer is that bollocking the BNP is easy and makes us feel good – they're fascists, after all. The workings of the financial system are opaque and difficult to understand. It's never quite clear what we want banks to do: lend more to home buyers or less; make credit easier or more difficult. We want the government to spend to save the economy, but we don't want it to leave our children in penury paying off the debt. So we've indulged in self-righteous bear baiting while the real predators pick our pockets. Well, we get the economy we deserve, I suppose.

Beware the green shoot

House prices bounce back! The Daily Mail became an even greater parody of itself last week as it proclaimed the return of the housing boom and celebrated the end of the recession. The City of London has decided that the good times are here again, and a government desperate for good news is echoing its triumphalism.

Well, I hate to be a moaning minnie but the recession is most definitely not over, and we'll be living with the consequences for many years, as unemployment mounts and public spending is axed. All that has happened is that the banking crisis has been resolved by the input of hundreds of billions of public money. If you throw 1.2 trillion pounds at any economy and start printing money by the tens of billions, then something has to give.


We've borrowed ourselves out of a debt crisis, and someone will have to pay. The only thing certain is that it won't be the people who were responsible for the crisis in the first place. Stuffed with our cash, the bankers have stopped panicking and returned back to doing what they're really good at, which is rewarding themselves. Well, they're like rock stars aren't they, or professional footballers. So said John Varley, the chief executive of Barclays last week, whose name has yet to appear on the transfer list for Real Madrid. Bankers, we're told, are just paying themselves what they're worth. No one goes around saying that Simon Cowell isn't worth it or that David Beckham is overpaid.


Perhaps, but then they aren't being subsidised by public money. Barclays isn't in public ownership but it recorded £4.5bn of bad debts last week and would be in severe difficulties were it not for government support and liquidity injections. Most of the nationalised bank chiefs wouldn't be earning anything at all if the government hadn't bailed them out last year because they'd have been out of a job. They have no right to use public funds to pay themselves mega bonuses again.


But where is the public outrage? How do they get away with it? Sir Fred Goodwin, who was pilloried for taking his £16m pension pot with him as he left the sinking ship of RBS pointed out last week that there were 200 in his own bank who were earning more than he did. They still are, even though Royal Bank of Scotland is in state ownership and its staff are officially classed as public sector employees. Far be it for me to side with the archetypal scumbag banker, but Sir Fred has a point. Executives in all the big banks are as guilty of misappropriating public funds as he was since they are only in business because of the bank of you and me.


It gives me no satisfaction whatever to point out that this is exactly what this column said would happen last year after the government bailed out the banks without reforming them. I said that their first priority would be to enrich themselves; that they would use low interest rates to bolster their own balance sheets rather than lend to business; and that they would block any attempts to extinguish speculation or reform the shadow banking system. Well, bonuses are back, lending is down and regulation is out the window. Faced with a systemic collapse of the global financial system, the government abdicated and handed all power to the banks. But at least we now know who's really running the country.


Just don't say that the market has 'corrected itself'. This has nothing to do with market forces or even capitalism. The economy is now at the mercy of a handful of financial institutions, with balance sheets larger than Britain's GDP, which have been allowed to hoover up far greater subsidies than the old nationalised industries of the 70's could ever have dreamed about. Lloyds reported a loss of £4 billion last week and bad debts of £13bn. But the Lloyds share price actually rose. Why? Because shareholders know that the losses are about to be taken on by the tax payers in the Asset Protection Scheme.

The APS sounds like a kind of bomb disposal for banks, and in many ways it is. However, it is defusing hundreds of billions of mortgages and property loans made by HBOS before it was merged into Lloyds. These are housing loans given to people who can't repay them and dodgy investments in property companies which have since gone bust. Make no mistake – we are taking on the losses of HBOS; saving a dead institution. It's like the government bailing out Woolworths and letting them go back to pick'n'mix marketing. HBOS's terrible twin, RBS, is about to dumpt around £250bn in dud loans and other assets onto the APS so that the vast majority of any losses will be borne by us. So much for the taxpayer making "a profit" on the rise of RBS's share price.


It's the same with Northern Rock. The government is reportedly planning to split it into a 'good bank', with the profitable mortgages and all the retail deposits, and a 'bad bank' holding all the dud mortgages unsellable bonds and other junk. Guess who gets to keep the rubbish? It was the Rock's irresponsible lending – those 125% “Together” loans – that helped push the housing market into cloud cuckoo land. But hey, house prices are booming again, so what's the problem? Soon we'll all be using our homes as cash machines again just like the good old days of 2007.


Well, if house prices really are booming again the last thing we should be doing is celebrating since are still unreasonably high by any historic standards. Young families have to take on onerous mortgages which lock them further into the debt cycle; investment is diverted from productive uses; and speculators start taking crazy risks again. A responsible government would be trying to get house prices back to affordable levels.


Fortunately, the recovery is likely to be very short-lived as actual sales are still barely half of what they were two years ago and mortgages are still very hard to come by for people without cash or housing equity. Many of those who already have large mortgages have been given a huge windfall thanks to the lowest interest rates in British history. They're been trading up to larger houses and buying flats with cash. But anyone who thinks that mortgage rates will stay this low for long deserves everything coming to them. It is all funny money chasing funny money, a new turn of the roulette wheel of debt. The casino economy is back, and guess what: we're all losers.