Bankers are part of the key to reducing long term unemployment

Sunday, September 6th, 2009 - Article, sunday thoughts


Bankers are part of the key

to reducing long term unemployment

Green Ribbons

With the G20 summit coming up this week, there have been a lot of preparatory talks about key issues to both keep the global economy moving, as well as reforming it to ensure that much of the bad stuff of 2008 doesn’t happen again.

Of focus for both the global leaders and the area of much news conference utterance from politicians – and hence media coverage – is that bankers pay needs to be regulated in some form.

As my father – a retired High Street bank manager for NatWest – has been assured his pension will still keep coming, the actual talk is about regulating how the investment bankers will get paid. But, and here’s my concern, is this a wise idea? It was the bankers who got us to such a high level of economic activity, and hence low level of unemployment. By now restricting them post recovery, we are accepting that unemployment in the medium term has to rise?

Lower economic activity = higher unemployment

Think about it:

  • People who could get mortgages for houses now can’t. You almost need to be a parish vicar of 40 years standing with a wife and two children to pass a credit check at present. Still, with what they pay vicars, you they afford a deposit
  • Businesses which existed for their monthly payroll via lending can’t get additional credit, and many have had their other credit crunched. Hence, they have had to contract, and make people redundant
  • The centrally supported HBoS and RBoS banks will have their cases in front of the European Commission this week, to decide if the government loans that saved them – and most of capitalism – can be approved? If they are, then it is likely that they will be asked to cut back on their share of small business lending. With at least a quarter of the UK’s high street lending capacity gone thanks to the withdrawal of the foreign banks, where is this market share going to go? Right, to HSBC and Barclays at what will be higher monopolistic rates
  • One of the outputs of the G20 will be asking the banks to keep more capital in their stores, to ensure that they never have to ask for a loan from their governments again. Banks run on three pots of money: the left hand pot of lending, the middle pot of investor capital, and the right hand pot of interest bearing deposits. They leverage the right hand two pots to lend at a higher rate of return to the left hand pot, hence making a profit. Now, if they must keep more in the middle, then that gives them less to lend at a higher rate

All of this to me sounds like less economic activity. Add in the fact that there are huge loans that each of the governments took on which now need to be paid back, and that sounds like a rise in taxes. Which with higher unemployment sounds like less High Street activity, which means that what does go on economically will be more expensive and at a lower rate.

Lower rates of economic activity require less output; less output requires fewer jobs; fewer jobs means higher long term unemployment.

Do we want the bankers to lend at the same levels as that which they did before the economic crisis? No, and the reasons Lehmans collapsed was because it was leveraged at 44x its investment capital, mainly through US sub-prime. So how do we ensure that unemployment comes down without risking it all on the bankers?

Green banking, green investment

Obama in American has been talking about a green jobs revolution. Effectively, his government is choosing to invest in green technology, which will create a resulting stream of invention. This leveraged by patents will result in a stream of revenue and jobs. Long term investment to create longer term economic return.

In the UK, we have a unique and well globally adopted system of government, law and judiciary triangle which results in a stable platform on which to build a global finance platform: the City of London is a by product of a stable democracy. But if you look at the spread of the population, that draw of high wages has resulted in a gradual commute – via transport or permanent move – to London and the South-east. The result? A congested and environmental disaster in most of London’s street on a daily basis, from excess traffic. The congestion charge resulted in a three years gain in traffic levels – useless!

So, what creates jobs, is long term green investment, makes transport work, and doesn’t allow the bakers to run havoc? And yet, the UK’s sole high speed rail project, which could put Michael Leary of RyanAir’s nose out of joint in one easy move, won’t be started until 2013 nor operational until 2016.

Why do we never learn? The unemployment black spot that was the Eastend, is not because of the Olympics: biggest brownfield building site in Europe. And its not exactly a socialist approach either, with the condemned O2 Millennium dome now being Europe’s most successful entertainment venue. That was proposed by some left winger called Michael Heseltine!

Banks not bankers, Green Investment

The G20 need to step up to the plate, and regulate the banks, not the bankers. If you look at the press releases, even the French step back from the idea of detailed global regulation on bankers, but still don’t propose the solution to the problem: a communal pot of regulated global bank information. The bankers could run a mock because each country only looked at its little bit of the piece. Regulation of the banks is good, but managing the bankers should be left to the banks: as long as they are within their global regulation and capital requirements, we need the individual bankers to take risk – it creates and sustains jobs.

Secondly, we need each country to look at its green and sustainable infrastructure, both intellectually and substantially. Investing now could save the greatest crisis of all – that its not the debt that kills the capitalism, but the fact we can’t generate power or get to work. Compared to rising unemployment, mass hysteria is a whole new level of distrust and social breakdown. Investing in green is the answer to our now unemployment as well as future social cohesion problems.

Good Luck!

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