After the sweaty dramas of last autumn the banks are back in business. The policymakers in the Labour and Conservative parties join the bankers in the booming bars around the City in raising a glass. All of them want to go back to the way things were before the banking industry almost collapsed.
The bankers explode with self- satisfied pride at the way in which they have returned from the edge of the cliff. They continue to enjoy their comically high wages and look forward to some bumper bonuses at the end of the year. In some ways they are better off than ever, discovering that they can take risks without being allowed to go bust. They have also discovered that their freedom to act is untouched too, in spite of their spectacular failures. If they do not want to lend to small businesses they will not do so. They know the Government, and the alternative government, will not do very much to penalise them.
The complacency of the banks was reflected in the interview with John Varley, the chief executive of Barclays Bank, on the Today programme yesterday morning. He spoke of the "humbling" experience of the crisis last autumn and said he would take "guidance" from the Financial Services Authority (FSA) about the level of bonuses. The idea of guidance is a quaint one, providing plenty of leeway for generous remuneration when some of the senior bankers are lucky to be in work. Almost certainly they will award themselves large bonuses because, in the end, they prefer the cash even if public opprobrium follows.
The actions of Sir Fred Goodwin provide a guide as to what will happen. When he left the Royal Bank of Scotland in near terminal chaos, Goodwin chose, at first, to take the grotesquely generous pension in spite of denunciations across the political spectrum and the public outrage that was so intense he was forced to leave his home. He did not need the money, but took it, in spite of the life-wrecking onslaught. More recently he announced he would not accept the whole package, but his original decision reveals a mindset that places an irrational lust for money above all other considerations, including the recipient's overall quality of life.
It is not surprising that the bankers want to get back to the good times and pretend that they still function in a market economy; the argument Varley deployed yesterday to justify the high salaries and bonuses. The assertion is absurd. If the banks were operating in a market economy, a lot of them would have collapsed last autumn. They were saved by government intervention and only function now, in some cases, as heavily subsidised companies.
What is more interesting and disturbing than the response of bankers is that of the main political parties. The choreography of last week's meeting between the banks and Alistair Darling was illuminating. Darling asked the banks politely and with his attractively self-effacing humour why they were reluctant to lend more to small businesses. The banks gave their explanations and promised to do better, and that was more or less it. They still pull the levers. They have the power to decide whether or not they lend. Darling should have been in a position to tell them what to do, but has chosen instead to invest billions of taxpayers' money and then keep his fingers crossed from a distance.
Last week's Treasury select committee's report on the Government's recent White Paper on the future of banks was damning. Its Labour chairman, John McFall, pointed out that whereas no institution was responsible for ensuring financial stability before last autumn, under the Government's latest chaotic proposals, virtually everyone would play a role – the Treasury, the Bank and the FSA, for a start. It is not at all clear who would be in charge, or who would be culpable if anything goes spectacularly wrong. No wonder the banks sense they can have a ball again.
At least the Government does not suggest a pointless or possibly dangerous restructuring. The Conservatives' proposals for the banks published last month provoked some of the most damning criticisms in response to an opposition document for a long time. Privately, senior civil servants despair at the prospect of the Bank of England taking over responsibilities from the FSA – the main proposal – precisely at a moment when the FSA is well equipped to perform the role.
Economists were more open in their disdain, pointing out that in their student-like desire to pin the entire blame for the crisis on Brown, they plan to virtually abolish Brown's FSA. All that would mean, at best, is that those working for the FSA would switch to the Bank of England. More likely, the Bank's aloof academic approach to crises could make matters worse. Meanwhile, the Conservatives share the Government's reticence in relation to stricter regulations of the banks, preferring instead to focus on rearranging the regulators.
In a different context we are witnessing a worrying repeat of the 1970s, when political leaders failed to adapt to changing times and instead persisted with policies that had obviously failed the last time they were applied. They did so for the same motives – fear of any alternative, and an expedient desire to catch the other party out. In the 1970s, a decade of crisis, a Conservative government came to power opposed to an incomes' policy as a way of dealing with trade unions, an institution almost as out of control then as the banks are now. Within three years the government had imposed a rigid incomes' policy that eventually brought about its demise. In order to fully expose the weakness of the Conservatives' position, Labour came to power in 1974 resolved not to impose an incomes' policy. Within 18 months it also changed its mind with exactly the same calamitous consequences.
Dancing to a death march, two governments performed U-turns on the same policy issue and were brought down by what followed. In the 1970s, the politicians' comfort zone was an incomes' policy that came to strangle them. Now Labour and Tory politicians hope to return to the economic boom fuelled by banks as if nothing had happened the last time around.
The current crisis is not over yet and will not be until a political leader is ready to move on from the immediate past.
s.richards@independent.co.uk
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