Do you trust investment bankers? Don't laugh, because faith in the good behaviour of these individuals is the linchpin of the Government's reforms of our financial sector.
First some background. We taxpayers were forced to bail out our bust banks in 2008 because allowing these institutions to collapse would have plunged us into economic chaos. This prompted calls for the Government to split up the banks, separating their ordinary high-street banking arms from their casino trading operations.
The logic was straightforward. Retail banks, which take deposits from ordinary savers and provide credit to households and businesses, provide an essential utility, similar to the water or electricity companies. The state simply cannot allow these vital economic services to be disrupted. The same is not true of the operations of investment bankers, which take massive bets in global capital markets on behalf of themselves and high-rolling clients. The goal of the split was to protect the taxpayer by making it clear that future state rescues, if necessary, would be limited to ordinary savers, removing the de facto government insurance policy for reckless, bonus-driven investment bankers.
Labour said no to the proposal, but the Liberal Democrats and the Conservatives, who were then in opposition, signed up. But rather than legislating to mandate a split when they formed the Coalition in 2010, those two parties appointed an independent committee, headed by an economist called John Vickers, to examine the case. And the Vickers Commission stopped well short of recommending a total separation of high street and investment banking. Instead it proposed the creation of a "ring fence" around banks' high-street arms. Ring-fenced banks could remain under the umbrella of the larger institution, but would hold a bigger capital buffer. They would also have some independent directors and face restrictions on what they could do with ordinary depositors' money. Vickers claimed this would achieve all the benefits of a full split but with none of the costs involved in physically separating the operations.
I, along with others, was never convinced. The idea smacked of the internal "Chinese walls" that supposedly stop traders using privileged information gleaned from colleagues in mergers departments to make bets. Anyone who has had any contact with the City of London knows these non-contact rules are generally ignored. And the fear was that cunning bankers would find ways around the ring-fence just as easily. Vickers' proposal seemed to be largely based on the idea the bankers could be trusted to respect the spirit of the new institutional arrangements.
They have already shown that they don't. The banking lobby has succeeded in getting the Chancellor, George Osborne, to water down Vickers. Last month's White Paper permits ring-fenced retail banks to continue selling interest-rate derivatives to their customers – the very toxic products that banks have been conning ordinary businesses into buying.
And now we have the revelation of interest-rate fixing by traders at Barclays. It should now be screamingly obvious that the investment banking world is irredeemably unscrupulous and mendacious. It cannot be trusted. And the Vickers ring-fence simply does not provide credible security for taxpayers. The Coalition parties need to go back to what they promised in opposition. Nothing less than a complete separation of the essential services provided by high-street banks from the corrupt world of the investment bankers will suffice. The credit of these individuals with the British public has been utterly exhausted.
Are they all predators?
Yesterday's outré radicalism is today's conventional wisdom. Ed Miliband gave a speech last year in which he made a distinction between "producer" and "predator" capitalism. The Labour leader said: "Let me tell you what the 21st-century choice is: are you on the side of the wealth creators or the asset strippers? The producers or the predators?"
Many commentators bristled at what they saw as the Labour leader's "anti-business" rhetoric. Others scoffed at the naivety in display. It was simply impossible, they pointed out, for politicians to tell the difference between the two.
Things have changed. This week GlaxoSmithKline was found guilty of bribing doctors to prescribe dangerous antidepressants to children. Last week Barclays was shown to have manipulated interest rates for profit. So did those two firms behave as producers or predators? Perhaps it's not such a terribly difficult distinction to make after all.