Vulture Capitalism

Aggressive, risk taking, greedy, reckless, potentially law-breaking. Is this a description of some fly-by-night, shadowy business organisation that’s ripping off its punters? No, it’s my description of our commercial banks.

Years ago you could arrange to see your friendly, trustworthy bank manager for a cosy chat about your finances. Interest rates were stable, you could get fixed rate mortgages, and there wasn’t an army of financial hustlers on commission waiting to sell you dodgy financial products. Prudence, rather than profit, was the name of the game.

Fast forward to the noughties. Enter a new breed of bank boss. Never mind about the customers, just take their money and pile it into risky investments like property and grandiose corporate acquisitions. Their arrogance was breathtaking. Remember Fred Goodwin (formerly Sir Fred)? Not content with stoking up the biggest financial crash since the Great Depression, plunging most of the global economy into a continuing crisis, they also presided over a culture in which payment protection insurance was widely mis-sold and interest rates rigged in a key financial market.

Now another mis-selling scandal has reared its ugly head: the interest rate swap. Small businesses, the ones least able to employ sophisticated lawyers and accountants, were persuaded to swap from variable rate to fixed interest loans. The idea was to protect them from interest rate increases. What a great wheeze! Unfortunately, the Bank of England embarked on a massive programme of “quantitative easing” (see my earlier blog on Fiscal Cliffs and Debt Mountains for details) and interest rates fell through the floor. These businesses found themselves paying far more than they would have done under their old loan agreements. Of course, this pitfall was never clearly spelt out when the salesmen were doing their pitch. The products were often complex, and rhe Financial Services Authority reckons that 90% of them were mis-sold, an astonishingly high figure.

Although the affected businesses might win compensation, this will be scant comfort to those that have already gone under. It won’t worry the banks’ bosses, however, who are already lining up their bonuses. Financial services play a key role in our economy, but has it been the role that’s best for you and me? They should be helping to revive our emaciated economy, not picking clean its bones, like a pack of circling vultures.