Saturday, December 08, 2012

The City of London is a criminal sink – Understanding the ‘...Anomie of Affluence...’!


Boris Johnson has accused France of a “naked attempt to steal London’s financial crown” ahead of a battle between the European Union’s finance ministers over new powers for a Frankfurt banking supervisor.

As much as I quite like Boris for his outspoken qualities, he is a shameless opportunist and he sees in this issue, an opportunity to arouse the British general distrust of the French over issues of Europe, while appearing to beat the drum for the City of London. But what drum is he beating, and why so loud? If we can get past this juvenile diatribe of intellectual dishonesty, and focus for once on some facts, we may just begin to see the City of London in its real light. For too long, influential British politicians have routinely parroted this nonsense of the supremacy of the City of London, of the need to protect its unique place in the financial universe, the rare quality of its servants, and its importance to the UK economy, in order to justify its existence, and to provide some justification for its dubious criminogenic practices!

It is only recently, in the middle of a deep depression, predicated by the financial collapse driven by the dishonesty and greed of the banking sector, and which we are now being told will last for at least another six years, that we are focusing our minds more closely on the role and function of the Square Mile, and what many intelligent people are now asking is 'What does the City really do for us?'

If you are one of those who had to save for your own private pension (not one who got some obscene payoff like a rogue banker) then you will know what a bloody raw deal you got after all those with their snouts in the financial trough had finished chewing off lumps of your saved pension pot. If you were one of those who needed a loan and then got shafted with a PPI contract that you didn't want, didn't need but were told you had to have, you will understand. If you were one who had a commercial loan which was pulled from under you when it most suited the bank, leaving you financially ruined, you know what I am talking about. If you have followed the scandals involving the manipulation of LIBOR, or the way in which once-famous British Banks have been openly laundering money for foreign criminals through foreign branches, but with the vast majority of that money coming back through the City, you will know what I mean.

The City of London, in recent years, has become a criminal sink, populated by a criminogenic community of spivs and wideboys made wealthy beyond the dreams of avarice, by the ludicrous pay schemes and bonus awards, made possible in an environment where all sense of worth, value, and ordinary law-conformity, has been jettisoned, in return for vast sums of money far and beyond anything that might normally have been paid only a few years ago. The entire financial sector has become an organised criminal entity.

The quid for this pro quo, is that the performers in this financial farrago are required to continue to maintain a steady stream of profit, and increasingly, as that profit becomes harder to achieve by lawful means, so the criminal means take over.

So, we have seen the plethora of PPI frauds, Interest-rate derivative frauds, the LIBOR scandal, the almost limitless amount of criminal money which is being laundered through the City of London. HSBC may have set up a Mexican Bank to organise the money laundering for the Mexican Cartels, but they made sure that the money would have come to London at some stage by ensuring that the Mexican bank was a wholly-owned subsidiary of a British-registered bank with offices in Canary Wharf!

How could such a procession of criminal activity have taken place in an environment which we are constantly told has some of the best financial regulations in the World? In repeating this falsehood, those who have the most to gain from it, assert the lie that our regulatory construct is as good as it can possibly be.

If by that they mean that we have a fine set or laws, rules and regulations, they might be right, but they are ineffective because they are just not properly enforced or applied. So, this oft-repeated shibboleth is just another bloody lie. London is attractive to foreign banks because we have some of the least applied regulation in the world, and that which we have doesn’t get enforced very well. That’s why foreign banks want to come to do business in London, duh! This is not rocket science!

You can get away with just about anything in London, money laundering through the banks here is regular and commonplace, because no-one takes very much notice of the Money Laundering Regulations. I met an experienced banker this week who has worked for a major bank here for many years and only this week he took his first anti-money laundering training session, because his institution is finally under the remedial cosh! You can move the proceeds of foreign tax evasion, you can launder the contents of corrupt dictators’ slush fund accounts, you can engage in sanctions abuse or the proceeds of drug trafficking, because no-one is going to stop you, and even if you do eventually get disciplined, you only get fined, and that falls on the shoulders of your shareholders.

 If you have been following the Parliamentary Commission on Banking Standards, you may have taken some comfort recently, watching some of the former City 'Great and Good' getting their much deserved  'come-uppance' at the hands of some of the questioners.

More importantly, what these interviews should have told you, in no uncertain terms, is that the huge retail banks during the run-up to the great financial crisis, were in the hands of a bunch of completely incompetent clowns, who were so puffed up by their own egos and who believed their own PR statements, that they were completely incapable of identifying the signs of the crisis building up in front of them. This was manifested right across the financial sector, as each of these imbeciles competed with each other for the title of the Greater Fool.

The level of recklessness identified by these men bordered strongly on the criminal, a condition defined as  '...a grossly negligent act without concern for the danger to others...' Actions such as these ought to attract the most severe penalties, but of course in our criminogenic culture, these mafiosi will be allowed to get away with their crimes!

Just listen to some of the questioning!

The former chairman of HBOS washed his hands of blame for the bank’s collapse.

Lord Stevenson, who earned £815,000 a year in pay and perks, infuriated MPs and peers by saying reckless lending was not his fault because he was ‘only there part-time’.

Well, that's alright then, he only turned up part of the time, presumably to trouser his huge salary and his expenses, and no doubt shovel a vast meal down his well-oiled throat!

 'Och, it's no ma fault, d'inna ye ken! I wasn'ae there when the dodgy decisions were being made!

What the fuck do you have to do in this country to get paid £815,000 a year but have no responsibilities for the well-being of your company? You couldn't make this crap up, but here he was, sitting in front of men and women he would once have grandly patronised, repeating this garbage with a straight face!

The politicians accused him of ‘living in cloud cuckoo land’ and showed him a damning letter in which he had earlier admitted he was legally responsible for the business.

His testimony during which he appeared increasingly rattled and started to lose his voice, was described as ‘evasive, unrealistic and repetitive’.

Lord Lawson, the former chancellor, accused his fellow peer of having a selective memory when he repeatedly claimed to have forgotten key details. Lord Stevenson repeatedly rejected suggestions from the banking commission’s chairman that the loans were ‘incompetent’.

He said: ‘There was a lot of mistaken lending. I wasn’t there in the trenches with the people making the decisions – I was only there at the most part-time.’

He described the Board as having ‘missed a trick’ in its corporate lending division.

This particular remark really got under the skin of Andrew Tyrie, chairman of the commission, who pointed out that £26billion – roughly two-thirds of the amount businesses pay in corporation tax each year – had just ‘gone down the Swannee’.

The Tory MP added: ‘Millions have lost out on what they thought they’d get for their pensions. Almost three million shareholders have almost been wiped out – and taxpayers are going to be paying for this for a very long time.’

Lord Lawson accused him of '...living in cloud cuckoo land. You were responsible for a strategy of reckless growth and that is what led you into difficulties. When the details seem to suit your defence they appear to miraculously pop back into your memory...’ 

Lord Stevenson’s lack of contrition angered Justin Welby, the Archbishop of Canterbury-elect. He said he was ‘baffled’ by the inability to recognise the ‘complete failure of culture and strategy’ which ‘led to a bank being wiped out’.

The Archbishop elect put his finger firmly on the problem when he identified a malignant culture which has seen taxpayers sitting on a £7.5 billion paper loss on the Lloyds shares bought by the Government; while millions of investors and pension savers have seen their nest eggs destroyed, because Lloyds has now been forced to write off almost £50 billion in bad loans made by HBOS.

Stevenson, Crosby, Diamond, Goodwin, all the usual spiv suspects, who between them managed to dump the British banking system into the sewers, were all operating in a culture which evidenced a criminological phenomenon called the 'Anomie of Affluence'.

Their behaviour, when examined, betrays all the evidence of their failing to acknowledge even the simplest levels of management controls, a willingness to override or bypass elements of prudency, their unwillingness to take advice or listen to professional colleagues, their increasingly arrogant behaviour towards subordinates, (Goodwin once threatened disciplinary action against any member of staff who served pink wafer biscuits with coffee), the inevitable hubris, meaning extreme pride or arrogance, (hubris often indicates a loss of contact with reality and an overestimation of one's own competence or capabilities, especially when the person exhibiting it is in a position of power) leads to destruction, both of the individual and the power structure he controls.

Anomie is an absence, a breakdown, a confusion, or conflict within the norms of these bankers, in their social environments and personal lives – a state of deregulation and malintegration, while on the individual level, a state of meaninglessness applies,  a lack of social norms or ‘normlessness’.

Anomie describes the breakdown of social bonds between an individual and their community, and if under unruly scenarios, possibly resulting in fragmentation of social identity and rejection of self-regulatory values. It was popularized by French sociologist Emile Durkheim in his influential book Suicide (1897). For Durkheim, anomie arose more generally from a mismatch between personal or group standards and wider social standards, or from the lack of a social ethic, which produces moral deregulation and an absence of legitimate aspirations.

So what was it that caused this breakdown in the norms of the society in which these men worked? What factors encouraged them to break ranks with the ordinary, every-day rules of common sense and prudency, and to start behaving like little tin gods?

 A criminologist, Harry Cohen, has pointed out the implications of abrupt changes in the social and working lives of humans, and he accentuated how anomie could result from improvements in economic and material conditions. He cautioned, for example, ‘...of the moral danger involved in every growth of prosperity...’

He wasn’t saying that prosperity was a bad thing, just that ‘...if change is sudden or dramatic, it tends to sever both the ties and the commitments which bind people to the social order...’

The City of London and the entire financial sector has, in the last 20 years, engaged in an orgy of unrestrained licence, an environment of pay and rewards which have outstripped those earned by ordinary men and  women, many hundreds of times. Prior to the Big Bang and the emergence of a de-regulated market, even senior merchant bankers in the City tended to earn about the same salaries as surgeons and solicitors at that time, comfortable but not bizarrely obscene.

The pay scales, golden handcuffs, benefits, bonuses and pension contributions offered to modern bankers has thrown the entire rewards spectrum completely out of all recognition, and has distorted the expectations of frankly ordinary men and women beyond definition. The City maintains that they have to pay such salaries to keep the ‘best brains’ in the business, and to attract the very best to come to London.

What complete and utter bollocks! They have to say these things to justify their paying these ludicrous salaries. This shibboleth however, gains momentum and is adopted by people like Boris Johnson who begin to buy in to the context of the so-called ‘genius’ of the City, and its unique status! He does so as a means of beating the French in an unashamed exercise of xenophobia, a tactic which he knows will play well with an electorate tiring of David Cameron’s apparent lack of rigour towards Europe!

 Additionally, rapid life disruptions or abrupt change such as a sudden increase in wealth and power can tend to reduce the individual’s sense of belonging.  Durkheim himself had said; ‘...Extreme wealth suggests the possibility of unlimited success...’

The impact of the era of de-regulation and practitioner-based self-regulation, saw salaries and benefits for employees rising exponentially. The annual bonus round became a kind of musical chairs in which employees calculated their bonus payments as a means of keeping score in their relationshios with their firms and their colleagues. Payments lost any meaning as a recognition of hard work and contributory worth. But each payment was never enough and each pay round had to be bigger than the last, to give their otherwise dull and dreary lives any meaning.

Elaborating on this phenomenon described by Durkheim, Harry Cohen also observed that, ‘anomic people do not know why they strive so, why they still miss something when they are richer and richer . . . life remains truly meaningless’

Durkheim reasoned that, the anomie of affluence is a result of rapid and extreme changes in wealth. This type of anomie is what Durkheim termed acute anomie. He argued that acute anomie was especially likely if there was a radical and sudden improvement in material conditions. ‘In the case of an abrupt growth of . . . wealth . . . the scale is upset; but a new scale cannot be immediately improvised...’

Additionally, he perceives affluence as over-stimulating desires by giving individuals ‘a sense of power and supremacy that deceives them into believing that they are answerable only to themselves’  In other words, acute changes in wealth, status, and power among individual City practitioners may be associated with personal anomie, leading inevitably to deviance.

In what seems a prescient description that appears to fit the discussion of the social environment of the City of London and the often-times anomic behaviour many professional financial practitioners engage in, Durkheim had stated:

‘...From top to bottom of the ladder, greed is aroused without knowing where to find an ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; and it is seen that all these new sensations in their infinite quantity cannot form a solid foundation of happiness...’

The last few years have seen acres of newsprint dedicated to trying to understand the criminogenic phenomenon posed by men like Stevenson, and Goodwin. Criminologists have always understood these people because criminologists understand the nature of the concepts of ‘Anomie’, and see it manifested so clearly in their conduct, and that of very many City practitioners.

Criminologists know that unrestrained states of anomic behaviour lead on to criminality, it is an inevitability, so when we see financial crime being committed by these worthless individuals, we are not surprised, and we speak out.

The biggest problem, as always, is not knowing that these conditions are a fact of commercial life, but getting other people who are ignorant of these phenomena (like regulators and politicians) to take any notice, and act upon the knowledge!

8 comments:

AbogadoNZ said...

Another great piece Rowan and testimony to your knowledge and research. May I dare to add a couple of points:
1. Am I the only one who finds it weirdly ironic to see Parliamentarians venting their spleen at bankers for breaching the regulations set primarily by Parliament itself and yet actually do nothing. There is a delicious sense of schadenfreude knowing that those who should have prevented the criminal behaviour get hot under the collar when their own laws are ignored.
2. Then there is the real cause of the banking crisis - the explosion of credit that occurred in the last 30 years. Banks created this credit and sold it in a regulatory regime that encouraged risk and rewarded sales with ridiculous sums of money.
Banks and bankers aided and abetted by Parliamentarians - some of whom once worked in the industry - are now merely playing a game of 'pass the parcel'. A pox on all their houses.

lifeafterdebt said...

A really well written and informative piece Rowan. You are so, so right to point out getting people to really open their eyes and see what is going on is nigh on impossible. From my experience, the vast majority still believe the world of banking crime is a far off land which falls outside their need understand. For the most part, even those who have been directly hit in their pockets believe its "being sorted out" and don't realize reports of the theatrical slatings the banksters have recently received at the hands of the parliamentary commission does not mean their findings or recommendations will be be implemented or acted upon.

cringing2 said...

Thanks for another great piece Rowan. I expect you've read Akerlof and Romer's "Looting: The Economic Underworld of Bankruptcy for Profit".

Morph366 said...

Very well written piece which should lead to greater impetus to clean it all up...but Boris will ensure that doesn't happen.

Hawkeye said...

Of course “The city” is too big for its boots. Just look at the size of its balance sheet:

http://www.guardian.co.uk/commentisfree/2009/dec/06/will-hutton-city-finance-budget

The city is leveraging the UK economy by a factor of six times our GDP! That is dangerously close to the levels that Iceland toyed with before its spectacular crash.

No politician is ever challenged on whether they consider this amount of leverage safe or necessary!

Anomie indeed.

Hawkeye said...

@cringing2

You are right to mention the Akerlof & Romer 1993 paper on "Looting: Bankruptcy for profit". Their paper explains the MO and the detrimental consequences of corporate looting, and was the basis of section 7 of this ICB submission:

http://bankingcommission.s3.amazonaws.com/wp-content/uploads/2011/01/Russell-Bradshaw-Issues-Paper-Response1.pdf

It is clear that modern banking is engaged in wholesale fraud & looting, and rather than act as a warning, the Akerlof paper just became a "How to..." guide for CEO looting!!

Bob Janssen said...

Re. "The City of London, in recent years, has become a criminal sink ..." It has been a criminal sink for over 200 years starting with the manipulation of the English stock market in 1812 by the Rothschild gang who, in turn, gained ownership of the Bank of England and have been nefariously in control of subsequent central banks in Europe and the US. Who do you think controls the US Federal Reserve Bank? BobJ

KYLIE DAVIES said...

This is really fascinating material! I personally have completely cherished reading your own points and have arrived at the conclusion that you are correct with regards to a lot of them. You actually are great.
Home and Family