Simon Evans: Turner’s antidote would kill, not cure, the City

Looking back, allowing Lehman to go under was a terrible mistake. The months
following the failure, which saw the rescue of plenty of less august
institutions, showed how badly the former Goldman Sachs chief and Treasury
Secretary, Hank Paulson, and others read the situation. Nearly one year
after Lehman’s collapse, the financial community is in an altogether
different place. Share values have soared since March, while banks are in an
altogether more bullish mood. Recession? What recession?

Barclays Capital’s Bob Diamond is leading the chequebook charge to hire the
best talent but others aren’t far behind. It seems that the excesses that
laid the foundations for the credit crisis are being built up once again.
Certainly something needs to be done to ensure that the giant incentive
packages that promote disproportionate risk-taking by traders and other
financiers are removed.

But I don’t know how to temper the City’s greed. I’ve yet to hear a single
idea that holds up to scrutiny. The bizarre intervention last week by Lord
Turner, the chairman of the Financial Services Authority, has little merit
to it. Parts of his magazine interview are truly staggering.

The City was lauded and feted by Britain’s political elite a few years ago,
but Lord Turner launched a tirade against the Square Mile saying that it had
now swollen to the point of being dangerous, while he dubbed parts of it as “socially
useless”.

If Lord Turner’s assertions about the City were over the top, he also
overdosed on the medicine to cure the apparent illness. The idea of bringing
in a Tobin tax, a charge on transactions, to quell the City’s exuberance is
absurd. Are the world’s financial centres all going to sign up to this tax
in a co-ordinated manner? Of course not. We’d simply see an unedifying
competition begin between states and jurisdictions to scoop up the spoils
from companies quitting London.

The FSA’s remit is to safeguard economic stability. The idea of a Tobin tax is
for the Chancellor, or a future chancellor, to consider. The deafening
silence from both the Treasury and George Osborne speaks volumes about what
they think of Lord Turner’s musings. The tax take generated by the City is
vast, never mind the foreign exchange earned. What will happen to the UK’s
balance of payments if the City falls to the same level of importance as the
car industry, or the mining industry as it surely would if left to Lord
Turner?

These are dangerous times and the regulator has responsibility to stick to his
remit instead of bandying around preposterous suggestions. It’s not as if
his in-tray is empty at the moment.

Nearly one year on from Lehman’s collapse, there are many reasons to be
cheerful. We are clearly over the worst. But Lord Turner’s comments should
be a warning to us all. Failing to save Lehman’s last year was a dreadful
mistake. Let’s make sure we don’t have any more disasters for a while.

Margareta Pagano is away

Not moving: Goodwin’s banker denies rumours

Being Sir Fred Goodwin’s banker on the way up must have been fantastic.
Merrill Lynch’s Matthew Greenburgh was once upon a time one of the City’s
most prolific dealmakers. Perhaps the most prolific dealmaker. He was the
key man in Royal Bank of Scotland’s ultimately catastrophic purchase of ABN
Amro in 2007.

Reports suggest that he earned as much as £11m for that deal alone. But the
City can be a cruel place and the kudos that went with being so heavily
aligned with Sir Fred has disappeared. With Sir Fred gone, RBS’s chief
executive, Stephen Hester, ditched Greenburgh, seeking counsel with Paul
Nicholls at Hoare Govett instead. City rumours suggest that Greenburgh may
leave Merrill by the end of the year as the group’s financial institutions
group looks to a fresh start. Apparently some chief executives aren’t too
keen on being associated with Greenburgh and the baggage of Sir Fred.

In his usual brusque fashion, Greenburgh told me last week he is not leaving
Merrill or changing his role and who am I to disagree with him? But the
rumours and whispering will persist. Reputations are hard won but quickly
lost.

For the real meaning of prudence, Brown should have looked to Poland

It’s easy to see why the hordes of Polish workers that came to Britain after
2004 have flown our shores for home.

While Britain still languishes in recession, with one of the biggest debt
piles in the world and an unemployment rate that is soaring, the Polish
economy is side-stepping the gloom. It is expected to grow by 1 per cent
during 2009 ? the 14th year in succession. In contrast, Alistair Darling
said in April’s Budget he expects the British economy to shrink by more than
3 per cent over the same period. The Chancellor’s estimate is by any stretch
of the imagination bullish.

Like Britain, Poland’s immediate neighbours in the former Soviet bloc
countries are having a tough time too. The Czech Republic, for example, is
expected to see its economy shrink by 2 per cent this year.

Poland’s success is no mean feat. The course plotted to avoid the maelstrom by
the country’s politicians and central bankers has been one borne out of past
experiences.

Cheap money might have been sloshing around Western economies during the bull
market years but Poland’s banker’s resisted the same kind of monetary
easing.

Memories of galloping inflation clearly remained fresh in the minds of the
Polish establishment, which resisted relaxation despite condemnation at the
time and demands that the country should be less cautious.

The travails of 2001, which saw the country’s economic growth slow to a near
halt, must also have been in the minds of policymakers too. In contrast to
many Western states the Polish banking system didn’t place all its chips on
the roulette wheel as the rest of the world got hooked on casino capitalism.

Gordon Brown talked about prudence at length but the path he took the UK
economy down was in hindsight anything but.

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