Seventy-five years before the trillion-dollar bankruptcy of Lehman Brothers in 2008, then-US president Franklin Roosevelt had used his 1933 inauguration speech — in the depths of the Great Depression — to declare that the “money changers have fled from their high seats in the temple of our civilization.”
“We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit,” he added.
In 2008, in the aftermath of the Lehman collapse, the words of the New Deal president were often quoted by those keen to rein in the excesses of Wall Street and the City, London’s financial district. After Lehman there was no shortage of ideas on ways of restoring the temple, including breaking up the big banks into retail and investment arms, as they had been in the US under the Glass-Steagall Act of 1933.
The reformers were not confined to the Occupy Wall Street movement protesters who set up camps on Wall Street and by St Paul’s cathedral, in central London. Paul Volcker, the former chairman of the US Federal Reserve, supported moves to prevent banks engaging in speculative trading that did not benefit their customers, while in the UK the coalition government backed plans to force banks to ringfence high street operations from their investment banking activities.
The aim was to eradicate what Lord Adair Turner, when he was chairman of the Financial Services Authority, the quasi-judicial body responsible for the regulation of the financial services industry in the UK, had called the “socially useless” parts of the City and rein in the risk-taking that might one day require another taxpayer bailout.
Five years on from the tumultuous collapse of Lehman — which prompted a near meltdown of the global financial system — Turner admits the socially useless activity he was concerned about has been only temporarily restrained. Indeed, to the public, the perception is that the City has got away lightly, especially compared with what happened to those blamed for the 1978-1979 winter of discontent.
Five years after that winter, when the trade unions were deemed to have taken Britain to the brink of economic chaos, the government of then-prime minister Margaret Thatcher had taken a series of steps to tame organized labor. However, capitalism’s winter of discontent in 2008-2009 led to no such seismic shift. Just six months after the mayhem caused by Lehman’s collapse — which quickly led to the rescue of HBOS by Lloyds, the bailout of Bradford & Bingley and the near-demise of the Royal Bank of Scotland (RBS) — an industry that loves acronyms had created a new one: BAB, standing for “bonuses are back.”
Five years on, the view of former City minister Lord Paul Myners is that not a lot has changed.
“The banks are still too big, too interconnected and too undercapitalized,” he said.
He is not alone in fearing that too little has changed to prevent another crisis and that lessons have not been learned. Turner, too, fears that history could repeat itself and Alistair Darling, British finance minister at the time of the bailouts, agrees: “As long as people think they can make money out of nothing, it will happen again.”
That is not to say there have not been changes. The Lehman crisis and the subsequent economic crisis led to a change in the political order and, in May 2010, to the first coalition government in the UK since World War II. Bankers’ heads rolled: Fred Goodwin, former CEO of RBS — now plain Mr after being stripped of his knighthood last year — was the first to go, paying the price for the October 2008 bailout. The top bosses at HBOS were not far behind and shortly afterward those of Lloyds and Barclays were gone.