Don’t Start From Here: We need a banking revolution

by David Shirreff

The economic crisis and its aftermath has been a great disappointment to radicals. For a moment in 2008 capitalism tottered and seemed ripe for overthrow. At the least, the crisis and subsequent recession would surely force a fundamental reform of the Anglo-American model of international finance.

But it hasn’t happened. The authorities concentrated first on preventing depression with an unprecedented avalanche of spending and then on strengthening the existing system of financial regulation. The programme of reform was largely agreed by the end of 2008 and has been driven through with unusual speed and cohesion for an international programme.

In sum it has amounted to ‘more of everything’ – more capital, more liquidity, more transparency and closer and more intrusive supervision – rather than a fundamental change in the business model or structure of the industry. As a result, while some big names – Lehman Brothers, RBS, UBS – have disappeared or been cut back, the titans of the sector – Citi, J P Morgan, Deutsche, Santander, HSBC – are in some ways even stronger than before and the shape of banking and capital markets remains recognisably the same.

Many commentators think this is not enough and still hope for more far-reaching reforms. David Shirreff, former Frankfurt correspondent of the Economist, is among them. His essay is not the most rigorous presentation of the arguments. You will find very few numbers and more cartoons than charts.But it has the merit of being short (less than 100 small pages) and being written in layman’s language with the bonus of a useful glossary of financial jargon.

He argues that banks are too big and complex to manage, let alone regulate. The attempt to model the risks they take has led to over-complication and regulatory capture by the industry. A pervasive culture of entitlement in banking has not been challenged. We need a simplifying revolution.

We should split modern universal banks into three: retail, corporate and investment. The retail and corporate banks should be tightly regulated and prohibited from market-making or dealing in derivatives. Their size should be capped and their pay too (at £200,000). Investment banks would join hedge funds outside this regulatory net but only on condition that they are restructured as partnerships. The complex regulatory standards agreed in Basel II and III should be abandoned in favour of much simpler restraints on leverage and liquidity.

Older readers may notice that there is as much reactionary as revolutionary in this prescription. It is a plea for a return to (or beyond) the Glass-Steagall Act which separated commercial from investment banking in the US in the 30s and to a world where brokers and jobbers were partnerships bearing losses as well as gains. It harks back to a world where retail banks were cautious utilities subject to simple prudential rules and more sophisticated players were left to their own devices subject only to rules of market integrity. Shirreff presents the case with a curious combination of nostalgia and outrage.

But he can point to a powerful group of economists who might support reforms broadly on these lines. John Kay, Adair Turner, Andy Haldane, and Mervyn King have written persuasively about the dangers of supervision and regulatory capture, over-complication in ‘the tower of Basel’, the case for size limits and so on. And bankers remain deeply unpopular which creates a political constituency for more radical change.

So why isn’t it happening?

First, finance is international and reforms have to be global in reach if they are to be effective in protecting the world economy. That is why the leaders of the G7 agreed to shift decision-making up to the G20 in 2008. Many members support universal banking. In the Far East they are shocked by our incompetence and prepared to join us in tightening standards but they see no need to reconstruct their own industries. A few countries, like the UK and Switzerland, which came close to having banks too big to save in 2008, will go beyond international standards to limit the size of their home sectors. But most countries think they have gone far enough.

Second, the search for simplicity in a world of growing digital sophistication is likely to be forlorn in regulation as in tax law. After all, the US has always had a gross leverage rule restricting how much banks can lend and it was the source of the sub-prime spiral.

And finally, after their painstaking work, central bankers and regulators believe the new standards and requirements will change big finance over time and can be effective in preventing disaster.

We will see.


Sir John Gieve is a former Deputy Governor of the Bank of England.



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Islam and Controversy: The politics of free speech after Rushdie

by Anshuman Mondal

Anshuman Mondal does not like freedom of speech or liberalism. And he has just published a book explaining why. The timing could not have been better. The book – Islam and Controversy: the politics of free speech after Rushdie – was published just five days after the Charlie Hebdo murders.

I know Anshuman a little and went to his book launch at SOAS. It was a gathering of the academic left rather splendidly showing contempt for the ‘Je Suis Charlie’ consensus – most vividly in the languid person of writer Will Self who declared that ‘freedom of speech is a sexual fetish’.

The discussion was rather unsatisfactory but I hoped to learn something from reading the book and perhaps face a challenge to my own half-thought-through belief that a multicultural society requires more not less stress on universal rules like freedom of speech, if we are to avoid creeping Balkanisation.

The book is written in the dense and mannered style of modern leftist academia and chunks of it passed me by. But the boiled down argument is this. There is no absolute principle of free speech: it is always context dependent and hedged in by legal restrictions (libel, hate speech etc) and moral sensitivities. (So far, so unexceptional, I have never met anyone who disagrees with this, though the straw man of the ‘free speech fundamentalist’ stalks the book.)

Free speech is not, as Mill thought, a means of weeding out bad ideas and ensuring true ones triumph it is, according to Anshuman, ‘a means towards achieving mutual understanding’. Or at somewhat greater length, in answer to his own question of ‘what is free speech for?’: ‘it is to develop mutual understanding and through that to create, nurture, sustain and, when necessary, recast and revise the irrevocable ties that bind us all to each other.’

He calls for an ‘ethics of propriety’ in writing and reading – in other words sensitivity to how words will be received – and in detailed analyses of Rushdie’s Satanic Verses, the ‘liberal fascism’ of the Danish cartoon affair and the Theo Van Gogh/Ayaan Hirsi Ali film Submission, he finds the ethics of propriety wanting in each case and Muslim anger justified.

Behind these pieties about avoiding hurt and mutual understanding there is something harder and uglier. A belief that secular liberalism is the cloak for white, western cultural supremacy and that speech, like everything else, is really just an expression of power. The words and actions of the powerful may not be equivalent, morally or politically, to those of the powerless, as he asserts. But it does not follow that free speech must end where it might cause hurt or offence to poor or stigmatised groups—in particular to religious Muslims who are caused deep anguish by the blaspheming of their prophet in ways that secular liberals cannot comprehend.

Anshuman can call on plenty of academic support for his thesis from the prominent American Stanley Fish all the way back to Derrida’s deconstruction. But for all the neo-Marxist discussion of power relations what is really striking about his arguments is how naively apolitical they are.

Who decides what constitutes a stigmatised group? If Muslim minorities in the west might be so categorised what about Muslim ruling classes in Islamic countries? Who decides what is an acceptable criticism of Islam and what is unacceptable? Anshuman thinks the film Four Lions, which satirised a bungling Jihadi group in the north of England, was fine because unlike, say, the Danish cartoonists, it made a clear distinction between violent jihadis and ordinary peaceful British Muslims – others might disagree.

Behind the stress on consensus, responsibility and sensitivity to group feelings lurks the crudest ‘whose side are you on?’ politics of group interest. Anshuman is not against investigating how big corporations or rich people evade tax because it might hurt their feelings. Or of mocking the beliefs of, say, Nick Griffin. So free speech then just comes down to which people or groups you support and which you oppose.

Conflicting interests are, of course, at the heart of politics and always will be, but the whole point of liberal constitutions is that they lay down rules of conduct (of combat you might say) which apply to everyone and provide everyone with a degree of freedom and protection that lift us all above the simple clash of interests.

And Anshuman, who says he identifies as Muslim in certain contexts through his Indian father, is not as he supposes helping downtrodden British Muslims. In fact he is helping to infantilise them, saying in effect they are too volatile, too submerged in intense religiosity to behave like responsible adults and they must have special protection from offence, unlike the pious Christians and Jews who have had to put up with it for decades.

Like most people, I would like to see a form of secularism that respects faith. And I would like free speech applied with some purpose and sensitivity. As the US columnist David Brooks wrote after the Paris events: ‘Most of us do try to show a modicum of respect for people of different creeds and faiths… Yet at the same time, most of us know that provocateurs and other outlandish figures serve useful public roles.’

Being able to laugh at yourself, as an individual or a group, or at least express some irreverence towards your own traditions is a healthy sign of absorption into modern British life – remember how it was regarded as a positive breakthrough when the black comedian Lenny Henry began to gently mock stock Caribbean characters on mainstream television?

In a pluralist society like ours, teeming with conflicting values and views, the daily news is full of arguments about what is right and acceptable to say. Surely it is best to conduct those arguments as openly as possible, especially given how powerful the norms against prejudice and discrimination have now become. If, instead, the law (or Anshuman’s ethics or propriety) intervenes to close down that debate a shroud of wariness and mutual suspicion will descend and communication across the lines of ethnic and religious difference will become even more fraught.

This, alas, is the position of the multicultural left summed up by the sociologist Tariq Modood, an ally of Anshuman’s, who has written: ‘If people are to occupy the same political space without conflict they mutually have to limit the extent to which they subject each other’s fundamental beliefs to criticism.’ So, as Kenan Malik has pointed out, a more diverse society leaves less room for a diversity of views.

Anshuman, who is chair of the Postcolonial Studies Association, thinks that western liberalism claims an unjustified universalism while being unable to accommodate Muslims and others with different experiences and perspectives on the past. But liberalism is wiser and more self-aware than he gives it credit for and the fact that it emerged in the colonial era does not in itself invalidate ideas such as free speech today. The fact that Anshuman himself is a successful academic who has been closely involved with British Council projects is some evidence of liberalism’s capaciousness.

British Muslims are far from powerless and when they demand the right to stand outside parts of contemporary liberalism, while enjoying all the rights and freedoms it entails, our society has adapted to allow them to do so. They are not, as Anshuman asserts, thereby treated as second class citizens, though the relationship is not without frictions as in arguments over gender equality, the rights of dissenting minorities within the Muslim community and, of course, freedom of speech.

We muddle along testing the boundaries of multiculturalism in an open, liberal society. One step too far is the pious Muslim minority trying to impose its own views on blasphemy on the non-Muslim majority – though so far it has largely succeeded, in Britain at least, where no significant publication published the Danish cartoons.

Indeed, thanks to Anshuman’s crude political reductionism I closed his book feeling that we have too little, not too much, ‘free speech fundamentalism’ for the future health of British society.


David Goodhart is Chair of the Demos Advisory Group.



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