Quid Pro Quo

In a recent article in The Times, Daniel Finkelstein has suggested that the basis of human co-operation rests on reciprocation, you do something for me and I'll do something for you. Quid Pro Quo in effect. Such a position may lean more towards a classical liberal and conservative understanding of human nature that tends to see human beings as creatures concerned more with self interest than the pursuit of altruism. His view of human nature underpins his interpretation as to what may be agitating a group of people to the extent that they are prepared to camp outside St Paul's in late autumn to protest about greed.

His suggestion is that the protests are not really driven by a popular anger at bankers getting rich at the behest of others. What is at the root of this tented expression of confused agitation is a perception that the bankers have taken out what they haven't put in. It is this sense of unfairness that runs as a common thread through the occupy wall street movement and many of their fellow fly sheet comrades in London, Paris, Seoul and Los Angeles. It has been assumed for sometime that the economic crisis of 2008 -2010 and the current global financial problems can be laid at the feet of the bankers and many commentators and journalists are holding them to account. However, is this wholly fair?

The common idiom of 'it takes two to tango' would suggest otherwise. It was a lack of liquidity that drove the financial system into the credit crunch and the brink of armageddon in 2008. The liquidity that was pumped into the markets following 9/11 soon found it's home in many diverse financial instruments ranging from the so called ninja mortgages (no income no asset, no problemo), the 120% mortgages of northern wreck, highly leveraged public companies and disastorous mergers and acquisitions such as RBS take over of ABN AMRO just before the bubble burst. These loans were sliced, spliced and sold across the global credit markets as securitised investments with the blessing of the credit rating agencies. As with any loan, there are two counterparties and both are responsible for honouring the covenants.

British household debt, including mortgages and unsecured loans, is well over a trillion and it is not the fault of the bankers that ordinary Britons are up to their eyeballs in debt. The banks supplied the loans, the debtors purchased them, America sneezed and the world caught the economic lurgy. As a result, loan covenants were dishonoured, losses were incurred across the financial spectrum and liquidity dried up. In the first half of this year, 696 homes were repossessed each year and Lloyds TSB has £38 billion worth of exposure to homeowners in negative equity. It is a similar story in America, hundreds of thousands of homes were created in the boom years on the back of loans that people were not able to pay off, hence there have been over 1 million seizures of domestic property in 2010 and a crisis in liquidity that has not been known since the days of President Herbert Hoover. The losses that the banks sustained from the sub-prime crisis stemmed from a failure of responsibility amongst those people who took on loans that they knew they could not honour and a failure of a banking system that should have honoured competent diligence and had far tougher regulation hoisted upon it.

Yet as the boom times rolled, no one questioned the mantra of so-called light tough regulation, easy money and an end to boom and bust. As long as the party continued and the world got punch drunk on easy credit and high yielding investments then who cared? The years of easy credit, tax cuts by the Bush administration and it's foreign wars and stupendous state spending by European governments reflected one thing and one thing only; your quid for my nothing. It is not just the bankers who were responsible for the global financial turmoil of 2008 - 2010, we all were.