Lord Griffiths Is a Wanker

This post was written by Owen on October 24, 2009
Posted Under: Capitalism,Economy
Goldman Sachs' London Office. Image: Lars Plougmann/flickr

Goldman Sachs' London Office. Image: Lars Plougmann/flickr

What with the postal strike and Nick Griffin on Question Time totally dominating the news agenda, quite a few interesting news stories didn’t really get the attention they deserved this week. Perhaps the most notable of these was the breathtaking arrogance displayed by Goldman Sachs vice-chairman (and Tory peer) Lord Griffiths on Tuesday night.

I have to confess I often felt a little bit sorry for Goldman Sachs in the past. The name’s become shorthand for the amoral, reckless, hypocritical greed of the banking sector, and while it’s always embodied those qualities perfectly well, it’s only become a byword for them because the name contains the (phonetic) words ‘gold’ and ‘sacks’, which I feel kind of lets those banks with less incriminating-sounding names off the hook. Lord Griffiths should perhaps be applauded, then, for doing so much to ensure that his company’s notoriety is fully deserved. Complaining about bankers’ bonuses, according to his lordship (yes, I’m aware that’s probably the wrong honorific, but I don’t especially care), is frightfully misguided:

Speaking to an audience at St Paul’s Cathedral in London about morality in the marketplace last night, Griffiths said the British public should “tolerate the inequality as a way to achieve greater prosperity for all”.

This came in the wake of the announcement last week that Goldman Sachs would this year be paying its staff a total of 16.7 billion dollars in bonuses. Unsurprisingly, this news had caused some consternation among those naive enough to believe that bonuses are defined as something awarded in recognition of some act of merit, and that helping to bring the global economy to its knees perhaps didn’t really qualify as such.

Besides the vexed question of the wisdom or otherwise of rewarding failure, some have also pointed out that Goldman Sachs is only around to pay its staff bonuses because it was deemed ‘too big to fail’ and received $10 billion from the US Government, effectively meaning: 1) that the bonuses are being paid in part by the taxpayer, and 2) that one of the reasons it’s made so much money (besides the stock market recovery) is because it’s able to borrow cheaply since lenders anticipate that the government will pay them back if Goldman Sachs proves unable to. And which hard left politics-of-envy merchants are complaining about this? Er, The Economist, for one.

Given all of the above, Griffiths would, quite frankly, be wise to shut the fuck up. If you’ve just come close to destroying the global financial system, that’s really not the best time to claim that you provide ‘prosperity for all’. Then, of course, there’s this report (h/t The Guardian’s editorial yesterday), whose executive summary contains the following interesting argument (bolded text is my emphasis):

It is important to challenge the distributive coalition’s narrative about the social value of finance, which makes exaggerated claims and uses evidence selectively:

i. The tax revenues from the finance sector in recent years are offset by the immediate cost of bank bail-out. In five years up to 2006/7, the finance sector paid and collected £203 billion in taxes, but the upfront costs of the UK bail-out are £289 billion, rising potentially to £1,183 billion.

ii. In terms of job creation, the finance sector directly employs no more than 1 million workers (mainly in retail) and numbers employed do not increase in the boom years. If we add jobs in consultancy, accounting and law sustained by finance, the number of those directly and indirectly employed by finance still accounts for no more than 6.5% of the UK workforce.

iii. The business model of wholesale banking and the geographical clustering of wholesale activity, together ensure that the finance sector concentrates rather than diffuses employment opportunities and prosperity across the UK. Retail banks control the costs of high street jobs, while wholesale pulls a small number of well-paid financial actors towards its centre. In its present form, finance is a pro-cyclical activity with limited job creating capacity and a proven ability to disrupt the economy at great cost to the taxpayer.

Besides telling the voting public what was good for them, the other gem from Griffiths which the Guardian quoted was this:

If we said we’re not going to have as big bonuses or the same bonuses as last year, I think then you’d find that lots of City firms could easily hive off their operations to Switzerland or the far east.

Really? In that case, don’t let the door hit your arse on the way out. Your lordship.

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Reader Comments

Hive off their operations?

Methinks the creation of a new fabulously wealthy tax band with a high rate should ease their progress as well.

#1 
Written By Chris H on October 24th, 2009 @ 1:37 pm
Alex L

She of Great Wisdom, Polly Toynbee, had some great lines on the “If you don’t let us do what we want we’ll move, and THEN you’ll be sorry” argument, pointing out that it’s difficult to find a group more attached to their London life than those who work in financial services, that they generally _don’t_ switch and change employers at the drop of a hat, as much as they’d like to give the impression of a volatile and flexible workforce.

Being a good Rawlsian, I wouldn’t change much of what Lord Griffiths said, other than to put in an all-important conditional; we should “tolerate the inequality IF it is a way to achieve greater prosperity for all”. I’ll let the economists bash out the answer to that one whilst I dust my hands down and have my morning coffee…

#2 
Written By Alex L on October 25th, 2009 @ 9:52 am
Tendai

I was actually thinking about this issue along Rawlsian lines as well. While the status quo isn’t necessarily unacceptable or intolerable, the argument that it is not only tolerable, *but virtuous*, seems flawed. It’s amoral at the best: it exsts because it can. Yes, possibly it ensures greater prosperity for all (albeit a ‘top-heavy’ prosperity, but still, it can be probably be agreed that it gives us all a little of what’s going around). So Lord Griffiths and others are probably wise to keep quiet and not draw attention to the whole thing.
Therefore, Lord Griffiths should shut the fuck up.

#3 
Written By Tendai on October 25th, 2009 @ 6:43 pm
Owen

I deliberately didn’t consider the merits of the general Rawls-style claim about inequality, partly because I have a vague plan to write an extended and wanky piece about equality at some point in the future, but partly because I simply don’t think it applied in this case. Goldman Sachs paid its employees massive bonuses for helping to screw over the entire financial system, and bringing the global economy to its knees clearly isn’t a very good way of ensuring greater prosperity for all.

#4 
Written By Owen on October 25th, 2009 @ 9:20 pm
Peter L. Griffiths

From the British point of view the financial crisis 1998-2008 consisted of credit default swaps, securitisation and toxic debts all imported from the United States. These financial devices all affecting the solvency of the British banking system should have been stopped by the Bank of England. Unfortunately at the crucial moment in 1998 British politicians decided to deprive the Bank of England of this responsibility. The rest is history.

#5 
Written By Peter L. Griffiths on July 15th, 2010 @ 4:16 pm
Peter L. Griffiths

Further to my comment of 16 July 2010, the newly elected Labour Government in 1998 decided to hand over the Bank of England’s responsibility for the solvency of the banking system to a quango, the Financial Services Authority which immediately encouraged credit default swaps by bringing in the United States based International Swaps and Derivatives Association to arbitrate on disputes involving credit default swaps. Within a few years the ISDA had penetrated into Europe and was directly responsible for the credit default swaps origin of the crash 2006-2008. In his recently published book Gordon Brown has plenty to say about Shriti but nothing about ISDA.

#6 
Written By Peter L. Griffiths on January 10th, 2011 @ 4:27 pm
Peter L. Griffiths

Further to my comment of 10 January 2011, credit default swaps seem to have become particularly relevant when applied to a particular credit event namely changes of Libor, the interest rate charged between banks both national and international. Changes of Libor seem to have become a substitute for changes of foreign rates. This seems all the more extraordinary when it is borne in mind that banks should only be borrowing from other banks when their debtors are not being recovered.

#7 
Written By Peter L. Griffiths on July 14th, 2012 @ 3:29 pm

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