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‘If Europe lets the Euro fail it wont stop there’ – The Banker Interview

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I may have been quiet recently but that doesn’t mean I wasn’t very busy behind the scenes working on things for the blog (actually it means my PC is in the coldest room in the apartment and I haven’t felt like writing too much recently) however over the weekend I was granted an interview with a senior banker at a major bank who spoke to me on the condition of anonymity and we spoke about several issues firstly the Euro.

I put it to the banker that despite the people in the UK clearly not giving two hoots about the Euro and in fact deep down wanting it to fail that if the Eurozone goes down like Boris Johnson is predicting then it will be trouble for all of us. His first terse response was quite simple, ‘start stashing all your cash in your mattress. If it goes in an uncontrolled fashion, we are all buggered‘. Not exactly the heart-warming way to start a conversation but he thinks it is clear that the future of the Euro as a viable currency is linked to the stability of the financial sector across the Globe.

Next I asked him about the recent downgrading of French banks and whether that makes him and his bank more uneasy about the situation, ‘The downgrade is becoming irrelevant – all that impacts is funding the credit rating agencies are essentially morally bankrupt – no idea why the world listens to them. We are a great example. We have more capital, more funding, more liquidity, more cash than we did when we were a AAA bank – and yet we are now barely AA. The rules have changed and the rating agencies are acting like they think no one has noticed.

So credit ratings are not as important as the media are leading us to believe. His bank is clearly in a far better financial state than it was in 2007 when the banking crisis started but because of a lack of confidence in the bank they are facing the consequences. Liquidity is everything at the moment as we saw when Lehman Brothers collapsed. Speaking of Lehman Brothers…

The parallel to draw for me is the unintended consequences – when we let Lehman fail, we thought we were letting the market know that there was no one too big to fail. What governments still don’t seem to realise is that the markets are not in their control, and that they will continue to seek the weakest link. If Europe lets the Euro fail it won’t stop there and just because we are outside the Euro, (it) doesn’t mean we won’t suffer the full impact of (the) unintended consequences. I really don’t know how we stop this circle – but essentially the markets are saying they want risk free investment – that is ok, but they need to accept that risk free returns aren’t very exciting. So our share price is what 25p? So we are being punished for carrying too much risk, but if we dont create income, dont create returns – they sell our stock anyway – so (we are) damned if we do, damned if we don’t.’

It seemed to me that he was getting at confidence being the primary reason for the collapse and not in fact any other factors, ‘am I right in hypothesising that everything seems to be linked to confidence. No-one has any and because of that nothing good can happen‘ I muse. ‘absolutely – cant stress that enough‘ comes the reply. So it is clear to him that it all comes down to how governments around the World deal with the crisis.

On how and what governments do he says thus, ‘It is why everyone needs to be so careful – actions can create confidence, but markets need to be confident that actions will be carried out. So when some faceless beaureacrat says something contradictory – no matter how low level they are, market jumps on it as evidence that actions wont be completed‘. Talk is cheap and actions speak louder than words. David Cameron has spoken what the people of the UK want to hear and we have seen that in a six point bounce in the polls over the weekend. The British people are in general not Euro-loving folk but even more so they don’t want our money being thrown at the Euro-zone trying to save it. However one thing the majority of people in Great Britain do not have is a grasp of the upper echelons of economics and how the Euro-zone impacts not only those in it but also those around it and the state of the financial markets around the Globe.

We again drift back to Lehman Brothers and the whole ‘too big to fail’ issue when I say about the only reason the bank when down was because of a lack of liquidity, ‘Yep – for banks liquidity is everything – everything. What does it matter if I have AAA mortgages that mature in 20 years if I have to pay back the money tomorrow? I won’t be about in 20 years to collect on the AAA mortgages. if I don’t make that payment tomorrow and in the good old days, everyone knew that XXX bank would still be here in 20 years, so lend money for that long now, tell me a bank that you would be shocked by if it went bust? So when governments are out there saying no bank is too big too fail… well if that is true, why should I lend them money?’

So I offer up the ideal that everyone now only wants safe investments, ‘Yep – which is fine, but people dont seem to see the link – I have a 25 year mortgage with Barclay’s. if Barclay’s can’t guarantee they will have funding for that long, why would they give me a mortgage for that long? So a mortgage becomes a ten year loan, who can afford to pay off their mortgage over 10 years? So home prices collapse…and I mean really collapse. So everyone owes so much more – is that the banks fault or your fault? And if we are saying it is the banks fault, then don’t complain when they say to the next customer – we need a 40% – 50% deposit and if they do that (then) house prices collapse… (it’s a) vicious circle‘.

Not looking great is it? Next I move steer the conversation towards politics as Labour with their ‘Bankers Bonus Tax’ and plethora of other ideas that essentially shifts all the blame on to the bankers and the banking sector for the past few years of instability is a bugbear of mine. The senior banker tells me quite bluntly, ‘If all the bad is laid at our feet, then all the good from the twenty years previous should be on us as well‘. You have to say he makes a pretty good point. The banking sector was the driving force behind the boom from the mid 90s through to 2007. The World’s economy now has the financial sector at heart and not manufacturing however back away from the narrative and return again to the banker…

If you think of the politicians who said they had beaten boom and bust – nonsense. We (just) had a long time without it and people dont seem to know how to respond we live in a society where we want everything now – that is a general issue – and so we want all our problems solved now – sometimes solutions take time because we create a solution today and it hasn’t worked by tomorrow doesn’t mean it has failed‘.

One thing is clear throughout this interview and that is one of frustration. Now frustration directed at the banks but with how they are being portrayed both by politicians and by the media. ‘Bankers’ has become a buzz word both in the rooms of the media and in the hallows of parliament. The people of the UK think that the bankers caused the mess and should pay to get us out of this mess but the issue is clearly they aren’t being allowed to do what they have to do. The problem is that the financial sector is linked too closely to the government and when the government keep talking about how bad things are and how much worse it could get all it does it dent confidence.

Speaking with regards to the Euro Accord that we didn’t sign up to last week I made it clear that my fear is that it isn’t legally binding. Countries can walk away from this deal if they think it will help them. In times of crisis we all know people will protect themselves first and foremost and will screw over anyone else as long as they are safe. ‘That is fair – (it) needs to be made into a treaty – and if Britain is on the outside of that so be it. I am a great believer in the single market, but everything beyond that is a stupid political stretch. There was never a need for a single currency – unless you do full economic union it was destined to create the pressures we are seeing in bad times. Europe has always had a democratic deficit, you can’t hide that behind an economic union‘.

I put forward my case on the single currency being a vanity project from certain areas of Europe and I think it is fair to say he agreed, ‘I think European leaders have a single Europe as a vanity project – they see a single Europe as the ultimate outcome and the single currency was a way of helping deliver it. There is a psychological element that I don’t know that Britain gets – our country was never invaded, many of theirs were. A single peaceful Europe is a great goal particularly if you were on the receiving end

It is clear we are speaking the same language as we both think the ultimate goal was to create a ‘United States of Europe’ but the feasibility of this was always far too flung to work. Would a Frenchman be happy to be led by a German? Would a British leader of a united Europe speak for the people of Greece? There is too much distinct water under the bridge for that to happen. The United States works because it is a new country without that rich history. The people of New Mexico and of New York are very different but they don’t have centuries of hate underneath them. Also they speak the same language. I know many American citizens only speak Soanish but that is different to the tens of languages spoken throughout Europe.

I ask how he thought the people of Britain would react to having a German leader? ‘We are all humans – Britain … German… it is just a label. How could a women ever be led by a man…it is just a label. If I can tell you how I can make your life better, and you believe me, you would let me lead, it wouldn’t matter if I was man, woman, child, German, Spaniard… but you would have to believe me and (the) media in Britain would certainly make it very, very hard for anyone other than a Britain… but then if you had told an Englishman in 1966 that an Italian or a Swede would manage England footie team they would have laughed, so who knows.’

Of course the football decisions weren’t put to a vote and I’m sure had it been then neither Sven or Fabio would ever have got the job (although bizarrely I think Martin O’Neill was the nations choice when Fabio got the job so who knows. I say that people are becoming more intolerant and he jumps in, ‘for some reason despite things getting better and better, we live in more fear – if you want to blog about something, ask why we think things are worse, when they are actually better than ever we live longer, in better quality, than we ever have. Life is so much easier than it has ever been and yet we look for the negative in pretty much everything and ignore the good – even immigration – we look at it as a negative – yet every person who wants to immigrate to your country is sending the biggest compliment they can – they like the way of life so much, the opportunities offered so much they are willing to leave home behind yet all we see is – they want our benefits…

This is a huge issue I have. I am very much pro-immigration as I believe we have the rights to live and work where we see fit. Yes the media are right and there are some people who come to this country for the wrong reason however those people are not in the majority and they are a very small minority. What gives me more of a right to live in the UK compared to others who weren’t born in this country? In my opinion not a lot. However all I ever read in the newspapers is how awful immigration is and going back to two earlier points it once again shows how the media have an impact on what happens – they are causing trouble with immigration because they only ever report the negative aspects of it and also how when times get tricky people look out for themselves a whole lot more than they did before. The Polish community were welcomed when they first came over here to do all the jobs we didn’t want but now times are hard the general consensus is that they are ‘coming over here nicking all our jobs’ whereas the truth is they came over here to do all the jobs we didn’t want to do.

So to sum up it seems pretty clear that this Prime Minister has an issue that is nagging away and jawing at him daily. He has to weigh up the feelings of the people he represents with those of doing the right thing for the economy. The people he represents do not have the full facts laid out in front of them therefore they cannot make a totally informed decision. However they also want immediate results and they are influenced heavily by the media who are at best xenophobic to the extreme when it comes to Europe on a political level.

I don’t vote for a person or a political party to do what I want them to do. I vote for them as I think they will make the best choices for me on my behalf. I am not well informed on every issue (I’m not well informed on many issues) but these people are. We elect them to be informed and make the right decisions for the people they represent. David Cameron used the veto which may or may not have been the right decision, that I do not know. What I do know is our economy is bound to that of the Euro and the single market. If one or both goes then the ripples of discontent around the Globe will turn into earthquakes and tsunamis in the financial sector and that will effect us all.

What it would mean is basically cash is king and those with it will be fine. Those without it will be left floundering as credit for any reason will become nearly impossible to get. Saving the Euro and the single market is not about bailing out Europe but it is about saving ourselves. The collapse of either would doom the less well off for generations to come. The Tories traditionally wouldn’t mind that but the concious of them would surely not want to see the gap between the haves and have nots increase to record levels surely?

It is all rather worrying that a Prime Minister might put his own electability ahead of the future of the people he represents. I know it must be hard to marry the two voices in his head from opposite directions as to what is more important, doing what is right and doing what the people want. Sometimes these two voices are polar opposite but he has been elected to represent the people of the UK and not to speak for them. There is a succinct difference.

No-one said being Prime Minister was ever going to be easy…

I thank the banker for his time and he heads off to a gym for a workout. I head off to a chip shop for some dinner. We live very different lives on more than one level so it seems…

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Written by neilmonnery

December 19th, 2011 at 2:19 pm

2 Responses to '‘If Europe lets the Euro fail it wont stop there’ – The Banker Interview'

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  1. After gym, i hope he took a history lesson, starting with 1066….

    Paul Walter

    19 Dec 11 at 9:06 pm

  2. […] last year I sat down with a very senior banker for an interview where we explored all the issues regarding banking in the UK and around the Globe. The banks have […]

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