Jul 27 2012

Time Called on London Finance

Time Called on London Finance

I’ve read an interesting article in Time Magazine this week, that essentially blames the London culture for the issues that are appearing in the financial sector at the moment.

I thought this was interesting, because it raises some points I discussed in a previous blog, about trust.  We hear much about the importance of the financial sector to this country’s economy, which justifies the state’s active role over the last couple of years.  Time points out that in the boom years up to 2007, British based financial institutions accounted for more than half of the generation of global funds.  In other words, these institutions provided the largest part of the world’s liquidity.

At the same time, London is the major hub for foreign exchange, with over a third of the world’s turnover in this market.  So it is no surprise that the rest of the world watches London closely, and that issues of integrity and trust start alarm bells ringing elsewhere.

The focus in this country started around the salaries of the top bankers when the companies they ran were clearly not performing well.  Bob Diamond has earned more than $150million since 2005 from Barclays.  While that raised questions about individual integrity, we now are starting to see evidence of more widespread manipulation of the markets.

Today we saw that Barclays first half performance was better than expected, but that profits are being pulled down by the fines; £290m for manipulating Libor, £450m put aside for mis-selling interest rate hedge products to SMEs and a new investigation by the FSA into 4 senior staff members.

Time Magazine quotes Democratic Audit as saying that British Institutions are “especially fragile” when compared to other EU and OECD countries.  In fact, its Audit of the United Kingdom (Wilks-Heeg, S., Blick, A., and Crone, S. (2012) How Democratic is the UK? The 2012 Audit, Liverpool: Democratic Audit.) concludes that:

“these findings strongly reaffirm what is perhaps the most important of our five overarching theme: that representative democracy as we know it is in long-term decline. Key representative institutions, most notably parliament, are fatally undermined if they are perceived to be riddled with corruption and if policy decisions are seen to be taken ‘behind closed doors’ between ministers and lobby groups. “

So while the Time Magazine article may be laying the blame squarely at the door of London and its culture in the city, the important issue it raises is again one of trust.

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