The Marie Antoinette stage of banking development

This is what they said: http://www.guardian.co.uk/business/2010/aug/02/banking-bonuses-executive-pay

We are in the let-them-eat-cake stage of banking development, a period so self-serving, so flagrant in its Byzantine abuses, that future generations will look back with astonishment that we ever allowed it.

Why do we?  Because our politicians seem unable to gather up the political will to reform the sector, and because they still have a sneaking fear that the myths pedalled by the banking lobbyists have some legitimacy.  They may not look like a lifeboat in a shipwreck, but they are at least floating, after all.

But one look at the figures for lending before and after the banking crisis gives the game away.  As much as 48 per cent of their business lending was to the property sector, according to Bank of England figures, fuelling the bubble.  That was bad enough, but – since the crisis – that figure has leapt to 78 per cent (and that is over four years to March 2010).

The truth is, as nef has been saying, that the banks are not structured to do the lending to local enterprise as they need to be.  It isn’t that they won’t, it is that they can’t.  They are structured to deal with the speculative economy.  They have no source of local knowledge or expertise.  That is why three quarters of their lending goes into property, fuelling the next bubble.

They understand lending on assets, but can’t deal with lending on cashflow.  They understand big, but can’t grapple with small.

But there is a little hope on the horizon.  The Daily Telegraph ran a lead story on Saturday about the estimated £7 billion a year that is skimmed off our pensions in the UK by obscure charges:

http://www.telegraph.co.uk/finance/personalfinance/savings/7919778/7billion-a-year-skimmed-off-our-savings.html

This is the kind of issue that has been used to such dramatic effect by the veteran investor John Bogle in the USA (see http://www.johnboglemedia.com/), whose Vanguard group of mutual funds have provided an alternative that barely exists on that scale in the UK.

Once again, the issue is the absence of proper competition in the UK financial services sector to provide the basic services that people need, lending for small business and pensions.