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April 24th 2018 print

Peter Smith

Bankers, Spivs and Lynch Mobs

Threaten miscreant bankers, as people, with all the grim penalties the law and courts can offer. Put them in jail if you must. But who does Morrison think will pay the fines imposed on banks as institutions? As a shareholder I will pay it, my  neighbour will pay it, we all will pay it

banker IIWhat happens when bankers bed with spivs? Answer: political one-upmanship and a royal commission into banking. Grandstanding lawyers. Abject confessionals. And, then, even more political one-upmanship with no end in sight. Meanwhile, beneath the confected funk, the ordinary business of life, including banking, goes on unaffected. Or, at least, hopefully it does for the sake of financial stability and the health of the economy.

Banking doesn’t draw the most competent or brightest of people. Don’t let multimillion dollar salaries fool you. Incompetence can go unpunished, as it can’t among, say, airline pilots, carpenters, civil engineers and dentists. Of course, there are some talented people in banking; nevertheless, it provides one of the more lucrative pathways for those whose acumen might be ordinary. This can be a drawback in the dock.

If you doubt this listen to some of the evidence being given at the royal commission. One highly-paid gentleman banker was accused by the media of smiling through part of his testimony while admitting his institution misled ASIC. Defensive dimwits grin reflectively. Another highly-paid lady banker answered a question so incoherently that Mrs Malaprop would have been proud. Another answered “yes” to the question, “You’d be the gold medallist if ASIC was handing out gold medals for fee for no service?” There are so many deflective ways to answer such a question that you would have to be a highly-paid banker, promoted well beyond your ability, to fall into the trap of making the simplest affirmative response.

Dimwittedness is no excuse.  Undoubtedly bankers, like us all, are flawed. However, I’d like to see any service industry withstand forensic examination via a royal commission and come out smelling sweet. In my experience, having worked in and around banks for twenty-four years, bankers as a whole unlike, say, used car salesmen or real estate agents, do not systematically set out to rip off their customers; certainly, in any egregious way.

Fees for, say, overdrawing accounts, or for a range of services, take advantage of customer inertia in swapping banks. All banks know that this inertia exists. All banks therefore are prone to overcharging. But, let’s be straight, while this kind of thing makes good headlines it is small beer. We have also learnt through the royal commission that fiddling has gone on between bankers and home-loan brokers to boost the eligibility of borrowers. There’s a clue in there for bankers. Watch out who you consort with. They’ll drag you into their schemes.

Enter financial planners. Banking and financial planning are whole different kettles of fish. Carpetbaggers, opportunists, main chancers, spivs, and swindlers are drawn to financial planning like ants to a honey pot. Clearly not all financial advisors and planners are of bereft of morality. But enough are to make their mark. Set the scene. Financially unsophisticated people with money asking where they should invest. Enter Bernie Madoff and his ilk.

Bankers should never have got entangled with financial advisory and planning services. They are way out of their depth. Financial advisers and planners will always attract scoundrels among their number who seek to enrich themselves by cheating the gullible, widow women and older folk out of their money. Think any of that will ever change and you are dreaming. Banks should voluntarily disengage from providing financial advisory and planning services, as some are already doing. Nothing much else need be done or should be done.

This royal commission is being turned into absurd theatre by the media and low-life politicians. So far as I can tell, everything bringing the sky down is already under investigation by ASIC and/or has been remedied. And will someone, anyone, please, please, tell Scott Morrison that banks are not natural persons. They don’t pay taxes or fines.

Threaten bankers, as people, with financial penalties for malfeasance all you like. Go for it with a vengeance. Send them to jail if you must. But who does Morrison think will pay fines on banks of up to $210 million or 10% of annual turnover, which apparently is now in the knee-jerk legislative offing.  Let me get personal. As a bank shareholder I will pay it. My next-door neighbour will pay it. Neither of us is well off. In general, bank shareholders (which includes millions of people through their superannuation funds), bank customers and modestly-paid bank employees will pay it.

Let me go further. The whole country might pay profoundly if this misconceived orgy of bank bashing continues. And we are now being threatened by Mathias Cormann with a further year of the ordeal. Will there be no end to the extraction of confessions from benighted bankers? You would expect the Treasurer and Finance Minister to bring balance to the process, not to rabble-rouse. As a complete aside, wouldn’t it be wonderful to have Peter Costello back; and preferably as member for Wentworth.

A sound and profitable banking sector is not a “nice to have”. It is essential. One of the main reasons that Australia didn’t suffer too badly during the GFC (excepting the long-term damage inflicted by the stupid stimulus spending orchestrated by Kevin Rudd and Ken Henry – now, ironically, chairman of NAB) was the strength of the banks. More than enough is being done to undermine confidence in Australian banks by short sellers, who must be making a bundle each time a bumbling banker appears before the commission making an ill-coached confession; by the sensationalising media; and by Bill Shorten and his comrades.

The job of Malcolm Turnbull, Morrison and Cormann is to bring perspective, reason and sanity to bear. I’m waiting.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [7]

  1. ianl says:

    > “In general, bank shareholders (which includes millions of people through their superannuation funds), bank customers and modestly-paid bank employees will pay it.”

    Yes. As is the case for the “bank” tax. And the 30% dividend tax not refundable to those below the $18.2k threshhold if Shorten/Bowen have their way. In short, shareholders will be taxed until their eyes bleed because they’re such rich ba…s. (Declaration: I own about $800 – yes, that’s only 100′s – of bluechip shares).

    Shareholders, customers with savings deposits (reduced interest, increased fees), borrowers (increased interest and fees), every-day branch employees (through branch closures), will pay for this. Obviously, those executives who permitted this pilfering should pay the fines and penalties from class action results, as well as ASIC lawyers who let it all fester for decades. They won’t, of course.

    Thank you, Peter Smith, for publishing this essay – although it’s obvious, I have not seen it said anywhere in the MSM. The meeja too want the shareholders etc to pick up the tabs and dregs.

  2. Jody says:

    Over a decade ago my then accountant warned us that financial planners are “re-badged insurance sales people”. Though many have a university Business degree these days, there are still vestiges of these re-badged people to create havoc. And it always seemed a no-brainer to me; going to a bank to be sold one of the ‘produx’!! I saw one planner once and said to my husband, “I don’t think so: what he’s offering is so complicated and without transparency it’s not on”!! We lost a great deal with AMP, paying into a superannuation fund which provided trailing fees to the extent the only benefit we got was tax deductions. These were hard lessons, but useful nevertheless.

    The idea that anybody in banking would go to jail is absurd. Morrison is playing to the cheap seats who want the government to fix all their ills. The fact is we live largely in a consequences-free society where the most heinous crimes attract lenient sentencing and bail laws are obscene. Seems to me that criminals are not in fear of the law in this country, and it would be demonstrably discriminatory to think white collar criminals would be MORE afraid of the law – or should be. They know as I do; that they can game the system in this country without real fear of criminal sanction. The good news is that this is a game EVERYBODY can play!!

  3. Lewis P Buckingham says:

    This reminds me of the occassion when a major public hospital was punitavely fined by the EPA for a breach of regulations.
    ‘Let this be a lesson’ was the mantra.
    As a consequence services at the hospital had to be cut to pay the fine, as the fine comes out of the operating budget.
    The fine then went to fund the EPA or consolidated revenue.
    Presumably the banks will be fined to at least finance the Royal Commission, so a revenue neutral event.
    A bit like parking fines.
    However much good can come of this, the ‘separation of powers’ between banking and advice, being one.
    Orders to direct funding to such remediation would cost banks more than fines, and actually repair the deficiencies.
    A win for the body politic and we superannuants.

  4. whitelaughter says:

    “will pay the fines imposed on banks as institutions? As a shareholder I will pay it, ”

    The same shareholders who were paid the profits gained by misconduct? Not seeing why this is supposed to be upsetting.

    In theory, the shareholders are meant to be responsible for the directors who are responsible for the people who actually run the bank. That the system doesn’t work isn’t surprising, but since you have a vested interest in seeing that companies you are invested in are run well, you could focus on how make the banks more accountable to their shareholders.

    • Peter says:

      A reasonable point whitelaughter. It must be reasonably because I have said the same thing in other contexts. My fall-back is that Morrison and his ilk should be open and honest about who pays taxes and fines rather than hide it all behind the descriptor banks.

      • pabloAU says:

        Q: So who is paying taxes in general?
        A: The correct answer seems to be: c o n s u m e r s of the goods/services purchased.
        And let people equipped with this knowledge respond to the question on reducing company taxes.
        Not that I have much hope…

  5. Alice Thermopolis says:

    While I seldom ask for financial advice, I have some sympathy for folk whose business it is to give it, hopefully without fear or favor.

    For the public seems to conflate the getting of financial advice with the getting of PERFECT financial advice, namely advice that always produces a profit; as if the latter should be guaranteed by law.

    Given the nature of financial markets, is it fair to have such an expectation of the purveyors of it, who are perhaps closer to your “God giveth and God taketh away” priest or the haruspices (entrail diviners) of Ancient Rome than to your GP or accountant?

    As for giving financial advice, that is quite another matter. Who hasn’t said during the course of a long (or short) life: “Where do you think the money comes from, darling?”