"Time to start loving the bankers" - Ken Livingstone

Things are getting very strange and topsy-turvy when you get the “Left” supporting crony capitalism.

Is it time to stop bashing bankers?

Former London mayor Ken Livingstone and investment banker Anthony Fry discuss whether we need to stop blaming the banks in order to kickstart the economy

the Guardian,

26 April, 2012

Ken Livingstone and Anthony Fry debate whether the time for banker bashing is over. Photograph: Frank Baron for the Guardian

Banker bashing is still a national pastime following the financial crash and Libor-fixing scandal. But could we be approaching a time when we have to acknowledge that banks might be good for Britain? Former London mayor Ken Livingstone, who earlier this year quipped, "Hang a banker a week until the others improve", takes on investment banker Anthony Fry. Aida Edemariam referees.

Anthony Fry: If you're in my position, you have to start with some admissions. The majority of banks were extremely poorly managed. They completely failed to promote the right culture within their organisations. They failed to protect their corporate reputations. And those things contributed to the irresponsible behaviour of a minority of people. But when you think about the number of people who have been extremely hard-working, honourable, and doing a very good job, we run the risk of throwing the baby out with the bathwater.

Ken Livingstone: The majority of people who work for banks aren't that well paid and had no role in the financial collapse. But the last 200 years of capitalism has been a cycle of banks taking terrible risks, catastrophic collapse, tight regulation, and 50 years on, seducing politicians to removing the controls. Let's have a Glass–Steagall (the separation of investment and commercial banking, introduced under Roosevelt) for modern times – that's essentially what Miliband's come out for this week.

Aida Edemariam: As mayor, you presided over the biggest financial boom in London's history; the City spilled out into Mayfair, Savile Row, along the South Bank to the Shard. It changed London.

KL: There are huge benefits. What I've always said to the mayors of Shanghai and Mumbai is – if you want to be a great international financial centre, you've got to allow about 30% of the population to be foreigners. Because that's what New York and London's got.

AF: It also has an acceptance of the rule of law – though one of the reasons that antagonism towards the banking community has lasted so long has been that to date not a single person on either side of the Atlantic has been penalised, other than at the margins. I agree with Ken – I think that being a financial centre brings benefits.

AE: For the average person? Really?

AF: The most remarkable thing about the Olympics was that all 204 nations had a community in this city. Never before has that happened. That is, partly, because London is an attractive place for large numbers of people to come, despite some massive social problems.

AE: However international London gets, wherever people come from, they have to live somewhere. In the boom, Ken, it became a city where no working-class person could live in the centre. The middle class is just hanging on. That's a strange legacy for a socialist mayor.

KL: That's not the fault of the bankers.

AE: It's an effect of what bankers did.

KL: That's the fault of politicians. We used to build, in Britain, over 200,000 homes a year, and about half were council housing. Thatcher stopped building. Blair carried that on. So throughout the 1980s and 90s we were building about half the homes we needed to, to cope with the demand. That's why prices have gone through the roof.

AE: But it's not just that. There has been so much money, bankers' bonuses going into housing stock.

KL: We have a shortage of supply, so the price will rise. The way to deal with that is either a vast regulatory system like something out of the old Soviet Union, or you just build more housing.

AF: There are lots of ironies about the crisis. There was one bank that supposedly had the best structure for making sure the interests of investors, depositors and so forth were aligned, and that was Lehman Brothers – which I worked for briefly – where more than half of people's compensation was paid in Lehman stock, which you had to hold. No matter what you did, clerical, secretarial, the janitor, you got Lehmans stock. When Lehman Brothers collapsed they were the biggest losers. So you've got to be careful. The bonus question is twofold. As you start realigning, you end up with unintended consequences. Again, coming back to politicians – they ran with the hares and hunted with the hounds. The fact is, in the early 2000s, big cash bonuses were being taxed at 50%. This was a windfall for the treasury. I would argue that successive politicians failed to invest the monies they were getting in sustainable ways. If you have a growing population and you don't have many houses, you will end up with a house boom that is worsened by bonuses, but not created by bonuses.

KL: Part of the problem is politicians. We, for political reasons – and Blair carried on with this – were encouraged to buy. We encouraged borrowing.

AE: When you say politicians you're including yourself?

KL: Oh no, I never did. Every single one of the 13 budgets I produced – five at the GLC, the rest as mayor – every one was balanced. We only ever borrowed for investment – things like Crossrail. Revenue budget was always in balance. If I'd been given the powers of the chancellor, this would be a different economy. My real damnation of the Blair-Brown government is that they didn't build homes for people to live in, and they neglected our manufacturing.

AF: Like it or not, governments are going to need banks to get the cash flowing. We need thousands of homes. That's just a fact. We must find a way of moving on, because perception is driving reality. The debate is getting lost in extreme language. Words like cesspit …

AE: Or hang the bankers …

AF: Indeed, but I took that as Ken's wit.

AE: You both keep talking about regulation, but for the person in the street it's neither here nor there. For them, nothing has changed, or it's got worse, they've lost their job or their benefits.

AF: The banks didn't say to governments, go off and borrow X amount of the GDP every year! Governments did it for a variety of reasons, quite a lot of which were political. If they borrowed money and supported programmes that put money directly into people's pockets, as opposed to investing in infrastructure, the inevitable result was that they borrowed too much money.