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dramatically. Those are the headlines. Now it is | :00:05. | :00:15. | |
:00:15. | :00:23. | ||
The UK appointed a commission to recommend it making banking reform. | :00:23. | :00:28. | |
This should help to prevent future bail-out by the taxpayers. My guess | :00:28. | :00:34. | |
today is Bill Winters. He sat on a commission and is also one of | :00:34. | :00:40. | |
London's best-known financiers. Can the greed of the bankers be stopped | :00:40. | :00:50. | |
:00:50. | :00:50. | ||
Apology for the loss of subtitles for 48 seconds | :00:50. | :01:39. | |
The most important thing that comes to my mind was whether it was | :01:39. | :01:46. | |
earned. Many people tend not appreciate the contribution of any | :01:46. | :01:50. | |
individual generating the kind of money the bankers are getting paid, | :01:50. | :01:54. | |
including myself. You cannot imagine that you should be paid | :01:54. | :02:03. | |
that much. Of course I can imagine it. The important thing is that | :02:03. | :02:10. | |
this interest closely with the profitability of the bank. And | :02:10. | :02:18. | |
other stakeholders. The head of the Independent high paid commission | :02:18. | :02:28. | |
:02:28. | :02:30. | ||
has said the UK levels have rose 50% in the past year. She said it | :02:30. | :02:40. | |
:02:40. | :02:40. | ||
is a bit of a myth, people are in a closed club. Companies are made up | :02:40. | :02:43. | |
of executives from other companies with the interest of keeping pay | :02:43. | :02:53. | |
:02:53. | :02:54. | ||
higher. I never saw it as a closed club. I am not sure what she is | :02:54. | :03:02. | |
referring to precisely. It is an end and -- international market. | :03:02. | :03:11. | |
That is why the great attractions of Britain. It is a fabulous place | :03:11. | :03:18. | |
to work. It is a wonderful environment. There is nothing club- | :03:18. | :03:26. | |
like. She said closed clubs. If you're not sure she Seren, Planet | :03:27. | :03:32. | |
Hollywood the Deputy Prime Minister is saying about the same topic. | :03:32. | :03:40. | |
There is not enough accountability, he said. He said there is not a | :03:40. | :03:43. | |
close enough relationship between the people at the top and the | :03:43. | :03:49. | |
performance of the company itself. He is absolutely right. About | :03:49. | :03:55. | |
shareholders not knowing what is being paid in a candid? It is clear | :03:55. | :04:00. | |
that many banks paid out extraordinary bonuses to a large | :04:00. | :04:07. | |
number of employees. It destroyed a lot of value for the shareholders. | :04:07. | :04:13. | |
It also plans de-seed of economic destruction for the broader economy. | :04:13. | :04:23. | |
:04:23. | :04:23. | ||
There is no question about that assessment. You're given $12 | :04:23. | :04:28. | |
million after you left JP Morgan in 2009 and you are saying it is a | :04:29. | :04:33. | |
perfectly acceptable sum. It is a fantastic a man of number. I do not | :04:33. | :04:42. | |
actually say that. Do you think you are worth that? The important thing | :04:42. | :04:47. | |
is that I did not get paid anything during the financial crisis. All | :04:47. | :04:54. | |
the senior managers forewent their entitlements. That was because the | :04:54. | :05:00. | |
firm was having a difficult time. We thought it was appropriate for | :05:00. | :05:07. | |
all of us to recognise that clearly. The amount of money and received | :05:07. | :05:11. | |
break before the crisis and for my departure was locked up for a long | :05:11. | :05:17. | |
time. It was locked up in the JP Morgan's stock. If I performed | :05:17. | :05:26. | |
badly, I would lose it. The key point I want to make is that people | :05:26. | :05:34. | |
see bankers, like yourself, getting huge amounts of money. Another | :05:34. | :05:41. | |
chief executive received a bonus of $10.5 million. The head of page SPC | :05:41. | :05:51. | |
:05:51. | :06:00. | ||
received a bonus around $14 million last year. -- his SPC. People start | :06:00. | :06:03. | |
to think bankers are paying themselves millions of dollars. And | :06:03. | :06:08. | |
people want to know why. The people that are paying the bankers are the | :06:08. | :06:13. | |
banks. The banks are run by a board of directors. They do not earn that | :06:13. | :06:22. | |
kind of money. The primary responsibility for setting this a | :06:22. | :06:32. | |
proper levels resides with the owners of that bank. Shareholders | :06:32. | :06:36. | |
are sometimes kept on the dark. Shame on them by allowing | :06:36. | :06:42. | |
themselves to be kept in the dark. It is a closed club at that decided. | :06:42. | :06:47. | |
I do not get it close a club part. Deith in a bank should be paid | :06:47. | :06:52. | |
billions of dollars as a bonus when the British Prime Minister gets | :06:52. | :07:02. | |
:07:02. | :07:03. | ||
$228,000 a year? That comparison is irrelevant. The important thing is | :07:03. | :07:08. | |
that the amount of money that a banker is paid is consistent with | :07:08. | :07:12. | |
the value with by individual and their contribution to the firm over | :07:12. | :07:19. | |
a period of time. There is the idea that a large and - a -- a large | :07:19. | :07:29. | |
:07:29. | :07:29. | ||
amount of money is going out. The money that we took from JP Morgan, | :07:29. | :07:37. | |
resulted from the fact that we did well. A former chairman other | :07:37. | :07:41. | |
financial institutions said he has worked in the city of London for | :07:41. | :07:45. | |
three decades. He said he has seen several recessions but he said in a | :07:45. | :07:49. | |
party days, I cannot recall the underlying, sustained anger across | :07:49. | :07:56. | |
all sorts -- social levels aimed at Bank shows and the market economy | :07:56. | :08:05. | |
as a whole. -- bankers. He has never seen such anger. We see the | :08:05. | :08:10. | |
protest in Wall Street and other cities across the world. This is | :08:10. | :08:16. | |
unprecedented. Why do you think this is happening? Do you feel | :08:16. | :08:22. | |
embarrassed in any way by the huge bridges that people are except in? | :08:22. | :08:32. | |
:08:32. | :08:37. | ||
-- India's. The sources of these protest very. What caused this | :08:37. | :08:45. | |
crisis? We have to live with his dead as a result of this financial | :08:45. | :08:49. | |
crisis. Where did it come from to mark it came from a long period, at | :08:49. | :08:54. | |
a decade, of outrageous complacency on the part of those who were | :08:54. | :08:58. | |
borrowing money and those who were lending money. As well as the part | :08:58. | :09:01. | |
of the government who was steered - - stimulating the economy along the | :09:01. | :09:09. | |
way. And the parts of the bankers who acted as litter came -- the | :09:09. | :09:19. | |
:09:19. | :09:21. | ||
litigant in between. Asset bubbles were created. And a pot. Many | :09:21. | :09:28. | |
individuals and firms generated wealth for themselves. The anger is | :09:29. | :09:33. | |
perfectly legitimate and reasonable and understandable. Do it you need | :09:33. | :09:42. | |
to address this anger at how the free market operates thank you this | :09:42. | :09:49. | |
is a personal view. What we are operating in is a market that was | :09:49. | :09:57. | |
read in many ways. It was primarily raid by a combination of regulators | :09:57. | :10:00. | |
and the government who were quite happy with taking every little bit | :10:00. | :10:05. | |
of the economy and pumping it back again to keep things going. The | :10:05. | :10:10. | |
spare ball rolls back downhill and crashers things in its path. -- | :10:10. | :10:20. | |
:10:20. | :10:21. | ||
snowball. Banks were subsidised by their governments. It came about as | :10:21. | :10:26. | |
a result of the people who lend money to banks. They think they | :10:26. | :10:29. | |
will get the money back because the government was guaranteeing it. It | :10:29. | :10:37. | |
was not a real guarantee. It was bassoons. As a result, banks were | :10:37. | :10:46. | |
borrowing money at the wrong cost. All of it was wrong. That is one | :10:46. | :10:54. | |
way of looking at it. The points others were making it is that you | :10:54. | :11:04. | |
:11:04. | :11:07. | ||
need to reconnect the financial with the moral. You agree with her? | :11:07. | :11:14. | |
They have to meet many ways. The past 10 up to 15 years are in the | :11:14. | :11:18. | |
process of working themselves out. You have to look at the strife in | :11:18. | :11:22. | |
the banking market over the past three months, including this week | :11:22. | :11:30. | |
and next week. We will talk about back reforms in a moment. Speaking | :11:30. | :11:34. | |
philosophically, do not think there is an alternative? Capitalism is to | :11:34. | :11:42. | |
be recruited somehow, as Bill Gates said in 2008. It has to look work | :11:42. | :11:46. | |
not only for wealthy people but also the poorer people. It is a | :11:46. | :11:52. | |
philosophical issue. It works if there is a equal playing field. It | :11:52. | :11:57. | |
is difficult to achieve. It starts with giving every charity a good | :11:58. | :12:03. | |
education. It is as simple as that. What level playing field is there | :12:03. | :12:10. | |
if the kids do not have the same chance to succeed? That is what | :12:10. | :12:15. | |
governments have strived for. To your immediate moral question, what | :12:15. | :12:25. | |
:12:25. | :12:27. | ||
do we need to do to change the business today? To my mind, it goes | :12:27. | :12:31. | |
back to the same concept of the level playing-field. We have to | :12:31. | :12:36. | |
remove the advantages of an established quick. Like the closed | :12:36. | :12:46. | |
:12:46. | :12:50. | ||
clubs Europe prone to before. I have not seen that. When we talk | :12:50. | :12:54. | |
about creative capitalism, it is interesting how people at by | :12:54. | :13:00. | |
demonstrating, not against people like Bill Gates or Steve Jobs. They | :13:00. | :13:03. | |
are people to create is a bit hit and two made billions of dollars in | :13:03. | :13:07. | |
a process. When you see the reaction to the death of Steve Jobs, | :13:07. | :13:12. | |
you cannot imagine that been done for a banker. No you cannot. Far | :13:12. | :13:22. | |
:13:22. | :13:24. | ||
from it. But why? Yd you'd think that? Banking is an abstract | :13:24. | :13:27. | |
concept to most people. Most people relationship with the bank is | :13:27. | :13:36. | |
paying money and taking money out. It is not an exciting experience. | :13:36. | :13:41. | |
It is a necessary expense. Not unlike a relationship individuals | :13:41. | :13:44. | |
have with their water companies. You do not seen any warder bosses | :13:44. | :13:50. | |
being analysed a bell. It is not because they are bad. It is because | :13:50. | :14:00. | |
:14:00. | :14:03. | ||
One of the key objectives was for the British Government to assure | :14:03. | :14:06. | |
that never again would they be taxed at their weight a financial | :14:06. | :14:11. | |
institution. What was the key recommendation to prevent this | :14:11. | :14:19. | |
recommendation to prevent this happening? Two things. A much | :14:19. | :14:22. | |
higher level of capital for the banks. For every dollar they lend, | :14:22. | :14:28. | |
rather than holding three or 4p, they need to hold 10p. That is the | :14:28. | :14:35. | |
first thing, more capital. In addition, it is important for not | :14:35. | :14:38. | |
just shareholders being exposed to losses of the bank, but the | :14:38. | :14:46. | |
creditors. If you buy a bond with a bank and the bank is in trouble you | :14:46. | :14:49. | |
should be at risk. That did not happen. Bond holders were bailed | :14:49. | :14:58. | |
out at the expense of taxpayers. Bond holders must take a risk. That | :14:58. | :15:02. | |
was recommendation number one. The second point was, we said that in | :15:02. | :15:05. | |
Britain we have a number of universal banks, combining retail | :15:05. | :15:13. | |
banking with investment banking. We said that at the end of the day | :15:13. | :15:17. | |
that package makes it difficult for the Government to go in and wind a | :15:17. | :15:26. | |
bank down without putting taxpayer money at risk. It would be easier | :15:26. | :15:29. | |
for the Government if we took the retail banking business, the | :15:29. | :15:32. | |
everyday banking business, and put it in a separate subsidiary from | :15:32. | :15:40. | |
the investment arm with its own capital. So if the investment arm | :15:40. | :15:48. | |
fails, it is left to sink. The retail arm is safe. That is right. | :15:48. | :15:51. | |
Once a banking group fails, what the Government can do is treat the | :15:51. | :15:56. | |
two pieces differently. Independent of which one causes the failure, | :15:56. | :16:00. | |
they can take the retail bank and put it into government ownership | :16:00. | :16:10. | |
:16:10. | :16:11. | ||
temporarily and wind the investment bank down. Would that have helped | :16:11. | :16:17. | |
in the example of Lloyds Bank? �20 billion was used to bail out the | :16:17. | :16:23. | |
bank for a 43% stake. But Lloyd's does not have a significant | :16:23. | :16:30. | |
investment arm so it would not have helped. Our recommendations are | :16:30. | :16:36. | |
detailed. There are different specific recommendations. There are | :16:36. | :16:43. | |
some around capital. It would have prevented the Lloyd's problem | :16:43. | :16:53. | |
:16:53. | :16:53. | ||
entirely. The Lloyd's problem was very specific. The bank did not | :16:53. | :16:58. | |
have enough capital or cash. Under the new rules they would have much | :16:58. | :17:03. | |
more of both. The extra cost of forcing banks to have this firewall | :17:03. | :17:07. | |
means the cost would be passed on to borrowers, the chairman of the | :17:07. | :17:10. | |
commission, Sir John Vickers, said that the proposal would effect the | :17:10. | :17:13. | |
profitability of banks, the remuneration of those who work for | :17:13. | :17:23. | |
:17:23. | :17:31. | ||
the banks and also the consumers. On the margin, probably, yes. We | :17:31. | :17:34. | |
estimated the aggregate cost for the banking industry would be | :17:34. | :17:42. | |
between �4 billion and �7 billion. As a percentage of the banking | :17:42. | :17:52. | |
:17:52. | :17:54. | ||
assets, it is tiny. Total assets in the UK are over �1 trillion. The | :17:54. | :17:57. | |
incremental costs, even if they were passed on to the borrowers, | :17:57. | :18:02. | |
which they will not be, would be very small. But there are other | :18:02. | :18:05. | |
things banks can do before passing on cost to borrowers, starting with | :18:05. | :18:10. | |
reducing the compensation for those who work for banks. In terms of | :18:10. | :18:13. | |
this discussion, ahead of the G20, about what is sometimes called a | :18:13. | :18:16. | |
Robin Hood tax, a tax on financial transactions, France, Germany | :18:16. | :18:26. | |
:18:26. | :18:36. | ||
supported, the UK only if it is global. It is getting some traction. | :18:36. | :18:44. | |
Is it a good idea? I do not think so. Any time you look at taxation | :18:44. | :18:49. | |
policy, you must be clear on what you're trying to achieve. There are | :18:49. | :18:55. | |
two motivations for a transaction tax. The first is to raise money. | :18:55. | :19:00. | |
Take it out of the banks and give it to somebody who needs it. If you | :19:00. | :19:04. | |
want to take money from banks, just take the money from the banks, | :19:04. | :19:07. | |
rather than going through a complicated transaction tax. That | :19:07. | :19:12. | |
is what the Government did with the balance sheet levy in the UK. | :19:12. | :19:20. | |
Different countries have different approaches. But for the transaction | :19:20. | :19:25. | |
tax, the second objective is to reduce the velocity of speculation. | :19:26. | :19:30. | |
To make it harder for people to trade in and out of markets. Some | :19:30. | :19:33. | |
of the transaction tax would be paid by high fricassee traders, | :19:33. | :19:39. | |
speculators, but a lot would be paid by everyday end users. | :19:39. | :19:42. | |
Effectively the family going on holiday who takes out some euros | :19:42. | :19:52. | |
:19:52. | :19:52. | ||
will end up paying a little before it. But it would curb speculative | :19:52. | :19:59. | |
trading. That is not a bad thing. When I look at the causes of this | :19:59. | :20:06. | |
crisis, speculative trading was down towards the bottom. Shadow | :20:06. | :20:16. | |
:20:16. | :20:19. | ||
banking by hedge funds? It was important in one regard. Shadow | :20:20. | :20:29. | |
:20:30. | :20:30. | ||
banks that were not really shadow banks. But it is all part of that | :20:30. | :20:40. | |
package. It is a misdirected tax. But the German Finance Minister | :20:40. | :20:45. | |
thinks it would be a good thing for the EU to take a lead on this. It | :20:45. | :20:48. | |
would help bring about tougher regulation of the bank's. I do not | :20:48. | :20:51. | |
think it will improve regulation. It will not reduce riskiness of the | :20:52. | :20:55. | |
banks. There is no indication that lots of trading has been damaging | :20:55. | :20:58. | |
to banks. To the contrary, in fact. There is the question, will this | :20:59. | :21:02. | |
make the world a better place to leave? My short answer is no. | :21:02. | :21:07. | |
you are against it? Yes. But for the EU to apply it single-handedly, | :21:07. | :21:11. | |
it would cause markets to move out of the EU. Perhaps that is what | :21:11. | :21:16. | |
they want. We're taking a different approach in the UK, trying to make | :21:16. | :21:21. | |
the banks safe. Once they are safe, let them do these things, but then | :21:21. | :21:27. | |
speculate, as long as they remain safe. That should create the | :21:27. | :21:37. | |
:21:37. | :21:37. | ||
optimum conditions for growth. do you think when people ask, have | :21:37. | :21:42. | |
the banks learned the lessons? When you look at the collapse of MF | :21:42. | :21:46. | |
Global because it had a $6 billion bet on sovereign debt and has had | :21:46. | :21:53. | |
to file for bankruptcy, it makes one wonder. One wonders about the | :21:53. | :21:58. | |
gamblers who are risking money in this way. It does not look like | :21:58. | :22:06. | |
they have learnt their lesson. new commission on banking, the | :22:06. | :22:09. | |
first thing we agreed,we agreed, human beings will continue to make | :22:09. | :22:18. | |
mistakes for the rest of time. So to build a system on the | :22:18. | :22:21. | |
presumption that people will not be doing really stupid things would be | :22:21. | :22:31. | |
:22:31. | :22:33. | ||
a fallacy. So the lessons have not been learnt by bankers? | :22:33. | :22:37. | |
interesting thing about MF Global is that it appears that that is a | :22:37. | :22:40. | |
firm run by shareholders and private creditors that made a bet, | :22:40. | :22:50. | |
:22:50. | :22:50. | ||
failed, went bankrupt. The people who invested will lose, the | :22:50. | :22:56. | |
there is no relevance to the broader system. That is the | :22:56. | :23:06. | |
:23:06. | :23:09. | ||
yourself? There have been rumours you may be going to the Swiss bank | :23:09. | :23:13. | |
UBS, who have also had problems with that rogue trader. Do you | :23:13. | :23:19. | |
fancy going back? Not immediately. I left JP Morgan very happy, 26 | :23:19. | :23:23. | |
years there. I spent most of the last 18 months on this independent | :23:23. | :23:29. | |
commission on banking. This was very interesting for me. I think we | :23:29. | :23:36. | |
did good work. I believe we added to the greater good. No plans to go | :23:36. | :23:45. | |
to UBS. But would you go back to banking full-time? You never say | :23:45. | :23:49. |