Is the City of London worth defending? Not many in the government seem to think so. Vince Cable, the Business Secretary, calls it a ‘cesspit’. George Osborne blames the financial sector for causing the crisis – the Barclays Libor scandal, to him, was not an isolated incident but indicative of the whole rotten system, ‘the epitaph to an era of irresponsibility’. The City’s global enemies look on, amazed. Not even the Brits are prepared to stand up for their extraordinary financial sector. As I say in my Telegraph column today, now is their time to strike.
As the Americans are pointing out, much Wall St woe can be traced back to London. AIG, Lehman and Bear Stearns all collapsed after trades made by their London divisions. Even today’s scandals can be traced back to skullduggery at EC1, from the alleged $2.3 billion fraud at UBS to the $2 billion trading loss at JP Morgan. Hitherto, it’s been hard to link this to any regulatory failure in London – especially given that America is hardly immune from such scandal, as the spectacular Peregrine case shows. But Libor the scandal does seem like, finally, something the rest of the world can nail on London. The Americans are gunning for the whole British establishment. Even the Canadians have launched a probe into the trading Libor anddemand to see internal emails from RBS, which has virtually no operations in Canada.
Because of London’s dominance Libor ended up being used world over – setting everything from American mortgages to Swiss central bank interest rates. Just why an utterly unregulated index was depended upon so widely is an embarrassing question for many a mortgage dealer, but rather than answer these questions they point to London and cry fraud. There is no defence for the Libor scams, and even cynical souls like me are sickened by the ‘big boy’ and Bollinger emails. Libor has put the City at its most vulnerable, allowing foreign regulators and rival financial centres to make a power grab. If they do it quickly enough, the Brits may not even put up a fight.
This is where we need someone, ideally a minister paid to defend the UK economy, to point out that the City of London is more than just banks, more than just a few corrupt Libor dealers. The City is insurers, equity researchers, commodity dealers, insurance specialists, corporate law experts – from all around the world. Go to Canary Wharf and you understand the depth of our rivals’ resentment. It has the best financial talent on the planet: Chinese lawyers, France’s best quant traders, Californian insurers, all choosing to come to London and into our wonderful melting pot of a city whose influence has grown hugely in the globalised age. Just as foreign mortgages are linked to Libor, thousands of foreign deals are underwritten by English law because our system is seen as the least corruptible. So when a Japanese company buys a Korean rival and has the deal underwritten by English law, it brings jobs to London.
Britain’s financial services sector is worth defending and not just because even now, the City’s exports bring in more money to Britain (i.e. had a trade surplus) than the rest of the UK economy put together. The City is worth defending because it is a thing of beauty – the same beauty that Voltaire saw almost 300 years ago. Here are his views about what was, even then, a city that was the centre of the world:
‘Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Muslim and the Christian deal with one another as if they were of the same religion, and reserve the name of infidel for those who go bankrupt.’
This same formula – people from all over the planet, working together, applies now. It’s made possible by defining British characteristics: openness, global outlook and a sense of fairness. There is a huge market, in the 21st century, for such values. God knows there is plenty wrong with the City, but what is rotten about it is vastly outweighed not just by what is good, but what is extraordinary. What we need is a minister with the gumption to say so.Tags: Banks, City of London, UK politics