If we don’t learn the lessons of history we are doomed to repeat it

Posted: 22/09/09

When the Chief Executive of Goldman Sachs says that public anger about banker's bonuses is both ‘understandable and appropriate', it is time to listen. When he argues, as he did in a major speech to a banking conference in Frankfurt last week, that some of the means by which the financial services sector made money are ‘socially useless', it is time to act.

No-one but a fool would argue that banking, insurance and financial services are unnecessary. As we have discovered to our cost in the last two years, when credit dries up, business and industry suffer, jobs are lost, and housing and construction come to a standstill. The City of London matters to the real economy as well as being a major source of employment in its own right. Yet both Lloyd Blankfein, Goldman Sach's Chief Executive, and Lord Turner, the head of the Financial Services Authority - men who can scarcely be labelled either ignorant or vindictive - are generating controversy by their statements of the blindingly obvious.

Of course public opinion is incredulous at the resumption of bloated bonus payments within the same institutions (and no doubt sometimes to the same people) whose risk-taking brought us the edge of the abyss. Of course, this is even more the case given the fact that governments have had to bail out a system that was almost bankrupted by greed and incompetence. Of course, in a country where the average wage is just £25,000, people are angry at the rewards being dished out within a sector which bears more responsibility than any other for the global recession. If any future steps to reduce public debt- arising in large part from the consequences of the banking crisis and its aftermath - inflicting pain on ordinary working people - that can only intensify their anger. Why, they will wonder, should our costs rise, our jobs be lost, our health, or education, or policing, services be cut back because reckless lending and trading in incomprehensible financial products by banks; banks which the state then had to bail out and then clean up the unemployment and lost income which has accompanied the recession.

Yet somewhere in a parallel universe, people who have learnt nothing from the crisis are protesting against the sense talked by Blankfein and Turner. Bonuses are back and many of those receiving them (or wanting to) are weighing in against regulation or restraint, impervious to the new realities around them. We cannot and should not go back to business as usual. Not only have too many people paid a steep price for the greed and recklessness of others, a return to those same practices will simply take us back around the same course.

There may be a genuine argument about how best to achieve what we want, both in terms of best practice (rewards for long term investment, not short term risk taking) and individual remuneration ( cap bonuses? tax them at a higher rate? look at the total package and not just the bonus?) but the principles are clear. In ‘The Bonfire of the Vanities', Tom Wolfe's satirical novel about hubris in New York's financial sector during the 1980s, a self-styled ‘Masters of the universe' was brought down by a dramatic sequence of personal and political events. It would be better for us all if yesterday's self styled ‘Masters of the Universe' accepted today's changed realities and heeded the warnings of Lord Turner and Lloyd Blankfein.