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Saturday, February 19, 2011

Barclays defiling their Quaker roots

A UK uncut protester in a branch of Barclays Bank
during a day of protest on 19 February 2011.
In early 2011 the American born Group Chief Executive of Barclays bank Bob Diamond chose to make a robust defence of his bank and of the global banking elite in general in his "evidence" to a Treasury Select Committee. He controversially stated that "There was a period of remorse and apology for banks - I think that period needs to be over”. Coming in the wake of huge bailouts to the banking sector, Quantitative Easing and massive interest minimised loans from the US Federal Reserve, his remarks understandably provoked widespread anger amongst the general public given the background of savage cuts inflicted on public services like libraries, universities, adult education and disability benefits across the UK being inflicted by a Conservative party that has received over £40 million pounds in funding from the super rich banking elite since 2005.

At the time of Diamond's remarks Barclays were the third biggest bank nominally based in the United Kingdom with assets of £1.5 trillion, a globally recognised brand thanks in part to their sponsorship of the English Premier League since 2004 and the 15th biggest bank in the world judged by their market share. I am not a banking expert but I do know a little bit about the subject and have an interest in the history of banking and industry in the United Kingdom. I believe that a quick look at the history of Barclays Bank can illustrate how the UK banking industry has lost it's moral bearings and spun out of control. 
 
Barclays bank was a Quaker institution founded in 1690 by David Barclay, a man of Quaker faith who's father Robert had been a highly influential Quaker writer. The bank was run on Quaker business principles and guided by the Quaker testimony of integrity (the other three testimonies being to equality, peace & simplicity).

Over the years the bank grew in strength through the amalgamation of other Quaker banks like the Backhouse Bank of Darlington and Gurney's bank of Norwich. Through the centuries Barclays has subsumed dozens of Quaker and other non-conformist banks, credit unions and building societies.
Backhouse bank in Darlington was one of the many
Quaker & non-conformist banks
subsumed into what is now Barclays Bank
A look at the Backhouse family and their Darlington Bank which was located only a couple of minutes walk away from Darlington Quaker Meeting house gives us a fine example of how Quaker run banks helped to stimulate the industrial revolution through the provision of finance to people outside the economic elite of the era. At the time Quakers were still being persecuted for their beliefs, they were prevented from attending university, standing for Parliament, becoming judiciary or trading in corporation towns. Since Quakers were barred from playing a role in the establishment economy many influential Quaker families established their own businesses and became leading bankers and industrialists of their age.

The Backhouse family of Darlington were providers of credit to local industrialists like the town's famous railway pioneers as well as being industrialists in their own rights and noted biology experts too. The Backhouses played a clearly defined and important role in their local communities which extended far beyond their role as money lenders. A far cry from the frenzied and obscure trading activities of Barclays Capital in things like derivatives, hedge funds, short sales and futures, that are pretty much abstract intangible ideas to the majority of the British population. 

Considering the Quaker disapproval of gambling and their numerous campaigns against poverty it would be galling for the founders of these constituent banks to think the institutions that they had created would be subsumed into a megalithic institution that feeds into the huge casino that is the global investment banking sector through Barclays Capital and that the results of bad bets made by these casino banks can impoverish millions of people while the gamblers within the international banking community continue to make obscene amounts of money for themselves.

Going back to Diamond’s speech, he said that "No bank should be a burden on the taxpayer" and insisted that  Barclays had not taken any direct support from the taxpayer. Maybe they can claim that they had no direct assistance from the British tax payer but according to the Guardian and Private Eye in 2009 Barclays took $232bn in (Term Auction Facility) TAF loans from the US Federal Reserve (The American taxpayer) with minuscule interest rates unavailable to the money markets and definitely unavailable to plebs like us. They also borrowed $212bn from a similar scheme called the Primary Dealers Credit Facility (PDCF) in 2008. All this ultra low interest borrowing from the Federal Reserve (US taxpayer) adds up to at least $680bn since the credit crunch began. The most galling thing is that they obviously used this slush fund of cheap money to lend on to other people at the usual high interest rates and creamed off the profits.

The fact that the Americans pumped hundreds of billions of dollars through Barclays with near 0% interest rates raises a number of questions such as: Could the UK have even afforded the burden of lending nearly half a trillion pounds to Barclays at negligable interest rates? How much of a controlling interest in Barclays activities did all those billions of dollars buy for the Americans? How can Diamond continue in his job when he made such transparently disingenuous remarks to a Parliamentary Select Committee? How would the Quaker founders of Barclays and other constituent banks feel about recent Barclays activities and Diamond's unfamiliarity with the Quaker testimony of integrity, the single standard of truthfulness and the belief that honest dealing with others means more than simply avoiding direct lies?


Diamond giving "evidence" to the Treasury Select Committee,
where he made disingenuous claims that Barclays
had received no government assistance in 2009.
In his speech Diamond boasted that "In 2009, "we lent £35bn more [than the previous year] and in 2010 we lent £35bn more again in the first nine months alone," but it seems that they only managed to do this by borrowing £680bn in easy money from the Fed. 

Even if we forget about the direct assistance loans they took from the Americans, the bank also benefited from the climate in which the UK government was pumping billions of pounds into the banking sector to support toppling institutions like Northern Rock, Bradford and Bingley, HBOS and RBS in order to prevent the destruction of London as the financial capital of the world and billions more injected into the banking sector through its Quantitative Easing program.

It is pretty difficult to judge the scale of the negative effects that Quantitative Easing has had on the global economy, however the futility of creating new money to pump into an economic system was one of the few economic ideas that seeped through to me from the idiosyncratically structured British mass education system. To me it doesn't matter whether you are creating money to directly fund government spending (monetising) or printing money in order to deliberately invest it in buying up the remnants of hundreds of billions of pounds worth of toxic bad bets that the banks can't afford to service (quantitative easing). Printing money in order to stop the banking system from collapsing distorts the whole economy and is the kind of government subsidisation that consecutive UK governments have doggedly avoided giving to once proud industries like coal, steel, shipbuilding, cars and trains, thus allowing swathes of our economy that actually used to produce things to fall into ruin leaving the UK completely dependent on foreign imports of commodities of which until relatively recently we were global leaders in production.

To me it is a disgrace that our elected leaders took the ideological decision to let British mining, manufacturing and engineering fall into ruin rather than pay subsidies to help them through difficult periods, always citing the mantra of their free-marketeer friends and paymasters that "subsidisation is bad because it distorts economic systems". Instead of supporting British industry they concentrated on turning the city of London into the banking capital of the world. As soon as the banking sector ran into difficulties they poured countless billions that British miners and manufacturers could never even have dreamed of into a banking sector dominated by the same free-marketeer parasites that would have bitterly opposed emergency subsidisation of any other part of the UK economy.

To make matters worse, in February 2011 it was revealed that  in 2009 Barclays used a whirlpool of tax-avoidance subsidiaries based in tax-efficient countries. (tax havens) to reduce their tax bill to just £113m on profits of £11.6bn, which is a rate of taxation of less than 1%. If they had paid the 28% tax rate that many businesses in the struggling British manufacturing sector cant avoid, they would have ended up making a contribution of £3.25bn to the UK economy.

The fact that this kind of large scale tax avoidance amongst the global capitalist elites has been going on has been public knowledge for a long time and Barclays are by no means unusual in their aversion to paying tax. This public knowledge was because the intricacies of Barclays tax avoidance schemes were being freely circulated elsewhere on the internet as Barclays lawyers were making determined efforts to gag the Gaurdian from revealing some of the complex tax avoidance strategies they had been using in 2008. This latest revelation of the sheer scale of Barclays tax avoidance has come as shock even to seasoned politicians and fair tax campaigners like UK Uncut and the Robin Hood Tax Campaign.

So to recap, in his speech Diamond cited Barclays 2009 lending figures as reason that everyone should stop criticising bankers and let them get on with doing their jobs and made the disingenuous claim that the banks had received no government assistance to achieve these figures when in reality they had taken secretive loans of more that half a trillion dollars for the American Federal reserve, benefited from the British government's use of quantitative easing and the ridiculously low tax burden expected of them by their host nation. He then issued veiled threats by talking about how they needed to be allowed to pay obscene bonuses or their "best staff" would simply leave to claim their vast bonuses in less regulated economies and then pointedly reiterated Barclays' intention to remain based in London.

The fact is that the values of the small local banks with strong community ties, clear community benefits and ethical motivation have been forgotten as Barclays bank has grown into this monolithic and amoral profit driven entity that is structured to avoid billions in tax and pay out almost as much as they avoided in tax as bonuses for their super rich traders and executives, many of whom use the same tax evasion strategies as Barclays in order to avoid paying tax on their earnings while communities all over the UK are stripped of their services to pay off government debts that have been massively exacerbated by the unprecedented billions of public money used to prop up the banking system.

It is clear that Barclays have moved on from providing ethically motivated community banking to become an institution that diverts billions of pounds into the pockets of a tiny economic elite and avoids paying tax, while the communities from which it rose are impoverished by rising price inflation, wage repression and increased job insecurity as their public infrastructure is devastated by vicious cuts orchestrated by a demonstrably bankrolled Tory party.

UPDATE: In 2012 Bob Diamond resigned in disgrace after the LIBOR rigging scandal. He walked away with an £8.75 million payoff.


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