Barclays boss charged over 2008 ‘bungles’
John Varley is one of four people charged with fraud over actions in the financial crisis. Hardly anyone was jailed for their role in the crash. Would this have rescued trust in the system?
It is now almost a decade since a crisis in the US housing market developed into a full-blown international banking crisis, the worst since the Great Depression of the 1930s.
But no charges have been brought against any bank in the UK in those years. Until now.
Barclays and four of its former executives, including former chief executive John Varley have been charged with fraud in a case that stretches back to the heart of the crisis.
The US government allowed the investment bank Lehman Brothers to go bankrupt. This led to a chain of events including the value of shares in other US banks plummeting. The problems rapidly spread around Western countries. In the UK, the government had to rescue several banks including Lloyds and Royal Bank of Scotland.
Barclays decided to go down a different path — and it is that decision which has led to the charges that it now faces.
The bank decided not to rely on the taxpayer and boosted its coffers by raising money from a number of investors. One of those was state-owned investment fund Qatar Holdings.
The first charge, conspiracy to commit fraud, relates to “advisory” fees paid to Qatar. The second — “unlawful assistance” — could be more serious.
It relates to a £2 billion loan advanced to Qatar after the funds were negotiated — “the implication being that there was a money-go-round at work,” according to Dominic O’Connell of the BBC.
The financial crisis, seen by many as the result of unnecessary risk-taking with other people’s money, devastated many lives. But hardly anyone has gone to prison for causing it.
Wall Street trader turned journalist Chris Arnade believes this created a view among the public that while the poor are sent to jail on a whim, the wealthy merely “make mistakes”. Arnade believes stronger punishments for bankers would restore public trust in the system.
But running a bank is like running a country: it is almost impossible to get everything right, such are the demands of the job. Should we be so harsh on bankers?
Don’t bank on it
The “mistakes” made by bankers amount to some of the most serious crimes of the century, argue some. Thanks to a culture of pure avarice, they caused the worst financial crisis for 80 years, leaving ordinary people to pay to clean up the mess. This was a classic case of “one rule for the many, another rule for the few”. Make an example of them.
Bankers are not monsters, reply others. Take Stephen Green, the former head of HSBC. He gave away all his bonuses during the crisis. It is also very hard to convict people when a general “culture” in banking is at fault. Was any one person really responsible for that culture? These calls for swift justice smack of a witch-hunt.
- Should all bankers who were involved in the 2008 financial crash face trial?
- Who do you trust more: bankers or politicians?
- In no more than three sentences, try and sum up what caused the financial crisis.
- Imagine a world without banks. Write down 500 words on how different it would be.
Some People Say...
“The financial crisis was the most important world event since the second world war.”
What do you think?
Q & A
- What do we know?
- That four former Barclays employees, John Varley, Roger Jenkins, Thomas Kalaris and Richard Boath, have been charged with fraud in relation to the way the bank raised billions of pounds from Qatari investors enabling it to avoid a government bailout in the middle of the global financial crisis. We know that very few bankers have been jailed for their role in the crash.
- What do we not know?
- Whether the four men are guilty —they remain innocent until proven guilty, remember. We also do not know whether convicting bankers nearly a decade after the event would restore public trust in both banking and the legal system. It is also very hard to quantify the exact results of the financial crisis, as much of it cannot be measured.
- Great Depression of the 1930s
- The depression actually started in 1929, becoming worldwide news on October 29th of that year. Between 1929 and 1932, worldwide GDP fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession.
- Lehman Brothers
- In September 2008 the investment bank filed for bankruptcy following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of assets, largely sparked by Lehman’s involvement in the subprime mortgage crisis — when the housing bubble collapsed and house prices fell due to borrowers being approved for loans they could not afford.
- Iceland, one of the countries hit hardest by the recession, jailed 26 of its leading financiers for a total of 74 years in the wake of the crash.
- Wall Street
- A street in the financial district of New York. “Wall Street” has become shorthand for the US financial markets as a whole.
- Hong Kong Shanghai Banking Corporation. It purchased the UK Midland Bank in 1992, relocating to London as part of the takeover conditions.