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Law and order
15 July 2013

What’s the difference between a high street banker and a back street fraudster?

Has the backlash against the bankers gone too far? Perhaps, but given the sheer number and variety of banking scandals, it’s a wonder they’ve got off so lightly.

In an essay for the London Review of Books, John Lancaster’s theory is that because the scandals have come so thick and fast, we haven’t been able to focus on what really should be making us angry:

  • “In the midst of this cacophony of largely justified accusations, the banks have had a strange kind of good fortune: the noise is now so loud that it’s become hard to hear specific complaints of wrongdoing. That’s lucky for them, because there’s one particular scandal which really deserves to stand out. The scandal I have in mind is that of mis-sold payment protection insurance (PPI). ”

The mis-selling of PPI will certainly cost the banks dear:

  • “The first mentions of PPI as a potential liability for the banks had the then astonishing, then unprecedented amount of £1 billion mentioned as a possible upper limit to the damage. When the crucial court case against the claims was lost by the banks in April 2011, the FSA knew it was going to be expensive: their estimate of the cost to the industry was £3 billion. But that turned out to be a huge underestimate… the latest estimates for the total cost of the PPI scandal have kept going up, and then up again, and then up a bit more... The most recent guesstimate for the total cost is £16 billion. That, as near as dammit, is twice the bill for the London Olympics.”

Nevertheless, the public reaction is muted. We’re probably more annoyed by the constant cold calling from companies trying to handle compensation claims on our behalf than by the scandal itself.

But, as John Lancaster argues, we ought to be furious:

  • “…The other scandals and crises are bad, and involve behaviour that is variously unethical-to-criminal, but they also belong to a type that a very broadminded cynic would file in the already bulging category of boys-will-be-boys, subsection ’twas-ever-thus… The story of PPI is different because it involves a more basic breach of what banking is supposed to be about: looking after other people’s money. That’s the first thing that is qualitatively different about PPI; the second is that the misdeeds happened not inside rogue units of these huge global institutions but at the centre of their retail operations. This was an industry-wide, systematic cheating of the banks’ own customers.”

It goes even further. The PPI scandal represents a fundamental attack on the very spirit of capitalism:

  • “In a capitalist economy, companies make money by supplying needs or wants: we pay for things knowing that some of that money is profit for the businesses involved, and are in general content to do so, because we know that’s how the system works. Companies align themselves with our interests and make money in the process.”

Lancaster mentions Apple as the supreme example of this arrangement. The profit margins on the company’s products are famously huge, but in return for our cash what Apple gives us is beautifully designed, high quality tech that simply wouldn’t exist otherwise. Apple makes lots of money by pushing the boundaries of innovation and is rightly proud on both counts.

The contrast with the banks couldn't be clearer:

  • “...the PPI scandal showed a fundamental breach in that alignment between them and us… PPI was about banks breaking trust by exploiting their customers, not accidentally, but as a matter of deliberate and sustained policy. They sold policies which they knew did not serve the ends they were supposed to serve and in doing so treated their customers purely as an extractive resource.” 

Not much to proud of there.

So, having posed the question, what is the difference between a high street banker and a back street fraudster? The answer, of course, is that the latter is open on a Saturday afternoon.


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