Banking lessons - We must not repeat same mistakes

Annual figures published by banking giants Goldman Sachs have set alarm bells ringing around the world. The company returned an annual profit of $13.4bn after paying out $16.2bn in compensation and benefits, which was a whopping 48% increase on 2008.

Revenue at the bank was just 2% below the record level in 2007, but total compensation and benefits were 20% – or $4bn – lower than two years earlier. Yet that payout for 2009 amounted to only 35%, which was the lowest since it became a public company.

The company took $10bn from the US Treasury at the height of the banking crisis, but it has paid that back along with an extra $1.4bn.

The current world recession was due largely to profligate spending, encouraged by low interest rates, and this allowed exorbitant bonuses within the banking sector. The figures published by Goldman Sachs would seem to suggest that it is returning to its old ways already.

President Barack Obama has moved to adopt corrective action. Time will tell whether his proposals are appropriate or not, but at least he has acted.

His predecessor President Franklin D Roosevelt’s remedy during the Great Depression was to act. “It is commonsense to take a method and try it,” he said. “If it fails, admit it frankly and try another. But above all try something.”

In this country our politicians have essentially been doing nothing to ensure that we do not make the same mistakes again. It is important that lessons be learned to ensure that there is no return to the sort of banking practices that led to the current economic catastrophe.

Of course, it should be admitted that the Government did learn from the mistakes of the 1930s by preventing the kind of runs on bank deposits that brought many earlier banks down. The Government’s guarantee of bank deposits averted any run on the banks, but unfortunately there is little or no indication that the Government has learned anything from the recent downturn.

Goldman Sachs has been so successful financially that the bulk of the banking sector will follow its example. Hence President Obama is right to try to prevent banks from engaging in risky or reckless lending.

If the banking sector here is allowed to return to such practices, it will be proof that the Government have not learned from their mistakes. Let us face it – there are none so dense as those who do not learn from their mistakes.

We are not debating the direction of the market economy as a whole, but whether or not banks should be allowed to behave in the same irresponsible way. There must be no reverting to exorbitant profits, with the massive bonuses in the banking sector.

There is little doubt that the overwhelming majority of Irish people feel that this should not be allowed to happen, and the Government have a democratic responsibility to listen and act. A comparatively few greedy bankers must not be allowed to further endanger our whole economy.