Archbishops criticise bankers in Wonderland

25 September 2008

by Bill Bowder

Valuing experience: the Prime Minister told the Labour Party Conference on Tuesday that he had the experience to handle the financial crisis. Afterwards, he flew to New York to discuss the global difficulties. Church lobby groups gave a guarded welcome to various reforms announced in Manchester AP

Valuing experience: the Prime Minister told the Labour Party Conference on Tuesday that he had the experience to handle the financial crisis. Afterwar...

THE ARCHBISHOPS of Canterbury and York have both challenged the unfettered capitalism that contributed to the current global financial crisis.

Speaking to bankers on Wednesday evening, the Archbishop of York lambasted speculators who last week short sold shares in HBOS as "bank robbers" and "asset strippers". His address was given at the annual dinner of the Institute of Worshipful Company of International Bankers at Drapers Hall, in the City of London.

Dr Sentamu also expressed sympathy for the bankers who were "shooting the financial rapids. . . Markets are in turmoil. Bear Sterns and Northern Rock are etched indelibly in your memory. And now we have the stories of Lehmann Brothers and Merrill Lynch, AIG, and HBOS."

But he was critical of some investment practices. "To a bystander like me, those who made £190 million deliberately underselling the shares of HBOS, in spite of its strong capital base, and drove it into the bosom of Lloyds TSB Bank, are clearly bank robbers and asset strippers.

"We find ourselves in a market system which seems to have taken its rules of trade from Alice in Wonderland, where the share value of a bank is no longer dependent on the strength of its performance, but rather on the willingness of the Government to bail it out, or rather whether the Government has announced its intentions so to do."

He said that the country had come to the brink of ruin because money was no longer the medium of exchange for trading manufactured goods, but was "the very item being traded".

Dr Sentamu, who was due in New York on Thursday for the UN debate on the Millennium Development Goals, contrasted the difficulty leaders had in finding the $5 billion to save the lives of six million children under the MDG goals with President Bush's announcement of a $700 billion bail out for banks and financial institutions. "The poor are waiting," he said.

The Archbishop of Canterbury, meanwhile, in an article in The Spectator, said that, long ago, Marx, in one thing, had been right, predicting: "Unbridled capitalism had become a myth, ascribing reality, power and agency to things that had no life in themselves."

Markets, Dr Williams, said, were now being treated as if they were individuals, with a sense of purpose. But that was idolatry. Markets were made up of real people, who had choices. Now was the time to "re-learn some of the inescapable face to face dimensions of human trust".

Bankers and others who lent or borrowed money without some underlying "specific" reality - such as borrowing to start a business or buy a house - but did so simply to make a profit, had crossed a "particularly significant line", he said.

"This crisis exposes the element of basic unreality in the situation: the truth that almost unimaginable wealth has been generated by equally unimaginable levels of fiction, paper transactions with no concrete outcome beyond profit for traders."

He went on to suggest that "the Emperor's new clothes" had been revealed, and now was the time to regulate and scrutinise the market as the risk to society from the market's instability was otherwise too great.

"Without a background of social stability everyone will suffer, including even the most resourceful, bold and ingenious of speculators," he wrote. "The question is not how to choose between total control and total deregulation, but to identify the points and practices where social risk becomes unacceptably high. The banning of short-selling is an example of just such a judgement. Governments should not lose their nerve as they look to identify a few more targets."

THE Archbishops’ Council has been given an emergency briefing about the state of £3 billion in church investments, it emerged this week.

THE Archbishops’ Council has been given an emergency briefing about the state of £3 billion in church investments, it emerged this week.

In the midst of the financial melt­down last week, CCLA, the invest­ment company that handles much of the Church’s wealth, gave assurances that the money was safe. “We told the Archbishops’ Council that there had been no imprudent lending,” said James Bevan, CCLA’s chief invest­ment officer, on Tuesday.

Mr Bevan said that the company, which is 60-per-cent owned by the C of E’s Central Board of Finance Investment Fund, had spent the week emailing dioceses to explain what was happening as news of the financial crisis grew.

CCLA had also gone to see the Archbishops’ Council on Thursday of last week “to explain what was going on” and to ensure that everyone was in the picture, he said.

“We told them that we were highly confident that the assets were being managed in a conservative way and in the context of no imprudent lending. They asked for details, and they were satisfied with what we told them.”

Churches that could rely on their income were in a good position to weather the storm, he said. The CBF investment fund was set to increase the amount it paid in income by ten per cent. “This should be a cause for rejoicing,” he said. “If you were writing cheques from income last year, you will be able to write more cheques this year.”

When the crisis struck last week, Mr Bevan said: “We did very little rushing around, because the prob­lems we see today are the playing out of events over the last 13 months since the start of the sub-prime credit crisis in the US, followed by Northern Rock. All we have seen since is more of the same, with banks showing a marked lack of prepared­ness to lend to each other.”

That had resulted in huge loan rates, which would be followed by businesses collapsing “round the corner”, he said. The banks that had failed had borrowed very aggres­sively, and there had always been the danger of a day of reckoning if the economy did not continue to expand and if credit remained tight.

“What has been surprising is that although this pattern was well known and well recognised, the authorities, and especially the US authorities, never had a plan. That is worrying, be­cause an orderly market is essen­tial.”

Last week’s US treasury interven­tion “raises the stakes for everyone in the market”. Nevertheless, the world was slightly safer this week than last. “But real risks to the economy still remain.” A fast slowdown in the economy, together with an absence of liquidity, might mean that borrowers were forced to sell off assets in a market where, because there was less cash, there were fewer buyers and prices would fall. “We will see quite a lot of that, and we can expect to see a very turbulent ride from here on.”

He did not think that the lows of last week would return to the stock market, “but I cannot say that we look likely to go back to a bull market,” he said.

The Church Commissioners held 11 per cent of their total fund of more than £5 billion in cash, treasury bills, and gilts, a spokesman said on Tuesday. That level of liquidity should help them to avoid having to sell at the bottom of the market in order to raise cash.

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