Tuesday, July 17, 2012

What Barclays got right

One Barclays employee anyway. In the New York Fed's Friday document dump of their Mm Hmm conversations with the bank about LIBOR, there's an interesting segment from the 10 October 2008 conversation:

Now, with stock markets dropping, you know 10%, 10%, this is people's pensions and things. You know we saw the thing with the Iceland, well. The UK banks, well the UK savers in Iceland, that, that crystallises people's thoughts, and so I think that we're sort of reaching a new stage in the game whereby the CPFF is really good but, not sure it goes far enough, it just gets you back to where you were in August ... So, I think, getting us back to where we were in August isn't really, is, don't get me wrong, it's incredibly useful, but I'm just wondering whether we need to be got back to August plus a bit. The UK guarantee to banks, again, it's a very, very positive thing but, a bit like the CPFF, no-one really knows the details, it's going to take several weeks to get off the ground, everyone is going to examine the guarantee and it's going to take a bit of time for things to start working there. So, again, that's sort of work-in-progress but that is very good news but... you know, the rumour came out that, you know, G8 were going to guarantee all bank deposits, and, you know that's ... What I think, and I know central banks don't like doing this, my view is that, everyone's talking about, "You've got to get into bank lending happening again." I don't think that's necessarily the important thing. I think the important thing is to get banks lending to the consumer ... to Joe Public so I think the way you do that, is you either do things like increase CPFF or you just um, do something similar, like just buying bank term CDs ... But I know central banks don't like doing that. But it's getting to the stage where everytime you and I think you guys tried to be ahead of the curve in the States, er everytime you throw the kitchen sink at the problem, it needs another sink and then another sink. Then there's euphoria for half a day then something else happens and the market plunges, something else has to happen, the the market plunges. It's almost as if, you know, you've got to be totally radical now ... Ahh, because otherwise I had a fit of pessimism a couple of days ago. I think it was the day after RBS got downgraded when there was mayhem in the market and urn I was thinking, you know, this is potential civil strife here because the banking system is just going to break down.

The Barclays employee understood better than his superiors or regulators what a perilous phase the financial sector was at in terms not just of its own crisis, but of its perception with the public. But somehow the backlash didn't happen till 4 years later. But the accumulating disdain could not be put off forever. Much like the more specific LIBOR concerns, it's not clear what the people in the trading rooms knew was travelling upstairs.