Is the banking industry a dead weight on our economy?

[rov1200]

http://news.bbc.co.uk/1/hi/business/8256519.stm

Of all the European countries we are said to have suffered the worst in this recession. Not only do we have the highest amount of personal debt but the country will be in hoc for decades with up to 175bn to repay. We are still officially in recession.

However Germany and France have emerged from the recession thanks to their manufacturing sector. Britain meanwhile is stuck waiting for the whizz kids of the city to do financial deals. We are unlikely to emerge because we no longer have a decent engineering sector and so have to hang on the coat-tails of our European partners. Some call this the 'real world' where nuts and bolts mean more than paper shuffling.

Have our politicians planned us for the wrong sort of economy?

[jake-the-peg]

During the last recessions in the 80's and early 90s there was a particular political philosophy that "the market would decide" that manufacturing industry should not receive help and finacial evolution would weed out the weak.

Consequently when we emerged our manufacturing industry was weaker and less able to compete.

This time around the Government has not taken that view and has supported our financial services sector.

Of course had Osbourne been in number 11you'd have probably seen much less if any state intervention and history would have repeated itself.

BTW that "Up to" in up to 175 Billion is very Weasely it assumes we get back absolutely none of the money we've loaned the banks which is very unlikely

[BillyBB]

Without digging out links etc the city of London has paid more tax to the govt in the last ten years than they could cost in bailouts. Before the crash the financial industry created 80bn pounds more per year than manufacturing.
It is to be hoped that we do not drive too many abroad or we will take even longer to recover and bring down the deficit.
We should not have bailed them out.
PS I'm a tradesman not into finance.

[rov1200]

I think the government belatedly realises that too much emphasis was placed on the financial sector. Although it was a revenue earner and swelled the pockets of the bankers this hiccup in world finances it is believed that we put all our eggs in one basket while seeing the motor industry in particular shrinking without trace.

So much so they are trying to claw themselves back by putting energy in the electric car and its production. Also the offers of £5000 discounts to buyers even though the cars do not yet exist in huge quantities.

Alright some if not all the £175bn will be repaid but that will be when the banking industry turns round and we can sell the shares for more than they were bought which may take years. But just work out the interest on the £175bn and in the paper today suggests that 1/3rd of tax revenue is paid out just to satisfy our debt.

As for driving our experts abroad can we possibly say they cannot be replaced. There is nothing really special about financial dealings and exchange rates and could possibly be done by many of the unemployed graduates leaving the LSE or elsewhere. Let them go if they want and not hold us to ransom.

[BillyBB]

Can't disagree there, classic golden goose.
It's not the individuals that are hard to replace but the companies. If they get a better deal in Switzerland for example they will relocate. 1% difference in tax rate makes a move worthwhile if you are earning multimillions per year. Adding more and more box ticking regulation to pander to populist opinion (like bonuses) is nonsense. We should have powerful and knowledgeable agencies to detect fraud and overexposure to high risk investments. Something like the Bank of England rather than a quango full of political appointees like the FSA.
Historically London has been centre of many worldwide industries like banking and shipping, it's good to have an office where everybody else is. Whilst we retain that inertia companies will stay, if too many move to form another hotspot somewhere we will never regain them.
Why can't we have decent manufacturing and decent financial centres? Apart from our high labour and energy and land costs!

[rov1200]

Can you see the problem of bankers bonuses being resolved at the G20 meeting next week? The USA and Britain do not want to touch them whereas France and Germany say they should be capped. This stalemate either means everyone going their separate ways unless some form of compromise can be reached.

I would suggest these bankers be allowed to keep these bonuses as they will shortly be paying 50% on them anyway in tax. Better therefore to levy an identical amount of the bonus payable by the bank themselves. As these are the transactions that have produced the bonus the bank could not quibble about giving us some of the spoils.

The problem about moving financial centres is probably doomed as markets operate a 24 hour rolling trading floor based on the time differences in different parts of the wqrld. For instance New York is 5 hours behind us and the Far East Markets operate through the night. Even Europe is out of step with the UK but less so.