By Rassam Fakour-Zaker
Know Your Money Editor

The poor pin-striped, smug-faced bankers have had a rough time of late with an unprecedented amount of public criticism heading their way. Admittedly, much of it has been empty, vote-pandering rhetoric from world leaders talking tough about their freshly minted "war on greed". However, a significant proportion has come from respected economic commentators and high-level financial regulators voicing frank and sobering concerns about the desperate need for change within the bloated, self-important industry that almost brought the global economy to its knees.

It has been refreshing to see such scathing denunciation of an influential yet irresponsible industry that is seldom held to account. Unfortunately, the shamelessly unrepentant reactions from those under fire, along with a disappointing backlash from many other public figures staunchly supporting all that is toxic within the financial sector, would suggest that any real, positive change remains a long way off. And with banks still up to their old tricks, by then it may be too late.

Regulators: mount up!

In August, Adair Turner (pictured right), the chairman of the UK's Financial Services Authority, caused outrage amongst the banking sector by candidly criticising the bloated stature of the industry, its participation in risky, "socially useless" financial activities and its detrimental pursuit of endless growth and profits. Putting forward his views in a roundtable interview for Prospect Magazine and a subsequent speech at the City Banquet he called for stricter regulation of the industry and suggested the introduction of a new tax on financial markets to curb dangerous activity and avoid future economic crises.

His statements were hardly revelatory. It is, after all, well-documented that the global financial industry has spent decades being a complete arse: lobbying against, weakening and evading regulations; inventing increasingly complicated instruments and products in order to obfuscate its mechanisms from the rest of society; systematically buying political influence and - with government bailouts - landing itself seemingly unlimited emergency powers (underwritten by the hapless general public) in the process.

Turner's suggestions for applying "special taxes to pre-remuneration profit" in order to curb the sector's size and its reckless gambling in risky markets could hardly be considered revolutionary either. The idea, originally floated in the 1970s by the American economist James Tobin, has been suggested by many over the years, and numerous politicians, institutions and anti-poverty campaigners have recently advocated the idea of introducing a "Tobin Tax".

Nevertheless, it was heartening to hear such forthright criticism from an eminent insider of the typically clandestine financial world. But if Turner's criticism seemed like a breath of fresh air, the reaction from the financial world had a decidedly feculent aroma.

The bankers' backlash

The industry's swift response, characteristically devoid of any critical self-reflection or deeper understanding, was neatly encapsulated by Howard Wheeldon, a flabbergasted City executive who declared, "I am appalled, disgusted, ashamed and hugely embarrassed that I should have lived to see someone supposed to be held in high esteem and that who already commands a senior and crucially important position as effective head of the UK regulatory regime making such damaging and damning remarks."

His statement, along with the other invective that spewed forth from the City, hinted at the underlying contempt that the financial elite holds for regulations and those that enforce them. Commenting on the distorted relationship that this contempt has fostered, Ruth Sunderland of The Observer stated that, "In an ineffable display of arrogance, the bankers have failed to recognise that Turner, as chairman of the Financial Services Authority, is there to regulate them, not to placate them or act for them as an ancillary PR department."

The kneejerk backlash grew rapidly as others waded into the argument. There was anger at Turner's "demonization" of the banking industry from the chief executive of the lobby group, British Bankers' Association, there were suggestions that Turner was guilty of irresponsible headline-grabbing from a chairman of the Corporation of London; he was even criticised by that bastion of commonsense and insight, Mayor of London Boris Johnson, who nobly breezed in to defend the City and completely miss the point of Turner's argument.

These objections were clearly crude acts of self-preservation on behalf of the economic status quo, picking up on the most superficial aspects of Turner's criticism and refusing to engage at all with his fundamental concern that the financial sector has become a risk to society. As Rueter's Peter Thal Larsen concluded, "this knee-jerk response shows the industry still fails to understand the consequences of the crisis it helped to cause. It is high time bankers engaged in a proper debate about their future."

Bonuses schmonuses

It has been a similar story in the mainstream press and political arena where an overriding focus on the bankers' bonus scandal has disappointingly sidestepped any deeper discussion of the real issues of concern within the financial industry. This was certainly the case at the G-20 summit, where serious debate about desperately-needed multilateral regulatory reform took a back seat to attention-seeking political bluster over bonuses.

Turner himself dismissed the bonus scandal as a "populist diversion", maintaining that huge bonuses were a symptom, rather than a cause, of the underlying problems that lead to the financial crisis. For galling though the phenomenon of bankers' bonuses may be it is merely the tip of the toxic iceberg.

Big business as usual

While the calculated misdirection of the bonus scandal keeps the politicians and tabloids up in arms, others have been busy exposing the alarming, albeit predictable, truth of the post-crisis financial world: nothing has changed.

A recent New York Times article reported that this was very much the case on Wall Street, claiming that in the twelve months since the catastrophic collapse of Lehmann Brothers and the bailout of AIG the industry had "restructured only around the edges." It went on to describe the cripplingly slow and ineffective state of the regulatory reforms and, even more exasperating, the alarming resurgence of the derivatives market.

The term "derivatives" includes a range of financial products such as Credit Default Swaps (CDS) - a kind of insurance against loan defaults. They sound innocent enough, but these products encourage banks to keep less capital in reserves, they tie banks together in a web of risk (meaning bank failures can trigger a domino effect) and when you consider that they are traded with reckless abandon in an unregulated, multi-trillion dollar market things get rather more disconcerting (check here for some truly staggering figures). These are the things Turner referred to as "socially useless", these are the things Warren Buffett once described as "financial weapons of mass destruction", and, more pertinently, these are the things that are widely regarded as a key cause of the financial crisis.

If it wasn't bad enough that bankers are still out there lobbying against regulations and inflating the same bubbles that burst in their smirking faces while taxpayers picked up the bill, the renewed growth of these risky markets is being passed off as evidence of economic recovery. As Heiner Flassbeck, the chief economist of the United Nations Conference on Trade and Development (Unctad), recently stated, "all these rises in markets are said to reflect economic recovery but it is just another bubble. Banks have been rescued by the taxpayer and are just returning to casino-style speculation that brought us trouble in the first place." So much for those sodding "green shoots" we keep hearing about.

Crisis and opportunity

So, here we are, on the brink of a new decade and the precipice of a new economic crisis. Banks are still acting like arses, blindly pandering to their own reckless greed as the general public takes the brunt of the economic downturn and world leaders impotently flounder in a quagmire of political spin.

We didn't really need Turner's divisive analysis to understand that change is desperately needed; nor did we need the subsequent backlash to realise that the banks will not change of their own volition. The financial crisis presented us with an opportunity (a "crisitunity" as Homer Simpson would put it) to restructure our imbalanced economic system, to rein in the banks and put them to work in service of society rather than their own balance sheets. The opportunity, however, was missed. Perhaps the next crisis will give us the chance to get it right...

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