Lord Adair Turner is head of the UK’s Financial Services Authority, the body in charge of regulating the banks and other financial institutions.  As a member of the ‘great and good’ of the British ruling class, he went to Cambridge and got a double first-class degree.  He then worked his way successively through oil giant BP, management consultants McKinsey, Chase Manhattan Bank and then to the head of the bosses’ organisation, the Confederation of British Industry (CBI), before becoming a director of (the now taken-over) mega investment bank, Merrill Lynch.

So Turner knows a thing or two about the global financial sector and the workings of the banking industry.  He certainly partook of the grotesque mega-bonuses that bankers and financiers ‘earned’ during the Great Credit Boom of 2002-07.

Some weeks ago, he was interviewed by Prospect magazine, a small mouthpiece of the Blairite wing of New Labour.  In that interview, Lord Turner blurted out a telling truth about finance capital that its proponents did not want to hear.  He said that “many financial activities which had proliferated over the last ten years were ‘socially useless.’”  In this, he was ironically echoing the words of Stephen Green, the Chairman of the British Bankers Association, who had said more or less the same thing, that “in recent years, banks have pursued short-term profit by introducing complex products of no real use to humanity!”

The reaction to these comments from financiers has been apoplectic.  As one guest at the Lord Mayor’s Banquet remarked, when Turner reiterated his comments to the massed ranks of the City of London, “probably 60% of the people in this room would willingly shoot Turner over that speech.”  One City leader commented on the Prospect interview that he was “appalled, disgusted, ashamed and hugely embarrassed that I should have lived to see someone who commands a senior and important position as head of the UK regulatory regime making such damaging and damning remarks.” 

Lord Turner defended his position by pointing out that financial services do not deliver anything that people can consume, they are just lubricants of a capitalist economy – the plumbing of a house if you like.  In that sense, they add no value.  But if the plumbing goes wrong, it is potentially explosive in its impact.

He then went further in his populist attack on his own industry.  He said the current credit crisis was “cooked up in trading rooms, where not just a few, but many people earned annual bonuses equal to a lifetime’s earnings of some of those now suffering the consequences.” 

Lord Turner said that “this was the worst crisis in 70 years – indeed it could have been the worst in the history of market capitalism.  Real disaster – new Great Depression – was only averted by quite exceptional policy measures.  Even so, major economic harm has occurred.  Hundreds of thousands of British people are newly unemployed; tens of thousands have lost their houses to repossession; and British citizens will be burdened for many years with either higher taxes or cuts in public services because of an economic crisis.”

He concluded: “We cannot go back to business as usual and accept the risk that a similar crisis occurs again in 10 or 20 years time.  We need radical change.”

Hold your horses!  What did Turner mean?  Is he advocating the end of the capitalist system or at least the full and democratic public ownership of the banks?  No, the bankers could breathe a little.  That was not what ex-banker Turner had in mind.

He wants to increase the amounts of back-up capital that banks must have before they can lend or invest (although he did not say by how much); he wants banks to issue only ‘socially useful’ products (whatever they might be); and he wants bonuses to be controlled.  So his radical change is no ‘Turner’ at all. 

The irony is that many of the bankers’ weird and exotic financial instruments that went wrong in the great credit crisis were regarded as very socially useful because they supposedly ‘reduced risk’ or ‘hedged risk.’  Bonuses, from which Turner himself benefited at Merrill Lynch, were designed to ensure better performance - and who is to say otherwise?  As for bank capital, the best way to ensure that banks do the right things with our money is for us to own them outright and make them accountable to society.

Lord Turner, of course, does not reject capitalism.  He told the City bankers that “Adam Smith’s insight that good economic results can flow from the private pursuit of profit remains valid and vital.”  But he cannot help blurting out that capitalism is inherently unstable: “it involves rejecting an intellectually elegant, but also profoundly mistaken faith in ever perfect and self-equilibrating markets, ever rational human behaviours.”

So there it is. Capitalism is a system for profit, but it does not work because it is not planned and it is not rational.  Indeed, it is positively damaging to the majority of people.  But there is no alternative they say, so let’s see if we can just regulate it better.  Some hope!