The Economist publishes pathetic advertorial for the City, London's financial district

The cover story on this week's The Economist is Save the City, a love-note to London's legendarily corrupt, self-governing financial district, ground zero of the global financial collapse, and home to some of the world's top-compensated crooks, whose pay is totally disconnected from their performance.

Naked Capitalism rounds up a ton of online reaction to this puff-piece:

Yes, the City did once fulfil the function of efficiently allocating capital, but that stopped some ten to 20 years ago when the ‘zero sum’ game of financial speculation for the self-enrichment of the participants took over.

As I have said before the City has, with a few exceptions, become the cuckoo in the nest of the UK economy.

It has become gigantic skimming machine/casino. In addition to making taxpayer-underwritten bets, however absurd, it largely serves to diminish the savings and pensions of UK citizens, though outrageous fees, spurious and unwarranted trading and an intermediated structure that favours the interests of the people that work in its own, often-conflicted institutions (plus the people in their various suppliers including brokerages, law firms, accountancy firms, investment and actuarial consultancies, etc, etc) over and above the long-term interests of savers and the needs of the wider economy.

Ian Fraser: The Economist Loses the Plot With This Shallow, Pro-City Propaganda


    1. I find that surprising. I don’t subscribe but have picked up issues here and there. I have always found well written articles from many different vantage points. Some I agree with, others I don’t and others are purely informative with little bias one way or the other.

      About the only evil I could possibly see is the focus on economics and unless you are 100% self sustained you should have some vested interest in economics.

      1. They’re not written from many vantage points. Unless they’re vantage points within a small range of vantage points. Maybe you mean, for example, articles that say “Obama’s bad” vs. articles that say that “Obama’s good”, but it’s still all about whether Obama is good for a certain class of people.

      2. Their factual reporting is usually good – especially their world and science coverage.

        Their editorial stuff in the first few pages of the magazine, however, is nearly always ridiculously over-the-top pro-capitalist, anti-regulation free market fanboy stuff. For Heaven’s sake, they even supported rail privatisation, possibly the worst policy in all of the Thatcher / Major years.

        1. Dude, they call their publication “Economist.” You’ll have to go somewhere else for your anti-capitalist needs.

          1. Dude, they call their publication “Economist.” You’ll have to go somewhere else for your anti-capitalist needs.

            Dude, they don’t call their publication “Capitalist” or “Corporatist”. There are other kinds of economies.

          2. I’d say Britain has a pretty capitalist economy. The Economist is a British publication. To expect a major business magazine to write about anything else but their own system (which still works better than “other kinds of economies”) is reaching. In their editorials no less.

            Also, you’re the first one to bring “corporatism” into this thread.

            Edit: I want to stress again that we’re talking about editorials. I read editorials not because I want to read something I agree with but because I want know what other ostensibly intelligent and informed people think. Your mileage may vary.

      3. Try verifying some of those numbers they dole out in those unsigned columns and articles —- there’s a very sound reason why they always unsigned.

    2. Thank you, Mr. Tommy, many thanks!  Many years ago I once attempted to verify what I believed to be false stats in an Economist column, but of course was unable to do so (the stats being much, much worse they they had claimed!).

      Nicholas Shaxson’s fine book, Treasure Islands, is really all one needs to read about The City!

  1. “ground zero of the global financial collapse”.

    Not saying the “City” is innocent, but surely the US sub-prime market is more deserving of this accolade?

      1. Sure they were helping, but “ground zero” means “epicenter,” the central, core, or originating site of activity, no? So I agree, Wall Street merits that moniker more than any place in London does.

        As for that rag, I mean mag, ugh. I stopped reading its smug apologetics for the abuses of the master classes long ago.

        1. One of the reasons the US market went the way it did was the ability of the major institutions to do things via their London branches that they hesitated to do in the US. Not the only reason by a long way, but it was a factor.

          1. Exactly so, and well stated:  International Petroleum Exchange in London becomes ICE, InterContinental Exchange Futures, in the USA, with direct lines to sell located in The City, etc., etc., etc.

        2. Actually “ground zero” refers to the point on the ground directly below the center of an event in the air, such as an atomic explosion.  The actual event is above ground zero.

    1. Err, i think the worst is yet to happen. Supposedly the total debt of the UK economy (private and national combine) comes in at a staggering 1000% of GDP. And 600% of that is financial debt! There is no wonder that the UK prime minister slapped down a EU veto when a financial transactions tax was mentioned.

      1. I’d really like to see a link on this – primarily to convince those who doubt the gravity of the situation.

      2. With the banks, they hold more assets than they have liabilities. The difference is their capital. If that is not the case then they are bust and need to be wound up. Capitalism means clearing out the failures, not socialism which is bailing them out.

        However, the real issue is government. It has masssive debts, most of which is Bernie Maddoff’ed off the books. ie. Fraud. 

        7,000 bn of debts, with income (extracted with force – taxation) of 550 bn.

        It’s bust. 

        The bank bailout when Brown bought banks at a high price (over paying) has *only* cost 70 bn. 

        Government debts are 100 times large. 

        [Queue the left saying we should treat citizens as slaves and book them as assets]

  2. I’ve not read the article yet, but as far as I can make out, the primary argument for “protecting the City” from things like Tobin taxes, government regulation and checks and balances is usually that the City benefits the UK more than it dis-benefits it, and that these benefits are greater the less regulation is brought to bear on it. 

    On the first point, the benefit is said to be mainly in the form of it being a “net contributor” to government finances. That is, the amount of revenue the government gets from the City in the form of taxes and welfare contributions is much larger than the amount the City receives from government in the form of subsidies and other support. That may be true, but I’d like to know how it compares to other large industries like tourism, health care or retailing. So far, I think I’ve found out that the UK finance sector contributes about 12% to total government receipts. This may be about the same as that of retailing, for example, and similar to that of manufacturing industry (figures from a PWC report into how much the UK finance sector contributes to government income, and an HMRC reports on PAYE receipts per industry – which I assume might be a rough proxy for taxation overall).I’d like to find out how government payments to each industry differ. If I knew that, I’d know whether the City is disproportionately beneficial to the UK. I’m surprised I’ve not been able to find any research on this given the amount of debate about it.

    Similarly, I’ve found no reports on any connection between regulation and government receipts (or wealth creation, but that’s for a different research project).

    So unless anyone here knows of any (and maybe the Economist cites some), the jury is out on the long-term effect of the City. 

    Obviously though, the short-term effect is disastrous,  as we can probably all agree.

  3. Presumably Cory, you have some evidence that they’ve been paid to write this?  It is one thing to legitimately and strongly disagree with the position they have taken, but it is another to suggest, by the phrase advertorial, that they were paid to write it and didn’t disclose that.  That would be a serious breach of journalistic ethics on the part of the writers and owners.  

    1. An unpaid advert is still an advert.  I’m wearing an Atari promotional sweater as we speak. They didn’t pay me to.

  4. “Obviously though, the short-term effect is disastrous,  as we can probably all agree.”
    Can we?  Can we assume that the absence of the city would have meant that the bank bailout wouldn’t have happened?  Unlikely, it was the lack of regulation that led to that, even though we see the losses now we did all benefit from the cheap money.  Hindsight is a wonderful thing, but even with it it’s hard to say what would and wouldn’t have worked for the UK banking policy.  You blow too far the other way and people like James Dyson end up back in his shed swearing that he really has invented a better vacuum cleaner, but the banks tell him its too risky lending on such a mad idea.

    The left loves to see kicking the bankers and taxing the rich as the answer to everything, but that policy in the UK in the past was an absolute disaster, if you have money you choose your own country.  The top 1% pay 25% of *all* income tax,  the top 10% pay over 50%, a fact that makes your average trot  cover their ears when its quoted.

    Grow up people,even stealing the bankers passports and taxing them 101% of their income would not solve anything, there is just not enough of them to make any difference to an economy.  Its just a convenient excuse to enable people to ignore the bigger picture.

    1. OTOH, I think the bigger picture is that the City, Wall Street and most of their counterparts in the world no longer serve the purpose they claim to and are in fact more harmful than good because of the concentration of power in a very small number of hands in a completely opaque power structure.

    2. Funny how the countries that tax a lot their richer citizens seem to have a lot of those problems you claim cannot be solved by taxing.

      1. Which countries?  Germany?  They are successful and have tax rates largely the same as the UK.  The other Northern European countries have tiny populations so cannot be used for comparison, and the southern countries make avoiding income tax a national sport.

    3. It’s not about making the rich pay more, it is about decentralising wealth and thereby opening up more room for other people to create value.

      The financial industry over the past 30 years has been like a weed that prospers at the expense of the rest of the garden.

    4. Correct. 

      1. Lack of regualtion.

      2. Failure of capitalism by Brown. He socialised the losses. 

      3. They will move, and you can’t stop them. Freedom of movement of capital and people is EU law, and UK law. 

  5. Well what do you expect it’s The Economist, the 1% talking to the 1%.  You won’t hear a condemnation of rapacious capatalism from these people any more than you will hear North Korean state television denounce the Kim dynasty.

    So, since obviously you can’t defend a financial services sector that has grown far beyond the size it would have if it were just facilitating legitimate economic growth, you have to defend it indirectly, i.e. through bringing out the boogeymen like “regulations” and “Brussels”, and appealing to the protectionist instinct of the 1% that a publication like The Economist would heap scorn on when it detects it among the 99%. Both the editorial and the longer piece on pages 17-19 essentially read like a strategy for how to keep an inefficient and bloated financial industry in London, rather than how to support the creation of efficient regulations in a globalised world of finance.

  6. Major thanks to Cory on his recommendation of Ian McDonald’s Planerunner; which makes one ponder the question: “Why is so much of the best SF out there today, with the exceptions of Iain Banks and S.M.Sterling, Juvenile SF?????

  7. Here’s the test. 

    1. Bankrupt the bail out banks.

    2. Refuse to accept any tax money from the City. None. Let the city go its own way independent of the rest.

    3. Er, yes, but we want the money. Shit, the government has 7,000 bn of debt, most of which is debts to people for pensions. Even the borrowing part, Gilts, is largely held by people in pension funds and annuities. 

    Ah bugger it. The government needs the city more than the city needs the government. So its moving. Very strong indications that the first to jump will be Barclays. Then you have HSBC. 

    Banks have got the message. They aren’t welcome. The ones that will go will be the profitable ones, moving their incorporation overseas. 

    Left will be the loss making ones, such as Lloyds and NR etc. That leaves the risk casino retail banking in the UK, and not the profitable merchant banks. 

  8. Innovation from the financial center of the world:

    Credit Default Swaps
    Collateralized Debt Obligation
    CDO squared
    CDO Cubed
    Algorithmic trading (apparently light speed is still too slow on this one)
    Selling short
    Hedge funds  
    Derivatives trading
    Free pass to bail out by tax-payers…

    Innovation from silicon valley?

    Not much I can think of… Mark Zuckerberg?

  9. I love that argument. Don’t show the casino bankers enough love and they’ll go where they’re appreciated (i.e., worshiped and paid $$$$$ no questions asked). And, where, pray tell, is that?

    The Eurozone regulates trading a lot more than the UK does, and may regulate them even more (even if the Tobin Tax was just a come-on to get us to accept austerity). I’m pretty sure continental traders aren’t paid as highly as in the US and UK. Bankers aren’t in very good odor in the US, but maybe Romney will be President and the fix will be in until it all blows up once and for all.

    That about covers all the countries where Big Swinging Dicks can lord it over their fellows and buy all the good real estate. Where then? Mafia States of United Russia? China? Southeast Asia and India, which have plenty of traders already? Hey, how about the Gulf States? What does Sharia law say about thieves again? Or boozing and whoring to blow off steam? Africa?

    And if the “profitable” banks beggar their customers and/or the taxpayers, they’re a net liability for whatever country hosts them.

    Goodbye and write if you get work.

  10. The Economist is actually a good publication. It’s biases are generally pro-capitalist, anti-regulation, anti-China, anti-Russia (the writers and editors have strong ties to MI6). Having said that, they have well researched, very coherent and rational articles.

    “Legendarily Corrupt”? I don’t think it’s worse than Wall St. In fact, I they were much more sensible. Heavy corruption doesn’t facilitate trade. The City has been built on trade, since the days of the British empire, and continues to facilitate trade for the world.

    The UK has a vested interest in saving The City, as it is the only industry the country has. There is no more manufacturing. No hi-tech sector. Nothing but financial services. If The City disappears, the UK government loses over 10% of it’s tax revenue. The value generated by this sector is questionable, but without it, the UK has nothing left that in globally competitive. Financial services are always going to be around, you cannot get rid of it, so the UK is trying to keep The City in business. 

    1. “There is no more manufacturing. No hi-tech sector. Nothing but financial services.”

      This is just not true and is a myth propounded by the City and the the ill-informed.

      “Manufacturing still accounts for a surprisingly large amount of the economy – about 12pc, a larger share than financial services’ 9pc. ” Source:

    2. The City was “much more sensible” than Wall St? I’m afraid not. As Tynam mentions in a comment above, the very worst deals of the recent crisis were carried out in London. For example, from Nicholas Shaxson’s book Treasure Islands:

      “The court-appointed examiner looking into the collapse of Lehman Brothers in September 2008 found it had used a trick called Repo 105 to shift $50 billion in assets off its balance sheet, and that while no US law firm would sign off on the transactions, a major law firm in London was delighted to oblige…The unit that blew up the insurance company American International Group (AIG), putting the US taxpayer on the hook for $182.5 billion, was its 400-strong financial products unit, based in London.” 

      And your picture of the City as “continuing to facilitate trade for the world” is barely half the story. It facilitates trade – but through its extended networks of secret transactions and hidden trusts it also facilitates massively harmful activities such as money-laundering, tax-dodging, bribery and theft. Shaxson again:

      “In February 2010 Alexander Zvygintsev, Russia’s deputy prosecutor-general, said that ‘Londongrad’, as it is sometimes known, was ‘a giant launderette for laundering criminally sourced funds’.”

      Of course, Wall St and the practically-zero regulation states like Nevada and Wyoming also make money the same way – I’m not saying it’s all down to the City.

  11. I love a lot of things about The Economist: their articles are extremely well-informed, even when dealing with international matters, and they are very well written.

    However, their ideological bias is as unbearable as it is unshakable and it is often frustrating to see them twist, truncate or even ignore all sorts of data in order to serve their agenda. That is why I can’t really see them as genuine journalists, in spite of the amazing work they do otherwise.

    1. Agreed. My main exposure to Economist journalists is through the radio and yes they make me cringe. They make no attempt to hide their biases even on BBC arts programmes.

  12. “(the writers and editors have strong ties to MI6).”

    I’ve always suspected this was true, but I never had any evidence.  Are you aware of any?

  13. The Economist makes no secret of their explicit support for stability and the status quo; that said, they’re among the most intelligent and reasonable people supporting such things.

  14. The reason for this naked presentation of The City as a analogous to social solidarity is exactly the same as the reason many commenters here are stuggling to apportion blame over the financial crisis. Recession is caused by broad loss of faith in money’s value, rather than any tangible or reasonable combination of easily understood events. @Atinous:disqus ,@boingboing-64b08c66dfe324e82234564082866900:disqus: The Economist (no, they don’t call it ‘The Capitalist’. And Tony Blair doesn’t call himself The Murderer either – at some level they both intrinsically believe in the decisions they make)  is trying to rally people around the failing institution and salvage faith in  the markets, much like the way Fox news (forget which show) kept encouraging investment as prices kept falling, they were trying desperately to cut their (and on some level, our) losses.

    There *may* be other approaches to economies, and there is no doubt which kind of system I would like to see, but (and I base this purely on my own observation) I fail to see how a utopian model would avoid the established, “anything you don’t take, I will take” idea. Our world is all about manufactured value and  profit, and in a world where even this very forum in which we discuss has advertising atop it, and its authors earn money by creating brands and selling their writing, it quickly becomes very difficult to separate human behaviour from this kind of base mentality.

    In short: don’t hate the institution. It sounds trite, but the only changes we will encourage in economics are the ones we make in our own lives. No amount of protesting alone can accomplish fairness; only our own fairness to each other can hope to do this.

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