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Sir Peter Burt, one of Britain's most respected bankers in the period when he ran Bank of Scotland until it merged with Halifax seven years ago, has come out with an interesting take on moral hazard.
He chose Radio 4's Today programme to put forward the view that there is no moral hazard in using taxpayers' money to rescue banks because it is not banks that make bad loans, it is the managers. Given that management will lose their jobs in the event of a bailout, there is no moral hazard because it is the innocent banks, not the people responsible, that have been rescued. Because they were not responsible for the turn of events, the banks - and by implication shareholders - could and should be rescued from the peril in which they have been put,
Burt was a good banker, but this argument has more holes in it than a Swiss cheese. A bank is indeed a legal concept that can't think for itself, but its shareholders can. Moreover, the shareholders have some responsibility for the current debacle because it was they who pushed management to grow the businesses faster than was prudent, and it was they who approved incentive schemes that encouraged the boards to take ever bigger risks.
They were the ones cheering from the sidelines, telling every mortgage lender it should be as aggressive as Northern Rock, and telling every derivatives house it should be as committed as UBS. The shareholders forgot as much as management did that it is the easiest thing in the world to grow a bank provided you don't care who you lend to. Shareholders had the good years, now they have the bill.
The second Burtian hole is that relatively few bankers have been fired, given the scale of the disaster they have visited on the world, and those who have gone have taken a disgusting amount of money with them .
Merrill Lynch's Stan O'Neal got £81 million and Citigroup's Chuck Prince £15 million, which is about the same as Peter Wuffli of UBS should collect by the time it has all come through. Even Adam Applegarth of Northern Rock left with so much money the bank refuses to confirm the amount - but it was probably not far short of £1.5 million. So their being sacked is not like normal people being sacked and these massive rewards for failure scarcely add up to punishment.
The third point is that something needs to be done to warn fellow executives not to head down the same path again. If a bank is really hurt by the losses, there is a chance the next generation of leaders will get the message. If not, in a few years' time all the lessons will have been forgotten.
Finally, what about the banks that did avoid the pitfalls? One hesitates to reel off a string of names in case, like Credit Suisse last week, they discover they were not as clever as they thought they were. But Standard Chartered has done well, and there are no doubt many others who chose not to join the party. How can they reap the benefit of their good judgment if all the others are saved from the consequences of their mistakes?
THE last annual report from Cadbury Schweppes has just been published, because after 40 years it is splitting into a drinks business and a confectionery business. It also contains the final statement from chairman Sir John Sunderland, who is retiring.
Sunderland, a recent president of the CBI, is not one to leave the stage quietly. He makes some pointed remarks about corporate governance and corporate social responsibility - but not from the usual business stance of bemoaning the box-ticking and bureaucracy. Instead, he points out how the firm grasp of both makes Cadbury the business it is. "We have brands the consumers love; and the values which lie at the heart of the business resonate with the consumer."
He also warns that governance can be a Trojan horse for anti-business sentiments, and the recent growth of antibusiness feeling "has been an unhappy regression in British society". But he puts his finger on why: "In a modern capitalist society, it is not just what companies do that matters - whether they reach their targets or not - but how they do it."
Perhaps he should ask the banks that have adopted the pernicious American philosophy that puts transactions ahead of relationships how many of their values resonate with the customer, and what impact they think their behaviour has on their brand. Or ask Rentokil why it is paying Doug Flynn £1.2 million to leave after a disastrous spell as chief executive. Or why M&S has to give Lord Burns £400,000 to retire as chairman. Then he might understand why there is a growing backlash.
