With Admirable Brutality

Nick Cohen writes:

The self-pity of the British right swells in inverse proportion to its self-knowledge. Conservatives, of all people, ought to have been horrified when the state used taxpayers' money to prop up lame-duck banks. Conservatives, who shout the loudest about scroungers living off the taxpayers, ought to have been the most concerned about sponging financiers.

In the 19th century, James Mill described the British empire "as a vast system of outdoor relief for the upper classes". In the 21st, honest conservatives might describe the public purse "as a vast source of corporate welfare for the moneyed classes". Yet honest conservatives have been replaced by paranoid fantasists. Fraser Nelson, a charming man who edits me when I write for the Spectator, and is without doubt my favourite rightwing loon, complains: "It has been almost five years since the crash and still the guilty men are being tracked down and subjected to what seems like a never-ending trial for financial war crimes."

I remember Anthony Browne berating "cowboy" dentists and condemning London cabbies as a "white working-class mafia holding the capital to ransom" when he was a lowly reporter here at the Observer. Now he is chief executive of the British Bankers' Association and his former hatred of rent-seekers has vanished. "We need to put banker bashing behind us," he says of cowboys whose ransom demands would make the real mafia blush.

The right's folly lies in its inability to understand that bankers have not been bashed. Indeed, they have barely been slapped. The courts have jailed no one responsible for the crash. Instead of "a never-ending trial for financial war crimes", there have been no trials whatsoever. No one has sought to compensate the taxpayer by confiscating the bonuses taken in the bubble. The Financial Services Authority has barred only a handful of bankers from working in the UK financial sector. This palpable injustice allows me to summarise the coalition's failure to convince the public that "we are all in this together" in a paragraph.

The taxpayer injected about £65bn into RBS and HBOS in share capital. Those shares are currently showing a loss of £20bn. The overall cost to taxpayers is incalculably higher because we must now manage in a zombie economy with a crippled banking system that can't send credit to where it's needed. Yet rather than punish those responsible, the coalition has cut their taxes.

The worst of it to my journalist's mind is that the British have not been able to tell their own stories without fear of retribution. Hugh Tomlinson QC, the chairman of Hacked Off, a malign organisation that dumb liberals think is on their side, fought for months to stop the public knowing that Fred Goodwin was having an affair at the very moment when his bank was hurtling toward ruin. The parliamentary commission on banking standards' report on the collapse of HBOS, just published, has many virtues. Its greatest is that parliamentary privilege – a right to free speech Parliament will not extend to the rest of us – allows the commission to speak without authoritarian lawyers and judges blacking out the detail.

The commission's account of how HBOS's pre-tax losses reached £30bn breaks the bankers' mythology. They thought they were the successors of the respectable Victorian Yorkshiremen, who founded the Halifax building society, and the equally prudent founders of the Bank of Scotland. To their minds, they were simply unlucky managers caught out by a crisis they could not have predicted. Sir Ronald Garrick, director and deputy chairman, said that the "HBOS Board was the best board I ever sat on". Even with benefit of hindsight, Lord Stevenson, the chairman, says that far from being a giddy corporate dictatorship in which dissenters were fired, HBOS had an atmosphere "where people were able to be very direct and blunt". What brought the bank down, he maintained, was the freeze in global wholesale money markets the day after Lehman Brothers went bust.

It was the same line Gordon Brown endlessly parroted. "A crisis that began in America" destroyed the British banking system. If it had not been for sub-prime loans in California and Bush's refusal to bail out Lehmans all would have been well.

The banking commission, a strange but surprisingly intelligent group of MPs, peers and – only in England! – His Grace the Archbishop of Canterbury, takes the wishful thinking apart with admirable brutality. Lord Stevenson and his colleagues' version of events "represents a model of self-delusion", it says. HBOS suffered from a solvency, not a liquidity, crisis.

The once respectable Bank of Scotland and Halifax went on an "aggressive, asset-led growth" that took the "quick and easy path to expansion without acknowledging the risks inherent in that strategy". Because HBOS was trying to muscle into new markets, it took risks sensible bankers would not take. In short, Americans did not kill HBOS: it committed suicide.

It is not as if the managers were not warned. The banking commission skates over the staggering case of Paul Moore, HBOS's head of regulatory risk in 2004, who tried to talk sense into James Crosby, the chief executive. Crosby fired his risk manager for warning of a risk.

The subsequent careers of the two men sum up the degradation of the last decade. Moore went into the street and burst into tears. He did not know how to tell his wife he had lost his job. Because he had spoken out of turn, not only would no other bank hire him, no head hunter would put him on its books. By contrast, Brown knighted Crosby, and promoted him to serve on the Financial Services Authority. The man who had sacked his risk manager for warning of a risk was now protecting the banking system. Small wonder this country's bust.

There is a more glaring fault. The banking commission condemns the FSA but, like the Tories and Labour, it will not recommend breaking up the banks by splitting their high street businesses from the investment business. Banks that were too big to fail and had to be bailed out by taxpayers in 2008 are still too big to fail in 2013.

Grasp this point, and the complaints about "banker bashing" turn from the ridiculous into something more sinister. The banking lobby is so unscathed – so unbashed, unbattered and unbruised – it has the muscle to prevent an urgent and necessary reform and can act as if the crisis never happened.