OPINION: The worst shock is yet to come

Stan O’Neal is forced to resign from Merrill Lynch after leading the group deep into the quagmire of sub-prime loans from which it will be lucky to emerge with losses of under $10bn.

Then Chuck Prince is ousted from the chief executive’s slot at Citigroup for similar reasons and with a similar outcome in terms of multi-billion dollar losses, which are going to leave the banking group badly damaged financially and with its reputation in tatters.

No amount of distortion of the English language could depict the stewardship of either of these men as anything short of disastrous. Yet both are leaving with buckets of money, the scale of which beggars belief – O’Neal something over $70m and Prince about half that amount.

The financial industry will come to regret this. The coming political challenge of our time is how society copes with the continuing impact of globalisation. So far we have had the relatively easy part – enjoying the flood of cheap manufactures and clothes from China and the enhanced purchasing power that has brought.

From now on though, it gets more difficult. Thus the strains are beginning to show as we struggle to cope with losing employment in outsourced jobs to India and adjusting to cope with the influx of immigrants that result from the new and unprecedented mobility of labour.

However, the real pressure will come as people have to come to terms with the third shock, which is financial. In part this will be the mass purchase of Western assets by the newly rich Asian nations, which will no doubt provoke widespread calls for protection; the other and potentially more damaging part will be the outrage at the financial unfairness and inequality that globalisation brings. The first industrial revolution of Victorian times created a huge gulf between capital and labour, which required the growth of a new political movement to be corrected.

Today’s industrial revolution, based in China and global in its impact, is recreating those inequalities as a hugely disproportionate share of the rewards are grabbed by those who deal in capital and work in finance. The gulf in incomes is creating a gulf in society, but an increasingly arrogant financial sector seems blissfully unaware of the problems it is storing up for itself.

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