http://www.lobster-magazine.co.uk/free/lobster60/lob60-062.pdf
Excerpt:
Where Are We Exactly? The banks have ripped us off, screwed the economy, and taken billions in the taxpayers’ name. They are not lending to the productive sector of the economy, they are still paying themselves huge bonuses, and there is barely a flicker of political protest. None of the three major parties are even thinking of doing anything serious to restrain or reform them. (And the same is true in the United States: the Obama administration’s plans for the financial sector will not inhibit the global gambling.1) It’s not that the banks are too big to fail, to quote the title of one of the books about the events of 2007/8: they have already failed. Rather, they are perceived in this country to be too big to tackle. (In America they have simply bought the politicians.)
This essay tries to explain how we got here. By which I don’t mean the recent events leading up to the crash of 2008 – these are have been discussed in dozens of books. Instead I want to set out the older and specifically British back story, both economic and political. The crash of 2008 did not appear out of the blue. Yes, some of the key factors, notably the use of computers in the global gambling, are relatively recent. But many of the building blocks were in place long before the Internet enabled the global casino we now live in.
The story in outline is simple: we got here because we removed the controls placed on the financial sector. For sixty years the British banks struggled to escape the constraints imposed on them by the rest of society. And as they overcame each obstacle they proceeded to create and lend money on an ever larger scale. They lent money against property for the most part and left British industry to look after itself as best it could. The bankers in charge did this to make themselves rich. That’s all there is to it. What follows is a very short account of how this happened. And almost no economics knowledge is required to understand it.*********
Although he never explicitly said this, Heath wanted to convert Britain into a European-style social democracy, similar to that sought by the Labour government he had succeeded. ‘Heath had been very impressed, when visiting Germany, by Willy Brandt’s regular round-table consultations with the unions and the German system of co-partnership; his mind began moving towards establishing a similar relationship in Britain by which the unions should be given an acknowledged role in the running of the economy.’ 24
Heath also wanted the British bankers to become more like their German counterparts, taking direct stakes in British manufacturing.
The story in outline is simple: we got here because we removed the controls placed on the financial sector. For sixty years the British banks struggled to escape the constraints imposed on them by the rest of society. And as they overcame each obstacle they proceeded to create and lend money on an ever larger scale. They lent money against property for the most part and left British industry to look after itself as best it could. The bankers in charge did this to make themselves rich. That’s all there is to it. Robin Eamsey
ReplyDeleteHonest accounting should be a very effective control. But banks are not subject to honest accounting wrt the non-bank private sector (i.e. the rest of us). Instead, the liabilities of the banks toward the non-bank private sector are largely a sham since the only way the population can redeem bank liabilities are via inconvenient, unsafe physical fiat. But how practical is that? And what if physical fiat (aka "cash") continues to be abolished?
Moreover, even if the population could redeem bank liabilities safely and conveniently (via accounts of our own at the central bank), we know the central bank would just lend to or buy assets from the banks to replace the redeemed fiat - rendering the whole exercise of the public redeeming bank liabilities futile.
So, I suggest we try honest accounting for a change. That means NO privileges for the banks such as government provided deposit insurance and exclusive access to inherently risk-free accounts at the central bank.
I'll add that just the proper abolition of government-provided deposit insurance should require, in the case of the US, $trillions in new fiat to be equally distributed to all US citizens to provide the new reserves needed for the transfer of at least some currently insured bank deposits to inherently risk-free accounts at the Federal Reserve.
ReplyDeleteHow to fund the fiat distribution? With negative to 0% yielding sovereign debt with account balances at the central bank costing the most. That said, individual citizen accounts at the central bank should be exempt up to, say, $250,000 since some risk-free initial capital formation is good and should not be punished.
So we can have honest banking and reduce unjust (and dangerous) wealth inequality at the same time. What's not to like?
But honest banking would surely mean higher interest rates, no?
ReplyDeleteNo, for three reasons:
1) Sovereign and thus risk-free debt would no longer be sold for positive yields. Thus any positive interest would have to come from loans to the private sector, including to non-monetarily sovereign local governments.
2) Negative interest on account balances > $250,000 at the central bank would discourage fiat hoarding.
3) Additional fiat distributions equally to all citizens could lower interest rates to any desired level, even negative if the "loans" were risk-free as they would be if individual citizens could "rent out" their unused account space at the central bank to the banks and the rich.