The Futility Monster

He'll pointlessly derive more enjoyment out of your resources than you

Banks: What Is To Be Done?

Posted by The Futility Monster on December 4, 2009 @ 09:34

A Google Images search for "banks" produced a rather unexpected - and pleasing - outcome

There is a festering wound at the heart of British political discourse these days, and it all stems from one thing: the banking bail out.

The banks – all of them – appear not to accept the reality of the situation, that without the enormous levels of support from the taxpayer, and without the unprecedented levels of monetary stimulus provided by the Bank of England in the forms of historically low interest rates, and quantitative easing, they would not still exist today.

It seems unfair that banks like HSBC, Barclays, Abbey and the biggest building society Nationwide have benefited from the fact that government backing of RBS, Lloyds and HBOS stopped the entire collapse of the banking sector. It is obvious now in hindsight that that was going to happen. These surviving banks have seen their profits fall a little, but are broadly unscathed, and are able to continue purely because of the vast amounts of cash sunk into those that failed.

And yet, the net effect of the financial crisis is to see the taxpayer owning a minor player – Northern Rock – and with large stakes in RBS and Lloyds Banking Group. While these three still represent a significant chunk of the sector, it is clearly unacceptable that in return for stopping the failure of all the banks, we only appear to have extracted a minor level of influence in the sector, and all proposals for reform – and even a modicum of pay restraint – are being bitterly opposed by the same old, same old in The City, who, despite bringing the world to its knees, now want to carry on as if nothing happened.

And yet, what can we do about it?

The ideal solution would be to extract a little gratitude from them. And that gratitude could be in the form of a bailout tax – a small levy on banking profits for the next few years as a way of saying “thank you” to the nation for propping them up during the worst of the crisis.

There is just one problem. The problem that got us into this mess in the first place.

Unregulated global capitalism.

There is nothing to stop these banks from announcing, tomorrow, that they will soon be moving their headquarters and their entire administrative operations from Britain to a country with a more welcoming tax regime, all the while still continuing business here. The profits would flow out of the country, even more so than usual.

That constant threat is why governments across the world have little choice but to cosy up to big business in any form. Say the wrong thing, institute the wrong policy, and millions of jobs, as well as the entire economy, could go kaput.

It is the ultimate triumph of the free market. And it is exactly why governments have so little power and control these days. Regulations are frequently pointless.

Let me revise that. National regulations are pointless.

The clue there is that whatever we want to do to the banks, we are wasting our time if we can’t do it on a wider level.

Step forward the EU. The WTO.

People wonder why supranational levels of governance have emerged. The true reason should now be obvious: it is the only way national governments can remain relevant in a multinational era.

The moral of the tale: while we may all wish to extract our pound of flesh from the bankers, we’re probably wasting our time, and any national regulations will invariably end up backfiring.

Instead, we have to co-ordinate a response globally.

Which – of course – will never happen.

So carry on, bankers. It’s nice to be too big to fail, isn’t it?

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One Response to “Banks: What Is To Be Done?”

  1. Gary said

    Great insight into this complicated beast. Just one point though. I don’t think we should be too scared of seeing the likes of the big banks fleeing these shores completely to other juristictions in response to a legislative crackdown. The reason being that no other country would have the stomach to bail them out should another crisis strike. I doubt Singapore, for example, would see the benefit of propping up a faultering monster like rbs. The banks know they need the govt of their home Market and that’s why there is a greater incentive to stay.

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