Your Friends For Life

Today’s headlines on the BBC made my thinning blood boil.

Five banks have been collectively fined £2bn by UK and US regulators for traders’ attempted manipulation of foreign exchange rates. HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase and Citibank have all been fined. A separate probe into Barclays is continuing.

To most of us this is unknowable corporate chaff that members of some satanic sect make up to entertain themselves. Bankers might as well be alien lizards secretly destroying our planet. They are not of our race.

And as scandal crashes over scandal – Libor fixing, sub prime, PPI, terrorist financing, bonuses, Goodwin’s risk-taking, tax avoidance – the story changes from Why Does It happen to Why Do We Have Banks?

If, as is now indisputable, the banking sector and related financial institutions are proven to be crooked, anti-social, economically destructive entities, why do we allow them to carry on? The Tax Justice Network estimates up to £20trillion is hidden from the world’s tax authorities in offshore banks alone.

In the case of the much smaller but equally insidious payday lenders, there have been Commons debates and quickly-organised fixes limiting how much interest they can charge. The result is that most are likely to go out of business. Yet when we compare the degrading effect of banks’ behaviour on our lives, we see they have been massively more harmful and but carry on with the blessing of the political classes, stacking up profits where possible, shoveling millions in bonuses to investment staff and, with the aid of the government, campaigning against EU limits on bonuses.

This is a sacrosanct regime, forgiven its excesses through pathological reliance on its activities.

One answer is to nationalise the banks but in a better-regulated and well-organized system isn’t the competition between institutions potentially a good thing? Might not a better idea be to bring into public ownership the money supply? I’ve been reading the thoughts of James Robertson, a former senior civil servant, now writer and co-founder of the New Economics Foundation His website is here

He gave evidence to the Treasury Select committee inquiry into the banking crisis in 2009. He writes:

‘Money and finance now constitute a worldwide system. As it works today, it results in systemic inefficiency and injustice in almost every sphere. It imposes a perverse calculus of values, compelling or encouraging almost everyone in the world to compete against one another for a greater share of planetary resources and, in doing so, to turn planetary resources into waste.

Money is the foundation of national and international monetary and financial systems. How the supply of money is created and issued, who by, and in what form (as debt or debt-free, in one currency or another), goes far to determine whether a money system is stable. If money continues to be supplied for national economies and the international economy as it is today, they will inevitably continue to suffer damaging crises of financial instability.

The public money supply is at present created as follows. Less than 5% of the estimated UK national money supply is created and issued as banknotes and coins by agencies of the state. Most of the remaining 95% is created and put into circulation by commercial banks and building societies as loans to their customers in the form of bank-account money (still often called credit as if distinct from money).

If that were not the status quo and we were starting from scratch, nobody would seriously suggest that the same businesses and procedures should combine the two conflicting functions – putting 95% of the public money supply into circulation efficiently and fairly on behalf of society as a whole, and competing for profit in the market for lending and borrowing. It would be obvious that to mix them up together would reduce the efficiency and reliability of both functions.

The proposal is that the operationally independent central bank should continue to implement monetary policy objectives published by the elected government. But it will no longer implement them indirectly by managing interest rates to influence the amount of new money created by banks as loans. It will itself decide at intervals how much new money needs to be added to the money supply, create it and transmit it as public revenue to the government. The government will then put it into circulation by spending it on public purposes along with other public revenue, as decided through normal parliamentary budgeting procedures. Only in exceptional monetary crises like the current one, which will then arise less often, will the central bank play a part in deciding how the money is to be spent that it creates to meet monetary policy objectives.’

He wants to take commercial banks out of the monetary system and make them mere companies reliant like everyone else on public policy and accountable institutions. As he says: ‘It will prohibit anyone else, including commercial banks, from creating bank account money out of thin air – just as forging metal coins and counterfeiting paper banknotes are criminal offences.’

Meantime, can we criminalise the behaviour of these crooks and start jailing the bankers?

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