There are many reasons why the banking system is a crock, and none of them are anti-capitalist
As both a customer at various levels and a communications advisor, I have worked with several of the UK banking brands during four decades. Starting with Natwest, I moved onto the launch of what was the Access credit card, and then to Barclays (twice) and Halifax (HBOS). I worked closely on ATM, premium customer and bancassurance development at the retail end, and also for secondary banks like Mercantile Credit and one or two of the investment banks. Notably, I had an intimate working knowledge of the move of HBS the mutual to HBOS the quoted bank.
During the late 1970s, UK retail banks convinced themselves they had embraced marketing, although the reality is that they have always been infinitely more focused on banking as a sector and strategic amalgamation therein than any real knowledge of the customer. Anyone who has worked either in other retail sectors and/or other 'manufacturer' markets as well as banking will know first and foremost where the difference always lies: while brands and retailers always know that converting footfall into profitable sales makes a detailed consumer understanding essential, a High Street bank is unique in being both source manufacturer and already in possession of the customer's money before most sales are completed as a retailer.
In short, it is very easy for any bank to lose the plot about not only where their money supply comes from, but also whose money it is in the first place. In this crucial sense, they are much more like governments than 'real' manufacturers or distributors.
A countline brand or a shoe retailer is never in any doubt on the issue: make shoes that fit badly, wear out quickly or fail to notice fashion trends, and you will soon go under. Fail to react to employment, health and innovation trends in chocolate bars, and you will soon be delisted. Governments and banks, however, produce abstractions on a macro scale that can rarely be tested, tasted or measured accurately. Further, most people are bored by politics and financial matters most of the time: banks can hide whole elephants in the forests of small print. Food and apparel concerns are on their toes 24/7/365. Banks and governments can get away with murder.
Other obvious structural and historical factors bind goverment and the banking system together. Government bonds are a type of borrowing product competing directly alongside building society interest rate accounts and stocks and shares. Governments need money for welfare, weapons, hospital building and school programmes: when the populace will no longer willingly put cash down for such things, large banking families have traditionally stepped in....in return for favours. Large hedge funds have the clout from time to time to destroy currency value. Governments take over and sell large supply sectors, for which they need banking legal skills and merchant bank flotation expertise. Governments reveal budgets, many elements of which cannot be enacted without the full cooperation of the banking system. Governments have gold reserves, sales and acquisitions of which are supposedly monitored by cooperating central banks. Most of the time, it is well-nigh impossible to spot the difference in objectives, attitudes and behaviour of our financial institutions and our rulers.
Without us - the bank depositors and taxpayers - neither goverment nor banking could even get off the ground. Eighty per cent of all British bank monies for profitable lending purposes come from retail depositors, and 90% of UK Government expenditure (in normal times) comes from the taxpayer. The rest (and it's more than 10% because UK governments always live beyond their means) comes from other governments....and the banks. However, even after all the ridiculous kerfuffle and cock-up of the last eighteen months, you would be hard pushed to find practitioners in either profession who truly grasp - or even believe - that the money they spend, invest badly, waste easily, write off and then pay out as bonuses and expenses belongs to anyone but them.
So not surprisingly, governments always say the banking system is vital for the continuance of everyday life, and once things turn nasty, bankers always insist that things cannot get started again without vast inputs of government money. Ergo sum, central governments and powerful global banks are inviolate. Anyone who questions their existence in this general form must be one or more of an anarchist, a dupe, a naif or a hairy theorist with no experience or commercial perpective. Ask why it was really necessary to bail out the banks with taxpayer cash, and the eye-rolling, patronising disbelief radiates from every senior minister, banker and industrialist. The one thing missing after all the faintly irritated facial expressions, however, is an answer to the question.
For the purposes of this essay, I'd like to focus on the chicken-licken sky-falling-in theory in relation to our current forms for raising, investing and distributing finance for businesses, homes and governments. And I'd like to answer the myths one by one using real facts rather than condescending bluster.
1. Everyone will always need banks. Without species evolution, I'd say this is true. There are bad folks out there and they steal stuff. Money in a bank for safe keeping would under normal circumstances be safer, and attract a decent rate of interest. As it happens, neither of these advantages apply at the moment - but that doesn't negate the obvious value of the system per se. Banks guard money, pay depositors interest, and lend on to business at a reasonable profit. In essence, this is a systemic idea of true genius. What went wrong after the mid 1980s was that banks cut corners, got greedy, and began to play silly games of cretinously inbred stupidity with our money. And they forgot two vital things: Joe Bloggs in the street is the sovereign customer, and J Bloggs & Co's requirement for expansion capital is the sole commercial reason for their existence. The idea that we will always need banks pulling this sort of stunt is idiotic. The clear reality since about October 2008 is that the world economy has kept going without any input by the banks at all. Even after six months, the shrinkage in growth has been minute (in some places below zero). In effect, the world's national exchequers (aka the taxpayer) have been either directly or indirectly doing the banks' job for them.
2. No important bank should ever be allowed to fail. Rubbish. When banks fail, shareholders kick up a fuss and stock market traders panic. Then life goes on and other smarter banks buy the good bits of the failed bank. The only requirement is to bail out innocent depositors. Over seven trillion dollars have been spent so far recapitalising, underpinning, stemming cash flow losses and writing off the bad debts of banks. Doing this has not benefitted the global economy in the slightest. Bailing out depositors has been tiny compared to this crazy largesse. Having preached for twenty years that the weak must fail and markets must decide who lives and dies, the banks did a volte face and demanded salvation - an operation supported by and connived in by governments everywhere. Further, banks like JP Morgan, Goldman Sachs and Santander were allowed to cherry-pick the profit rumps - and dump the toxicity onto the taxpayer. A year on, banks are still not lending, and so governments (aka the taxpayer) have pushed fiscal stimulus into the economy to the tune of a further six trillion dollars. The sheer scale and bare-faced cheek of this sting beggar belief. The single adverse effect of not bailing out any banks at all (once the stock markets calmed down and the remaining sharks realised a feeding frenzy could only wind up as suicide in the end) would have been in the region of 80,000 more banking employees dumped onto the global job market than currently. The thirteen trillion dollars expended so far to offset the twenty-five trillion dollars lost in share and trade values has not saved one single manufacturing or retail 'real' economy job. But what it has done, in the UK, is award an average of £2 million to every last one of the 440,000 employees working for banks.
3. Without the merchant bankers and Bourse arms of the retail banks trading on the world's stock market platforms, capitalism would collapse. Globallly aligned, multinational, risk-averse 'bad' business would certainly collapse if one day we suddenly removed the world's bourses (stock markets) as a means of raising capital. But actually very dramatic change can (and did) take place with relatively little trauma. In four years flat, Hedge Fund high-speed pc driven trading became just over 50% of the FTSE's turnover. Hedgies don't make anything, and destroy shareholder value as often as they underwrite it. This did of course end in tears, but that's because the only motivation was naked greed - and anyway, the mess wasn't all the Hedgies' fault by any means. The simple truth remains there for any objective observer of the current system's shortcomings to see: not only has the globalised bank > bourse > remote shareholder > packaged finance complexity model failed dismally for no genuine external reason....it has left the world's taxpayer population with a sixteen trillion dollar bill, and world business (especially trade) with a twenty-five trillion dollar black hole where growth would have been. Some observers would say 'should have been', but I'm not one of them. By far the biggest issue here is species survival on a CO2 polluted planet, and a capitalist model based on growth, output volume and consumer credit is utterly untenable in that context. For this positive (and for other structural failure and social cohesion) reasons, the Big Bourse Global Growth (BBGG) construct is a dead duck. The future will NOT be global: it will be two halves of a potentially overheated planet with different but complementary aims using onboard shareholders, creativity and craftsmanship to mutual advantage. In that environment, there is no place for globalised banks driven by targets and greed. The whole approach and ethic must change or die.
4.But surely now Governments are involved, all financial institutions will pull together in order to get the global economy back on the road? There is no honour among thieves. J P Morgan effectively bankrupted Lehman Bros over the last weekend of its dramatically curtailed life; News International and J P Morgan (the latter bankrolls the former) have more or less done the same to Tiscali. Santander has leapt in to pick up weak banks' deposit books, and sits crouched like a vulture, ready to do the same again. On April 17th 2009, Morgan's CEO Jamie Dimon effectively told the Fed and the President to ram their State aid where monkeys keep their nuts - an odd thing to say really, as they already had $25 billion of it. Dimon said they could pay this back 'tomorrow' and the Administration's fiscal stimulus plan was 'irrelevant to our business aims'. The FT commented, 'Morgan and Sachs want to sever links with government so they can gain an edge over struggling rivals' (aka pick them off - once again with the help of secret Reserve funds).
That same newspaper on the same day splashed with 'Eaten alive by investment bankers', telling of how a 'whistleblower' in the UK had spilt the beans on voracious mis-selling of toxic books by that sector to naive mutual building societies. It wasn't enough for these chaps to have screwed up their own shareholders: they were pretty keen to drag unsuspecting mutuals down with them if it meant a few more jackals might survive. The straightforward answer to this Qu. 4 is that bankers do not know how to pull together - only how to pull a fast one. They do not care what damage is done to currencies, to cultures and to the ordinary investor, because they regard these considerations as mere obstacles in the way of their financial domination of the la-la world of the enormous Manhatten apartment, the gin palace, and the ever-warm seat at the top table. These are not folks like any of us, hard-headed but with a sense of decency and equality of opportunity: they are the owners of obscenely engorged egos and personality disorders, in many cases clinical sociopaths who would rather see the Earth burn to death than them come second in the race to be King of the Jungle. Even as Jungle turned to bungle, the minute things calmed down they spat in the face of any and all authority. They don't think they're above the law: they know they are. Jamie Dimon telling Obama to shove it is no different to Al Capone saying the same thing to Elliot Ness: and bankers selling radioactive isotopes to small-town mutuals is akin to the Captain of the Titanic signalling for help - and then killing the crew of every ship that comes near.
5. Fine, but at the end of the day, we can't go back to the barter system can we? Sooner or later,we will need credit to get people consuming again and restart the global economy: how on Earth could we achieve that without the banks? The succinct answer to each question in turn is: we don't need to go back to barter, and the solely credit-driven economy days are over. Just like before 1960, we are moving into a savings era. As I noted at Qu, 1, of course we need banks - we just don't need these banks with these hobgoblins running them. And equally, as I wrote at the outset, banks and the existing Establishment are completely inseparable Siamese twins. The point remains the same: until a radical transition to a more hard-headed, realistic, truly caring and genuinely independent legislature can be achieved, nothing will do done about banker shortcomings. At the root of the problem is the fact that government in most countries of the world overspends, and thus ends up effectively in the pay of bankers. There is no conspiracy theory in all this, merely incompetence - and financial incompetence can only ever result in being beholden to banks. How else could the legal toleration of double charging, endlessly devious small print, capriciously changed rules, obfuscation of true borrowing rates, cynical delays in passing on better savings deals, heartless foreclosure, refusal to lend despite taxpayer bailout and crazy lending to obviously insolvent borrowers be explained?
As Perry Worsthorne wrote last year, bankers represent the same threat to Parliamentary sovereignty today as that of the Trade Unions in 1975. There are two ways to put the bankers back in their box - first, introduce a new model of more attractive finance with which they must compete; and second, clear out the hopelessly self-bankrupting Establishment whose profligacy creates government dependency on banks in the first place. Only then will the bankers return to focus on their original role: that of supporting business, and lending to individuals with sensible aims and provable means of repayment.
Recently, the Sunday Times columnist Minette Marrin wrote that religion is highly dangerous and intolerant when given a privileged position alongside the organs of State; but when demoted to its primary role of human improvement along with other equals, it always becomes a force for good. The same may well be true of banks.
6. Ok, so what's the next move? We almost need to rephrase that question before we start: what should be done is very different to what will be done. Last November a Hong Kong-based US banker was on the BBC programme Newsnight, and having been asked by Andrew Neill if he thought this mess could ever happen again, he replied, "No, not until the next time". For accuracy and irony, it's hard to beat that as a response. This is a theme nby has been developing for five years now, and one we shall continue to push hard: you do not have to be a Commie to see that the current model of output-volume based capitalism and globally-aligned banking is a planetary disaster waiting to happen. You do not have to be Swampy to discern that neurotic Bourse traders and greedy absentee shareholders are bad for the growth and maturity of fine young companies.
I have been a director of plcs on two separate occasions. Setting my age aside, I would never - regardless of the circumstances - ever again lay a company for which I was responsible open to the ignorance of analysts, the anxiety of traders, the capricious idiocy of interfering shareholders, the lazy reporting of journalists, and the vicious carpet-bagging of Hedge Funds. The entire system of Bourse quotation is based on accountancy lies, fictional futures, crazy timescales, brainless acquisitions and above all, penis obsessed and testosterone fuelled maniacs.
The important point to make here is that the There is No Alternative mantra is drivel put out by globalist banking and multinational business. The recovery of Germany and Japan following the Second World War based on private banks and no Bourse to speak of is ample evidence of it, but for more examples one should look to the mutual sectors. Companies like John Lewis (Waitrose), the Co-Op, and Nationwide Building Society have survived and prospered while former mutual giants like HBOS have gone to the wall.
There are things we can do (vote with our feet for sensible, local, smaller companies - I do it all the time and am better off in every way) but mainly the responsibility for what should happen next lies as always with the Establishment. Perhaps the first and fastest route to change is the taxation system (See Rat - Taxing Bad Behaviour) and a concerted attempt to redress the balance in favour of small, decent, honest and community. But in the longer term, Bourse-financed global companies will lose ground as the natural process of universal evolution takes place.