Given that the bankers’ malfeasance is the root cause of the present economic misery, which with going-for-broke spending cuts about to be inflicted will soon get much worse, it seems almost unbelievable that, 3 years on, next to nothing has been done to avert yet another (possibly greater) crash. The financial meltdown began on 9 August 2007, slowly accelerated through 2008, exploded on 15 September 2008, and cost governments in 2009 about £3-4 trillions in bail-outs, including some £650bn in the UK. Now bonuses (which drove the original recklessness) are back in full swing with £6bn paid out last year in the UK, derivatives trading (the dark heart of the City of London) is bounding ahead, and speculative lending still overwhelmingly takes precedence over lending to business and manufacturing. How have the vested interests got away with it? What should be done?
The nexus between No.10, the Treasury and the City of London is the tightest inter-meshing of power in Britain today. Cracking it to head off the next crash will require really radical reform, and of course be vehemently resisted. The Future of Banking Commission chaired by David Davis MP, whose report was published 2 days ago, makes several highly sensible proposals – ethical training for bankers, an independent oversight body for the banking trade, a disciplinary code including removal of the right to practise, a clampdown on bonuses, and splitting up banks so that speculative activities are quarantined from savings and loans.
What is the government’s response? Further delay – it proposes to set up another banking commission soon to be announced. That could take another 2 years before any action is taken, if indeed it is at all. Meanwhile some reforms cannot wait, especially regulation of derivatives where an IMF paper has just revealed that ten banks, including RBS and Barclays, have failed to underpin £1.1 trillion of derivatives they have created, i.e. taken on liabilities but without the money to back them up – exactly what went wrong before.
Other problems can’t wait either. Just 3% of net lending in the decade to the 2008 crash went to manufacturing, and 75% to commercial property and residential mortgages; that needs to be drastically changed, and quickly. Bank lending to businesses and homeowners was growing at 20% a year in 2007, but has collapsed to zero or even negative; State-owned banks should be forced to increase that lending back to 2007 levels. Secrecy is still pervasive, with living wills and the details of derivatives trading kept from public eyes; since it’s the public that pays out when things go wrong, transparency should be made mandatory.