When are the banks going to be reformed?

March 27th, 2011

It is astonishing that the banks, having cost the country £68bn in bailouts plus an additional £850bn in loan guarantees, asset protection schemes and enhanced liquidity, have not been reformed in any way in structure, pay, bonuses or lending.   True, the Vickers Commission is due to report later this year and may some division between the investment and retail arms of banks.   Or it may fudge the issue, or the Tory Party, which has been shown to get half its funding from the finance sector, may succumb to the intense lobbying from the banks to do little or nothing.   So what should actually be done?

An ingenious new proposal has just been put forward by 2 NGOs, the New Economics Foundation and Positive Money, which deserves strong support.   At root it involves two reforms.   One is that the bank payments system is separated from risky lending activity, so that the failure of investments cannot damage the essential bank role of providing payments to depositors.   This would have prevented the crash of 2007-8; only the investors would have suffered the consequences of their own recklessness and excesses, not the taxpayers.   The second is that the Monetary Policy Committee (MPC)  should influence money supply, not by the indirect and uncertain method of setting interest rates, but directly through the creation of new money when necessary, though only within strict constraints to avoid inflationary and deflationary pressure.   That would effectively reverse the privatisation of the money supply which has existed since the 1844 Banking Act, but which the banks have colossally abused.

At present there are several enormous detriments to the existing banking system.   One is that the banks create money out of thin air by repeatedly on-lending to different customers the same money secured by a small capital base, with the risk attached that any breakdown will be covered by taxpayers either through deposit insurance or through massive bailouts.   Another is that under current rules the money supply can only be increased by additional bank lending which further exacerbates an already over-extended credit bubble.   A third is that there is nothing to stop the banks using therir proceeds from lending to gamble on speculation in commercial property, overseas markets, tax avoidance/evasion scams, or any other money-spinning scheme rather than lending to UK business to create jobs.  

Significantly, when the Government has engaged in £200bn quantitative easing over the last 3 years to extend the money supply, this money creation was intermediated through the banks which used it overwhelmingly to shore up their own rickety balance sheets rather than lend to business or householders.   Nationalising control over the money supply is a key reform long overdue.

35 Responses to “When are the banks going to be reformed?”

  1. Robert Says:

    I suspect after the next crises, when you have no welfare or social state left.

  2. Roger Simpson Says:

    Can you imagine Gordon Brown or George Osborne applying for a job as financial director at a large company. Looking at their CV’s. Gordon Brown, PhD in History, college lecturer, journalist (briefly). George Osborne, Degree in Modern History, speech writer for William Hague.
    They wouldn’t even get a reply yet they both hold or held control of the Nation’s finances.

  3. Robert Says:

    I would not give Brown a job picking up litter, but romour has it he is to become a major player at the IMF.

  4. DC Says:

    At last! A British MP has seen the light and the obscene truth that the private banks are creating money instead of borrowing from the nationalised central bank. The allowance of counterfeiting of money by the private banks HAS to stop. Only Her Majesty’s government should be allowed to create money. This way, some of the interest from the loans would feed back into the system and reduce the amount of taxes. Read ‘Web of Debt’ by Ellen Brown for the history and for the most important enlightenment. Her solution is also to nationalise the creation of money thereby allowing a controlled economy without recessions and also stopping the rich get richer and from controlling the governments.

  5. Les Says:

    If Labour had actually done something about the dreadful banking system when they were in government, I (and plenty of others) would probably have voted for them at the last election. Unfortunately none of the major parties has the balls to do anything to radically change the corrupt system. So I won’t be voting for any of you.

  6. Brian Says:

    No surprise at all that the bankers face nothing worthy of the name ‘reform’. The UK is governed on the same principle as empires thoroughout times has been governed- the golden rule – them that has the gold make the rules. Democracy is just a delusion with which to quieten the masses.
    The crying shame is that, unles New Labour gets its act together, we are ConDem -ed to cuts and more cuts while the wealthy just keep on getting more of the cake.

  7. Les Says:

    It’s an absolute disgrace that the bankers have got away with millions while the taxpayers foot the bill.

  8. FaustiesBlog Says:

    Robert, heaven help us!

    When (or if) the coalition brings in the bill which allows the electorate to petition for debates in the HoC, might you not launch a campaign to give this matter a proper airing? With your support (and with those of many Conservatives, such as Douglas Carswell and Dan Hannan, or Labour MPs, such as Kate Hoey), and with popular columnists such as James Delingpole and Christopher Booker, I’m certain that this would gain traction.

  9. Mark Says:

    Finally! Our MP’s are beginning to wake up to the real cause of the financial crisis and also to understand how simple the solution is!

    Thank you, Mr Meacher – you give me hope for the future!

  10. Shaun Chamberlin Says:

    Spot on Michael – this is probably the most crucial legal reform we could see.

    It’s sickening when you think how many people do things they don’t believe in just to make a living, while the bankers are magicking that very money out of thin air, making us all their personal ‘wage slaves’.

  11. Simon Dixon Says:

    Great to see an MP discussing Banking Reform of Fractional Reserve Banking.

    We are making considerable progress with the campaign to reform banking as well as creating an alternative banking system with entrepreneurs and finance students.

    Great to see you discuss this though and feel free to get in touch as I have a lot of influence in this space.

    You might want to check out some of the videos on my Banking Reform channel too:

    http://www.youtube.com/user/bankingreform

    Simon Dixon

  12. william Says:

    Thank you Michael for addressing this issue.

    Can I suggest you enquire a little further into the banking system?

    For example who really owns the Bank of England? The government we are told.

    Check out a murky “subsidiary” of the Bank of England – The Bank of England Nominees Ltd. Why is it exempted from making any returns to companies house? Why has it not traded since it was formed in 1977? Try asking a parliamentary question about who are the shareholders of this private company. You may be shocked by the answer you get.

    “Bank of England Nominees Limited was granted an exemption by Edmund Dell, Secretary of State for Trade, from the disclosure requirements under Section 27(9) of the Companies Act 1976 , because, “it was considered undesirable that the disclosure requirements should apply to certain categories of shareholders.” ”

    Don’t believe the story put around that this secrecy is to protect the Queen’s investments. Its to protect the real owners of the Bank of England.

  13. Frederick W Gilling Says:

    My direct answer to the question is; “When they are nationalised”
    Put all the conspiracy theories to bed.
    Total transparency should ensure that no new conspiracy theories are created.
    Populations worldwide should demand it.

  14. Barry Walker Says:

    The proposals make perfect sense, but unfortunately are too technical for the general public to understand, and hence difficult to rally public support for. The New Economics Foundation and Positive Money are doing the best they can to get the message out there, and I watch with interest their progress. But without the masses of money created out of thin air that the banking sector has to lobby their interests, I fear the old norms will persist. That is unless one or more of our main three political parties get behind these initiatives. We need solid, well researched and well publicised (in laymans terms) proposals by the next election. There is presently much public anger towards the banking sector, which could manifest itself as votes in the next election for the party with the political will to publicise these reforms. The current system is clearly unsustainable, and for the sake of ours and future generations, we need an elected body to get a grip on our money supply.

  15. Nell Says:

    Finally, a politician willing to talk sense about the banking sector. This is a hugely important issue and is fundamental to the future of the UK. The continual creation of money as debt will most certainly plunge us into another credit crisis in the near future. But the next time the taxpayer won’t have any money left to prop up the banks.
    We start campaigning to change the banking system now, or we live through the collapse of the banking system. I know which I would prefer.

  16. Alex Goodall Says:

    I believe the proposals from the New Economics Foundation and Positive Money are excellent, very well thought through – and long overdue.

    Although the changes required a significant, we cannot let that fact effect the timescale for bringing them into being. We simply cannot afford to spend years pussy-footing around.

    Far too much is at stake here.

    I’m delighted to see you’re supporting them.

    Alex

  17. Joseph Says:

    I and many others have been hoping for years for this “revelation” of the banks criminality to seep through into the corridors of power.

    I suppose this is a small step.

    But when will we hear or see anything about FRB on mainstream TV?.

    The galling truth that a bank can repossess a family’s home when they never actually gave you the money to buy it in the first place I think is something that needs to be hit home.
    If the people realised that EVERY mortgage loan transacted by the criminal banks actually BREAKS English Contract Law, there would be rioting in the streets. And maybe that’s why no one is saying anything.

    I am afraid nothing will happen unless there is a critical mass.

    And that wont happen until we have the cataclysmic economic implosion that I hope is soon on its way .. for the sake of my children’s and children’s children ..

  18. Banks DID Cause Global Economic Meltdown – Because They Have Stranglehold Over Money Creation « MODERN TIMES IN MUDSHIRES Says:

    [...] You can read the article here [...]

  19. Ian McCabe Says:

    I absolutely agree with your statements and sentiments. It is not clear from your blog what you will be doing to support the New Economics Foundation and Positive Money. I have already written to my MP about this but have not yet received a response. More people need to know about what is really happening before things will change. How can I help?

  20. Noel McHale Says:

    I would be very interested to know how many MPs share Michael Meacher’s views on banking reform. How would one obtain such information?

  21. Sandra Crawford Says:

    If nationalising the money supply would stop the banks recklessly speculating and domino lending leading to crashes and bailouts then I am all for it. I think that we should do something about limited liablities, and large corporations. I think that Mervyn King was right to say that the banks should be broken up.
    I would also like Michael Meacher to investigate the case presented by John Christensen, Richard Murphy, and Nicolas Shaxson and UK uncut regarding the estimated 100bn per year lost in tax avoidance. As a Labour party member, I think that Labour should champion this. How else can we pay for new housing and public services in the long term if we do not shake off our neoliberal attitude to tax dodging?

  22. Michael Meacher MP calls for radical banking reform in the UK – Smart Taxes Network Says:

    [...] Ministers in the UK but lost out in the power battles.  I wonder what his influence is now? When are the banks going to be reformed? March 27th, [...]

  23. christopher gilfedder Says:

    I’m sure that there are many MP’s who share Michael Meacher’s views. I just wish they would stand up and make their voices heard. The above arguments for monetary reform are so strong that MP’s would be guaranteed an enormous amount of support from the hard-pressed people of the UK.
    Well done, Michael Meacher

  24. steve Says:

    The structure of banking and in particular the structure of how money works has been poorly understood.

    This goes back several centuries and it’s crazy.

    If the public truly knew what is going on I think there would be a riot. Luckily the public are as clueless as our elected politicians.

    Our debt based, interest charging money system, has been replicated throughout the world.

    It’s not even that hard to fix it but I bet that the commission on banking do little or nothing to change it.

    I don’t blame the banks as such, they are responding to a structure in the only way they can.

    Change the underlying structure and you change behaviour.

    Regards from a frustrated business owner!

    Steve

  25. Rev Dr Richard Rodgers Says:

    Dear Mr Meacher,

    This is a welcome statement with which I agree. Would you consider tabling an Early Day Motion that I can try to get other MPs to support? I could provide a suggested draft wording. To have a clear focus like that would be a great help. There have been others around this topic but none as clear as you are putting it. I support Positive Money but they are not responsible for my actions. The Common Good is a political party that I have formed in 2004. With good wishes.

    Dick Rodgers

  26. John Says:

    I am delighted that Meacher has seen the light… so with any luck, Pos/Money might see the Bank Act amended by their target date, 2015.

    The whole saga of the fractional reserve money system is one of lies, murder, war, prostitution, assasination and almost any crime you can think of.

    Those who own/control it financed both sides in WW1 and WW2, they took control of the American $dollar in 1913 when Pres Woodrow Wilson, his campaign financed by them, signed the Federal Reserve Act… which gave them absolute power over America…….. they were directly rsponsible for the death of Tsar Nicholas 1 and the Revolution because he would not agree to one of their Central Banks being installed in Russia…. they founded and own the BIS, the IMF and the World Bank… history records they are looking for global power, but to do so requires Central Banks in ALL countries – it is recorded that the following countries are yet to be impregnated… Iran, North Korea, Sudan, Cuba AND LIBYA (no prizes for guessing where the next war might be).
    Afghanistan was on the list until the SAmericans went in not that long ago.

    All these countries have Central Banks and all these banks are owned or controlled by them.

    DENNIS HEALEY is quoted as saying…

    “World events do not occur by accident: they are made to happen , whether it is to do with national issues or commerce; and most of them are staged and managed by those who hold the purse strings”.

    One of THEM – is quoted as saying many years ago,
    “Allow me to issue and control the currency of a nation and I care not who makes its laws”.

    So much, all pointing in one direction… we are ALL in perpetual debt now and this is how….

    When banks create money out of thin air, it is debt money and that is 97% of all money since we went bankrupt as a nation. None of it is real, just a figure on a page. Now, the big time problem is this… NO-ONE ISSUES THE MONEY WITH WHICH TO PAY THE INTEREST ON THE FIAT MONEY CREATED BY THE BANKS.

    So, we, theb debtors, have to pay the interest and the principle out of our EARNED INCOME after tax…. and, the government debt is financed by the income tax we pay.

    GOT THAT, MR MEACHER?

  27. Conrad Jones (Cheam) Says:

    All I can say is, I wish Michael Meacher was my MP. At last a member of Parliament who is definitely awake.

    Positive Money Proposals:
    1. Power to create Money (as Debt) by Private Banks will stop.
    2. MPC to decide on interest rates will stop.
    3. MPC to decide on how much debt free money to create to add to the economy will start. (Yes, that’s right – DEBT FREE MONEY).
    4. Private Banks will decide on the their own interest rates based on whether they have too little or too much investor money. This will give a more accurate erepresentation of market forces so reducing malinvestment.
    5. Fractional Reserve Banking will stop. A current account will be a “Transaction Account” and will be Allocated to a customer and not lent out at the whim of the Bank. 100% Reserve Banking will end the need for Bail Outs.
    6. Savings Accounts will be known as “Investor Accounts”. Here the money will be lent out and invested with Borrowers for fixed period of time much like an existing Bond – but the difference is the Money that the Banks lend out is not magically created (or expanded from smaller deposits) – it really will be Savers money. It is basically the way most people believe Banks work at present.
    7. The choice of investment will be determined by the Investor and then provided by the Bank.
    8. As Inflation will be directly the responsibility of the MPC, cyclical booms and bust will be reduced – if not eliminated by these proposals.

    The amount of debt free money (created by the Government) is currently 3%. In 1963 it was over 21%. With Positive Money’s proposal, the amount of DEBT FREE MONEY will immediately start to rise. As debt is reduced, the money supply will reduce. This reduction will be gradually reduced by the MPC deciding to created debt free money.

    With money being based on debt, it should be no surprise that Ireland, Portugal, Greece, United States, United Kingdom, Iceland have gonew through – and are still going through extreme financial hard times.

    Michael Meacher’s astonishment at why the Banking Industry has not been reformed despite receiving £200 billion pounds accurately represents anyone who has studied what has been happening over the last couple of years.

  28. Conrad Jones (Cheam) Says:

    Hello William,

    Your comment regarding the “Bank of England Nominees Ltd” is of interest to me also.

    I do not believe there is anything strange going on but I do believe that if the Bank of England is Nationalised, then we – the Tax Payers; have a right to know what it does – including all of its subsidiaries.

    I asked my MP (who unfortunately is not Mr Meacher) to table a question about the “Bank of England Nominees Ltd” in the House of Commons and he said:
    “I’m sorry, but the Bank of England is not covered by the system of Parliamentary Questions, and so I cannot table one on your behalf. However I do think that there is nothing of significance here in relation to anyone outside the Bank itself – it does not have external clients and simply fulfils its Central Bank obligations to the UK”

    A nominee company is used by shareholders to maintain their ownership of such shares in anonymity. The Freedom of Infomation Act Exemption is expected when connected to Ministry of Defence operations in enemy territory, not on the Countries Finance. For that reason it generates enthusiasm for answers to:
    1. What does the BOEN do?
    2. Why was it felt necessary to create it in 1977?
    A matter of months after Harold Wilson resigned as Prime Minister.

    Very interesting.

  29. Simon Says:

    A letter I sent to the Banking Commission recently. I do not have great confidence that the commission will do the right thing, mainly because too many politicians are in the pockets of the bankers. Labour could be truly radical and gain huge support by adopting the proposals put forward by Positive Money and their allies.

    Dear Members of the Commission,
    I know you will be doing an interim report to government for possible reform to the banking system soon, and a full report by September 2011, and I know you have received many submissions and are busy people.
    My father proposes a system of Registered Money, where there is no narrow or broad M4 money, just money. Banks would still be expected to keep a reserve, but the banking system would not be able to increase the money supply through the multiplier effect as they can do now, because only the Bank of England could create new money, and all existing deposits would be Registered Money from the first day of the new system. Individual banks could be regarded as individual account holders within the Bank of England, and together they could not lend more than the sum total of all their Registered Deposits, until the Bank of England creates more Registered money. All new money would be created free of interest by the Bank of England, and spent into the economy when required. He has looked at money supply and inflation for many years, since the early 1970s. The present system allows the banks to increase the money supply by lending and profit from the net interest, through the multiplier effect. The money supply increases as long as new loans and interest are created faster than old loans are paid off. The system is inherently unstable in that more new debt money needs to be created each year just to pay the interest on existing debt, and the money supply grows exponentially. This is proving more difficult with time because of an ageing society, loss of productive industry and more expensive fuel supplies. The commission needs to look beyond making banks safe, and protecting depositors and tax payers from the gambling activities of certain banks in recent times. We need to look at who creates our money, and profits from it, and design a system that is fair for all of society. We need a system that does not require continual economic growth just to pay debt interest, a system that is stable, does not cause asset price bubbles, boom, and then bust. My father outlines his work on http://www.legalforgery.com the proposed solution to monetary chaos is detailed in Chapter 10, 100% Registered Money.

  30. Conrad Jones (Cheam) Says:

    One of the most convincing arguments for supporting Positive Money’s proposals is:

    At present – as the Money Supply is made of 97% debt based money, inorder for one person to pay off their debt it requires someone else to go into debt to provide the money to pay off a debt.

    An analogy of this is of a group of swimmers drowning and in order to save themselves they have to climb on top of the shoulders of another swimmer, thereby pushing them lower in the water forcing them to drown instead. This is basically how our debt based economy works.

    While Nurses are expected to take a pay freeze, executives in the socialised Royal Bank of Scotland (A nationalised Bank – tax payer funded) enjoy Million Pound plus salaries, and bonuses in the Millions. These bonuses are paid for by people like Nurses (in the Public Sector) and Engineers in the Private Sector.

    Wealth transfer seems to be the only rational explanation as to why our Banking System operates in the way it does. 75% of Bank Loans go into the Housing Market, less than 20% goes into Businesses that can provide Jobs. The Banks have a vested interest in seeing that the Housing Market stays inflated. George Osborne’s answer to this was the “FirstBuy” scheme, 10% loan by Government, 10% by a Buiding Company thereby increasing the money flow in, that would do nothing to help reduce the mortgage debt of the young first time buyers. Insane policies also similar to the Shared Equity scheme by Gordon Brown and John Prescot who seem to be blistfully unaware of how a Market works.

    House prices are already unaffordable at over nine times average income, what will happen as food starts to eat into an ever diminishing pay packet?

    Although the Banking Sector is portrayed as a global success as it supposedly provides £50 billion of tax income to the Country, the fact that it’s received over £100 billion of Government Subsidies paid for by tax payers through direct taxes or through indirect taxes such as Inflation seems to escape some politicians – especially Gordon Brown and George Osborne.

  31. Steve Finney Says:

    Congratulations Mr. Meacher you have restored some of my lost faith in politicians. I have been following a blog for sometime now that has explained to me the full extent of the sickness in the international banking sector. It is David Malone’s, the documentary maker & author of the book, ” The Debt Generation ”

    http://www.debtgeneration.org/index.php

    The detailed information provided on this blog by David & his contributors has convinced me that the main parties are not really getting to grips with the real threat to our economy & future. Iam very pleased therefore that you are.

  32. Helen Says:

    I am amazed to read a blog by a politician who actually seems to give a stuff about people other than the super-rich and bankers and who actually tells the truth about the finance sector in this country i.e. that the banks create money that isn’t real, gamble with it and then demand that the taxpayer bails them out when it all goes wrong. And then have the gall to say that the public sector should be cut because it’s “wasteful” and that anyone demonstrating against cuts is acting in their own self-interest.

    As someone who was at the demonstration on March 26, I know that whatever the media reported, it was a peaceful march despite the rage at the bankers who are sticking 2 fingers up at the rest of society as they continue as normal whilst everyone else struggles with redundancy and money worries. I will be voting Labour if Mr Meacher’s policies are seriously put forward by the opposition.

  33. Frederick W Gilling Says:

    In trying to gain more knowledge of world finance I Googled 1844 Banking Act, this led on to Banking Panics 1811 and 1857 and many more dates for such “Panics”, throw in a few “Bubbles” along the way, add tens of thousands of “Bank Failures” to say nothing of deliberate frauds both discovered and not discovered, toss in the headline “Anyone seen where our fifty trillion went?” from The Sunday Times Magazine dated 17.5.2009, garnish with the bail outs of banks, Greece,Ireland and Portugal,stir in a few Hoover Dams worth of tears caused by centuries of “bank panic” induced misery,then please digest that lot and much more and then try to come up with a lucid reason why banks should not be nationalised ASAP, sorry for long paragraph rant. One comment, which I whole heartedly support, is that tremendous efforts must be made to ensure that 99 percent of us can understand the basic jargon and reasoning to justify reform.There just has to be action to control that deadly dangerous weapon, money.
    Let this present World Financial Armageddon be the last “banking panic”

  34. Conrad Jones (Cheam) Says:

    The Last thng we want is a Nationalised Bank System – this is what we are heading for now and it only makes it easier for Banks to socialise the Losses and Privatise the Profits.

    The 1844 Act was aimed at Soctland. Scotland did not have a Central Bank prior to 1844. After this date it was controlled by the Bank of England which then made Scottish Banking as unstable as the English Banks. Scottish Bank Notes were more desirable prior to 1844 because the Banks that Created them were not bailed out by a Central Bank of Reserves which meant people did not put their money into risky Banks. Banks were alloed to fail. In the long term, this made them more stable. New Banks were allowed to enter the System, and competition was allowed. This fact is always ignored by mainstream media and misunderstood by Politicians and Economists. Please read the section on Scottish Banking in Rothbard’s – “The Mystery of Banking”.

  35. Nell Says:

    To Ian McCabe – hi if you are interested in helping spread the word, get in touch with Positive Money
    http://www.positivemoney.org.uk/
    They are currently campaigning to increase awareness about the issues raised above. They are asking all kinds of volunteer help.

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