It is sad, tragically if not pathetically sad, that 5 years into this long-drawn-out recession still virtually none of the key lessons have been learnt. It is not about injecting a new morale and spirit of Olympic aspiration into UK economic enterprise after two weeks of glorious athletics achievements. It’s about realising that the financial crisis will not end until certain fundamental decisions are taken, none of which are in sight at the moment. Prime amongst these decisions is radical reform of the finance sector. For the last three decades the banks have been treated with kid gloves at the expense of everyone else. And the same intellectual virus continues to infect governments everywhere.
In the 1970s the banks recycled Middle East oil profits from the quadrupling of the oil price to sub-prime Latin American governments which, when the economic downturn came, couldn’t repay these debts and had to be bailed out by the IMF in order to prevent the banks going bust as a result of their own stupidity. Then the banks did it again in the 1990-2000s, pumping out loans to sub-prime mortgage holders who couldn’t repay, and then had to be bailed out again in 2008-9 after recklessly generating the biggest financial crash for a century. Even the recklessness was direct repeat. In the 1970s the banks used syndicated loans which enabled them to avoid necessary prudential checks. In the 2000s they securitised the loans by bundling up the toxic with the genuine so as to profiteer by concealing the nature of the packages.
Again, the world capitalist authorities, notably the US-dominated IMF, gave the Latim American borrowers a hard time for fear of ‘moral hazard’, i.e. if terms were too easy they might be tempted into further borrowing binges. But were the banks given a hard time for fear of ‘moral hazard’, i.e. that they might be tempted into further rounds of unwise and highly risky loans? Quite the opposite: they were bailed out in the 1970-80s and again in the 2000s without any punishment imposed on them but at colossal collateral damage to everyone else, no reform was pushed through to prevent further debt crises in future, and moral hazard has now hit a crescendo. The banks have been given every incentive they could want (once the recovery begins which in the end it will) to repeat their recklessness in the certain knowledge that governments/taxpayers will insulate them from their crass stupidity.
The basic reforms needed are quite clear. The Big Five should be broken up and diversified so that they are no longer ‘too big to fail’. In the event of collapse, they would not be rescued except for the depositors, and in their bankrupt state they would be taken over by the State at the usual cost of £1 and rapidly provided with a new management and a new remit that genuinely serves the national interest, not the concentration of their own power and wealth.