When are we going to get serious with the bankers?
January 12th, 2013Andrea Orcel, the new head of investment banking at UBS and formerly at Merrill Lynch the adviser to RBS on the takeover of ABN Amro in 2007 (for which he got a fee of £7.5m, but cost taxpayers £45bn in the subsequent bailout) – he no less is now candid enough (or has the gall enough) to admit today that banks are “too arrogant” and “the industry has to change”. So it’s getting through at last, 5 years down the line, even to the ‘masters of the universe’ themselves. Well, there’s more joy in heaven over one sinner that repenteth…. But there are still clearly 99 as brazen as ever. The UBS bankers told the parliamentary Banking Standards Commission yesterday that even though regulators had established that 40 staff in the bank knew about the Libor rigging, only 18 had been fired. Moreover the top management denied any knowledge of the rigging, even though it was discussed on electronic chat boards by up to 70 persons within the bank, which implied either that they were utterly incompetent or hugely negligent or simply liars.
So what should be done with the banks and those within them that have caused this country, as well as much of the world, a gigantic and prolonged recession? First, there should be (or rather, should have been, since the Coalition united to vote this down) an independent and thorough judicial inquiry – similar to the Leveson inquiry into the press – which would systematically spell out the full horror of the corruption of the banking system in the era of neoliberal capitalism, particularly the last decade leading up to the crash in 2007. In the light of that the regulators - though both the FSA and the Bank of England are perhaps too compromised or too ineffective or too collusive to perform the role required – should target the offending banks (fines, restructuring, break-up) and prosecute the offending individuals (fines, disqualification, prison).
Second, a clean break between the investment and retail arms of banks is essential – the Vickers recommendation of Chinese walls is hopelessly inadequate.
Third, a major reconstruction of the UK banking system is needed to ensure it meets the purpose for which it exists – to serve the interests of British industry and British households. At present the Big 5 have too much power, have diverted their focus to overseas speculation and industrial-scale tax avoidance, and are virtually unaccountable. RBS and Lloyds should be retained in public ownership and transformed into national investment banks to promote a major revival of regional business and manufacturing, and Barclays and HSBC which are corrupted beyond recovery should be broken up into smaller specialist banks focused on unmet requirements of a modern high-tech economy.
Fourth, management of the money supply – the critical component for determining the future direction of the economy – should be taken back from the financial de-regulations of the Thatcher era into public democratic control so that the priorities for the economic and manufacturing renaissance of Britain can be secured.
January 12th, 2013 at 2:34 pm
Dear Mr Meacher MP,
I am in complete agreement with your comments and I am deeply concerned the reasons why none of the changes you advocate can happen is because the Government has a policy to protect banks and bankers at all costs – and even when they have been proven to break the law. Why the Government of any democratic Country would consider such a policy beneficial to the people it represents and who have already been brought to their knees by the financial sector, is beyond me. However, the comments from Andrew Bailey, chief executive designate of the PRA, reported in the Telegraph 14th December 2012, appear to confirm that is where we are. And at a time when (apparently) 52% of senior bankers would also like to see the criminal element in their sector brought to book, the fly in the ointment, would seem to be our Government.
I was so appalled at the prospect of a two tier legal system which accommodates illegal activity by any sector of society, I wrote to David Cameron asking for clarification – were Mr Bailey’s comments based on Government policy? A month on I have had no reply. My letter is in the link below and, as I cannot get clarification from the PM, I wonder if anyone from the opposition party would be prepared to pose the question as the answer may be crucial to our democracy?
http://www.ianfraser.org/dear-mr-cameron-if-bankers-are-above-the-law-we-need-an-urgent-explanation/
Many thanks
N Turner
January 13th, 2013 at 7:50 pm
Dear Mr Meacher,
Iceland found a way to deal with an appalling prime minister and errant bankers. They arrested their PM, and took the countries financies out of the hands of the bankers.
They have been successful enough to repay a massive loan to Scotland. Of course, there’s been very little coverage of this by the British media!
Yours,
David Kettley
January 13th, 2013 at 7:55 pm
You sound as fed up of the blind arrogant back slapping of this government and the continued contempt held by both them and the banks that are responsible for the problems of today.
Ever since 2008 I have been reminding people who seem to have terrible memories what really kicked off the problems that are making children go hungry, the unemployed, sick and infirm persecuted and working people sleep in their cars as they can no longer afford to commute (for more information contact the RAC who did the investigation).
I was there, on the front line mingling with many companies that where forced in to closure not for lack of work (billions of pounds on the books of one fabricator comes to mind) or profit but for banks liquidating them.
Speaking with 1000′s of people who by the end of the week no longer had jobs after decades of employment and have probably been scraping a survival ever since.
I saw many good companies close and with them a big chunk of UK production that is needed to be strong in the world market.
The banks are criminals without persecution, monsters without faces, and I cannot do any-more than agree with your propositions of what should be done. Especially consequences for their actions.
You have my full support but I know too well you will have an up hill battle getting the support of a complacent government.
I am quite happy to bend the ear of my MP’s though.
January 15th, 2013 at 10:38 pm
I understand your frustration with this Government and – unfortunately; the last one.
The problem is with the Banking System and not Bankers. Bankers, like anyone else; are going to manipulate the system as much as possible for what they can get out of it for themselves. This is why we have Laws.
Another problem with the current Banking Systme is the ignorance that most people have of it. They do not understand money and they do not understand what has happened to it over the last 40 years, since 1971.
Two things happened –
1) We left the Gold Standard
2) Bank Reserve requirements went from 20.5% in 1968 to ZERO percent today.
This is equivalent to teenage children being left alone at their parents Mansion with the keys to: the Drinks Cabinet,
the Ferrari in the Garage and
the Gun Safe.
They were then told to please themselves.
Credit exapnsion has caused two problems:
i) Real Wages have declined over the last 40 years.
ii) House Prices have almost tripled – in real terms.
The side effects of this are that it now takes TWO wages to buy the same House it would only take ONE, forty years ago. With declining wages (in real terms), it means that it is even harder to maintain the same living standards our parents enjoyed, a few decades ago.
We can not blame the Bankers for this Crisis no more than we can blame Criminals for Burglary if we had made it legal to enter someone elses house without permission and steal everythin we saw.
Complicit behaviour by Government Ministers towards the Banking Industry seems to not be a coincidence. When Mr Blair left Office, he was offered and accepted a $500,000 a year part time Job with J P Morgan. Ruth Kelly went straight into HSBC. The ICB was made up primarily (totally) of Bankers who demonstrated an inept ignorance of how money was even created. Mark Carney is to be paid in the order of £874,000, six times what the current Prime Minister is paid.
The first Law that should be passed (apart from bringing back an enforcable Bank Reserve Requirement) is to make any attempt by a Bank to offer any form of gain to a Politician illegal and to make any POlitician receiving one punishable by a Prison Sentence along with the Banker who offered it. Once a Politician becomes elected, and during his campaign, he will not be allowed to benefit from any money or Job Offer from a Bank for the duration of his Life.
The Problem is – the current Government is in bed with the Bankers and so will not enforce or propose such Laws. Without these Laws, other reforms will prove impossible.
January 15th, 2013 at 10:53 pm
This is a comment that I placed on John Redwood’s Blog under the article titled –
“Part time working and second jobs” in which Mr Redwood discusses the pros and cons about why people should be allowed to work second jobs without discussing – even briefly, why people NEED second jobs:
This is what I wrote directed at Mr Redwood:
“You seem to have missed the real story as to why people are struggling so much that they need a second or even a third job to meet expenditures.
1. Wages have dropped – in real terms over the last forty years.
The wealthiest Nation on Earth, the United states had it’s wages peak in 1972. Since then, they have fallen for 39 straight years.
http://middleclasspoliticaleconomist.blogspot.co.uk/2012/03/basics-real-wages-remain-below-their.html
2. House prices across the UK have nearly trebled in the last 60 years, increasing
by an average of 186 per cent, data from Halifax has revealed.
http://www.ftadviser.com/2012/05/28/mortgages/mortgage-data/uk-house-prices-treble-in-years-halifax-4ur3H8kPxBkLQcdijtlCpK/article.html
Umm… I wonder what shrinking wages and rising House Prices is going to force people to do ?
Even with Two wage earners now paying the mortgage, House Prices have increased to eliminate the advantage and wages in general have fallen in real terms.
Micro Analysing symptoms is not as interesting as analysing the cause. Take a step back and have a look at the overall picture.
People haven’t suddenly decided that they’d rather have a second Job than spend it their free time with their Friends and Families. They are doing it becasue they are forced to because of credit expansion.
“If your main job is only 40 hours out of a 168 hour week you should have options for the remaining 128 hours.” – Why not take speed pills and work ALL 168 Hours? Sleep is over rated anyway, and who needs to spend time with the Family and Kids – they’re just an overhead – right?”
He has not printed this yet and is holding off for some reason.
January 15th, 2013 at 11:14 pm
A category that Mr Meacher does NOT belong to is the type of Politician who does NOT understand Debt and Money. Mr Meacher does understand debt and money and whole lot more than most other Politicians.
Unfortunately, my local MP does not understand the wider economy and does not understand Market Economics, Debt, Money and Banks.
I wrote to my MP and said that I thought House Prices were high because of Credit Expansion due to the Banking System’s reduction in regulation and reserve requirements.
He said in his letter to me:
“… I don’t think your analysis is correct. The issue of house prices has always been linked to affordability and supply, as much as the availability of credit. The BIGGEST reason that we have experienced housing bubbles has been, in my view, periodic imbalances between supply and demand. Of course the availability of credit plays an immportant part of this, but is not the only reason”.
So Credit Expansion didn’t really play a major role then? (according to my local MP)
Let’s see if he’s right?
“Why exactly is it so expensive for us to own a home?”
http://blogs.independent.co.uk/2012/08/28/why-exactly-are-homes-so-expensive/
“Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%. Which of these figures is more likely to have led to a 350% rise in house prices: a 5% rise in population growth which is matched by an increase in supply of housing; or an unprecedented increase in mortgage lending from the banks?”
And my MP is a leading member of the current Government. He appears good and supporting local concerns – which is why he is able to get elected, but on the underlying route casues of many of our problems, he relys on House of Commons researchers who themselves rely on out of date Economic Theory Books that were written at the time of the Gold Standard.
January 15th, 2013 at 11:57 pm
A full reserve Banking System would make it a lot easier to prosecute Banks for Fraud. It would also enable the Government to create non interest bearing currency to spend into the Economy.
QE is often explained as a means by which the Government injects money “directly into the Economy”. It does not. The QE money goes into Central Bank Reserve Accounts of Private Banks, the same Private Banks who are now advised to increase the Cash Reserves.
A simple analogy would be trying to start a car engine by pumping more fuel into the carburetor, but no fuel is getting into the cylinders as the jets are blocked, and stopping too soon because it seems as so the engine is running, although it’s just turning over due to the starter motor. The engine stops and the driver wonders why?
QE Money is stuck in the UK’s Economic Carburetor, becasue Banks have reduced their lending.
We have to also look at the role of Central Banks.
The “Federal Reserve System” was modelled on the Bank of England. It was created in December 1913 to protect Banks – not the Public. That is why Government’s (both Labour and Conservative) always appear to protect Banking Interests. The System in place was specifically designed to do that with the Payoff to the Government in the form of an expanadable moeny supply required in time of War. Never mind the fact that Abraham Lincoln was able to expand the Money supply during the American Civil War by creating “Green Backs” without any Central Bank in existence in the US – or “United States Notes” instead of the debt based “Federal Reserve Notes” today, it is implied by the media and Politicians and Bankers that we MUST have a Central Bank to maintain stability, when the reverse is true.
Only a matter of months after the Federal Reserve System was concocted, World War I erupted. Coincidently, both England and France became heavily indebted to the Federal Reserve, as they borrowed heavily from it to fund the War. Why was the IRS simultaneously created at the same time?
Central Banks created an atmosphere of Moral Hazzard for Banks to operate in. It would also be fair to say that the Bank of England has maintained a very stable creation of Notes and Coins – and to that extent, has maintained stability for M0, unfortunately, our money supply mainly contains M4 (Bank Deposits), which is by far the vast majority of our money supply, to which the Private Banks have been allowed the expand as much as they wanted.
The blame for the wreckless lending (in the form of punishment) has not been placed upon the highly educated and well paid Bank Executives, it has been placed upon the hapless Borrower who is now charged with paying back every penny, whether he was able to pay it or not, whether he was encouraged to lie about how much his/her take home pay was in order to get a bigger loan. The Bamnk Executive has once again been allowed to get away, with a hefty bailout bag of money.
It’s true to say that this is a democracy but it’s tools of Control is Ignorance and Diversion.
January 16th, 2013 at 12:03 am
Professor Steve Keen’s analysis of our current Financial Downturn – he says – is similar to that of the Great Depression.
A mistake that was made in the Great Depression was a focus on Public Debt, while ignoring that level of Private Debt. After a massive drop in Private Debt and GDP, the Government introduced stimulus in the form of increased Public Spending.
Just like now, the 1930s followed a high leverage speculative period in the 1920s, where people were attracted by “get rich quick” Investments – so Asset Prices rose driven by increased levels of debt. When the panic struck, because the increased debt had been focused on Asset Speculation (like Houses today) instead of productive enterprise, fortunes were wiped out as the Assets dropped in price (not value). Government spending eventually caught up to take up the slack.
After a couple of years, unemployment dropped and GDP rose slightly which was falsely misunderstood as the end of the Depression and a return to the Good Times. Thge Focus was back on Government spending and trying to reduce it. This triggered another downturn in Private Sector Debt which caused unemployment to rise again, and was only halted by WWII as there were no longer any arguments for reducing Public Sector Debt as the focus was now on winning the War.
“Professor Steve Keen Briefing.” – in US Congress.
http://www.youtube.com/watch?v=THelXGcKQd0
Please can we avoid the same solution this time around? Tens of millions of people died.
Public Sector Debt is by far less than Private Sector Debt, so we should increase Public Sector Debt now for a while, and then reduce the Deficit later when the Economic Engine is firing on all eight cylinders again when Private Sector Debt is stabilised.
[Other things we have to do too such as Glass-Steagall and re-introducing a Reserve Requirement around the 20% level, plus Loan to Rentable Values on house mortgages].
Oh, and er… QE is not enough by itself, because the money created does NOT go directly into the Economy, it goes into asset and share price inflation. Government funded speculation investments.