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Archive for August, 2011

Banks: victims or perpetrators?

On this morning’s Today Programme (Radio 4) there was a spokesperson for one of the UK banks (Stephen Hester of RBS), discussing the current economic turmoil in Europe and the US.

Essentially the message from the contributor was that the banks are just innocent victims in all this! The gist of the claim is that “Our economic problems have been created by Government excesses, and so it is Governments that need to show resolve to address fiscal difficulties in order for the financial crisis to be averted”.

In other words he was stating that the Government and the people created the problem, and so the Government and the people need to pay for it through austerity.

What is most troublesome is that this is the popular narrative being conveyed to the public, and most people seem to be buying it. It is little more than the UK’s equivalent of the US anti-state Tea Party movement, yet the logic is a complete contortion of the facts.

Firstly, this assertion completely evades any consideration of how the banks contributed to high levels of sovereign debt. The Gvts borrowed the money from the banks in the first place! If the banks didn’t think that Gvts would be credit worthy, then why in the world did they lend to them. Only a partially sighted amnesiac could make an honest declaration that there has been absolutely no Irresponsible and Incompetent lending by the banks! See Irresponsible borrowing and irresponsible lending.

Secondly, if you want to understand the source of Gvt income woes then look no further than the offshore banking system where the super wealthy squirrel away their assets out of the reach of scrutiny, regulation, or taxation! Nicholas Shaxson’s “Treasure Islands” demonstrates how an ideologically lax approach to taxation has been implemented by the UK, US and others (and not just in far way Caribbean Islands, but actually within the City of London and Wall St). Profits and income gain are booked in low tax, semi-secretive havens, whilst liabilities sit with us full exposed and law abiding tax paying chumps who are lumbered with underwriting losses through austerity and inflation.

Finally, it shows a complete ignorance of historical facts! Banking crises precede sovereign crises. Not the other way round. This is the conclusion of Reinert & Rogoff in “This time is different” where they study 800 years of financial crises.

Credit liberalisation (born from excessive bank lobbying) leads to asset speculation which leads to excessive banking leverage which then embroils Gvt / sovereign balance sheets.

Does Mr Hester not recall that following a pure “banking” crisis in 2007-2008 the UK Gvt stepped in and has underwritten large private sector losses? Not only that but they have lowered Gvt spending and commenced the debauching of the pound.

In sum, the banks are not the passive victims of financial instability, but the very perpetrators of it! The humble UK tax payer and the enviable public services are the real victims of this crisis.

To be told otherwise is a complete insult to everyone’s intelligence.

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Categories: Finance and money