Let's Free The Banks of England

This country clearly has a problem, which is both domestic and global. There are multiple causes, which have been laid out on this and better blogs many, many times since 2006. We have an unbalanced world in which the dollar and the euro are failing to reflect value, because people who do not produce the dollar are accumulating and using it, and because states in the euro are locked into unrealistic exchange rates.

Money is beginning to replicate the Cuban Peso, having different values in different places, and electronic cash is undermining a system that emerged in the quaint days after world war one. A succession of reforms to global bank and tax regimes have resulted in twenty years of madness to 2008, and might now lead to thirty years of drawn-out collapse.

In addition, an energy and food crisis is competing with a growing population and culture imbalance to threaten everyone.

So it's time again for modest proposals. Here's one. British retail banks talk constantly of their need to make money for their shareholders, and occasionally use their oligopoly capacity to offer free ATMs and clearing as a threat.

So let's remove the government guarantee for deposits from retail banks, and let them offer whatever package they want for customers.

Investment banks want to live in an unregulated world of derivatives and credit default swaps and other such products of highly intelligent minds, and in every case where the law of the jungle is substituted for regulation, they find ways to use the regulations to leech from taxpayers.

So let's separate the investment banks from the retail banks and let them stand or fall by their own hand. Let's enforce separation between them and the banks.

Let's also give the retail banks some competition; let's allow building societies and mutual funds back, on a coral network of local organisations.

Ah, you might say, but what about the social activities of the banks?

Well, we have a Post Office that is a)making no money and b)socially vital. Let's give every citizen a digital account with the post office, into which wages can be paid, and from which bills can be paid; let's let the post office use cash machines free as a condition of their existence, and regardless of other charges; let's give it co-operative status so that the dead hand of the state is replaced by the efficiency of a partnership; and let's let it make loans. In addition, let's have both national insurance and private pension payments made to accounts in the Post Office and not used as assets by business.

With the money saved, let's introduce a flat tax regime, cut the size of government by a third, balance the budget and pay off debt, and remove loopholes for big business, accountants and lawyers whilst making small business easy.

What's that you say? The Post Office plan would be illegal under EU law? Right then, let's have a referendum on our continued membership of the EU. Then let's get on with governing ourselves as a free people and redeveloping our economy towards our new free trade partners in Europe, Asia, and North America.

I love Sundays.


Toni said…
Its a good idea Martin, but unfortunately we all know it will never happen. The banks, which incidentally lost more money in one year than they had made in the previous decade, are the ones that pushed for the end of cash in hand payments. The idea of charging for ATM withdrawals is laughable and an admission that the banks are struggling for revenue growth sources and to be honest in an environment when branches are being closed to reduce costs just taking the piss. I fully agree with withdrawing the state guarantee as the banks have left the country with an unlimited liability. The value in supporting them is questionable anyway because even if business could return to normal I wouldn't expect the banks to be making a meaningful tax contribution for the next ten years.
Separating the retail from the investment banks is a good idea and seems to be a done deal. There are downsides, the retail banks will return to the days of lending at extortionate rates, if you can get a loan at all. My father told me once that when he got his first mortgage he had to have a reference from his employer and a personal reference. Also as lending will be the only real source of income look for miserly deposit rates and expensive loans. I fail to see how the banks will be able to maintain the required arms length from their investment banking subsidiaries. When I worked at a few Japanese banks in the nineties there were a number of ways these rules were bypassed.The investment banks if they return in their old form will live and die on risk, just a question of how big the stakes are. I recall the old UK investment banks like Lazards operating on capital of thirty or forty million pounds in the late eighties, tiny in comparison to the amounts Lehman was using, (not including off balance sheet structures), just a few decades later.
In a way we only have ourselves to blame for this mess, we wanted cheap hundred percent mortgages and easily available credit which the banks thought they could supply by using the magic of leverage and securitisation. The banks are to blame for failing to impose the risk control that was once synonymous with banking but they had to meet shareholders expectations and salary demands that would shame some football teams. RBS is already breaching EU rules by operating competitively as a state owned financial institution but the European governments that are propping up their own decrepit banks are unlikely to make to much of a fuss about it.
Martin Meenagh said…
Yes, I know--the banks, more than anyone else, own our bought-and-paid-for class of second rate politicians and media. It's still worthwhile, even if only to myself, to show that there are alternatives, though (which are not mad).

I despise the way that I have somehow fallen, in the past couple of decades, into a deeply corrupt country where the police don't police properly, government runs on funny money, neither party makes any sense but malice, and where so many have been denied the capacity of critical thought by a rotten education system. It doesn't get me down anymore, and the crisis that is unfolding will probably start to reverse that, but these are not the times in which I would have chosen to be. Then again, who has that privilege?

Investment banks should live or die on risk--and retail banks should behave like mutuals. Perhaps the solution is to have only building societies and credit unions as the first port of call, and to have an expansion and protection of rented housing. You're right about RBS, inter alia--I find myself wondering what the EU could possibly look like if it survives the shock of the coming defaults.

Very best to you, and thank you for the comment.


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