- Personal Finance»
- Banks, S&L's, Credit Unions
Whats wrong with our banks – how we can fix banks?
The UK is envied the world over for its Financial Banking Industry, a model sector that many try to emulate. To think that all might not be rosy in its garden was once unimaginable. But times now are very different - compared to the past, when Banks were respected and revered. The world of Finance has changed greatly.
In recent times, since the banking troubles began, a number of British banks had to be bailed out by the UK Govt to “save” them, costing the taxpayers hundreds of billions of pounds. Some were allowed to fail. So many pundits have already asked why and how it happened, and it has been debated ad nauseam. Things that threaten human life are mostly designed by nature. Earthquakes, landslides, Tsunamis, and meteor strikes. The financial crash was man made and caused by wild uncontrolled speculation, sub prime lending , and on complicated abstract financial deals called Derivatives and Credit Default Swaps which are traded and exchanged on no open markets, but secret murky grey markets where rules don’t normally apply, regulation is too relaxed or non-existent - and the Banks decide how much gravity need apply (if at all) to this semii-artificial world of speculation. It is as far removed from reality as sci-fi can get, but its set very much in reality. Just as the crash, the lay offs, the closures, the job losses and the evictions and Human Cost have painfully proved.
What needs to change in Banking to get it working again? Is another dip in the World’s financial fortunes about to occur? Are Governments willing to go far enough to make the real changes or will Government as usual take nearly forever to change the systemic problems in Banking? And risk another financial catastrophe happening? Can the World Survive another Financial Hit?
By the second half of 2010, the UK government printed approximately £200 million of brand new money and gave it straight to the Banks. Despite it being supposedly intended for businesses, it was used to speculate on the markets and keep banks earning money.
What is needed to change Banking is All New Rules and New Immutable Boundaries for Banks. Immutable as in – no going beyond them. The Markets are showing signs of a possible dip downwards in Bank Shares again, and some of the money given to Banks has been lost and cannot be recovered. To many – the Banks who gambled against the market and lost are being seen as a bad Bet themselves. Business Banks are running scared. Banking services have taken a serious credibility hit. To most observers, Banking has become a nightmarish World where financial reason and logic have all but vanished.
Private Banking has been busily paying itself handsomely in the good times and since things got bad. They still give themselves High Bonuses, and Banks still get more State Aid from the new UK Coalition Government than any other business or industry. But why? And do they deserve it?
The Top 10 Banks in the UK are gambling with £1.1 Trillion – this is eye-popping quantities of money that they simply do not have. Finance is seen as supposedly the “Goose” that lays the “Golden Eggs”. Banks defend themselves by claiming they are crucial to the Economy. So are they? Well, they gave £193 Billion in taxes in the 6 years to 2008, although Manufacturing and Industry contributed £378 Billion to the economy. So Banks don’t deserve special status surely. In fact their net contribution in taxes in the UK is Negative.
How have Banks helped the Economy itself by lending? Surprisingly Banks only gave British Manufacturing a paltry 3% in Finance. So no eBook readers or iPods or Mp3 Players or Googles were ever born as a result of Benevolent Bankers. No massive life-saving inventions or equipment was ever created with Banking assistance. No Cancer cures or treatments have resulted from the Massive Bank Profits made each year. No utilities – no roads – no hospitals or schools. No water treatment facilities or sewage systems or bridges. The Banks are knee-deep in money, but for WHAT?
It transpires that 75% of Bank finance was shelled out as Mortgages. So Banks were Massively leaning in favour of Property and Housing. In effect, Banks have not given out money for any productive purpose except paying themselves – not the economy. What about employing people? All businesses grow and so employ ever more staff. In 1991 UK Banking employed 1 million people. In 2008, it was amazingly still level at 1 million staff. Banks it seems don’t invest in or support Business or Services, and so they are not an exceptional case when it comes to the Government giving them more than anyone else. Remember that Banks are still largely Not Lending Money. If in bad and difficult times the Banks do not lend to Businesses, this borderline Anti-Capital Behaviour is almost High Street Piracy. So how and why is it continuing?
Many Economists see Business as the Choice Target that should be Protected and Not Banks. At a time when Entrepreneurs and Industry Innovators need Investors to develop ideas and products – the Banks turn away and refuse them business.
The banks are not Helpers of the Large Economy. They build and make nothing, just profits. The Banks are clearly only out for themselves and care nothing for the economy. So they should not be seen as ever being “the Economy”. They hold Government to ransom by threatening to put their business offshore in other countries. The Banks are acting like Fire-fighters who arrive to put the fire out but refuse to turn on the hoses and water taps, and this is wholesale home-grown financial Terrorism in another form.
They are truly playing with Fire. Banks act like flies that live off everything, but in themselves - they buzz around and serve no purpose other than benefit their own existence and propagate their own species. Banks only invest in other Banks. Banks once used to eschew Capitalism and hold it up as the Ultimate Aim of All Developed Societies. Now, banks have ruined the concept of Capitalism, and shat on it from a height.
Just as American Banking tends to coyly rule with an invisible hand in Governance circles – thanks to vested interests – like Goldman Sachs Top employees winning Top Government jobs (Hank Paulsen, Geithner, etc – all former Heads of that self-same one Financial business... Goldman Sachs) – leaving observers to jokingly refer to Government in America as “Government Goldman” – the UK has its own cosy club of Bankers and politicians who band together and dictate policy. Banks not only buy shares in Banks, the UK Government buys shares in Banks too, so become endowed and dependent on them to be successful and profitable. (The UK Government invests in Tobacco Companies and yet also regulates the Cigarette Industry and health Warnings on packets of Cancerous Cigarettes – in true double standard fashion.) We call this being Poacher and Game-Keeper. An obvious contradiction in terms and perhaps an Impossibility. Like banks, the Government wants it both ways. Government officially are required to stay away from Banking and does not compete in their Banking Business.
Bank of Dave, how a businessman started his own bank
"...I never had any desire to be a banker. My company sells minibuses and I have a lot of very good customers who I've known for a long time. Once the credit crunch hit in 2008, these people couldn't get a loan from the banks they had been with for years and therefore couldn't afford to get a new minibus. That threatened to be a very big problem for my business..."
Read here how a business man from Burnley in the Uk set up his own bank from nothing, and how Channel 4 TV filmed his every step, and with surprising results.
And the media play their part too. In the UK they are very accommodating to the main Political Agenda, seldom speaking out against the Stupidity of the Financial positions taken. People who talk out against the “System” are shouted down and branded as Cranks. Secretly Banks tell buyers of Houses and Properties not to disclose their Financial Debts, just as they did during the past years when the money was rolling in. And the World bought it. Right up to the point where it all went wrong.
Apparently it is okay for Banks to invest in Mortgages and Derivatives and Credit Default Swaps, but not invest in Enterprise and Industry, thus retarding the shape the country has been taking, turning the country into a drug dependent slave for their cash, the heroin in the equation. Massive complacency and relaxation of the rules (from the Government) ensured that Banks had God-like near invincibility, until the crash came. And then there is the peculiar case of that embarrassing Bischoff Report and the curious cosy relationship between the City of London Corporation and Banks in Britain. The Bischoff Report looked into Banking to see what changes needed to be made to make it work better, some years ago, and it decided that nothing should change, all before the Crash came. The Report threw standards and precautions out the window. Derivatives were allowed to be traded with virtually no rules or conditions in place. As long as banks paid their taxes, all was well. 2009 saw Bischoff change his tune, but by then the damage was done.
The Report was “helped” by the input of a mix of Banking officials and politicians. The City of London Corporation’s status is almost like the way the Vatican works in Rome, a State within a State in Britain’s capital. This square mile consists of the single Biggest Lobby organisation that constantly works in Favour of the Banks and everything they want. And they usually get it.
The City of London is the Biggest Advocate of Banking UK Plc. Even the Lord Mayor Boris Johnston has a special Diplomatic passport to promote Finance / banking for them. It grew up and matured during the last 800 years in the UK, and this Insider Group represents Banking at all levels. Former Member of Parliament Ruth Kelly now works for the bank HSBC, and there are Bankers from Britain’s biggest banks (such as Lloyds) that now serve in the Regulators Area or the Central Bank. There is In-breeding between these two Entities - Government and Banking. And it raises a grave question.
How can Government truly regulate Banks, when they have far too many positions and relationships of dependency on each other. Can Government truly look after Taxpayers and ordinary citizens while simultaneously looking after their friends and cousins the Banks? Surely Government is playing two sides in this game? Banks and Government are always more closer than most people realise.
What changes have to be made? What will Banking need to do to fix the problems it helped to cause?
A Pre-nuptial Agreement between the Banks and Us. In simple English, a pre-marital contract outlining their obligations and rules of Behaviour prior to any transactions taking place between them and the rest of us. This must be done for our own protection. Banks must be more accountable. What is also needed is for Big Banks to be Broken Up into Smaller Banks. If Smaller Banks fail, the Risk is reduced, and so protects Us all the More. Limit the risk and thus limit the damage. The Bailed out Banks must be broken up into smaller Banks, good and bad ones and the bad ones wound down. A new Not-for-Profit Organisation should be established to gather public money from Banks (it could even be a tax on types of banking practice or product) and used purely for donation to Business and Industry. Business should be the Top of the Societal Finance Tree. It should be structured on Social and Business Needs and not Banking Profits, as these are never used to enhance our lives or futures, (except for bricks and mortar) - merely gambled on the financial risk-heavy roulette that broke the backs of Lehman Brothers and Bear Sterns in the USA. If Banks were forced to invest in Business and Enterprise – they would take greater care in never gambling against it, for fear of losing that money.
The Banks up to now have been behaving like Fire-fighters who arrive to put the fire out but refuse to turn on the water taps, and this is wholesale home-grown financial Terrorism in another form. It’s time to wake up to reality. Banks must lend to Enterprises and Businesses. By lending to Enterprise, the businesses can grow – get more customers and create more jobs. And that rising tide will raise all boats, even the leaky ones. This will have an instant positive effect on the economy. Where there is a will, there is a way.
Why are Governments not Hammering the Banks over this? Banks have a clear run when it comes to dominating their own industry. They have no competition, and are un-concerned by rules or regulations. Credit Unions in the UK are hindered from getting into many of the cosy elite growth areas that are exclusive to Banks. Governments also invest in Banks. (Remember the Tobacco analogy earlier.)
So put in tighter regulations.
Especially bank rules of an "Icelandic" nature.
Give Banks competition.
Government should provide suitable “Threats” of a Financial Nature for errant behaviour in Banking. Sub Prime lending should be tightly regulated or just outlawed. More Penalties against Bad Banking Practice should be Imposed. The Definition of Bad Practice and Criminality should be laid out in Criminal and Financial statutes. Banks are not required to invest compulsorily in Business and Venture Capital. Or Funds that promote New Business Start-Ups. That too needs to change. Banks must learn to share.
The Sale and Control of Derivatives must be totally overhauled. It must be traded in a public and open Regulated Market, not a vast grey market as currently exists. And equally, the dodgy system of "shorting", though somewhat outside the scope of banking - should be more tightly monitored - or simply stopped.
And Government and Banks need to keep a healthy distance from each other. An independent body should regulate the clear space between them, a “Firewall” in effect. So practices in Politics also needs to change and become more Authority Driven. The system needs tweaking and fine-tuning. Laws should allow businesses and individuals to take legal action against Banks that breach rules of agreement and Pre-nuptial arrangements set by both sides in any banking transaction. Banking should be treated like any other Business.
No one in the UK ever went to prison for the Financial Destruction and Damage caused in the past few years. This is despite the huge Multi-billion Pound losses encountered by everyone, and the massive unemployment. Banks should be made to pay for much of the welfare cost of the Jobless. Criminal Laws must be updated and made stronger. No one should be above the Law. Regulators need to have powers to deal aggressively with Miscreants in Banking. Eliminate the ability of Miscreants to flourish in this industry, and it will function better.
Business people and ordinary people are putting their lives and their homes on the line to survive. It is time for the Government and Banks to reciprocate in kind.
Finance and Banking is a very complex area, and beyond the understanding of many people. There is much more to this picture than this one hub can deal with. This Hub has been simplified to make certain ideas easier to understand. Given the recent Libor Interest rate rigging scandal that yet again showed UK banks in a poor light, serious actions need to be taken to stop the systemic breaking of rules. There is no point in laying down the law and putting in rules if they are just going to be ignored. The world and its markets are not deaf dumb and blind to these things.
If Banking does not embrace Change, then we are doomed to repeat the mistakes of the past. The choices are there, and it’s time for the Leaders to take action.
Text (c) Copyright 2010, 2011, 2012, 2013 Cassy Mantis.
Small extract from Guardian newspaper (inset) is copyright of Guardian Newspaper, with link provided.
Join HUB PAGES here. It's free!
Take the Tour, and Join the fastest growing community of Writers on the Web.