It needs to be cauterised in the interests of Society. Can politicians do it??

The political classes in many countries are facing a terrible problem. They are caught between justified public anger about the finance industries and the lobbying power of the vastly rich banks.
This problem is probably worst in Britain, because governments since the first Thatcher administration have systematically undermined the “real” economy, especially science and technology based industries and pandered to the City of London finance industries. This all started with deregulation of the money markets in 1986. Since then, politicians of all parties have progressively removed any semblance of control over the investment banks. The banks in turn have grown more and more aggressive and venal; speculating rather than investing, swindling their customers, inventing ever more complex ways of gambling ; whilst rejecting any serious regulatory oversight over their antics.

Banks and politicians

Right now, most politicians spend time posturing and blaming each other for the mess for which they all share the blame. We are faced with the spectacle of government ministers expressing their outrage in quite extreme language; whilst proposing pathetically inadequate actions that will change very little. Clearly, they are terrified of the banks. The Labour opposition has not yet indicated what it will do if in government. But it has made a very good case for an enquiry into the problems of banking and reform that would be independent of politicians. The behaviour in parliament and the mess made by a parliamentary committee in quizzing Bob Diamond of Barclays make the strongest possible case for a forensic a-political approach.
It would appear that most politicians are ignorant of what the banking industry is really like. One proposal indicates the staggering naivety of some politicians. Vince Cable, UK Business Secretary proposes that “shareholders” should hold the directors of banks to account. His definition of shareholders, the “ultimate owners” of banks are in the main Institutional Investors, who are part of the financial services industry and themselves responsible for a range of incompetence and mal-practice that rivals investment banks!
Cable's “shareholders” are supposed to be the agents of pension fund members, individual investors and savers, pensioners and the army of people who actually own the money invested through the financial markets. Do this army of ultimate owners have a voice? Right now, emphatically no!

The culture and habits of investment banking

So it is clear that many politicians clearly can't or don't want to understand the scale of the problems. Large parts of the financial services industries lack any sense of moral purpose. The reasons for this are quite understandable. One is that manipulating money to simply make more money lacks the intrinsic value and satisfactions to be gained from such activities as making good cars, running good restaurants, providing good healthcare, or helping pupils to learn. Another lies in the aggressively inward looking nature of the finance industries, which in effect are a massive global tribe who share the same values and are immune to the views or interests of the world outside their boundaries. The culture of investment banking has been frighteningly described in this site by a psychologist with experience in the industry. (See “The sick Personality of the financial markets”).
These two factors alone mean that tinkering around the edges with structures and governance will never reach the roots of the problems. And that is really all that central bankers, politicians and most regulators are currently proposing.
Cable also fails to understand that power in the industry is tightly in the hands of the most aggressive and amoral - and that people who might wish to stand against corruption are summarily dealt with. Power is a corrosive commodity, and the finance industries use it internally to deal with recidivists and externally, to coerce and bribe politicians and the media. This makes finance almost impervious to external criticism and appeals to reason. Extensive externally imposed and co-ordinated action is needed. Because resistance is likely to be ferocious, those responsible for change will need to persist in the long term.

What should be done?

So, accepting the obvious; that the financial services industries represented by the big commercial banks, investment institutions and the like are a deadly poison to the health of the wider economy and society, what can be done to restore them to being useful contributors to the general well-being?

Some short-term measures

Longer term measures

How free market economies got it wrong - and what to do about it
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