Banking:the nightmare continues

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As the Guardian puts it today:

[One] way of looking at this week's bank results would be that they show up precisely the problems with the government bailout. Barclays Capital is an investment bank inside a giant financial institution that enjoys implicit and explicit taxpayer support — in the form of loans, guarantees and all the rest. If ever there was an argument for splitting casino banking away from the essential financial services such as holding deposits, it was presented this week. Yet Alistair Darling and Gordon Brown refuse to contemplate such a policy. Both BarCap and Lloyds enjoy near-monopolies in their respective fields — yet the government has yet to call for megabanks to be broken up, and for greater competition to be encouraged. Stability in the banking system is a miracle, given the tumult of the past few months. But it is nowhere near enough.


Last September I was panicked enough by what I knew of the state of our banks to lay in food supplies — quite reasonably believing that the break down of cash payment systems was on the cards and social disruption was likely to follow. I blogged the issue at the time. I said this:

I admit I’m worried, very worried. I rarely lose sleep. I didn’t last night. But I woke up early. This is what I’d be doing right now:

1) Printing vast amounts of money. We really might need it. Runs on banks get worse when there is no cash to make settlement.

2) Holding talks on creation of a government of national unity. We might need it. If the banking system fails we’ll have a crisis as bad as a serious war.

3) Planning to suspend stock and secondary markets. They will not help in the current scenario.

4) Preparing emergency powers to control food, water and power supplies. If non-payment becomes an issue these could fail very fast.

5) Preparing to mobilise reserves to maintain law and order. When people are hungry or frightened they act irrationally.

6) Seeking combined German / French / UK and maybe Italian cooperation to bail out banks in places like Belgium, Denmark and maybe the Netherlands where they could not do it themselves. The EU is going to have to act, and if it can’t, it’s leading members will need to do so instead.

7) Preparing to suspend the claim of all offshore companies on banks, even if intra-group. The liabilities of these banks are in mainstream countries. The assets are offshore. Their claim on our states can be broken in this way.

I could probably add to the list after breakfast. That will do for starters.

Of course, none of this may be needed.

But it would be wholly irresponsible to ignore the possibility.

We won’t know if it is happening. I hope it is. I think it that serious.

We know that days after I wrote that the government was indeed prepared to suspect markets and all bank operations for as long as it took to stabilise the banks: my warnings were appropriate. The risks were as big as I had guessed.

And now just 10 months later it’s as if nothing had happened.


And we still need to fix it. We haven’t because what no one has ever delivered is something else I wrote about shortly afterwards — a strategy for our nationalised banks. We are crying out for one. But no one is delivering. That is some indication of the poverty of thinking in Whitehall, the City and our academia that live, seemingly universally it seems, in a hypnotic state of belief that the markets will deliver.

We know they won’t.

Now let’s face the fact that these banks are not operating in a market: they’re free-riding the state, and plan accordingly.

Let’s split them up, and keep as much capital as is necessary in the true banking system and starve the wide boys of investment banking of cash.

Let’s charge a tax premium for the fact that we provide the banks with an implicit guarantee.

Let’s regulate.

Let’s appoint those who have the capacity to think, manage and direct to their boards.

Let’s stop their access to offshore.

Let’s limit their ability to distort the economy by paying high bonuses by denying tax relief for all salaries over £200,000 and imposing progressive employer’s national insurance charges thereafter until bonuses simply don’t pay.

Let’s celebrate when some bankers leave the UK as a result — as the recession has proven — they are a liability, not an asset.

Let’s do this now.