I've been musing some more on the consequences of the government guaranteeing deposits with Northern Rock. By implication they have guaranteed deposits with all banks: no other option is now available to them.
In effect they have said that depositing money with a bank is now as safe as depositing it with the government. Gilt yields yesterday were running at about 5.2% on fairly short dated bonds.
I could get 6.7% today with ease on similar money over similar periods from the Halifax (note this is a link that will change over time: it shows this at the time made).
What now justifies the extra 1.5%? There is no risk left.
Now any bank can offer any rate to attract business and do so risk free.
Haven't banks sold enough problems into our society already? Examples are:
- Excess house prices (due to high earnings multiples offered by competing banks)
- Excess debt (due to lax credit controls)
- Long working hours and reduced quality of life (to pay interest, especially for the young)
- Expansion of environmental abuse due to excessive consumerism paid for with debt.
I could go on.
Why are we now letting banks promote their earnings without any matching risk so that they can spend use this income stream to facilitate further lending to abuse society to ever greater extent, and all with government backing?
The ethics of banking changed forever on Monday. It's time to claim money back for the good of society. Because that's where the benefits that arise from the issue of money should belong. That benefit is called seignorage. It's been seized by the banks for too long. Now it's time to give it back to the State for the benefit of us all.
We could even reduce tax as a result.