Wednesday, September 07, 2011

Are The Banks Bankrupting UK?

The report on Banking is due, and the bankers are trying to do what they do best: Use the back-channel to flout the rules. In a sense, the only timely thing Alistair Darling has done in his entire career seemed to be the publication of his memoir, where he reminded people how fascinatingly arrogant the banking bosses are, and how they effectively demanded a bail-out and held the British government at ransom. They are indeed at it again, and there are various conciliatory signals coming from the Downing Street. 

The key issue is whether the retail banks can be separated from the investment banking operations of these huge banks, whose combined balance sheets are five times the size of UK's GDP, and therefore, they can be stopped from gambling with Jo Public's money. During the last crisis, the bankers took their 'too big to fail' position as granted and did whatever they want to do, and governments across the world, fearing a meltdown of the system, simply handed them over any money they demanded. The banks want to keep this wonderful system in place, so that they can keep playing with other people's money and take home their bonuses, and once whatever hits the fan, the poor Jo loses his pensions.

One would assume that it is political suicide for any government not to push forward with banking reforms as proposed, but bankers know what works: Blackmail. We learn from today's papers that HSBC may relocate to Hong Kong if the government pushes ahead with reforms. Everyone else may follow suit, and some of them may go to Belize perhaps, and the newspapers will cry about the demise of UK banking industry and loss of a few thousand jobs and lost sales in a few outrageously expensive restaurants and stores in Surrey and the City. The politicians would be in the standby to jump in as and when the public mood is sufficiently forgiving, and reverse all the things that they secretly promised to reverse to the banking bosses in the first place. That's how this game has always been played.

Indeed, it is all a game and someone needs to call the bluffs. I am not sure I see the HSBC board members giving up their life in London and going away to Hong Kong. Barclays in Belize would be a great idea, but I am sure Bob Diamond is not yet ready to board a flight. The cozy relationship with newspaper bosses may have worked so far, but as they say, you can't fool all the people all the time. 

So, let's call the bluff: That UK economy will crumble if the banks leave. Just the opposite: The disproportionate size of the banking industry and their willful manipulation of political power and public opinion is actually bankrupting UK. The prosperity of UK was not built by its banks, it was built by various industrialists, academicians, scientists, traders and engineers. People who wanted to create, put in the hard work, take the risks. This is a carefully constructed illusion that banks create wealth: The sole purpose they exist is to turn savings into investment and keep an industrial economy's blood circulation. But, in the UK, banks have grown so large and powerful, that they suck out the economy's lifeblood.

The light touch regulation that the UK government has adapted has turned this country somewhat of a safe heaven of globally 'terrorist' banks, not unlike how Al Queda used Afghanistan and later Pakistan. While this may sounded convenient to few Tories and their fellow travellers, unfortunately the banks bankrupt Britain first. They do so by destroying the public finances, altering public consciousness, starving other industries from public attention and support and finally, undermining an honest day's work that most people still put in. Much like the arrogance the ex-Chancellor noted in his book, the bankers are almost always laughing their way to the bank after stealing poor Jo's house and pension and his son's university education. And, UK ministers, clueless and compliant, is playing a season of 'Yes, Banker': Sacrificing through policy neglect and flawed priorities, the industries which create jobs and 'stuff', which Britain made so well for so long.

I am aware that the working class has lost the battle in Britain, but its losses, paradoxically, have now turned into a complete decline of 'industrial spirit'. I am reading Martin Wiener's English Culture and the Decline of the Industrial Spirit,  and I am certain an update is urgently overdue. It is a complex process of gentrification of Working Class and a handover of political supremacy to a non-working middle class that bankrupts Britain today.

   

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