Friday, August 14, 2015

After The Next Crash-What To Do With the Banks?

Very clear from the outset, I am a conservative by nature and by politics and a firm believer in the free-enterprise system. To any sensible person there is no alternative as history has clearly shown that the alternative systems of state control end badly, usually in the death of millions.

What is also obvious is that all economic systems,whether they are wrong or right, get distorted when they move beyond mathematics and the natural process of return to equilibrium. The distorting factor is of course human nature.

The banking system is rife with fraud and gross manipulation-that is incontestable. To list all the banks that have faced massive fines (but hardly any of the perpetrators going to jail) would make this article far to long-just one example, the "Libor" rigging which was a fraud involving trillions will suffice.

As is the usual case with that scandal a further regulatory system was put in place which will, possibly, close that door but only a fool would imagine for a moment that other banking rip-off schemes will be hatched, or more probably are currently going on.

A point may be raised that since there is a government guarantee on bank deposits to a more than reasonable amount, then this ongoing corruption is not a worry for the average person and the system is what it it is. It works reasonably well and there's nothing that can be done about it. That is of course an incorrect assumption;

"Because Libor is used in US derivatives markets, an attempt to manipulate Libor is an attempt to manipulate US derivatives markets, and thus a violation of American law. Since mortgages, student loansfinancial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.

But beyond the direct affect on the individual there is the question of morality. Is it right to have an economic system where the major underpinning, the banking system, is so rife with fraud and immoral behavior? What message does it send to ordinary workers when the supposed 'brightest and the best" are shown to be immoral, venial and uncaring for anyone but themselves?

Sadly, except for eternal vigilance and a continuous patching of band aids over the festering wound of corruption nothing, similarly as with the 'War on Drugs" can be done as things stand. Only radical approaches can deal with either and can't/won't happen unless some cataclysmic force or event eventuates to open the door to amelioration.

This happened before and the steps taken were a major advance which could only have come about after some dramatic event. In 1933 at the height of the depression,  and with a run on the banks, President Roosevelt's administration saw substantial reforms which underpin the current system today. 

It is hardly beyond the bounds of possibility that the current American economy, "standing" on trillions of dollars in printed money and a stratospheric national debt might, at any point, undergo another and even more catastrophic collapse.

In the event of a major 1929 type disaster, what might be the economic and moral action as regards the banking system that might benefit the entire nation (except the fraudsters)? At that point what possible reason could there be to resurrect an inherently fraudulent, morally corrupting banking system which is impossible to control?

The alternative could be to scrap the private banking system altogether under such circumstances and re-institute the failed banks and their branches under a truly independent commission which could include representatives of as many aspects of American society e.g Unions, business people, academics, politicians, clergy and etc. 

The element in banking which seems to cause the most mischief, the demand on employees to constantly ramp up the banks profits to ensure large bonuses, would be removed as would be the grossly immoral salaries the senior bankers enjoy.

The creation of money for profit, for that is what banks do, would see the profits returned to the public who make it possible. This through either lower banking fees or payments to the federal government to reduce the national debt or to be used for more schools, infrastructure, and anything that will benefit the greatest number rather than a tiny minority.

The free enterprise system would emerge unscathed from such a change as of course banks don't produce anything in themselves, rather they enhance the flow of funds to those who do create real wealth. Why the banks should make such massive profits and corrupt the values of the country whilst doing their job is a question that needs attending to, but won't be until it is too late as the political will is not there.

There is nothing more certain, as history shows us, that the economic system is cyclical and in due course a major correction will come to the disequilibrium that is currently the situation. 

If it is of a dramatic nature it may be a blessing in disguise as it could provide the political will, overriding the deeply entrenched interests of the financial community, to permanently fix this blot on the moral landscape.