This is a crisis of, and for bankers, not taxpayers.

RBS chief executive Stephen Hester Source: Getty Images

Dear readers…This is my blog posted on the New Statesman website today, 7 August, 2011 – with one minor correction in the fourth sentence.

“Let’s get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.

EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone  taxpayer largesse.

For more than thirty years of financial de-regulation, western taxpayers have shored up and guaranteed the immense wealth and reckless lending of private bankers and their shareholders. Without their sacrifices, many private, global banks would have been liquidated during the financial crises of the 90s and through 2008. Thanks to public largesse, private bankers, their shareholders and bondholders survived. Some even thrived as weak western politicians failed to demand ‘terms and conditions’ for bailouts.

Now private banks are once again faced by liquidation – because of reckless and costly lending to poor and economically weak Eurozone governments and banks. If their losses are not socialised, they and their shareholders are doomed.

And so bankers are doing what highway robbers have done throughout time: holding a proverbial gun to the heads of Eurozone politicians and central bankers, and demanding they hand over cash.

Politicians should call their bluff.

Two weeks ago, EU leaders promised to set up a 440 billion-euro fund (theEuropean Financial Stability Facility) that would, for example, help finance Greece’s repayments for expensive loans made by UK, French and German banks. But politicians were fuzzy about numbers, because they had to consult EU parliaments. Bankers, facing insolvency, cannot wait for wider consultation.

Bailouts need a bigger bucket” roared the banker’s magazine Barrons. And, it appears, they need it now. The “bucket” is considered “wholly insufficient.” Trillions more Euros are needed to shift the burden of losses from the private to the public sectors.

And just in case holidaying politicians failed to get the point, financial markets swung into action, and last Thursday piled on the blackmail.

That is not of course, how bankers see it, or tell it. On Friday, Stephen Hester, chief executive of RBS, told Radio 4’s Today programme that “this is not a banking crisis.” Instead he argued this is a crisis of “confidence in governments.” Governments, he said, “need to give confidence to markets….that they will play their proper role in providing liquidity [my emphasis]. . . not to banks, but to governments, to enable funding to go normally….” He trailed off at this point, but I assume he had meant to add, “to enable funding to go normally to private bankers“. Yes, those same bankers that had lent recklessly in the first place.

The fact is this: private bankers need a Eurozone bailout. Eurozone taxpayers do not need private bankers. It is possible, desirable even, to break loose from the chains of financial injustice and untie the cords that yoke the taxpayers of Europe to the interests of a financial elite

We know, because it has been done before.

The last time the world threw off the yoke of private wealth was in the 1930s. In September 1931, Britain’s finance sector demanded high interest rates and austerity as the 1929 financial crisis hammered the very people innocent of its causes. At this point Britain, like Greece and Spain today, became defiant. The UK threw off its fetters and left the gold standard – the Euro of a century ago.

Under Keynes’s tutelage, Sterling was revived as a money managed in the interests of the domestic economy by the Bank of England. It was protected from speculation and from the vested interests of the financial elite. After the war Britain embarked on one of the finest programme of public works expenditures known in modern history – and society thrived.

Interrupted by war, and diluted at Bretton Woods in 1947, finance was still restrained as servant, not master to the economy through the age of economic and social advance from 1945-1970.

If the Eurozone were to throw off the ties that subordinate it’s prosperity to a small financial elite, it would feel the full force of the banking sector’s anger through its friends in the media, academia and politics. But very soon, Europeans would come to understand that the alternative was very much better than subjugation to a small, arrogant and morally bankrupt elite.

 

 

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5 comments to This is a crisis of, and for bankers, not Eurozone governments or taxpayers.

  • Or in the words of Yves Smith, “In 2007-9, the major financial players were a danger to the public. The industry resembled a man with 15 pounds of Semtex strapped to his waist. Not surprisingly, people in the vicinity became very attentive to its desires.”

  • Nick Berry

    Dear Ann,

    This is becoming a tragic case of the parasite (global finance) so infecting the host (the ‘body politic’) that the host feels bound to support and protect the very parasite that is sucking the lifeblood out it. Our political leaders seem hopelessy unable to withstand the pressure, presumably because so many of them have spent the last 30 years believing that deregulating global finance was necessary for a successful economy. That ‘belief’ has become a religious faith to some and the continuing bailouts of greedy banksters just confirms my predjudice that their ‘faith’ is stronger than their reason. Or if I’m being cynical, are they simply compromised by the way the banking sector lobbys and funds politcial parties?

  • James

    Wow, Stephen Hester’s declarations are shockingly similar to what the CEOs of the major portuguese banks said not two weeks ago…

  • Ian Stevenson

    I have been reading all the arguments for State created money, wondering if it is a cranky idea because no mainstream politician or newspaper has taken it up.
    I can’t find any real objection to it and assume it is the dead hand of inertia and vested interest that prevents us from a proper debate.
    One of my interests is psychic research and I have observed on both sides those who will believe anything and those who refuse to give credit to good evidence. I see something very similar here. Thomas Kuhn in his famous book “the structure of scientific revolutions” tells that scientists will defend their ideas using the most illogical answers because they have an emotional attachment to a particular idea. Change comes-the new paradigm-when the “old guard” retire or die off. It seems to be the same, or even more so, in economics. Unfortunately, we don’t have the time for the old guard to die off.

  • Ann Pettifor

    Great analogy there Nick…No, I think you are right…and not cynical. They are compromised by banking lobbies…and by the failure of professional economists to advise objectively and fairly. Because they too are compromised…A sorry tale.

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