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Many people are blaming the banks and the FSA for the current issues, however, one needs to take a step back and ask a few questions:
1) How did Britain become so focused on the financial sector (after all, it could have expanded in other services when the industrial sector was in decline)?
2) Who established the new rules of globalised finance which have allowed financial institutions to become so powerful and do so much harm?
3) Who devised the laws under which banks operate?
Setting up institutions in which most people have financial gain as their first value and incentive (I can certify this is the case of many people in banks) and thinking they won't take advantage of situations when they can is at best naive. I would argue that our political elites have been the main drivers of the negative evolution of the economy in the past decades.
The recent publication in France of the fortune and revenue of the different members of parliament was quite revealing. Barely any of them would be considered middle-class, most having quite high revenues and/or fortunes. Can we really believe these elected people still represent the average citizen, as they should in a democracy?
I left the financial sector five years ago, as I couldn't bare being associated with bankers anymore, yet, as time as passed, I have come to realise that the banks are only an instrument of a small elite working the entire globalised economy to their advantage. If we really wanted to reform the banking sector, we could quite easily by applying a few rules such as the following:
1) Ensure investment banks and savings banks are split into distinct legal entities which can't financially support each other (avoid the "too big to fail" issue)
2) Establish new rules whereby bankers are only paid management fees and other commissions when they create profit for their clients (avoids banks betting on financial instruments against their clients)
3) Allow future pensioners to vote on the way money invested into private pensions is invested (this is part of the largest flow of capital these days and there's no democratic control over it)
4) Force the banking sector to invest in a productive and non-speculative manner by:
a) Only allowing use of financial instruments such as futures to work as risk management instruments (e.g. for an airline client to use futures to compensate a future raise in fuel costs) - banks and their clients would not be able to use derivatives for speculative purposes.
b) Force banks (for their nostro accounts) and their clients to hold on to financial instruments for a minimum period of time, thereby eliminating the recent industry of micro-second buy & sell operations which don't generate any economic added-value, except for the banks using these for speculative purposes.
5) Make banks legally obliged to lend a certain amount of their balance sheet to small and medium-sized businesses. These are the companies that have the highest need for lending and create most employment within our countries.
Beyond these issues related to the financial sector, there are many more macro issues related to globalisation that need to be questioned, such as the following:
Is competitive advantage the only criteria by which the global economy should be established? If we can produce an iPhone cheaper in China than in one of the low cost EU countries, is it really always better to do so? We may create more economic value globally this way, however, having a country which has little concern for externalities such as environmental degradation and appalling labour conditions produce our goods is highly questionable.
Many scholars are now providing a critical review of the evolution of our economies, which are the outcome of the policies Mr Reagan and Mrs Thatcher initiated in the 80's. I have yet to read any convincing way of reforming the system in a positive way - that is positive for the 99% and without having to go through a bloody revolution...
Would love to read if anyone has any ideas about transforming the current power structures in a positive way.
The fundamental economic problem for the UK is the move away from manufacturing to financial services. This industry essentially repackages and recycles financial instruments whilst adding no real value to goods or services, only cost they are therefore is unsustainable. Adam Smith must be turning in his grave. He would consider the trend by corporations to outsource and move manufacturing to other nations for short term profit (and bonuses) as essentially treasonous.
We've heard the mantras of "shareholder value" and short term quarterly results from all sectors of industry since the late 1980's. These "shareholders" are the financial institutions not individuals and so we have developed and incestuous relationships between banks, the stock market, industry and to some extent government.
We are being continually told that the massive benefit packages accorded these employees are necessary to attract the “right kind of people” which is clearly nonsense given the financial mess they have knowingly created. Since they have not changed the players and given recent additional scandals it is hard to trust the banks with anything let alone a nation’s economic recovery.
But then can you trust a government, where it appears to be common practice to raid the public purse for questionable expenses and arbitrarily award themselves massive pay increases to be looking after the public interest. Corruption runs deep in Britain, it is just better packaged than in some developing countries.