Banking Regulation

It is still a commonly held opinion that the current economic crisis was brought on by over-spending during the last Labour government. However, the facts say the deficit spending by the last Labour government was much lower as a percentage of GDP than it had been under previous, Conservative governments.
One could argue, in fact, that public spending under Labour was too low rather than too high, that not enough was done, for example, to develop public infrastructure, and that, consequently, productivity was allowed to languish in world terms. By this reasoning public spending assists returns on private investment rather than crowding them out. However, being very staunchly conservative, Blair and Brown took the view that they would indeed ‘fix the roof while the sun was shining’ and curtail public spending during the boom years. Consequently the national debt fell year on year to historically low levels up until the onset of the banking crisis.
The crisis was brought on by the lack of regulation in the banking sector, and by a growing culture of reliance on the profit motive and personal greed to fuel economic development! These twin mantras were used to justify almost anything! They would provide the ‘trickle down’ benefits for the people. They would raise efficiency. They would raise tax revenues to finance better services in the future. They would provide the technological solutions to solve the world’s environmental problems, and so on and so forth.
According to this ideology inequality is good, because it raises the incentive to work and to become rich. This ideology urges everyone to overcome the politics of envy. The sophisticated new belief system is that greed is good for everyone and allowing a few individuals to become extremely rich in almost any way they see fit is good for everyone else too. It might be good to let the super-rich not pay taxes because then everyone will want to come to our country to similarly enrich themselves, and this will bring in investment. At the same time our work force will prove itself to be hard-working and productive with so many strong incentives to get rich. 
Regulations were deemed to be intrinsically bad because they choked off private initiative. The myth was that this all amounted to a mantra of low welfare payments. What in fact it meant in practice was big subsidies to the rich, in order to incentivise them, (and because they had the lobbying ear of government) and a stripping away of welfare payments and public spending programmes designed to help the relatively less well off members of society, those who had a less powerful voice in government.
This was the new politics of New Labour. It was pretty much as right-wing ideologically as the Tories, and was supported by almost the same people. The big advantage of New Labour was that the party could more easily sell the message of neoliberal economics to traditional Labour voters. Under New Labour the traditional institutions of political and economic power of working people could be more easily dismantled. 
We were told that the new, more sophisticated way of solving social problems was to privatise everything. This would make business less wasteful, more efficient and more effective at meeting public needs and all this would, therefore,  be universally beneficial. Trade Unions simply got in the way of market forces. Privatisation gave cash cows to private investors, but that was deemed not to matter so much in the long run because everyone ultimately would benefit. 
Except it didn’t work out that way. The lack of regulation and the boom in private debt led to the banking crisis of 2007/8. Since then we have had almost a decade of poor growth. Real wages are barely back to their pre-crisis level, though the super rich have continued to prosper whether in boom or bust from this neoliberal ideology.
Banks had taken on risky debts in order to raise their private profits. Suddenly, when confidence wobbled due to incidents here and in the US, the UK economy shrank sharply and this dramatically increased the size of the public debt as a percentage of total output. It was the general public not the UK government which had overspent, egged on by the banks, borrowing on the presumption that rising incomes would go on forever.
The banks had cashed in on economic optimism with impunity, lending money hand over fist, to those with little or no equity, to those without secure jobs, even to youngsters still at school taking on multiple credit cards. When private incomes fell, individuals had to cut back spending to repay debts, and they found themselves with negative equity in their homes, having taken out mortgages to finance spending of 100% or more.
The cut back in spending depressed economic demand throughout the economy. Businesses had to cut back too. Conditions of consumer demand looked increasingly weak, and so investment in the local economy was no longer looking like such a good prospect. Private investors began to store up liquid assets worldwide, investing in fixed assets, such as property, and in financial assets, rather than in business, waiting for an economic upturn, making money from asset stripping, encouraging managers to reduce costs by laying off workers.
This is what led to the current crisis, not the profligate spending of the last Labour government. With this decline in activity public revenue sources diminished.  The government had to bail out banks in order to be sure that credit did not dry up completely, and to avoid a run on the on the banks. However, only the most damaging immediate effects of the crisis were mitigated. The bail-out handed over even more profits to the banking sector, without imposing proper regulation. There was very little personal liability imposed on, or accepted by, individual bankers. The same bankers are still in business or they have moved sideways to become the new regulators. 
So we are on the path to another consumer spending and house price inflation bubble, both of which make another dip in the recovery more rather than less likely. What is needed is a worldwide rejection of austerity and a return to growth, but not one inflated by excessive private debt levels and property speculation. Instead the British government has relied almost entirely on a strategy of attracting more and more capital from overseas. Lax banking and taxation regimes make an economy attractive to speculative capital investors. The strategy is to curry favour with international capital, with as few qualms or concerns as possible. 
Everywhere there is pressure to under-tax the wealthy and to look the other way when it comes to fraud, theft and criminality. We should be fighting hard to stop this beggar-my-neighbour behaviour, instead we cheerfully ignore it, hoping we will be the ones who win out in the race to the bottom: the race to aggressive tax avoidance, to environmental pollution, to increasingly poor conditions for workers, to covering up criminality. 
HSBC profits are up 1% this year, and the number of staff payed more than  a million euros is up from from 320 to 453. At the same time, the regulatory performance of the bank looks poor. Jill Treaner, city editor of The Guardian reports that “there has been a slow pace of change to its procedures to combat crime”. She feels that there is a risk of a repeat of the money-laundering scandal of four years ago, when the bank was fined £1.2 billion for allowing Mexican drugs lords to launder money through HSBC accounts.  
It may seem positive to note that HSBC is being monitored and that its poor performance has been noted. However, the report is in the public domain largely due to pressure on HSBC from the US, in anticipation of yet more fines if there is continued lack of compliance with US directives. We should all be concerned that, despite the fines and the bad publicity, the banking sector is continuing to act with dangerous and despotic impunity. In fact, one could argue that any bank is forced to do so in order to compete with the others. This is the  form that modern competition takes, and as long as the government continues to bow to the will of wealthy lobbyists there is little reason to expect any fundamental change any time soon. 

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