The Bank of England admits Occupy’s financial critique is right: Are the bankers waking up or just trying to give that impression?
The IMF and Bank of England have stated words that suggest a turning point from business as usual; however actions speak louder than words, particularly when the financial industry’s actions contradicted these words.
Apparently a senior executive in The Bank of England has figured out that Occupy’s message is correct. Yesterday Andrew Haldane conceded that Occupy is right: he agrees that the current system is flawed and causing massive inequalities. He also said these inequalities added to the crisis. Even the IMF has confessed austerity is not working. This is despite being one of the policy’s original architects. They have reported this month how it is making the economic situation worse and unfairly damaging those who had no role in creating the deficit, whilst also creating further economic depression.
However, despite these insiders’ criticisms towards the financial system they run and their planned mild tinkering, including the Bank Reform Bill, looks unlikely to sort the mess out? This means statements like this may be more of a smoke screen to dress up faint reforms, which will allow the banks to return to business as normal.
Mr Haldane, from the Bank of London’s financial policy committee, spoke at one of the Putney Debate events organised by Occupy in London’s Economics working group. He said, “Occupy’s voice has been both loud and persuasive and policymakers have listened and are acting… In fact, I want to argue that we are in the early stages of a reformation of finance, a reformation which Occupy has helped stir.” He continued, “It is the analytical, every bit as much as the moral, ground that Occupy has taken. For the hard-headed facts suggest that, at the heart of the global financial crisis, were — and are — problems of deep and rising inequality.”[i]
Similarly, the head of the IMF Christine Lagarde, suggested earlier in October that austerity measures are not working and worsening the economic situation.[ii]
So Mr Haldane has said the policy makers are “listening”. If they are listening, they should have heard the key points agreed of the Occupy London initial statement on Economics, which was agreed by consensus at the camp near the London Stock Exchange on the 6th December 2011. It called for:
1. Banks and financial institutions need to be accountable to society
2. Current austerity measures are making a bad situation worse
3. The current economic system is unsustainable
4. Tackle systemic economic inequality
5. Clamp down on tax avoidance
6. Independent and effective regulation[iii]
Since this statement was agreed, there are numerous examples of how the policymakers, corporations and banks have continued with business as normal and, “are making a bad situation worse.”
Some of this business as normal includes; corporate banks still have the power to create money[iv]; banks are involved in institutional fraud, such as the Libor and the mis-selling scandals[v]; banks that have been bailed out and are losing money, are still paying their bankers massive bonuses[vi]; and furthermore the ongoing revelations about corporate tax evasion, most recently including Starbucks: in total tax evasion in tax havens costs the taxpayer a reported £16 billion a year.[vii]
Reforms are planned in the banking sector. So will this control the bankers from wrecking the economy anymore?
Unfortunately, although this Bank Reform Bill is only in the draft stage, it does not seem promising. The White Paper has been criticised as it leaves vague gaps and loopholes. It also has a large potential for further watering down due to lobbying pressure from the banks. These are not good signs: the banking industry has a long track record of bending and breaking rules, and spends a great deal on money lobbying through groups, such as the British Bankers Association.
The White Paper suggests that banks only have to keep hold of a small proportion of the capital deposited by savers: as low as 3%. This is very low, and raises the chance that they run out of money and expect future taxpayer bailouts. The Paper also calls for ring fencing. This means that banks will have to split up their operations. This is dividing and separating the casino style speculation and derivative investments from the banking it provides to real businesses and real people. There is also the strong possibility that loopholes will be included, which will enable the banks can bend the rules on how tight this ring fencing will be. Mr Haldane is not too excited about this idea either. He has said previously, “Today’s loophole can become tomorrow’s bolt-hole, today’s ring fence tomorrow’s string vest.” A sentiment echoed by Thomas Hoenig, a director of the US Federal Deposit Insurance Corporation, when he claimed, “Ring fences are just too porous.”[viii]
This is why many economists are suggesting banks need to choose, either being casino style investment banks or what most people would consider banking should be about, being a safe place to keep money. The idea was pushed forward by economists to be included within the Bill; however it was rejected even though it would protect real people and real business’s savings, as their banks would be less likely to crash. It would also protect the public, so if investors lost lots of money they would not be bailed out by the public at large.
More broadly, there are also concerns that the government and new Financial Conduct Authority will have the power to water down the legislation as it moves through Parliament. Even more telling about the weakness of this new bill is the British Bankers Association’s comment. They have said that they “support” this bill that they “contributed” to writing.[ix] This is the same group that have been lobbying to reduce regulation on the industry, were recently stripped of responsibility for the Libor rate and represented the banks over the insurance mis-selling scandal.
Overall, these systemic economic issues – the bailout and the austerity measures and recession it is causing – are vastly increasing the gap between the elites and the majority of people. Professor Dorling from Sheffield University, reported to The Royal Statistical Society how the richest one per cent of people in the UK take home fifteen per cent of all income, compared to 6% in 1979. He explained that there has not been this large a gap in incomes since 1940.[x]
The banking bailout vastly increased the deficit, which in turn legitimises austerity and is increasing this economic equality. This is having a devastating effect on Britain. The bank bailout cost £850 billion pounds, which amounts for the vast proportion of the 2011 deficit figure of £883 billion.[xi] The IMF has predicted that the UK economy will shrink by 0.4 per cent if it continues with the savage cuts it is planning to make to the public sector. This is downgrading its original outlook that the economy will grow by 0.2 per cent within the next year.[xii]
Despite all the evidence of the damage to the economy, the British Government is continuing with austerity measures. This will devastate public services, is being used to legitimise the privatisation of the NHS, reduce the amount of employment, increase the divide between the elites and the people and is wrecking the economy.
The government’s inability to make drastic changes to banking, whilst pushing through austerity shows their complicity and support for with the elites within the banking sector. These bankers got us into this mess, and the government seems keen to blame anyone else for causing it. This is why from a personal perspective, words from bankers or policy makers to make banking more fair or ethical seem hollow. This is unless these words are backed with the substance of massive systemic change.
[i] James Kirkup, Occupy protesters were right, says Bank of England official, The Telegraph, 30th October 2012, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9641806/Occupy-protesters-were-right-says-Bank-of-England-official.html
[ii] Heather Stewart, George Osborne’s austerity is costing UK an extra £76bn, says IMF, The Guardian, 13th October 2012 http://www.guardian.co.uk/business/2012/oct/13/imf-george-osborne-austerity-76bn?newsfeed=true
[iii] Economics statement, Occupy London General Assembly, agreed by consensus @ St Pauls: 6th December 2011 http://occupylondon.org.uk/about/statements/statement-on-economy
[iv] The central banks create hard currency; however, due to no regulation corporate banks can create money, this process is explained clearly by the film 97% Owned.
[v] The Libor Scandal is a massive institutional fraud of bankers fixing the interest rates at which bank leant to each other. This then greatly increased the fraudulent bankers’ individual bonuses. Although this has been uncovered, no bankers have been sent to jail for this practice, although if it happens again the FSA has threatened to.
[vii] Editorial, Bank secrecy masks a world of crime and destruction, The Guardian, 22nd July 2012 http://www.guardian.co.uk/commentisfree/2012/jul/22/editorial-hsbc-tax-havens-avoidance
[viii] Brooke Masters and Patrick Jenkins Top regulators say bank reforms fall short The Financial Times, 26 October 2012 http://www.ft.com/cms/s/0/9b7cbe86-1f72-11e2-b273-00144feabdc0.html#axzz2Am9cftI0
Simon Bowers, Banking reform bill ‘fails to spell out high-risk activities’ The Guardian, 12th October 2012 http://www.guardian.co.uk/business/2012/oct/12/banking-reform-bill-high-risk
[ix] Briefing from the BBA – Financial Services Bill – Second Reading – House of Lords, BBA website
[x] Data Blog, Inequality ‘worst since second world war’ The Guardian, 27 June 2012, http://www.guardian.co.uk/news/datablog/2012/jun/27/century-income-inequality-statistics-uk
[xi]Andrew Grice, £850bn: official cost of the bank bailout (and still RBS is demanding another £1.5bn in bonuses) The Independent, 04 December 2009 http://www.independent.co.uk/news/uk/politics/163850bn-official-cost-of-the-bank-bailout-1833830.html
Editorial, Boost for Osborne as Government borrowing falls by £1bn in September, Daily Mail, 21 October 2011 http://www.dailymail.co.uk/news/article-2051812/Boost-Osborne-Government-borrowing-falls-1bn-September.html
[xii] Steve Rushton, Global Noise: a wake-up call for the world to reject austerity, Public Service Europe 12th October 2012 http://www.publicserviceeurope.com/article/2584/global-noise-a-wake-up-call-for-the-world-to-reject-austerity