Rachel Reeves wants to re-create the 2008 Financial Crash
Rachel Reeves has a plan for changes to banking regulation. It runs, more or less, as follows:
1) Remove the regulations placed on banks after the 2008 Financial Crash so they didn’t take the risky actions that led to that disaster.
2) Encourage the banks to take the actions that led to the 2008 Financial Crash, in the name of “growing the economy”.
3) Let the “benefits” of the banks taking increasingly risky gambles with other peoples’ money “trickle down” to the rest of us in the way it absolutely didn’t during the 2008 Financial Crash.
4) Presumable, when the next crash happens, bail the banks out again like they were after the 2008 Financial Crash and let the rest of us suffer the inevitable Austerity on top of that which has been crushing our economy and society for almost 20 years now.
Can anyone else see the problem with this plan that she might have missed?
One of the most concerning aspects of this plan is that proposal to remove the firewall between retail banking - the high street branches you used to have, plus your savings and mortgages - and investment banking - the folk featured in the 2010 book and 2015 film The Big Short. Removing this firewall means that when, not if, the investment bankers gamble away all of someone else’s money again, then their collapse will threaten to bring down the retail side too and that will ensure that the bailouts flow. It wasn’t the threat of investment bankers going bankrupt that caused Alastair Darling to panic but the threat that the ATMs might be hours away from shutting down. In effect, the investment bankers are holding your life hostage so that they can keep gambling.
The UK Economy is one of the most centralised in the world, in part because of the lobbying of the London banking set and their demand that they be the only part of the economy that is allowed to grow and that they be the only ones to not pay the price when it doesn’t.
It doesn’t need to be this way. Banking and financial services should serve people first and be led by them. Our work on sustainable banking has been extensive. Retail banking should be community delivered and mutually owned by its retail customers to ensure that the services are always there because you need them, not taken away because some shareholder lost money gambling or decided they can strip your community for their own profit. Our “bank in a box” model is based on the same model successfully used in several countries now and the model currently supported by the Welsh Government for the community bank network currently being developed under the name “Banc Cambria”.
The investment side of financial services are important too but must be tightly regulated and, just as importantly, those regulations must be ruthlessly enforced. Investment shouldn’t be based on boosting bank profits as quickly as possible - this is what leads to gambling on fast assets like the stock market or the extractive venture capital model of burning real assets to the ground to extract money from them or even the model of maximising foreign direct investment to ensure the profits leave Scotland at a rate higher than almost any other country in the world. Patient finance should be measured by how sustainable the investment is over years and decades. This was the model we championed for the Scottish National Investment Bank which, while it hasn’t yet achieved that goal, at least shows what can be done instead if governments start to think a little differently.
Contrary to popular belief, Einstein didn’t say that “the definition of insanity is doing the same thing over and over again and expecting different results.” but he was recorded as saying that "we cannot solve our problems with the same thinking we used when we created them."
This is a lesson that apparently the UK Government has yet to learn.