Orpington Labour Party

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Business as Usual

Has the MPs expenses scandal let the bankers of the hook?


In the run up to his Mansion House speech back on 17 June, Alastair Darling was being congratulated by the Tory press for his "sensible proposals" on banking reform. Once we heard him speak the reasons why became clear. He reassured the collected bankers that they "remain an immense asset to our country" and that he is "determined to work with the sector to maintain the UK’s position as the world centre for financial services."

Also, in the run up to the treasury green paper on banking reform spin-doctors were out in force to convince us that banking regulation was not to blame for the financial crisis and that no fundamental changes are required in the financial system. All we really need are a few better people in the regulators and on the boards of banks, some tightening up of corporate governance and better ways to handle bank failures.

Does this make as little sense to you as it does to me?

What I have seen over the last year is a financial system driven to the brink of collapse by reckless greed. This crisis was not a short-term blip in an otherwise healthy system, but the inevitable outcome of the free market fundamentalism unleashed by Thatcher and Reagan and continued by most G20 governments ever since — including New Labour. This is not a time to tinker with the "regulatory framework" but to address the basic questions of what our financial system is for and what it can and can’t do.

Here is a first step.

Separate Retail and Investment Banks

We all need banks. We need somewhere to keep our pay and savings. We may need to borrow the money to buy a house or a new car. And businesses need the same.

Above all, we want to know that our money is safe. Unlike investments, the value of our savings should not ‘go up or down’. So ‘retail’ or ‘commercial’ banks need to be strongly regulated — both in their internal finances and their products and services.

They must also be completely separate from ‘investment’ banks so that failures in speculative investments cannot damage retail bank customers like you and me.

The carrot to go with this regulatory stick is that the government will guarantee deposits in retail banks, but not in speculative investment banks. The banks cannot have it both ways. As Vince Cable has said, they must not be able to "privatise their profits and nationalise their losses."

If a banker tries to convince you of the stupidity of this idea, remind them that the Glass-Steagall Act passed in the US after the great depression enforced this separation in law. The repeal of those laws, partly in 1980 and completely in 1999, paved the way for the mess we are in now.

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