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End reverse socialism for the banks

As has often been said: the banks have a policy: privatise their gains, socialise their losses. However we should have a different policy: make the banks pay for what they have done and restructure them so that they can never do it again. Fat chance of course that anything like this will ever happen under this Government when, as we now know, the Tory Party gets half its funding from bankers.

But the policy of ending this reverse Socialism which favours the banks more than any other sectional interest in the country must be right. It’s just possible that the Vickers Commission which reports on the 29th of this month may recommend splitting banks’ investment arm from their retail arm. But even if they do (which I doubt), there are several other steps we should take to bring the banks under control. Here are just a few.

The deposit-taking licences for banks should be auctioned at regular intervals, perhaps every 5 years, subject to a floor price and with a levy on the volume of deposits taken. Lord Adair Turner, ex-head of the FSA, famously said recently that much City banking activity was socially useless. Such banks should not have their licence renewed to take deposits. But the big gain would be that all banks would be subject to searching public scrutiny at regular intervals.

Notoriously it became clear over the toxic derivatives debacle that most board directors in the big banks had little or no idea what was going on in their trading rooms, and took no interest so long as it appeared to be highly profitable. – epitomised by the cynical comment of Chuck Prince, the ex-head of Citibank: “So long as the music continues, you’ve got to stay dancing”. Directors in banks, as in other institutions, should be held accountable for gross incompetence and negligence. Significantly, no senior banking director or manager has lost their job as a result of the financial crash for which they were responsible. That should change.

Directors should also be held personally responsible for tax avoidance schemes (i.e. cheating the public purse of of its due credits) which have manifestly no other purpose than simply to avoid/evade their public liabilities. Corporate immunity should be removed from the individuals concerned since this is malfeasance against the public interest on a massive scale.

Some $15-20 trillions of private wealth is stashed away in offshore tax havens managed by just 50 banks. Again this is a conspiracy against the public interest, exactly as Adam Smith warned against. The banks should be required to reveal the identity of the owners of all these assets.

The financial crash was caused primarily by reckless worldwide lending of sub-prime mortgage-backed derivatives, encouraged by a dysfunctional system under which the money supply for growth can only be increased, paradoxically, by additional bank lending. The system of fractional reserve banking should be replaced by full reserve banking, which would restore the growth of the money supply to public control

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