Wednesday, 9 December 2009

Time to stop bailing out the bankers

The bankers it would seem continue to make merry with in the words of London Mayor Boris Johnson the “great stonking bonuses” while the rest of us pay the price for their appalling recklessness.
Two events over the past week underline the failure to bring any accountability to the sector. First came Sir David Walker’s report, conducted for the government by a banker into bankers. Not surprising perhaps then that the most dramatic recommendation that Sir David could come up with was for all of those earning £1 million plus to have their salaries published – well that will make us all feel a whole lot better.
Next came a Supreme Court decision allowing the banks to go on helping themselves to customers money in the form of overdraft charges. The Office of Fair Trading had been seeking redress in this area. The ruling resulted in one commentator questioning whether the state had taken over the banks or the other way around.
Let’s not forget that in the UK the government owns Royal Bank of Scotland, Northern Rock and most of Lloyds/HBOS, while in Ireland the state took over Anglo Irish bank. There seems little doubt that the mass of tax payers in Britain and Ireland are continuing to pay the price for restoring bank balance sheets and funding the continuation of the bonus culture.
While interest rates have been cut, the banks have failed to pass this on with cuts in mortgage rates. Nor have they lent out money to get businesses going again. On the other side they have passed on the interest cuts to savers, forcing some pensioners in particular toward poverty.
Somewhat ironically there seems to have been far more public opprobrium poured on the MPs for their relatively minor expenses misdemeanours compared to the incredible rip off undertaken by the bankers.
There have though been some initiatives coming up from different groups seeking to redress some of the balance between bankers and tax payers.
One such move comes from the community based London Citizens. It comprises promoting the living wage, a cap on interest rates of 20 per cent for lending, a responsible lending charter, investment into local and mutual banking and a programme for financial literacy.
The present living wage level set in London by Mayor Boris Johnson is of £7.60 an hour has helped many individuals and families get above the poverty line. The level of the living wage is set to enable individuals and families to live above the poverty line in a defined area. So it could be lower in other parts of the country. However, in most cases it will be above the minimum wage which is £5.80 an hour.
In tough times unscrupulous lenders prosper. Many people get themselves in trouble going to loan sharks for credit. A report from the New Economics Foundation titled Doorstep Robbery: why the UK needs a new lending law points out that nine million people in the UK don’t have access to bank credit, so their only choice is to turn to “rip-off lenders.” Three million don’t have bank accounts. The idea of a 20 per cent cap on loans is aimed at addressing some of the injustice if this situation.
The London Citizen’s programme also wants some funds transferred via a levy to local and mutual banking so getting things going in the poorer communities.
The three political parties gave qualified backing to most of the proposals with the Conservative Treasury spokesman Greg Hands saying they would enact the lending rate cap while Liberal Democrat Vince Cable said they would implement the living wage but go further by taking anyone on minimum wage earnings out of income tax.
At the other end of the spectrum comes the suggestion from the left of centre think tank Compass that there should be a High Pay Commission. This would highlight and regulate high levels of pay in a similar fashion to that now done by the Low Pay Commission that sets the minimum wage.
Another major step forward would be to create a Postbank based at the 11,500 post office branches across the country. The network could be extended by say adding the state owned Northern Rock and National Savings and Investments (NSI) to the Postbank. This would be a state owned and run bank. It would be guaranteed by the state and offer credit at reasonable rates to customers. These could be individuals or small businesses. Such a bank could be run on social as well as economic criteria, so there could be a push to get those who do not have bank accounts into the system. The Postbank would be run on a not for profit basis.
A coaliton of groups including the Communication Workers Union, Federation of Small Businesses, National Pensioners Convention, New Economics Foundation, Public Interest Research Council, Unite the union, the Federation of Sub-postmasters and the Coutryside Alliance are campaigning for the creation of a Postbank. The government has put the idea out to consultation.
It is this type of initiative that is needed from government. . The approach of simply sitting on the side lines waiting for market forces to sort out the problems is not an answer. It is a denial of responsibility. It is high time that those in government started acting for the mass and not the few. People expect government to take responsibility. It can do so with initiatives like the Postbank and by making some real moves to regulate the financial sector. Failure to do so will ensure that the burden for the present economic debacle is paid by the poorest in our society. It will also help ensure that the same problem recur again in the not too distant future.

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