Barclays shows how they are all in it together

Yes, they are all in it together: Barclays, the Bank of England, the Financial Services Authority, Tories and especially the previous Labour governments.

All share responsibility for creating an environment where, in spite of numerous and repeated claims of about the virtues of a “free market”, the financial system was in reality rotten at its very core - and far from free.

Barclays manipulated the Libor inter-bank lending rate lower in 2007-08 in part to try and show that it could borrow money cheaply while others were struggling. Barclays was desperate to avoid a state bail-out/nationalisation that befell Northern Rock, RBS et al.

This may account for the apparent collusion of the Bank of England in turning a blind eye to the Libor scandal.  Late in 2008, Bank governor Sir Mervyn King made a quip in public that Libor was “the rate at which banks do not lend to each other”. Will the now ex-CEO Bob Diamond name names when he appears before a Commons committee tomorrow? 

In one of the first acts of the New Labour government in 1997, chancellor Gordon Brown stripped the Bank of England of its regulatory powers and passed them to the most toothless body you could image – the Financial Services Authority.

This was the age of deregulation driven by the globalisation of capitalism. And New Labour fell over itself to show major corporations and the City alike that Britain was the most unregulated economy of them all.

Ed Balls, now the shadow chancellor, was a cheerleader for Brown. In 2006, just a year before the unravelling began, Balls made a series of speeches extolling the City.

Balls told a joint meeting of the Hong Kong General Chamber of Commerce and the British Chamber of Commerce in June: “The UK’s financial tradition as a free, fair and open global market has resulted in tremendous growth in London’s international financial markets in the past decade – over-the-counter derivatives turnover up by 770%, foreign equities turnover up by 260%, cross-border bank lending up by 160% and foreign exchange turnover up by over 60%.”

After praising the growth of fantasy finance, Balls declared that central to London’s “success story” was “light-touch principle-based regulation” which New Labour was entirely responsible for.

Admiring the Big Bang of 1986, when the Thatcher government opened up the City to global competition as “decisive”, Balls went on to laud the FSA which had “confounded those who feared the FSA might become a heavy-handed and inflexible regulator.” In fact, Britain’s “regulatory regime continues to be the best in the world”.

In September, he said the government would block “any imposition of any rules that might endanger the light-touch, risk-based regulatory regime that underpins London’s success”. The Tories went along with all this because their City chums told them to.

All concerned are trying to sing a different tune now but it’s too late for a host of reasons. Deregulation was more than just a theory – it was a necessity. The collapse of the post-war, regulated monetary and trading system in the early 1970s showed that capitalism had reached a certain limit of expansion.

The next phase beginning in the early 1980s, was to set capital free to roam the planet. Transnational corporations demanded transnational finance – and cheap credit for consumers to buy the commodities that were turned out in increasing amounts. Deregulation was driven by this process and was not simply an ideological choice.

The genie cannot be put back into the bottle. There is a global recession that threatens imminently to become a full-blown depression. The Bank of England is resuming the printing of money this week in a desperate bid to keep the economy afloat. This will go straight into the hands of the banks and stay there.

We don’t need inquiries, parliamentary or judicial, into the banks because they will avoid the main issue. The capitalist system is broken whichever you look – politically, economically and financially. There is no “golden age” to turn the clock of history back to, even if this were possible. Moving beyond capitalism to a democratic, sustainable, people-centred, not-for-profit economy is an immediate challenge.

Paul Feldman

Communications editor

Bank bonuses the symptom not the cause

The sight and sound of Barclays CEO Bob Diamond running rings around a committee of Westminster MPs should bring an end to the ideas that bankers’ bonuses can be controlled, that the financial sector can be regulated, or that the worst excesses of capitalism can be reined in.

These are the ideas that have sustained the economic and political debate since the crisis blew up in 2007. Those tied to the for-profit economic model, which includes most parliamentarians, took their cue from rafts of self-styled “economists”, analysts, commentators. They had in various ways blamed the removal of regulation during the Thatcher/Reagan years for the gaseous, balloons of dodgy credit that enveloped the world during the globalisation decades.

Of course, the chorus of disapproval only started when the burden of mortgage and credit card debt became unsustainable and the payment defaults detonated the balloons’ volatile contents. Until then, the world was in thrall to New Labour’s friends in the City, and the Blair/Brown triumphalism that trumpeted “the end of boom and bust”.

Diamond is pretty much the apotheosis of spokespersons for the capitalist class and he wasn’t pulling any punches when he said that the time for “remorse and apology” was over. In asserting that banks should be allowed to fail, he issued a sharp slap in the face for the whole process of bailing them in the first place.

This led governments and central banks around the world to massively expand their debt and pass the responsibility for repaying it on to their unwilling and increasingly unruly populations, their children and their children’s children, if the system is allowed to continue.

And if banks should be allowed to fail, so, it seems, should the countries who’ve tried to bail them out, or have been caught up the global debt tsunami. Portugal is in line to follow Greece and Ireland.

Philip Augar, author of The Greed Merchants: How the Investment Banks Played the Free Market Game puts it as clearly as you could want

High bonus payments are a symptom of a problem, not its cause. The banking settlement was deficient because it did little to address the asymmetries in the universal banking business model. This model causes investment banks to jeopardise global financial stability in bad times whilst allowing bankers to cream off film star compensation in the good times. The global reforms have done a bit to improve financial stability but almost nothing to constrain the profitability that produces the bonuses. That profitability arises from a business model that gives banks in general and investment banks in particular the best possible view of global economies and markets. They are able to use this information advantage to load the dice and generate super-profits. This is where the bonuses come from and this is why the banking lobby worked so hard and so successfully to defend the model.

The “business model” Augar is talking about is profitability. So now is the time to ask the question of questions: why do we need to organise the whole of society around the for-profit business model? The spectacular failures of the last three years are signs of a system at the end of its days.

Rather than trying to prop it up, at an unbearable cost to billions of ordinary people, we must put it behind us, setting our minds to the future of a society that produces for the needs of everyone, not the bonus-yielding super-profits for a few. That is the agenda for a global network of People’s Assemblies.

Gerry Gold
Economics editor