This is the last chance to put our banks back in the cage
For a few days starting tomorrow, President Obama will smile at the well-wishers in Britain, show deference to the Queen, and generally pretend to like us. While he’s around (and I’m not breaking any injunctions here) I understand he’s going to have an economics session with Prime Minister David Cameron.
If and when that meeting of barren minds takes place, they should be able to reach a simple conclusion: no matter how hard you try to get banks to behave like social animals, they will screw you and pump up their bonuses.
Obama tried to get help to the repossession sector of the US housing market, using Federal funds. The idea was ill-conceived (chucking good money after bad) but at least three major banks used the funds fraudulently, and are now the subject of SEC investigations. His man Bernanke has been pumping Fed funds into the banking sector, in an effort to increase liquidity into the economy, for nigh on two and a half years – depending on who you believe about when it stopped, or if it ever stopped. This ‘POMO’ (Permanent Open Market Operations) scheme’s main achievement has been to send the Dow through the roof: the banks used the money for two purposes – to underwrite multinational megamergers, and buy stocks on behalf of their clients. Jobs have been lost, not created, as a result of this double-cross.
Cameron and his Chancellor George Osborne first of all tried to get the banks to set an example, and forego bonuses for 2010. Bob Diamond explained that this item would not be on the agenda, and they ended up paying themselves more than ever. Almost no money has filtered through to the small business sector after QE, and the financial sector – that’s the banks, remember – is still the only bit of the economy holding its end up. Not hard when you consider they’ve been doing it mainly with taxpayers’ money. Manufacturing has grown, but much as the Government tries to hype this, growth on a base of 12% of all economic output is a spit at the tornado of problems we face.
It’s not just that both leaders have chucked enormous income-tax monies at the investment banks: they’ve also given them a near as damn it 0% interest environment (‘ZIRP’) in which they can clear a net profit of around 2.3% simply by buying gilts and Fed Bonds. Now there is a degree of mutual interest here: higher rates would bankrupt the Anglo-Saxon West completely in very short order, and buyers of Government debt are always welcome. But it benefits the banks far more than the governments, because the former don’t have the latter’s catastrophic level of debt.
Let me rephrase that: the banks aren’t technically bankrupt, whereas the UK and US are. As and when rates rise and bad property debts (Russia, domestic and commercial property) plus derivative bets sink the banks, it’s all going to be a bit academic – because the Sovereign nations behind them will be penniless fiscal pariahs.
Obama, you will remember, caved in to Hank Paulson’s wolf-cry in 2008 and gave Wall Street $870 billion dollars. It was meant to recapitalise the banks. The banks used it to make money, and then said it was ‘nowhere near enough’. As I write, Britain’s banks are also giving David Cameron the same line on the subject of his Big Society. The FT reports this morning that the big boys are ‘furious’ because his Big Society Bank (into which they’re being asked to chip a minute £200M) will be lossmaking ‘for the first five years’ – according to the Cabinet Office.
As this ‘breaks’ the Merlin Agreement of last February – in that it won’t be the usual license to print money – the Diamond geezers are all hopping mad. They saddle us all with £1.1 trillion of debts and liabilities, we ask for £200 million back. Only if we can make profit, they say. And anyway, you broke our agreement youdidsosothereandsucks.
Except that, as usual, the banks are lying. They broke the Merlin Agreement in the very first quarter of its operation: having committed to lend £19 billion a quarter to small businesses, the BOE figures out this month show they lent only about £16.8 billion between January and March 2011. Get out of that, Slicker boys.
In the face of this Everest of evidence that the banks are really little more than well-tailored crooks, the US President chose to tackle it by killing Osama Bin Laden. Cameron was a tad more ambitious in bombing Libya. Both leaders could change history this week – by announcing a joint communique to bring the Anglo-Saxon banking sector back into line, and make a start to the process by establishing the public funds they’ve been given as a debt to be repaid.
They won’t, of course. For one thing, such an announcement would panic the Bourses globally, and cause financial shares to collapse. That’s the failsafe is you’re a banker: in the end, their answer to everything politcians say is, “You’re bluffing: you wouldn’t dare”.
But like it or not, this toxic isotope of a financial system is once again on the brink. It’s no good blathering with the Yes We Can have a Big Society bollocks: as long as the bankers are there siphoning off the funds, there just isn’t going to be the money to do any of it.
I will bring one small symptom to your attention re the on-the-brink thing. Last week was a light POMO week in the US: so there wasn’t much need to sell US Bonds. But the evidence from the what sales there were is very clear indeed: foreign central banks stayed well away from the auctions.
One day, they’ll start to do this to us as well….from a judicious mixture of fear and blackmail. Now is the time for two western leaders to come to the aid of the citizen.