Friday 10 April 2009

Break up the Banks

A New Way Forward is a grassroots campaign which has recently started in the United States. The campaign centres on the demand to break up the big banks – the big banks that got us all into the current financial and economic mess. They plan to hold a series of public rallies throughout America on Saturday 11th April.

The new way forward involves three fairly simple steps:
NATIONALIZE: Experts agree on the means -- Insolvent banks that are too big to fail must be taken over by the state - no more blank check taxpayer handouts.
REORGANIZE: Current Chief Executive Officers (CEOs) and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused.
DECENTRALIZE: Banks must be broken up and sold back to the private market with strong, new regulatory and antitrust rules in place-- new banks, managed by new people. Any bank that's "too big to fail" means that it's too big for a free market to function.

This seems an excellent idea and one that could and should be applied here in the UK. Once again we need members of the public to protest loud and clear and often. In particular it is vital to attack the notion that big is good and the bigger the better. Any bank that is too big to fail is a danger to all of us.

This is seen most clearly in the recent actions of the Royal Bank of Scotland (RBS). Bailed out by the UK taxpayers, RBS has still payed out huge compensation packages to the former top executives who were responsible for the collapse of the bank. Sir Fred Goodwin is only the most conspicuous of the culprits. Most of the current board and the other top executives are still in place – most of them will have been equally guilty and yet they are still in place, still earning very substantial salaries and bonuses. And to cap it all the RBS has recently announced a second round of massive cut backs which mainly involve massive staff losses. So the high heidyins who messed things up get huge pay-offs or get to keep their jobs while those in the front line who had nothing to do with the bank's losses and collapse are to lose their jobs. And who is to pay for all this? Why the UK taxpayer in a double whammy! First we pay for the bailout and bonuses and then we will have to pay for the unemployment benefits that will arise as unemployment soars. RBS has started this process of job losses, but almost certainly the new Lloyds group will be following in their footsteps soon. The only way Lloyds can make money out of their take over of HBOS is by getting rid of lots of staff – the blameless ones again.

What we have here is the worst of all possible worlds. We the taxpayers own the banks, but we do not control the banks. The people who created the mess are still in control and clearly have no conception of running the bank in the long term interest of the taxpayer – increasing unemployment in a recession is not in the interest of taxpayers. And this comes about because the UK government refused to nationalize RBS and HBOS. Nationalization would have enabled the government to demand the resignation of all those culpable of creating the collapse of the banks. RBS and HBOS could then have been stabilised by sorting out the good bits and the bad bits. The good bits could then be sold off as smaller banks under strict regulations.

This would almost certainly save the taxpayer money. And I don't just mean the obscene pay-offs and bonuses. With smaller banks there would be no need for the new directors and managers to be paid such excessive salaries. In addition the creation of smaller banks would avoid the need for large scale redundancies. This means that more tax is paid and there is less expenditure on unemployment benefits. Thus there is a double gain for the government and ultimately for all of us as taxpayers.

This seems like a no brainer to me. In fact it is so obviously a no brainer that even the Tories, God bless them, are thinking along the same lines. Just thinking about it at the moment. They need a bit of sustained pressure from us to make them do it. Just send a simple message to Brown, Darling and your MP: Break up the Big Banks – now!

The website for A New Way Forward can be found here

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