It’s no wonder that ordinary people all over the world, who have lost homes, businesses, jobs or pensions or who are now facing massive government cuts, have come out on the streets to vent their against government policies in response to the ongoing global financial crisis largely caused by ‘casino banking practices’. Many are furious that governments are forcing them to pay the price while the fat cats running major banks and financial institutions are getting richer.
In February, British activists protested inside bailed-out UK banks while across the pond, American activists targeted the Bank of America, the recipient of a US$ 2.3 billion bail-out. In April, students rallied against banks in Rome’s financial district - and last month there were violent protests in Madrid and Barcelona against politicians and .
Even during these cash-strapped times when would-be home-owners can’t reach the first rung of the housing ladder and business people are prevented from injecting new finance into their companies due to tight lending restrictions, are still paying huge bonuses to themselves and their employees.
Take Britain for instance. In spite of a property slump and mega high street chain stores forced into administration, UK banks, which were bailed-out with almost £1 trillion of taxpayers’ money, remain tight-fisted to preserve their own liquidity.
You don’t have to be an economist to figure that if banks won’t open their purse strings the chance of economic recovery is dim. A spokesman for the UK Federation of Small Businesses explained that banks are even rejecting loan requests from viable businesses with solid business plans.
The UK government has made efforts to rein-in the banks by setting lending targets which have largely been ignored. It is also considering ‘ring-fencing’ British banks - splitting banks’ retail arms from their investment arms – to protect customer deposits. But banks are railing at any government interference warning they will shift their operations to friendlier climates.
It’s evident that take no responsibility for malpractices that led to recession, exemplified by the devious circumvention of a government ban on cash bonuses by a major British in which the taxpayer is a major shareholder. Instead of cash, the gave its employees 650 million new shares in the as part of a deferred bonus, half of which were sold on the market in June thus reducing the taxpayers’ share in the .
Worse, in March this year, one of Britain’s best-known banks, which rejected a bailout from the taxpayer but did accept emergency funding from the Bank of England and the US Federal Reserve, rewarded its Chief Executive with £6.5 million, gifted £33m in shares to the co-head of its investment arm, while five of the banks’ executives and brokers received bonuses totalling £38 million. Last year, the reported a payout of £554 million to just 231 key employees, which is nothing short of an obscenity in the current belt-tightening climate.
In April, the same announced a nine percent decline in first quarter pre-tax profit just hours before its AGM which saw its shareholders seething. One furious private shareholder told the Dow Jones Newswire that he had been a shareholder for 50 years and didn’t feel he had been treated fairly in sharing the pain. “The shares have plummeted, the dividend is 20 percent of what it had been, while the high earners are back to where they were,” he complained.
When banks everywhere are vulnerable due to their incestuous relationships at a time when the Euro Zone is in danger due to weakened Greek, Irish, Spanish and Portuguese economies, governments should intervene to stop the culture of greed that riddles the entire banking sector - still being managed by the same self-serving individuals whose questionable dealings triggered the downturn. Indeed, some American banks admitted misdealing and agreed to pay sizeable amounts to the SEC, when sued. Banking needs new brooms ready to sweep away old mentalities.
Since banks won’t regulate themselves, it is up to governments to control the system with an iron fist else abandon their economies to banking executives who are more concerned with fattening their own accounts than satisfying their customers and shareholders let alone worrying about the fate of their nation.
Such regulation should be agreed at a global level to prevent unfair competition from unregulated banks. In fact, the G20 has been seriously focusing on reform, in particular, effecting monitoring, required levels of capital and limits on leverage, but some member countries are less keen to proceed than others.
Some analysts would like the industry to step back in time to a less complex and co-dependent era when banks primarily served domestic economies and adhered to lower-risk investment strategies; in other words back to basics. This may not be as profitable for banks during boom times but would lessen worldwide contagion and insulate countries with steady economies from being part of a toppling house of cards. With the US, the UK and the Euro Zone doing their utmost to keep a double-dip recession at bay, banks in less unstable parts of the world and those in emerging economies must be prudent.
In my own country, the United Arab Emirates, the biggest problem for individuals and businesses is the high interest rates on loans, which have rocketed to an unsustainable 20 percent in some instances. Such exorbitant interest is adversely affecting large companies and small businesses alike, not to mention employees on moderate fixed wages looking to buy a home or a car.
There must be a balance between capitalising banks with boosting the economy as a whole. In the long run, high interest rates will depress business, place a cap on new projects and result in lenders ultimately defaulting on repayments.
It seems the 18th century-born British businessman Josiah Stamp was right when he said “if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let continue to create money and control credit.” It’s about time that governments took note. If, as some gloomy analysts predicts, there’s another financial crisis on the horizon which will make 2008 look like a walk in the park, governments and banks must work closely together to prevent poverty, unemployment and homelessness on a scale never before witnessed.