Don’t bank on it, Brown
The notion that the UK banking sector will rescue the economy is as misplaced as the claim that a few bankers were to blame for the crisis.
Remember the hoots of derision last year when Gordon Brown claimed that his government had ‘saved the world’? The UK prime minister quickly sought to save himself by clarifying that he meant to say New Labour had saved the banks with its multi-billion pound bailouts, and led the world in tackling the recession.
Now, however, it seems that Brown and Co. did not really achieve the slightly more modest aim of saving the banks in any meaningful sense. The huge bailouts and government guarantees might have acted as a life-support machine to keep some of the UK’s biggest banks technically alive, but they have not been revived. This week’s figures from the state-owned banks confirmed that if something is shooting up in the finance section, it’s not green. The nationalised corpse of Northern Rock lost £724million in the first half of 2009, a remarkable rise of 24 per cent on the same period in 2008. Then Lloyds Banking Group, which is 43 per cent publicly owned, announced grim losses of £4billion in the first six months of this year. Most of this was blamed on the bad loans made by HBOS, which we may recall Brown personally persuaded Lloyds to take over to save it from collapse.
These results from the state-owned banks were widely described as disastrous. An even bigger disaster, however, is the obsession with banking as the be-all and end-all of the UK economy. If it was rash of Brown to claim that he had rescued the banking system, it is ridiculous now to claim that the banks can somehow magically revive British and Western capitalism.
Since the credit crunch began, writers on spiked have criticised the tendency to blame a few bonus-obsessed bankers for the crisis, thus avoiding the far deeper problems facing an entire economy that had been run on the never-never. This trend to seek easy scapegoats continues; Rolling Stone magazine has just made international headlines by describing Goldman Sachs as the ‘great vampire squid wrapped around the face of humanity’. But just as it has been wrong to claim that wicked bankers were the real problem, so today it is crazy to depict banks as the potentially benevolent solution to the crisis.
To listen to the demands from ministers and experts that the big banks ‘must do more’ to help others, one might imagine that these huge financial outfits were somehow instruments of egalitarian policy rather than the most ruthless of money-making capitalist institutions. Nationalised or not, there is no socialism in the City. What is more, even in straight capitalist terms it is nonsense to imagine that the banks alone could somehow resuscitate the wider economy.
For instance, outside the state-owned sector in the UK and the US, some banks such as Barclays and Goldman Sachs have been making huge profits this year. Some have tried to present this as a good news story amidst the financial gloom elsewhere. Yet closer inspection reveals that these banks have been stacking up billions in profit by making money from the financial crisis – picking up business in the US from the collapsed Lehman Brothers bank, making heavy charges on loans to desperate businesses and people, taking fees for handling the expansion of mind-boggling government debts, and so on. There is little productive for the wider economy about any of this parasitical profiteering. But that does not make these institutions ‘evil’ – it simply makes them modern banks.
The obsession with banking in the UK is a symptom of the problem rather than a solution. The ‘boom’ of the past decade was built on bloated Western banks using credit and financial instruments to inflate the values of assets such as share and house prices, recycling value that was created in the dynamic economies of the East. This world of fantasy finance became a substitute for a productive economy. The huge shining facades of the City’s mega-banks deflected attention from the empty space behind them where the UK’s economic motor ought to be.
Now the authorities are apparently fantasising about the finance sector reviving everything by extending more mortgages and business loans. This again ignores the fundamentals. There would little benefit to offering mortgages that few can afford in a time of recession and rising unemployment. And businesses are not going to borrow billions unless they can make a profit by investing the money. Credit is indeed vital to the functioning of a capitalist economy. But credit is not an end in itself. It was the unhealthy reliance on borrowing money from elsewhere that helped to create the crisis. Further extending debt to no clear purpose beyond holding up house prices and keeping insolvent businesses limping along is not the magic solution.
There can be no return to the illusionary banking-based boom of the past decade. Indeed, it is far from clear that the finance sector has been stabilised even in its present parlous state. There are some serious problems ahead, such as the renegotiation of billions in commercial property loans Rob Lyons recently reported about on spiked, and the need to sell huge piles of UK government bonds to keep the state afloat (see Fiddling with loans while Rome burns). There is also a sense that, despite the falls in value, property prices have still been kept artificially high. A large part of the Lloyds group’s losses was due to a downward re-valuation of assets that are worth a lot less than previously claimed. It is unlikely to be the last bank to have to face up to the facts of falling values and rising bad debts, however hard they try to sustain the illusion.
We do not need an inflated housing market, a rise in share prices or a boom in banking profits made by picking over the bones of failure. What we need is an economy for the future worth investing in. Yet at a time when there is a desperate need for political leadership and a debate about how our society should produce and distribute its future wealth, we are faced with a hopeless government that wants to hand over responsibility to banks to save the day – and an opposition that has little more to offer. The best idea that New Labour can come up with is apparently to split Northern Rock into two and sell off the ‘good’ part as quickly as possible – which will mean cheaply – so that it can claim to have got a return on taxpayers’ money before the General Election. A cheap little political stunt posing as an economic policy.
Brown has not saved the world or the financial system. He cannot even save himself. And the banks are certainly not going to rescue the economy for him – or for us.
Mick Hume is spiked‘s editor-at-large.
Previously on spiked
Brendan O’Neill explained that the attack on banker Fred Goodwin’s home was the result of an elite blame game. Rob Lyons looked at the cynical witch-hunting of Fred Goodwin. Daniel Ben-Ami argued that blaming bankers glosses over long-term economic decline. Tim Black attacked those who wanted to scapegoat the spivs. Back in 2007, Mick Hume said the super-rich of the financial sector were the symptom, not the problem. Or read more at spiked issue Economy or Financial crisis.
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