Monday, 7 March 2011

Don't give the shysters back the Banks Mr Williams

According to today's Daily Telegraph Stephen Williams MP has come up with a cunning rouse to sell off the nationalised banks. The plans are contained in a pamphlet for the 'think' tank Centre Forum. ( I find it is always wise to check out who funds these bodies-he who pays the piper...) Stephen has :

..........endorsed the plan, drawn up by corporate finance firm Portman Capital Partners, to re-privatise the two banks by distributing shares to all 46m adults on the electoral register.

The taxpayer owns 84pc of RBS and 43pc of Lloyds after providing both lenders with billions in emergency funding during the banking crisis of 2008.

This plan only delays handing the banks back to the shysters who landed us in the mess we are in.

If you look back at all the Thatcher privatisations the shares fairly quickly landed back in the hands of the financial institution. Certainly there will be a quick buck to be made as the shares are sold on but it fails to get at the key problem with the banks-namely the mono culture of their ownership. They are all owned by share holders and the managers number one concern is to build share holder value. Liberals should stand for diffusing ownership-as the Yellow Book called it

As Danny Alexander wrote in the Foreword to a pamphlet published by Kellogg College Oxford:

We want to ensure that there is room for diverse providers of financial services to flourish in a fair and competitive market. Building societies, friendly societies, mutual insurers, co-operatives and credit unions all have long traditions of providing an alternative to shareholder owned businesses and provide choice and competition that is valued both by consumers and by the Government.

As the pamphlet spells out:

..............the UK financial services sector is dominated disproportionately by a single business model, namely the large, shareholder-owned plc.

This domination of the shareholder ownership model – whose purpose is to maximise financial returns to the shareholders – proved a lethal combination with the financial deregulation, the creation of new financial instruments and the subsequent rising levels of debt over the past twenty years. Ever greater risks were taken to drive up financial returns and ‘shareholder value’, culminating in the global credit crunch of 2007-2008 which in turn created the first global recession since the 1930s, during 2008-2009, from which the UK and global economies are only slowly recovering. As the Bank of England’s latest

Financial Stability Report notes:

Policy action is needed to reduce the structural problems caused by banks that are too important to fail (TITF). Larger UK banks expanded much more rapidly than smaller institutions in the run-up to the crisis and have received disproportionate taxpayer support during this crisis. That reflected a misalignment of risks on TITF banks’ balance sheets, due to implicit guarantees on their liabilities.

This has left a legacy problem which is likely to constrain bank lending for some time. Alongside the macroeconomic costs, the interests of individual consumers were sacrificed by managers of shareholder-owned companies focussing on shareholder value – now dubbed by one of its champions, Jack Welch, as ‘the dumbest idea in the world’.

The credit crunch, which was caused by the activities of private sector banks, resulted in the UK Government giving them a bailout of perhaps £80bn. In addition, the Government borrowed in order to provide the fiscal boost that was co-ordinated internationally to prevent a slide into global depression. These costs, along with the additional hit to Government finances that a recession causes, as tax receipts fall and unemployment benefits and other such payments rise, have combined to create the fiscal deficit and accumulated debt that we are all having to pay for through increased taxes and cuts in services. Given the financial, economic and social costs of that credit crunch and concomitant recession, a key priority for policy needs to be to put in place measures to prevent a reoccurrence in the future. Otherwise such problems may well recur, whether that be in 10, 20 or 30 years time.

I don't mind the Investment Banks being dealt with as Centre Forum suggest but the retail banks should be broken up and handed over to regional Mutual Ownership. We want the banks to be permanently in the hands of the people not temporarily. Regional Mutual ownership will spread financial service jobs around the country, ensure in a saner risk management policy, help control the hyper pay awards etc-what is there not to like about it? And the state can recoup it's investment over the longer term.

I am a little concerned that the mutualisation option is the preferred option for Lib Dems. Breaking the ownership into millions of shares will only result in time to the financial institution acquiring the shares -the process may be delayed but it will not be thwarted. So let us go back to Mutualisation which will anchor the assets into the community in the long term, provide diversity of ownership and challenge the dominance of the ruinous business model that brought the banks down in the first place.

Anyway who does fund Centre Forum?

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