BANKS DO NOT LEARN THE LESSONS OF HISTORY

By Roberto Savio and - - Reprint | | Print |

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ROME, Oct 3 2011 (IPS) - There is not one day going by now without devastating news of the eternal tug-of-war between finance and states. Now we are informed that the Greek government, in order to continue receiving useless subsidies (since it won’t solve its problems) will lay off another 30,000 employees. It is difficult to understand how a country that is suffering a critical contraction of its consumption will be able to exit a cruel downward spiral that will cause serious social deficits, without solving its fiscal deficit. However, the banks are not willing to eliminate any of their bad practices that have caused the current crisis.

The US government has recently begun a gigantic trial for fraud against a group of major banks. The tendency of the US government is to accept a huge compensation and close the legal procedures. The Swiss parliament, after a fraudulent maneuver of a trader that made the Union des Banques Suisses loose 2.000 million dollars, is studying how to increase the capitalization of its banks in order to be more solid. Everywhere, banks are fighting to stop all the reforms of the finance system, since, in the worst-case scenario, the US would intervene to save them. According to official figures, US lobbies spent 200 million dollars to prevent new regulations.

Only in Great Britain have concrete propositions been formulated. A special commission dictated that in order to contain speculation, the finance system must be separated into two categories: one, banks that collect public deposits, which cannot be used in speculative activities; the other one, investment banks, which are allowed to perform risk operations.

It’s important to remember that there wasn’t a real major crisis until 1981 when Reagan started to eliminate the banking controls and in 1999, when Clinton ended up eliminating the Glass-Segall law implemented in the Roosevelt era in order to separately maintain deposit and investment banks.

Obviously, in the face of these and other reforming propositions, the banks have organized an immense opposition campaign, declaring that it would damage competitiveness, investors? earnings, make loans more expensive and affect the economy.

With a nerve that reveals the lack of ethical constraints in the financing world, bankers reply that the separation between deposit and investment would increase the costs of financing. Investors would feel less safe as a result of reforms that would make it less probable that governments rescue banks in the case of a crisis. That is, they start from the assumption that they own public money if they risk bankruptcy incurred in irresponsible speculations.

The reaction of the North American banks was even more extreme. The chief of JP Morgan Chase, Jamie Dimon, declared that the reforms for the control of the banks are ?anti-American?, and that the United States would have to denounce the Basel agreement, which establishes global rules on the banking system. This agreement simply asks for the bank capitalization to increase up to 10% in order to prevent the banks? continuation of compromising themselves in operations that are many times higher than their capital.

The last Fitch Ratings informs that in June and July, the 10 major US banks dropped 20,4% of their investments in European banks, which reached 97% in the case of Italy and Spain. These banks had a total of 658.000 million in investments of which 309.000 million were titles issued by European banks, equivalent to 47% of the total. This reveals that the North American banks are strongly linked to the health of European banks (and vice-versa). According to analysts, banks are so worried that they are not letting go of any money. This means that the real economy–companies and families–are not receiving credit, which was the original and irreplaceable function of banks.

Meanwhile, the data of the social disaster that we are living in is increasingly more shocking. 25% of European young people are unemployed. The number of people on the poverty line is increasing in many countries, first of all in Italy, although, no country reaches the North American extremes. The Institute of Statistics recently released its yearly report which registers an increase of 2,6 million new people living below the poverty line, which now adds up to 46,2 million: the highest number in 52 years of statistics from the Institute. Of those, 20,5 million are in a condition of extreme poverty. If the Republican Party wins the next elections, social subsidies such as the food stamps will be suppressed, which is some of the little help that is left.

A neutron bomb is falling over the rich countries. It destroys the people while leaving the infrastructures standing. Nowadays, the main infrastructure of the North is not companies, highways or agriculture: it’s finance. In the US, it is already being said that this is the lost decade. Hopefully it will only be a single decade.

(*) Roberto Savio, founder and emeritus president of the news agency Inter Press Service (IPS)