Miliband clutches at banking straws
Labours plans for root and branch reform of the banks will hardly touch the corruption that is endemic to the system, writes Eddie Ford
Finally backing down, Bob Diamond - the disgraced former boss of Barclays Bank - announced on July 10 that he will forsake his various bonuses worth some £20 million. Naturally, he had given up the cash “voluntarily” - or so we were told by Marcus Agius, the former Barclays executive chairman, who has also resigned, but generously offered to stay on in order to find a successor to Diamond. And, of course, it could take quite some time to find a worthy replacement for a man so prodigiously talented.
However, before you start to feel too sorry for him, Diamond will still receive about £2 million made up of 12 months’ salary, pension allowance and assorted other benefits - payable as a nice little lump sum in July 2013. True, it is double the six months’ pay that his contract specifies, but the bank decided that it needed to ensure he is available to “tackle any issues” that might arise in the coming months - after all, you have to pay good money for quality advice. This is on top of, obviously, the £100 million he has pocketed since 2006 when his ‘compensation’ was publicly disclosed for the very first time. Not bad work if you can get it.
Most workers would love to get the sack if it produced such financial rewards, rather than the dole queue and a hellish life on income support/jobseekers’ allowance. Or be able to philanthropically contemplate handing over all of their redundancy money and back pay to charity, as various people are urging Diamond to do with his £2 million.
But welcome to Bankers’ World, a different universe - morally and economically - from that of the working class, struggling with increasing austerity, unemployment, bills, etc. The Bob Diamond/Libor-rigging episode, not to mention the innumerable other banking-related scandals of recent years, demonstrates once again that it is the entire banking/financial system that is corrupt - not just individual banks, let alone individual bankers (despicable though many of them may be). So what does Labour propose to do about the banking system, which as currently constituted manifestly serves the interests of the few, as opposed to meeting the needs of the many.
Well, now we know - bankers tremble in fear. Speaking on July 9 at the London headquarters of the Cooperative Bank, presumably a ‘good’ bank rather than a ‘bad’ one, Ed Miliband called for “root and branch” reform of the banking industry. He pointed to the Libor-fixing, mis-selling of complex insurance products, persistent failure to lend to business and the “fleecing” of customers with dodgy payment protection insurance as proof that the banking system had become “economically damaging and socially destructive”. He also, hardly surprisingly, saw the Bob Diamond affair as a vindication of his Labour Party conference speech last September - heavily slammed by the rightwing press, needless to say - when he warned against a “predatory”, as opposed to a “responsible”, capitalism and promised wide-ranging action, starting with the banks, to create a “different kind of economy”.
The main idea in Miliband’s July 9 speech seems more like clutching at straws than a genuine attempt at radical change. Underwhelmingly, it involves forcing the top five banks (Lloyds, RBS, Barclays, HSBC and Santander) to sell up to 1,000 branches in order to “increase competition”. According to the Labour leader, challenging the dominance of the main high-street banks - essentially breaking them up - was crucial if the nation is to move from the “casino banking” we have now to the “stewardship banking” we supposedly need. New entrants to the scene such as Metro Bank, Virgin Money, Egg, Goldfish, Aldermore, etc did begin to emerge in the wake of the 2008 financial crisis, looking to fill the gap as the big banks focused obsessively on shrinking their balance sheets and building up capital reserves to meet the new and stricter regulations. Although inevitably a fraction of the size of the top banks, these banking parvenus will account for around 7% percent of the total market for current accounts in the UK, once the planned sale of over 600 Lloyds branches to the Co-op goes through.
This move towards increased competition will, Miliband hopes, lead in particular to the creation of two new “challenger banks” - run by the private sector naturally and therefore offering “more choice” for the ordinary consumer. All things going well - and when Neptune is fully aligned with Saturn - increased competition in the banking sector would eventually result in lower charges, more honest practices, and so on. As part of the drive for “stewardship banking”, in which you will have a friendly, one-to-one relationship with your bank manager again - remember those days before call centres? - Labour will publish a report outlining the argument for a British Investment Bank to help the business sector, which Miliband believes is “having to compete with one hand tied behind its back” because of the lack of available credit.
Furthermore, Miliband wants to promote support for customer-owned financial services firms - so-called ‘peer-to-peer’ or ‘social lending’, exemplified by the online money exchange service, Zopa (Zone of Possible Agreement). Zopa is an arrangement where “people who have spare money lend it directly to people who want to borrow”, meaning there “there are no banks in the middle” and “no huge overheads” or “sneaky fees” - thus “everyone gets better rates” (http://uk.zopa.com). Banking utopia.
In his final remarks at the Co-op headquarters, Miliband also backed European Union proposals - fiercely resisted by George Osborne - to set a maximum 1:1 ratio of bonus to pay. Radical. Other measures mooted by the Labour leader included a “tough code of conduct” for the banking industry overseen by a regulatory body “modelled” on the British Medical Association. Professions like teaching, medicine, law, etc have “clear rules”, declaimed Miliband, and “we need the same” from banking - anyone who breaks the rules should be struck off, just as a errant doctor or lawyer can be. Additionally, he demanded the setting up of a special financial crime unit to signal that Britain is “no longer a soft touch”. Tough on crime even if not on the causes of crime - ie, the capitalist drive for maximising profit.
All this “root and branch” reform, insisted Miliband will “deliver real change” and “restore trust” in the banking system, so that it “works for working people”. Here we have the Labour vision, as Miliband put it, of a British economy “based not on the short-term, fast-buck, take-what-you-can culture” of today, but on “long-termism, patient investment and responsibility shared by all” - equal stakeholders in British capitalism.
Expressing similar sentiments, Vince Cable - the coalition government’s business secretary - informed viewers of the BBC’s Andrew Marr Show on July 8 that the “real problem” at the moment is that the banks, because of their existing “anti-business” culture and “obsession” with short-term trading profits, are “throttling the recovery of British industry”. He also blamed the banks for undermining the multi-billion quantitative-easing programme launched by the Bank of England to inject liquidity into the economy - arguing that there has been a “breakdown in the mechanism” of cash transmission to struggling companies. From now on, Cable said, we must ensure that the new monies made available by the BoE and the government actually reach those companies.
Load of Vickers
Of course, we have been here before in the shape of the 358-page Vickers report published last September. In his capacity as head of the Independent Commission on Banking, Sir John Vickers pondered on how taxpayers could in the future be “protected” from any banking crises - that is, not have to bail out the likes of Bob Diamond every time they dug themselves into a hole.
Weekly Worker readers may recall that the ICB’s central recommendation was to “ring-fence” retail banking from “casino” banking/investment - the noble idea being that the retail banks should be the only institutions granted permission to provide “mandated services” like taking deposits from and making loans to individuals and small businesses. The Vickers report also contended that the different arms or sections of banks should be converted into “separate legal entities” with independent boards and hence - or at least according to ICB calculations - up to £2 trillion of assets (including all the domestic high-street banking services) could eventually find itself behind this ring-fence or “firewall”. Other significant proposals were that UK retail operations should hold equity capital of at least 10% of their risk-weighted assets and that the larger banking groups should a have primary “loss-absorbing” capacity of at least 17%-20%. The report also wanted to enable ordinary bank customers to easily switch current accounts by making sure that a free redirection service was up and running by September 2013.
Frankly, the ICB’s reform proposals were pie in the sky - especially when you bear in mind that Vickers, being a reasonable man of the establishment, of course, wrote the report in such a manner as to make sure it was “deliberately composed of moderate elements” and even then gave the bankers until 2019 to implement all the reforms. Very gentlemanly. As if the world, slipping further into crisis with almost each day that passes, will patiently stand around for seven years or more waiting for the UK’s financial/banking system to get its house in order. Fear and panic is spreading throughout Europe now, with Spain quite possibly only days away from requesting another bailout and the International Labour Organisation predicting that the official number of unemployed people in the euro zone could reach almost 22 million by 2016 - up from the present 17.4 million - unless government policies “change course in a concerted manner”.
Similarly, Miliband’s plea for an ‘ethical’ banking system which responsibly plans and invests for the long-term future is also a load of old Vickers - desperate utopian scheme-mongering based on a wilful refusal to confront the real nature of capitalism. In reality, his “root and branch” reforms - even assuming that they ever came to fruition - would hardly touch the corruption of the system.
Albeit in his own buffoonish and boorish way, Boris Johnson - the rightwing Tory mayor of London - revealed himself to have a better grasp of capitalism than either Miliband or Cable. Using his Daily Telegraph column to attack politicians who are “slagging off” a sector that is “crucial to the British economy”, he mocked the ideal of elevating “good old high-street stuff” to a position of moral superiority over “casino” investment banking (July 9). “You need the high rollers as well as the nice chaps who used to give you sherry,” he wrote. At the end of the day business is business.
The plain fact of the matter, and something both communists and Boris Johnson can agree on, is that the sole and overriding function of the City is to make money - there is no other reason for its existence. Therefore money will be made by any means necessary or possible: ethics need not apply. But for that to happen capitalism needs constant access to credit, whether it be “predatory” and parasitical finance capital or productive capital sectors like transport and manufacturing. Ultimately, Barclays Bank is no more or less immoral than your local haulage company trying to maximise its profits and Bob Diamond is no more or less a ‘wealth creator’ than any other capitalist - all of them are nothing of the sort.
Obviously, for communists, the capitalist system is by definition a global international order and hence can only be challenged and overcome on a world scale - to peddle any form of national socialism is an objective crime against the working class. Logically meaning that we do not bovinely call for the nationalisation of every fish and chip shop or cafe selling Devon cream teas. However, we also believe that under certain concrete circumstances, calls for nationalisation are apt and progressive. The point is that in the here and now banking, just like healthcare or the natural utilities (water, electricity, gas, etc), needs to be taken immediately out of the realm of profit-making in order to ensure its role is that of a service.