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The current uncorrected political course means another banking crisis is inevitable, cautions Prem Sikka
by Prem Sikka
Friday, March 18th, 2011
Are you ready for the next financial crisis? With interlocking banks and corporations, it will be more severe than anything that we are experiencing now. The Government’s plan to replace the Financial Services Authority with the Prudential Regulation Authority is akin to rearranging the deckchairs on the Titanic. The PRA is to be guided by a new Financial Policy Committee. Its membership includes Lord Turner and Hector Sants, respectively chairman and chief executive of the FSA, who presided over current failures; Bank of England governor Mervyn King; former Deutsche Bank and Goldman Sachs executive Michael Cohrs; and Sir Richard Lambert, a former chief of the Confederation of British Industry. The current mess is the outcome of the neo-liberal world view embedded in regulatory towers and the same is set to continue. This will be of no comfort to the taxpayers who are still providing £512 billion to support banks.
The Treasury’s consultation paper does not contain any proposals to deal with the underlying causes of the banking crisis. These relate to incessant demand for higher profits, executive rewards and speculative activity. Stock markets expect corporations to produce ever-rising profits. Markets don’t care if that is delivered by squeezing wages or employee pension rights, or through tax dodging. As directors’ remuneration is linked to profits, they have incentives to charge exorbitant interest rates, pay measly rates on savings, hide liabilities, create toxic debts and take excessive risks. There are no proposals to check the race for higher corporate profits and executive remuneration. Separating the investment and retail arms of banks might help in managing the risks to the economy. So might higher taxes on executive bonuses. But even these reforms would not change the practices which have plunged economies into crisis.
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