“For questions about the survival of big European banks to be swirling almost ten years after the financial crisis started is utterly damning”, writes the big business magazine The Economist.
Questions are indeed swirling. On 26 October, the Bank of England asked British banks to say how much they are owed by Germany’s huge Deutsche Bank and Italy’s oldest bank, MPS, in case those banks prove unable to pay. Deutsche Bank’s share price has fallen by over 50% this year.
The stock markets value this giant of international banking at less than Snapchat, a social-media business with a few hundred employees and hardly any physical assets. The bank faces 7,800 lawsuits for misconduct, and possible large fines.
The German magazine Der Spiegel of 28 October gives a long list of misdeeds, many of which Deutsche Bank has admitted: mis-selling, money-laundering, tax avoidance, manipulation of interest rates and prices, and more. “Greed... unfocused aggression... mania... mendacity... arrogance”: those traits of Deutsche Bank bosses are maximised by the workings of the modern capitalist system. They brought it huge profits for a while and are now bringing it down. So says Der Spiegel.
Deutsche Bank seemed to weather the 2008 financial crash better than others. While other banks scaled down, Deutsche’s “Global Markets” chief and then CEO, Anshu Jain, a British-Indian whizzkid who did not even bother to learn German, took the once-staid Frankfurt-based bank further into whirligigs of speculation.
In June, the International Monetary Fund said politely that Deutsche Bank “appears to be the most important net contributor [among banks] to systemic risks, followed by HSBC and Credit Suisse”.
The banks that went bust in 2007-8 were bailed out by governments. Some are still being propped up that way. The Royal Bank of Scotland has notched up £50 billion losses, and there is no chance of the government recouping the money spent to bail it out.
Ultra-low interest rates and “quantitative easing” have meant, essentially, that banks can borrow from the state at ultra-cheap rates. Some banks have recovered substantially from 2008. Most banks have started again on paying out huge dividends and huge salaries and bonuses. But the general sluggishness of growth and trade, the stagnation of productive business investment, and the low interest rates depressing banks’ gains from the loans they give out, have limited the overall pool of revenues from which the banks feed; and some have done poorly.
Governments have talked about tighter regulation of banks. The result, though, has been to slow banks down a bit — and expose many of them, not just Deutsche, to a blizzard of fines, as soured scrutiny picks up years of misdeeds — but not to change the rule of ruthless profit-grabbing over the financial piping of economic life.
What the conservative Financial Times columnist Martin Wolf wrote in the midst of the 2008 crisis remains true: “Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff [meaning their top bosses, not the routine clerical staff].
“Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with”.
In today’s global-markets capitalism, the financial piping is central. Banks are not quiet enterprises, doing backroom work in a steady and cautious fashion, but the leaders in general capitalist speculation, corner-cutting, and reckless greed. If banks go down, as they did in 2008, they bring everything else down.
Recipes like breaking big banks up into smaller units, or developing National Investment Banks alongside the commercial banks, leave the banker-profiteers’ ruinous effects untouched. (Germany already has a National Investment Bank, a huge one. Slump-ridden Brazil has a huge national investment bank). The way to curb the destructiveness of the profiteers is to make banking, finance, mortgage-lending, pensions, and insurance into a public utility, publicly owned, democratically controlled and scrutinised, and managed by elected officials chosen for competence rather than spivvery.
Small shareholders should get compensation; the bigger ones have already drained far more than they deserve in dividends and speculative gains.
Making finance a public utility would give pensioners and homeowners some security, and quell some of the most lurid drivers of crisis. It would open channels for democratic decision-making to mandate and guide investment in socially useful economic activity, for example in “greening” industry and creating good new jobs in areas where old industries are declining.
Only a full mobilisation of the labour movement can achieve it. High finance has huge entrenched power, which is what accounts for the weakness of the “re-regulation” since 2008 even when conservative governments were angry about what the banks had done. But nothing less than that full mobilisation will do. Otherwise we are all still at the mercy of the “greed... unfocused aggression... mania... mendacity... arrogance” of the billionaires.
Brexiter Tories are attacking Bank of England governor Mark Carney for not raising interest rates. They say Carney is leaving rates low because he is too pessimistic about Brexit. They should be raised to guard against inflation (and — the thought is probably there — to increase banks’ revenues).
Labour Shadow Chancellor John McDonnell has responded: “Labour gave the Bank of England independence to stop Tory Chancellors leaving monetary policy to the whims of their backbenchers. Operational independence for monetary policy, as I’ve made clear in the past, should be sacrosanct”.
To scorn the call for higher interest rates is one thing. To do it in the name of having central economic policies controlled by unelected bankers rather than by elected authority is another.
Labour nationalised the Bank of England in 1946. Before then, weirdly, monetary policy was in the hands of a private company. In his memoirs of the 1964-70 Labour government, Harold Wilson wrote that its reforming drive had been wrecked by the stubborn resistance of the Governor of the Bank of England. He wrote that only in his memoirs, and while prime minister did what the Governor asked, but at least he perceived that unelected bank bosses are an obstacle to social reform.
Gordon Brown gave Bank of England bosses the right to make their policies independent of any elected control in a sort of “coup” after Labour won the 1997 general election. Brown had not dared to put that move into the Labour manifesto, or to whisper to the Labour Party that he planned it; so he did it immediately after Labour had won office, when his credit from the election victory was strongest.
We should oppose the Brexiter Tories in the name of democracy and equality, not of the supposed right of unelected bank bosses to control our economic destiny.