Industry | 2010.03.17
Beyond the voodoo void of finance | William Brittain-Catlin
The moral gulf between citizens and banks must be replaced with an ethic of responsibility
If the second worst financial crisis in history signalled the implosion of offshore capitalism – that remote, distant and out-of-control economic system that crashed and burned in 2008 – what kind of capitalism is replacing the old, bankrupt model? To see what is on the horizon, one need only look to the United States, where the Obama administration is engaged in the task of building a new, onshore capitalism.
Barack Obama wanted the US to find its home in the world and within itself after the fractious and divisive Bush years – and this applied as much to foreign policy as on the home front, with healthcare reform , for instance. It is the case too, in the reforms to the banking and financial system that the administration is pushing through Congress.
To be sure these reforms, like the onshore nation that Obama wants to build around them, are in essence no less capitalistic than what came before. But there is a wide margin of difference: that to function properly and equitably the national economy must establish a connected, human relationship between its citizens and their financial system.
The duty of individuals and companies to pay their taxes and for the government to crack down on tax havens is the capstone of the onshore nation. There can be no doubt that the Obama administration has shown great leadership and perseverance on this count, though there is still much work to be done in imposing higher standards of information-sharing on the recalcitrant tax haven world.
In banking, the reduction of the scope and scale of the largest operators is integral to the task of building a reformed onshore capitalism. Outlawing deposit-taking banks from using their own capital to trade in risky hedge funds and private equity deals, and imposing limits on the liabilities held by any single banking group, are measures by which the activities of banks can be grounded onshore, where they belong.
The requirement for banks to pay a fair insurance to cover the onshore nation\'s cost of bailing them out when they hit the rocks of reckless finance, begins to address the moral gulf between banks and citizens and seeks to replace it with an ethic of responsibility.
Indeed, for the banking sector to face up to the destructive power that the industry can wreak on society, the processes of winding up and selling off the remains of failed banks are in future to be made so painful that investors and management will think hard before leaping into the void of voodoo finance.
As for hedge funds – a handful of whom are busy speculating on Greece\'s debt crisis – they will have restrictions imposed on their short-selling of stocks in order to rein in their inbuilt tendency to create profit from disorder.
And the onshore nation will take very seriously its responsibility to protect citizens from financial institutions that attempt to hoodwink people into buying risky financial products they do not need, and mortgages whose inequitable terms and conditions deliberately go unexplained. Awareness of and proper inclusion in the financial system should be core objectives of the onshore nation.
What underlines all these policies is a focus on bringing finance – that once bright star that ignited and burst into flames – back down to earth and humanising it, giving it an approachable human dimension and scale. The complex, risky, fast and large-scale structures of the old model are to be replaced by a new model of finance; at once simpler, slower, smaller and safer.
But the onshore nation cannot be an island on its own in the world: to be so is self-defeating, for those who wish to practice the economics of destruction will always find some offshore base from which to operate, however inconvenient. Already the flag of realpolitik is being waved by nations eager to preserve their own advantage in the financial and economic sphere. The broad political momentum to change the way global finance operates, something felt so keenly in the early days of the recession, seems far away now.
This, of course, is welcome news to Republican senators, the big banks and their lobbyists in the finance industry – all of whom are gaining ground on an agenda that looks back nostalgically to the glory days of offshore capitalism. They want nothing more than to push the default button back to sometime just before the collapse of Lehman Brothers.
Even so, on a deep level, the human values underpinning the onshore nation point to a commonwealth of citizens having autonomy in the economic sphere. A better world to come onshore is remote, but the faint outline of its contours are just about visible in the US.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]obama-us-banking-sector-reform
