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August 26, 2015

Stop enriching the City

So much of the banking crisis was presented to us as if there was absolutely no alternative to the eye-watering amounts of tax payers money used to bail out the bankers. And that continues to this day as we witness the next phase of what appears to be the continual policy of enriching City institutions with an undervalued sell off of the publicly owned RBS – estimated to cost every household another £500. But it doesn’t (or didn’t) have to be this way, as Caroline Leckie explains.


Caroline Leckie

IT’S a famous phrase which originated with the philosopher and novelist George Santayana: “Those who cannot learn from history are doomed to repeat it.”

Now along comes George Osborne to remind us of the historical illiteracy of people in high places. In 2008 Gordon Brown handed over £45.8 billion to RBS shareholders – the equivalent of £5.02 per share. For those of us who don’t dabble in the stock exchange, it seemed like an extraordinary act of generosity. When you back the wrong horse at the bookies, you don’t expect someone to come along and hand you back most of the money you’ve just gambled away.

Now his Tory successor is planning to sell off the 82 per cent public stake in the bank at the bargain basement price of £3.57 a share at current prices. That will mean a net loss to the taxpayer of £13bn. No wonder the bankers are laughing all the way to the banks. And no wonder millions of us wouldn’t trust either Brown or Osborne to run a fish and chip shop, let alone the UK economy.

People are rightly furious at this latest rip-off, which will cost every household in the UK £500. But isn’t it time to look beyond the incompetence of our politicians to question the principles that underlie our financial system?

The first publicly owned bank was established in Genoa in 1408 in order to, in the words of its constitution, “eradicate certain bad practices of bankers, who are so devoted to their own interest that they barely blush as they ruin the public good”.

Exactly 600 years later, the bad practices and self-interest of bankers wiped out 45 per cent of the world’s wealth. Millions of livelihoods were destroyed and millions of people are still paying the price for their economic vandalism – in wage cuts, food banks, unemployment, the ravaging of public services and the plight of a generation of young people who for the first time in modern history can expect to be poorer than their parents.

For decades, private bankers used our money to indulge in the biggest gambling spree in the history of the world, while politicians looked on like the crowds in the Hans Christian Andersen fairy tale applauding the emperor’s naked procession. No-one could bring themselves to state the bleeding obvious.

For decades before, Wall Street, the City of London and similar institutions worldwide worshipped the free market the way the ancient Druids worshipped the sun, the moon and the stars. It could do no wrong. But in 2008, free market capitalism was exposed as a false god. Had it been left to fend for itself, the world economy would have melted away like a snowman in the desert.

The “free” market was only free while the going was good. When things started to go wrong, it needed the state to bail it out. Billions of pounds of public money, which really could have made poverty history (that worked well, eh?) suddenly became available to bail out the banking system.

It’s hardly a great surprise that the Tories are desperate to hand over public money to wealthy bakers. They always have been on the side of the rich and always will be.

But where are the big hitters in the other parties who are prepared to ask the most fundamental question of all?

Why should RBS be handed back to the same people who just a few years ago brought the ceiling crashing down on everyone?

The bankers have had a bit of bad press, sure. Maybe a few have had to downgrade their Lamborghinis. But their punishment has hardly fitted the crime.

I don’t care if it’s this year or next year. Or whether or not the share price improves. Surely the most pressing question is this: how do we stop them getting their hands on our assets ever again?

For politicians, public ownership has become a taboo subject. It’s assumed that the natural place for banks is the private sector, and that these institutions exist first and foremost to make profits for shareholders. But the reality elsewhere in the world tells a different story.

Germany emerged from the ashes of the Second World War to become the strongest economy in Europe partly because of its strong, publicly owned banking system. To this day, half the total assets of the banks in Germany are in the public sector. Most German banks are either in the public sector, and run by local, regional or central government, or are organised as co-operatives.

Three of the fastest growing economies in world – China, India and Brazil – are all underpinned by a strong publicly-owned banking sector.

Meanwhile, the only state-owned bank in the United States – the Bank of North Dakota – is, according to a recent piece in the Wall Street Journal, “more profitable than Goldman Sachs, has a better credit rating than JP Morgan Chase, and hasn’t seen profit growth drop since 2003.”