Tough proposals to cut the world's biggest banks down to size by taxing their profits and pay were outlined by the International Monetary Fund tonight in an attempt to spare taxpayers another massive public bailout of the financial sector.The public are right to be angry with the bankers, but they should be more angry with the politicians, who chose to bail out banks, and whose laws sustain our fraudulent banking system. Simon Jenkins gets half way there:
In measures more stringent than Wall Street and the City had expected, the fund called for the introduction of a twin-track approach to the three-year banking crisis that would both force firms to pay for any future support packages and raise new taxes on their profits and remuneration.
The report, prepared by the Washington-based institution for the G20 group of developed and developing nations, was seized upon by Gordon Brown as evidence that his push for an international crackdown on the banking sector was gaining support.
Why did Darling not let HBOS or Lloyds fail, merely guaranteeing their deposits? Alternatively, why did he not nationalise and split up the ailing banks in October 2008? Again, if they really were too big to fail, as they alleged, why has he not made them emphatically smaller, so when they fail next time they do not drag the economy down with them?Unfortunately, socialists are too quickly distracted by an instinctive urge to soak the rich — especially misbehaving City fat cats — and redistribute their immense wealth to worthy causes. As Jenkins writes,
Faced with a global asset bubble of some $290 trillion about to burst, a frantic Darling started throwing millions, then billions, then a trillion at underpinning the banks' near worthless "casino" debts. He never spent such money on indebted homeowners or indebted manufacturers or indebted African states.He objects not so much to the largesse, but to the beneficiary. Darling takes a more sober view: parasites don't tend to benefit from the death of their hosts. As I've noted previously, the establishment does not want to close the casino; they are content to take their cut.
The politicians delude themselves that new regulation can tame the banks where old regulation failed. This time will be different, they say. But they are still playing the same dangerous game, and entrepreneurial bankers will always be one step ahead.
What we need is a fundamentally new game, where bankers and governments play a much less exciting and central role. We need a stable financial system, that allows true wealth creators to plan effectively.
Toby Baxendale of The Cobden Centre has produced an excellent review of Lawrence Kotlikoff's Jimmy Stewart is dead, which proposes Limited Purpose Banking. This entails a clear separation between demand deposits (accounts that allow instant withdrawal), which would be backed by 100% cash reserves, and investment funds, where losses would be possible. Under such a system, the bankers would not have the power to bring down the economy, and bailouts would be unjustifiable.