Friday, September 25, 2009

Grandstand Governance


You're paying for this

Does anything useful ever come out of these global grandstanding opportunities?

This week's G20fest was billed as the moment when "world leaders" would agree a new governance regime for the international financial system. This was the moment when the banks would be brought to heel, and when the big surplus nations (especially the Chinese, but also the Germans and the Japanese) would be bound into a new economic settlement in which they would spend and import more.

In practice of course, we'll get none of the above. Instead, we're going to get an agreement to have even more G20fests. Whoopeee!

The real purpose of these meetings has been highlighted all too clearly by the horrifically embarrassing sight of our unloved dead duck Prime Minister* scurrying round the UN kitchens trying to pin down St Obama for a photo-op.

As is painfully obvious, one year on from the Great Crisis, our rulers have made virtually no progress on sorting out the issues that gave rise to that crisis.

There is no agreement with the surplus nations on how they will do their bit by correcting the imbalances in their own economies. And there is no agreement on how we can protect ourselves from a future global banking collapse.

Indeed, on the latter point, as City veteran Terry Smith reminded us on BBC R4 Today this morning, our rulers are refusing even to discuss the giant elephant rampaging around their gilded conference halls.

The pachyderm in question? As we've blogged many times (eg here), we need a new Glass-Steagall to separate high street banking from investment (aka casino) banking. We can no longer afford to have the two activities co-existing in the same megabanks.

Because although we all learned from the Great Depression in the 30s that taxpayers have to guarantee high street deposits, we most certainly do not need to guarantee banks' casino activities. And it was our implicit guarantee of those activities that allowed the players to access the cheap funding, that inflated the huge bubble, that finally popped last year.

Sure, in theory we might be able to keep ourselves safe through better smarter bank regulation, rather than resorting to the crude blunderbuss of Glass-Steagall. But in practice, we just ain't that smart.

Among other things (as the now reviled Alan Greenspan always said), no regulator or central banker has ever come up with a way of definitively identifying a bubble before it pops. And even if they did, politicos riding the wave of an economic boom would never sign up for sticking in a pre-emptive pin.

And in the real world, those superbright all-seeing regulators of myth and legend don't actually exist. Indeed, our own bumbling regulators couldn't even control the relatively simple activities of the Crock.

No, to make ourselves secure, we need to split retail banking from investment banking. Just like it always used to be.

And we need to do it on an international basis, because otherwise the megabanks will simply migrate to the countries where they are not required to split.

So why hasn't the G20 tackled the elephant?

Well, because for one thing the megabanks don't want them too. And for another, the politicos are desperate to avoid anything that might smother the recovery, and breaking up the banks would inevitably restrain the future growth of credit.

Which is a problem.

Because taking a view slightly longer than the next election, a return to easy credit is the one thing we do not need. And unless we take the necessary action now - while minds are still concentrated by the crash - the will to act will simply evaporate (if it hasn't already done so).

Might we expect more from Cam and Os? Sadly not. They have already indicated they have no plans for a Glass-Steagall.

So unless St Vince somehow finds his way to the controls, it looks like taxpayers are skewered on the banking hook for the forseeable future.

Gaaaaaaaaah.

*Footnote We've already blogged the BBC's mini-series the Love of Money, but last night's nearly made me swallow my false teeth. Entitled Back from the brink (click on link to watch again), it painted Brown as the saviour of the global banking system. No really. It reckoned the man who spent this week trying to get his snap taken with Obama, came up with the genius solution, which was for taxpayers to inject capital into the banks rather than simply buying/guaranteeing their toxic assets. Apparently nobody else apart from Brown and that Shitty woman had thought of that. Maybe the BBC overlooked the fact that within days of Lehman's collapse - and weeks before Brown's emergency purchase of all those bank shares - the idea of government equity injections was being openly discussed all over the place, including the FT, and even our own humble blog here. Surely even the BBC can't rewrite history this soon after the event?

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