Today marks the public launch of an important new campaign ‘For a Democratic Public Banking Service‘ here on the TSN website and on Facebook.
Below is an outline of the thinking and issues involved in the Campaign, and the first steps to achieve its aims. TSN readers are strongly recommended to read the outline and to go over to the campaign?s Facebook page and register their support by clicking on the FB ?Like? button at:
The failure of the financial system was absolutely central to the Great Economic Recession that began to hit the world in 2008. In the last thirty years the financial sector ? banks, investment funds, pension schemes, insurance companies, money markets, stock and commodity exchanges and so on – has dramatically expanded its role on a national and international scale. In a process often referred to as ?financialisation?, the finance industry in many of the richest countries now accounts for nearly half of the economy. To reach this point they have taken full advantage of the deregulation of capital controls and investment, the creation of new monetary instruments, and the development of fast computers and instant online transactions. The result has been that unimaginable amounts of money are now continuously being switched between investments, currencies and countries in a destructive chase for short-term profits. Even worse, it has produced an unprecedented expansion of debt which now dwarfs the size of the global economy.
All of this has seriously undermined the influence of national parliaments and what democratic accountability of the monetary system used to exist. Instead of governments controlling the banks, the banks (and the money markets they dominate) now control governments. We are now in a financial world that is highly unstable, unsustainable and out of control.
One result of these developments has been the massive diversion of funds away from manufacturing and the real economy, towards speculation on a grand scale. Part of this process has seen these globalised banks and financial institutions become a channel for industrial-scale corruption, endemic tax evasion by the rich and other forms of criminality. This level of illegality should not surprise us with the revelation of one major banking scandal after another carried out by the leading international banks: the fraudulent derivative and credit swaps that caused the Wall Street collapse in the first place; the preferential bailouts that followed which shovelled money towards certain favoured banks; the insider fixing of foreign exchange deals; the LIBOR scandal of jacked up mortgage interest rates; the facilitation of money laundering by drug cartels and arms dealers. The list goes on and on. No wonder that bankers are now routinely referred to as ?banksters? or ?crooks in suits?. But unlike us mere mortals, these ?lords of the universe? walk away scot free. While in many cases the banks have received fines of billions of dollars for these frauds, the bank chiefs have not had to admit any guilt, appear in court or go to prison for their spectacular wrongdoings. No wonder that the phrase ?too big to jail? has now been added to ?too big to fail?.
Indeed, if the central role of the banks and the other financial institutions in the operation and stability of the economy means that they are ?too big to fail? – that their collapse would bring down the rest of the economy with them – then it is obvious that this sector is of such strategic importance to society that it can no longer be left in private hands. In the hands of the tiny, corrupt and unaccountable elite that currently dominates and abuses the financial industry for its own short-term greed. Instead, the financial sector needs to be urgently brought under democratic public ownership and control, transforming the private banks and the rest of the financial institutions into a democratic public banking service in order to serve the interests of the 99% of the population who it currently exploits and neglects. Such a democratic public banking service could provide economic stability and growth, effective economy-wide planning and investment, along with benefits to both account holders and staff alike. A democratically accountable and transparent public banking service would also put an end to the bank frauds, corruption and tax evasion that is undermining our public finances and political life.
With all the above in mind, it has been decided to launch a broad-based campaign entitled ?For a Democratic Public Banking Service?. A campaign that can develop workable plans for the transformation of the financial sector nationally and internationally. And build support for such plans in the mainstream of political life in every country.
We appeal to everyone who recognises the need to radically reorganise the financial sector in the interests of the many rather than the few, to support this campaign.
The Great Recession of 2008-9 destroyed trillions of dollars of wealth worldwide and made tens of millions of people unemployed. It caused large numbers to lose their homes and businesses, a process that continues to cause great hardship in country after country.
The trigger for this disaster was the failure of the American and European banking systems, on an unprecedented scale. As an official at the Bank of England admitted ?this banking crisis has been as bad for the economy as a world war?!
Before 2008 the banking sector was often seen by the general public as a conservative and prudent force in the economy, guaranteeing security and stability. But the crisis revealed a financial industry driven by greed into high risk speculations and fraud on a scale never seen before. Using the income, savings and property mortgages of ordinary people as their base, the banks turned the world economy into one big casino until it all came crashing down at the expense of governments and citizens alike.
As if this wasn?t bad enough, the huge speculative debts of the bankers and their rich clients were bailed out with public money. And then under the catchphrase of ?reducing public debt? the bailout was turned into a brutal excuse to drastically cut back the living standards and welfare services of the mass of the population, often the poorest – precisely the people who had nothing to do with the crisis nor profited from the fraud and gambling that caused it.
In the midst of the crisis, politicians promised fundamental reforms to the banking system. But all we have seen in the last six years have been minor changes, leaving the power of the bankers untouched. With the potential of another big financial crisis yet to come.
The Case for a Democratic Public Banking Service
The Great Recession of 2008-9 highlighted the key role of the banks in the national and international economy and placed them at the centre of public debate. The possibility of the banking system collapsing along with the rest of the economy was posed by the crisis, forcing everyone to recognise that the banks pose ?a systemic risk? to the whole of society, or as it became popularly known, that the banks are just ?too big to fail?. In the light of this, there is an obvious and powerful case for the banking sector to be taken into democratically-run public ownership in order to maintain the stability of the economy.
Moreover, there are equal if not more important reasons for transforming the private banks and the rest of the financial sector into a democratic public banking service. Among many things, such a service could:
- Bring a halt to the eviction of people from their homes and businesses, and help them start to rebuild their lives.
- Become an essential source for the investment and sustainable growth urgently needed as part of a democratic plan for economic development.
- Provide the transparent and accountable system required to bring an end to the massive corruption, money laundering and tax evasion that is undermining the economy, government finances and the political system.
- End the bank frauds ? the mis-selling of financial products, and the insider fixing of financial and currency markets which are cheating bank customers ? along with the big bonuses, commissions and incentives that encourage this fraudulent culture.
- Deliver much cheaper services for account holders, lower interest rates on loans and credit card charges (including cheap public credit cards), plus special assistance for individuals and small businesses to help them to manage their finances and develop their plans and innovate.
- Make regulation work properly by introducing democracy and transparency into the whole central bank and regulatory framework, thus finally answering the question ?who regulates the regulators??
How Can Such A Service Be Implemented?
The idea of creating a democratic public banking service raises a number of important questions. These include:
- How could a public banking sector be integrated into a democratic plan for investment and development?
- What would be the role of co-operative and mutual banks, credit unions, insurance and pension funds in such a transformed financial industry?
- What would be the best way to make the governance of a public banking service transparent and accountable to its stakeholders ? the banking staff, bank account customers (individual and small/medium enterprises), insurance and pension policyholders, local communities, pressure groups, and the population as a whole? In doing so, how to implement the efficient and democratic principle of ?if you are affected by a decision you should have the chance to be involved in making it??
- What positive results could be achieved by ending the lavish profit-taking, waste, duplication and unnecessary operations of the existing private banking and financial sector?
- What could be done with the huge sums currently lost to fraud, high salaries, bonuses and commissions; the expensive property tied up in thousands of lookalike high street branches; or the huge marketing budgets wasted on promoting virtually identical services?
- How could the tens of thousands of financial industry staff at local and national level that would be released in a more efficient and rational sector be better utilised in providing support services such as genuine advice and financial assistance for individual and small business account holders?
- What benefits could be delivered to individual account holders, savers, borrowers, the insured and pensioners such as through reduced charges and better interest rates? To small and medium sized businesses with cheaper loans, lower charges, genuine assistance etc? To credit card holders via a reduction of interest rates and the introduction of cheap public credit cards; and for card handlers with minimised transaction costs?
- How could the financial sector be part of a major public innovation service ? providing local innovation centres, helping and encouraging innovators with research, development and production, and seed capital?
- How to bring the private creation of money and debt under public control ? the challenge of financial innovation, shadow banking and so on ? and to integrate virtual currencies and digital credit so that their advantages are fully realised?
- How could the principles of a democratic public banking service be extended on an international level?
- How to bring all the stakeholders together to discuss and flesh out detailed proposals and thereby to identify the main actors in a future democratic public banking sector?
- What steps need to be taken to win public support for a democratic public banking service and to put it into operation?
The First Steps Of The Campaign
Clearly, achieving a democratic public banking service nationally or internationally will take time and considerable effort. But we know we start with a lot of support on our side. It?s a question of reaching out, listening to and involving people and their organisations. To this end, we envisage that the Campaign will develop in five main phases:
Phase 1: A launch period from March 2015 in which support for the concept is secured from a range of progressive organisations and the public ? via meetings and online communication (through email and social media such as Facebook)
Phase 2: A Working Conference in Brussels at the end of September 2015 which would bring together bank staff, radical economists, progressive consumer and small business organisations, political movements, pressure groups and so on.
Phase 3: A period of consultation via national and local conferences and meetings, plus the use of online media and specialist discussion forums to identify and evaluate ideas for a democratic public banking service.
Phase 4: A large decision-making Conference in Brussels in the Autumn of 2016 to agree on the main principles of how a democratic public banking service could work.
Phase 5: National and international campaigning to build mass support among the population, commit community and political organisations to the campaign?s principles, and publicly establish a democratic public banking service as the main alternative to the current broken financial system.
The 2008-9 crisis was ?a perfect storm? for capitalism. The crisis broke out in the financial centres of America and Britain – the pinnacle of the system?s wealth and power – and threatened to bring down the whole house of cards. It was obvious that working people were not to blame for this crisis. That it had arisen from the relentless implementation of the neo-liberal dogma of ?leaving the market to its own devices?. However, in response to the crisis, all free market principles went out of the window as the banks? hastily scrambled for government assistance and support from public funds. In what became known as ?socialism for the rich? the financial industry used its control of the political system to raid the public purse and transfer its debts onto us.
This discrediting of the financial establishment should have been a great opportunity for a radical overhaul of the financial sector, bringing it under public control and orientating it towards building a better economic future for society. But sadly, we had no worked-out and popularly-known alternative to the corrupt, irrational and destructive system that we are still stuck with.
Since the crisis of 2008 the political muscle of the financial industry with its army of lobbyists and spokesmen has ensured that no significant changes have been made to the financial system. Just some tinkering at the edges. Indeed, the world economic crisis of the last seven years and the scandalous use of public money to bail out these banksters has led to an even greater concentration of ownership in the banking sector, with fewer and bigger banks than ever before. Thus in a future crisis, it is now estimated that the leading banks and financial companies are not only ?too big to fail? but even ?too big to bail? – such is the scale of their operations today that any attempt to save them could bankrupt national and international government bodies.
More incredible is the fact that far from the financial sector becoming more prudent, world debt is now much bigger than it was before the crisis ? it has grown by another $57 trillion dollars to reach the astronomical total of $199 trillion which is 2.5 times the value of the whole global economy (at $78 trillion)!
Meanwhile, the buying and selling of dodgy financial instruments has resumed its frenzied course. Currency speculation is rife. Bankers bonuses are bigger than ever. Stock market and housing bubbles are busily blowing up again. In other words, everything is being prepared for another crisis with all the misery that this would entail for working people. But this time we must be ready for it with a credible, worked out alternative that is widely known among the population.
Moreover, there are a whole number of countries like Greece, Cyprus, Ireland and Spain – to name a few – where the need for implementation of a democratic public banking service is daily posed by the continuing crisis.
In working towards this, we don?t claim to have all the answers. Not at all. In this campaign we all have much to share and to learn together. In doing so, we must be open-minded and willing to listen to each other. And to then adopt bold and radical policies when these are clearly in the interest of the vast majority.
If you think that instead of just serving the 1%, we need a financial system that serves the 99%, then we appeal to you to support this campaign ?For a Democratic Public Banking Service?. And to help in any way you can.
By Pat Byrne and Tim Horvath
Joint Campaign Organisers
?For a Democratic Public Banking Service? (a non-profit organisation registered in Denmark)
Campaign initiated by: The Socialist Network
Campaign supported by: European Eco-Socialist Action Network