30 October 2010

Follow the money

Any intelligent observer who was paying attention must have learned since 2008 that the money system is the trick that facilitates the control of the global economy in the interests of a tiny but powerful minority. So when any proposals are made to change the way that money-banking system works we should pay great attention.

On Tuesday Mervyn King, the Governer of the Bank of England and therefore the man responsible for both banking in the UK, monetary policy and the pound sterling itself, gave a speech in New York (aka Capitalism Inc. HQ) where he said explicitly that 'Of all the many ways of organising banking, the worst is the one we have today.' (Full text available here.) This is the clearest indication yet that capitalism is in the course of a major adaptation: the key to who will gain and who will lose will be in the design of the money system that will emerge.

King's central point in terms of critique seems to be similar to that made by my good friend Mary Mellor in her book The Future of Money, namely that it is simply unfair that a system so unstable as that of fractional reserve banking should be guaranteed by the public so that, in the now familiar cliche, the losses are socialised while the profits are privatised.

According to Robert Peston's summary of the speech, King argued that the hastily agreed Basel III accords are insufficient guarantee for publics who still stand behind their banks. For those do not spend their time watching the pin-stripes, Basel is the place where international bankers go to decide amongst themselves what is the least they can agree to tinker with their business model to keep the world's politicians happy (again: note the location).

What Mervyn King was arguing for, in the heart of the banking beast, was the abolition of banking as we know it. He proposed two alternative models. The first is already the subject of wide debate and would require a complete separation of retail and investment banking. The second is more interesting and known as 'limited purpose banking'. It works on the insurance model inherent within mutual approaches to finance and, as far as I can understand, leads to a situation where we really are ‘all in it together’, since the risks between capital and personal investments are pooled, with businesses and households sharing risks, but within different kinds of 'banks', operating with different degrees of risk.

Mervyn King places his hope in the Independent Commission on Banking, whose members are all well-steeped in the capitalist money and banking system, and are sure to recommend an adaptation that does nothing to change the status quo in terms of the sharing of economic power within global capital. Perhaps it is time to launch our own People's Commission on Banking in response. This could propose that the creation of money should be in the public, not the private sector, thus solving all King's problems at a stroke. I propose Mary Mellor for Chair.


  1. One from the Twittersphere, as opposed to retweeted into it: twhttp://lenduvall.blogspot.com/2010/11/crumbs-from-bankers-table-or.html

    Re: Boris Johnson's proposal to let banker's off paying their way, but ask them to give more crumbs from their table...

  2. Just writing my newspaper column about his speech and I have been giving it out to economic students all week, interesting stuff but banking is just part of a wider jigsaw.

    King argues that risks are rewarded with profit and failure is picked up by a bill to the tax payers, esoteric forms of new 'financial architecture' lead to more risk and banks are now so large if they collapse they bring the economy down with them.

    But as I say still only part of the jigsaw!