As we head into a new year, the same old financial mess follows us. We have had yet more rhetoric regarding bankers bonuses and the ever repeated catchphrase “we are all in this together”. But as the average wage rises of those in the Financial services sector rise from between 20% and 40% and massive bonuses are about to be given out, when will the penny drop?
The structural problems of the “western” economies of the world are yet to be addressed and we are sleep walking into further economic crises.
Whether we are on the left or right of the political spectrum, we must accept that for the capitalist system to work all who participate in the private sector must be allowed to fail. There must be consequences for our actions in the economy. At present however, since the economic meltdown, all within the banking sector now belong to “the public sector”. The banking system is effectively a nationalised industry.
Those who take home large pay cheques and bonuses do so because they take risks with large consequences, hence large rewards. But now, there are no consequences because if they fail they are bailed out. Everybody knows it, so there is no limit on the risk taking and no consequences if it goes wrong. In this scenario there is no justification for the high wage increases or bonuses being given out.
This state of affairs cannot continue otherwise our next financial crises could result in the collapse of our economy not just its decline or stagnation.
The rhetoric of the coalition has been laudable, but its actions, as usual quite pathetic. Today, we had David Cameron expressing the need for restraint by government owned banks, yet all banks are now effectively propped up by the government. The systemic problem has not been grasped and this spells danger for all of us.
What we require is a complete sea change in the approach to the banking sector. Smaller institutions where they MUST be allowed to fail. Where confidence in the system is such that allowing a bank to fail will not put a run on all banking institutions.
We still have the diatribe of neo-liberal ideology affecting both the left and right of the economic debate. Still people claim we need less regulation rather than more. It is not how much regulation you have but having the correct regulation that matters so markets can operate in a way that benefits society.
The credibility of Cable, Clegg, Cameron and Osborne is reducing with every day that passes. We have many shocks to the economy coming our way over the next few years which will test our financial system significantly. Oil price rises, rising inflation, rising interest rates, crises in the Euro zone and the gradual reduction in US economic power are just a few. We are probably only half way through the current economic crises, but if we are to survive the next, we need to address the systemic failures of our banking system.