Sunday, 18 January 2009

A state-run banking sector...

It's hard not reach the conclusion that greater public ownership of the UK's banking sector is on the cards, and with it may come a change in emphasis in what banks do. If some of the stories around today are on the money we might not only see RBS taken wholly into public ownership (an outcome many people expect now), Lloyds/HBOS might need more money, Barclays may also need to come back for taxpayers' money (and surely this will mean someone on the board has to go), and Northern Rock might be used as a people's bank to get lending going again. Add to this the Government's planned insurance scheme to (as far as I understand it) effectively put a floor under the value of the banks' toxic assets if necessary.

Now, as other have pointed out, the banking system always ultimately has the state as a back-up. But in today's UK the state is heavily involved in many aspects of what banks would normally be expected to do. This ranges from mortage product design (the idea of allowing people payment holidays), to lending policy, to valuation of toxic assets, to deciding on key senior bank personnel. How much further would outright nationalisation (though with the likes of HSBC and Standard Chartered presumably staying independent) really push things?

People will argue that the state will lack the skills to run banks effectively but a) I don't think HMT is going to avoid drawing on experienced private sector people to make a political point and b) anyway, look at where we got to leaving private sector genius to itself - a system that has almost destroyed itself. So we are in the bizarre situation now where what would have been regarded as a far left fantasy (a socialised banking system) is looking not only a possibility, but also an outcome which many 'reasonable' people would consider a fair one.

As I've argued a bit before, this kind of shift has serious implications in other areas. I'm already busily arguing with various people that if we have this level of radicalism in economic policy, why pussyfoot around in financial reform. For example, in the bit of the world that I inhabit the idea that shareholders are the primary constituency to be considered in corporate governance has been dominant for a very long time. But given the many flaws in an approach based solely on this way of looking at things, surely the current environment will see this reappraised? This is one of those times where you try and drag the boundaries of debate as far as possible in your direction.

6 comments:

Charlie Marks said...

That last para is spot on.

If there is wholesale nationalisation, the point should not be to eventually return it to the market, business as usual, but to have cooperative, democratic forms of ownership.

If the staff at Northern Rock had any say in the matter, I doubt they'd've bet their jobs on getting invovled in financial jiggery-pokery that the most intelligent folk struggle to explain...

Tom P said...

didi you see the Willem Buiter bit on nationalisation recently? he reckoned the whole lot (including Barclays and HSBC) could be nationalised by the end of the year.

Steven_L said...

CM,

A lot of them wouldn't have had their jobs n the first place without the jiggery pokery that fuelled the lending growth.

I bet a lot of them got involved in the joggery pokery in person, by buying into the housing bubble themselves.

It's unreasonable on one hand to blame the lack of foresight on the part of the bankers for everything that has come to pass, then on the other remove the consumer from blame entirely because the bankers should have known better.

If you ask me, the main threat to the world is that the herd mentality becomes nationalistic and protectionist to the extreme, threatening armed conflict over who owes who what.

Tom P said...

"A lot of them wouldn't have had their jobs n the first place without the jiggery pokery that fuelled the lending growth."

I'm not sure that's right. A lot of them would have been employed in the mortgage business regardless of whether there was a bubble or not.

And I wonder if the actual jiggery-pokery (if we're talking about things likes the banks deciding to take a punt on the housing market, getting involved in the mortgage-backed securities market etc) actually accounts for that much employment in the banking sector as a whole, compared to all the basic admin stuff.

I agree consumers ought to hold their hands up too.

Charlie Marks said...

If Northern Rock staff got involved in the housing market, who can blame them? This was after all the way forward offered up by successive governments - "Workers of the world, untie! You have nothing to lose but your investment in your home!"

The unusual Tory historian (unusual Tory, that is: he's Scottish) Niall Ferguson pointed out that mass participation in the housing market, while unsound as a sustainable economic policy (the bubble! could've been a horror movie with Steve McQueen!) it provided what he called "a constituency for capitalism".

I recall one New Labour figure justifying capitulation to the Thatcher (counter-)Revolution from an electoralist perspective. I wonder now if that hasn't completely reversed - note that Cameron is warning his lot to be "progressive" through this recession (http://news.bbc.co.uk/1/hi/uk_politics/7845331.stm) whilst keeping up the attacks on state intervention / pinning the blame on GB as if he was the central planner (in a free market economy!)

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