One of the potential solutions to the faults of the British banking system that has been suggested since the crash is that we need to create a system of state-owned, or perhaps mutually so, regional banks across the country. These would be run by local politicians, perhaps some trade unionists and so on, but not by those ghastly profit grabbing shareholders. This would enable those banks to concentrate on what really matters, not just profits. It’s true that this idea took rather a blow when the Co-Op Bank blew up. That blow up happening because as a mutual (the Co-Op itself, not the bank) there were no outside shareholders to take the hit when problems arrived and also because having a board made up of people who were not bankers turned out to be not a very good thing for a bank (the Chairman turned out to be a Methodist minister with a penchant for illegal drugs and rent boys, of themselves not bad things but allied with a complete ignorance of banking something of a blow).
Over and above that example there’s a very good reason why we don’t in fact want the local politicians (and in this sense trade union leaders are politicians) to have control over the local banks as this story from India tells us:
The newborn twin states—Andhra Pradesh and Telangana—are set to implement the poll bonanza promised by their political heads to their voters during recent elections. While Andhra Pradesh cabinet had officially approved the Rs 43,000 crore loan waiver, the Telangana is busy cutting out the final structure of the waiver that could run into several thousand crores.
The key differences between the 2008 loan waiver and the new one is this: The new round of waivers are sponsored by two chief ministers – Telugu Desam Party chief N Chandrababu Naidu and Telengana head K Chandrasekhar Rao – unlike the past one that was primarily sponsored by a central minister (P Chidambaram). Even though the waiver is a state-specific affair, its size is more than half of the total amount of loans waived in 2008
But the one thing in common between the two – the potential to kill the credit culture of a large number of good borrowers with a single stroke – is what that could prove fatal to state-run banks.
Post the announcement of the waiver, even the good borrowers have stopped paying back money to banks, already leading to stress signals on the books of state-run banks, which have an exposure to them.
The point being that if you give the politicians control over the banks and their lending then they’ll use that control to purchase votes. As is happening there in that story from India. Many local farmers have borrowed from the local state owned banks. In order to gain the votes of such farmers at the recent elections the politicians promised to write off some or all of those debts. Election duly won the politicians are doing that writing off. Without, it should be noted, really working out how they’re going to make the balance sheets of those banks good after having done so.
Some will call this a rather cynical view of politics but I prefer to call it realistic. Politicians use whatever they have to hand in order to purchase votes. If all they’re allowed to do is appeal to social issues (say, "I’ll make gay marriage or pot legal" or, from the other side, "I’ll make gay marriage and pot illegal") then that’s the promise they’ll make as they attempt to get elected. If they’ve control over rents, or tax rates, then they’ll promise to freeze rents, or to lower the taxes of one group and raise them on another. If they control the local banks then they’ll use the money in the local banks to purchase those votes.
Given that someone does indeed have to make the law on those social and tax issues there’s no way that we can divorce politicians and their vote buying from the process of how those questions are decided. But we don’t have to have local governments doling money out of banks: so it’s probably a good idea that we don’t create them so that politicians have more resources with which to purchase votes.
Link Forbes
No comments:
Post a Comment