By Jane West
While it is welcome that Stephen Hester, CEO of the publicly-owned Royal Bank of Scotland (RBS) has been forced to forego his grotesquely inflated bonus – and that his predecessor Fred ‘the Shred’ Goodwin has been stripped of his knighthood – the truth is the whole furore has been used to divert attention from the most central issue and real scandal relating to the banks.
The central issue is that all banks, whether formally nationalised or currently ‘private’, are in fact entirely propped up by the state, and are ‘looting’ their enormous direct and indirect public subsidies to protect private shareholders, their directors and top bankers, shore up profits, and build up their capital reserves without delivering any remotely commensurate benefits to the rest of the economy – indeed like leeches they are creaming off funds from other sectors of the economy.
All the British banks are propped up by the actions of the state – that is the finances of the population. Even those like Barclays and HSBC that were not formally bailed out are only surviving because of the billions that the state is pumping into the banking system.
The real scandal is that the banks have been given a huge injection of cash from the public purse, which they are borrowing at close to 0% interest. But they don’t loan it out at 0%, instead they are reaping huge profits on loans, trying to strengthen balance sheets, and in various ways propping up shareholders, while failing to stimulate the productive economy.
Even right-wing commentators, like Jeremy Warner, Assistant Editor of the Daily Telegraph, have raised the issue of how to realise the value of the public’s £45bn investment in RBS – and addresses the correct view that the best solution is to nationalise the banks.
‘If the Government thinks there is upside to its equity stake, it should plainly buy up the rest, and perhaps turn RBS into a fully fledged development bank…
‘As things stand, governments demand that banks both increase their capital buffers and expand their credit. But since investors won’t provide more equity capital, these aims are proving mutually contradictory.
‘If you cannot raise more capital, you satisfy the demand for bigger buffers by shrinking your credit, which is what is now happening across Europe… Fully nationalised, RBS could be more effectively directed to apply credit where the Government thinks it’s needed.’
Of course, Warner goes on to dismiss the idea arguing that ‘Capitalism may have failed, but replacing it with the Stalinism of central planning doesn’t look like progress to me.’
But nonetheless he concludes: ‘If sufficiently independent and well defined in its purpose by charter, conversion into a national development bank might provide some sort of viable role for RBS.’
When even the Telegraph is saying that the system is bust and a greater role is needed for the state, that is the actual issue government should be addressing.
If the government were logical all these banks – which to repeat are really in the public sector as they are entirely propped up by state policy – should face the same ‘public sector pay restraint’ that has been inflicted on everyone else in the public sector. They should be stopped from using publicly derived funds to pay inflated salaries and bonuses. But, of course, for a capitalist government it is a desirable aim to cut the pay of nurses, teachers and others, but it is entirely unacceptable to seriously curb the income of the capitalists themselves.
The welcome sight of Hester being forced to forgo his bonus is therefore only a tiny part of the story. The real issue is for the state to stop the systematic looting of the population via subsidies to banks which are appropriated by private owners and top managers. That would require taking the banking system into full public ownership.
Instead, the government has decided to concentrate attention on one or two individuals – in order to protect tens of thousands of others in essentially the same position.