Why banks are a threat to capitalist system With the banking leviathans steadily hollowing out our national finances, politicians need to do some original thinking.
The banking system remains swollen to a gargantuan size and a repeat of the 2007-09 banking bail outs would send the public finances over the brink. Banks benefit from a double privilege. They are limited liability corporations, meaning their owners won't lose their shirts, only the value of their shareholdings, if things go belly-up. And unlike ordinary companies, banking giants are effectively underwritten by governments all over the world. This has by no means always been the case. Fallen bankers could get thrown in debtors' prison in the 19th Century. One example of a 14th century Barcelona financier who was executed in front of his bank after it collapsed. So let's find out who's responsible for these gross crimes and string them up..
As things stand banks enjoy glittering gains from their highly leveraged bets while the taxpayer shelters them from the consequences of failure. This unique privilege means banks can game the state. In the UK they have been allowed to expand their balance sheets dramatically, lifting assets to five times the country's gross domestic product, compared with 50% for the first two thirds of the 20th century. The City is now not so much the cuckoo in the taxpayer's nest but the velociraptor. It's been said a system is needed whereby institutions and investors don't live with the expectation that governments are going to come in and save them from their mistakes.The banking system remains hugely vulnerable as more recession could quickly tilt the lenders back into crisis. Making matters worse, no one knows what will happen when governments start trying to wean the lenders off state support. The UK alone has put in place billions of pounds of state insurance to underpin bank bonds, leaving aside the capital injections, Bank of England QE interventions, and the implicit, unlimited guarantees of their obligations. Banks are also able to avail themselves of near-zero official borrowing rates and injections of central bank cash into the markets.
Thus withdrawal of the unprecedented, global central bank stimulus programmes could easily trigger price collapses, throwing the financial system into chaos again. It is warned there is now no greater threat to government solvency than the banks. Moreover the banks are a real threat not only to the state but to the capitalist system itself. Another round of failures, with its accompanying raid on the public purse, could shatter the legitimacy of the market system complete....