Regulators dance to the banks' tune
That Goldman Sachs, the world’s largest investment bank, is set to pay record bonuses that even exceed those made before the credit crunch, is only one sign that nothing has changed in the world of global finance. This comes hard on the heels of decisions by Alistair Darling and the European Union to leave the banking system more or less as it was before it collapsed gratefully into the arms of taxpayers.
Sachs, whose former executives include the US treasury secretary Timothy Geithner and his predecessor Henry Paulson – joint architects of the bail-outs – has reported record earnings for the second quarter and if it maintains these profit levels, bonus payouts for the year could reach a staggering $22 billion.
As Matt Taibbi, the fearsome US journalist, writes in a powerful article for Rolling Stone: “The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
All of which goes to show two things: how powerful banks like Goldman Sachs remain and how powerless governments and states are in relation to global financiers. Remember the pledges at the G20 summit in London in April? Obama and Brown et al committed themselves to regulate the banks so that the financial meltdown could not happen again. You would do well to remember that the summit began gathering on April Fool’s Day.
The joke, made at our expense, is that the state will use taxpayers’ money to keep the banks afloat – Goldman, for example, got billions from the US government to cover losses incurred when insurance giant AIG went belly up – while only the most cosmetic regulatory changes will be introduced.
Last week, Alistair Darling, the chancellor, published a white paper on the future of banking. While acknowledging that any significant changes would have to be agreed globally, the white paper remains in favour of preserving what many see as a major cause of the collapse – the use by banks of arms-length “special vehicles” for the purposes of speculation.
Although the report is supposed to be dedicated to regulation, it adds that “the government is clear that the financial crisis was not caused by a lack of powers within the UK’s regulatory regime”. Not only that, but “the prime cause of the problem was the action (or, in many cases, inaction) of market participants”. A similar view is being taken by the European Union and by the Bank for International Settlements, leaving one commentator to suggest:
The message, then, is speculative business as usual, though at a higher capital cost. So the crazy habit of running the banking system as an off-balance sheet vehicle of the public sector may still be intact. To put it in the language of former Citigroup chief Chuck Prince, the regulators are still dancing. The taxpayer is still at risk.
What actually exists is an unholy alliance between regulators – aka the state – and the banking behemoths, which politicians like Brown and Obama orchestrate. The objective is to maintain and sustain capitalism at all costs, one of which is years of cuts in spending on essential public services to pay for the banking bail-outs. The moral of this story is there is not going to be a kinder, better regulated, fairer kind of global capitalism at the end of this crisis and the sooner that is understood and acted upon, the better.
15 July 2009