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House of Cards


Barclays shows how they are all in it together

Yes, they are all in it together: Barclays, the Bank of England, the Financial Services Authority, Tories and especially the previous Labour governments.

All share responsibility for creating an environment where, in spite of numerous and repeated claims about the virtues of a “free market”, the financial system was in reality rotten at its very core – and far from free.

Barclays manipulated the Libor inter-bank lending rate lower in 2007-08 in part to try and show that it could borrow money cheaply while others were struggling. Barclays was desperate to avoid a state bail-out/nationalisation that befell Northern Rock, RBS et al.

This may account for the apparent collusion of the Bank of England in turning a blind eye to the Libor scandal.  Late in 2008, Bank governor Sir Mervyn King made a quip in public that Libor was “the rate at which banks do not lend to each other”. Will the now ex-CEO Bob Diamond name names when he appears before a Commons committee tomorrow? 

In one of the first acts of the New Labour government in 1997, chancellor Gordon Brown stripped the Bank of England of its regulatory powers and passed them to the most toothless body you could image – the Financial Services Authority.

This was the age of deregulation driven by the globalisation of capitalism. And New Labour fell over itself to show major corporations and the City alike that Britain was the most unregulated economy of them all.

Ed Balls, now the shadow chancellor, was a cheerleader for Brown. In 2006, just a year before the unravelling began, Balls made a series of speeches extolling the City.

Balls told a joint meeting of the Hong Kong General Chamber of Commerce and the British Chamber of Commerce in June:

The UK’s financial tradition as a free, fair and open global market has resulted in tremendous growth in London’s international financial markets in the past decade – over-the-counter derivatives turnover up by 770%, foreign equities turnover up by 260%, cross-border bank lending up by 160% and foreign exchange turnover up by over 60%.

After praising the growth of fantasy finance, Balls declared that central to London’s “success story” was “light-touch principle-based regulation” which New Labour was entirely responsible for.  

Admiring the Big Bang of 1986, when the Thatcher government opened up the City to global competition as “decisive”, Balls went on to laud the FSA which had “confounded those who feared the FSA might become a heavy-handed and inflexible regulator.” In fact, Britain’s “regulatory regime continues to be the best in the world”.

In September, he said the government would block “any imposition of any rules that might endanger the light-touch, risk-based regulatory regime that underpins London’s success”. The Tories went along with all this because their City chums told them to.

All concerned are trying to sing a different tune now but it’s too late for a host of reasons. Deregulation was more than just a theory – it was a necessity. The collapse of the post-war, regulated monetary and trading system in the early 1970s showed that capitalism had reached a certain limit of expansion.

The next phase beginning in the early 1980s, was to set capital free to roam the planet. Transnational corporations demanded transnational finance – and cheap credit for consumers to buy the commodities that were turned out in increasing amounts. Deregulation was driven by this process and was not simply an ideological choice.

The genie cannot be put back into the bottle. There is a global recession that threatens imminently to become a full-blown depression. The Bank of England is resuming the printing of money this week in a desperate bid to keep the economy afloat. This will go straight into the hands of the banks and stay there.

We don’t need inquiries, parliamentary or judicial, into the banks because they will avoid the main issue. The capitalist system is broken whichever you look – politically, economically and financially. There is no “golden age” to turn the clock of history back to, even if this were possible. Moving beyond capitalism to a democratic, sustainable, people-centred, not-for-profit economy is an immediate challenge.

Paul Feldman
Communications editor
3 July 2012

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