LAUGHING ALL THE WAY TO THE BANK
Thursday, July 09, 2009
16:12 Mecca Time, 13:12 GMT
The G8 summit will likely examine exit strategies, but what will the
new financial order look like?
Samah El-Shahat, Al Jazeera’s resident economist, will be writing a
regular column analysing key elements that have contributed to the
global financial downturn and its impact across the world. If you have
any questions on the G8 summit in L’Aquila (July 8-10), Samah will
be hosting a live debate on Livestation on Thursday, July 9 at 16G.
Download the console player at Livestation.com to join the discussion.
Business as usual, but even better!
Roll up. Roll up. Roll up. Wall Street and the City of London –
the world’s two major financial centres – declare it is "business as
usual" again… They are hiring, poaching each other’s staff and their
profits are soaring. "Even the Bank of America’s investment banking
arm, which includes the once very sick Merrill Lynch, is expected
to make good money this year," reports the Wall Street Journal this
week. And, of course, bonuses are back. Even at the supposedly UK
government-controlled Royal Bank of Scotland; the bonus is back with
In depth Al Jazeera’s coverage of the G8 summit
Stephen Hester, chief executive since November, is believed to be
getting $16 million per year alone. And that is in a government
quasi-nationalised institution – imagine what is happening
elsewhere. Is this not the pre-crisis era all over again? Actually,
let me answer this. It isn’t the pre-crisis era. It’s WAY better
than that for banks. This is "back to business as usual" with bells
on. The financial crisis has been the best thing that could happen
for these banks. Yes, even I can’t believe it. Our watershed moment
to change the world economic system has not just been squandered,
we have inadvertently reinforced the same structures and institutions
that have created the mess in the first place. Firstly, in our rush
to regulate our financial system we have created a system that is
much worse than before. How? Well, we rewarded the ‘zombie’ banks by
making them too dead to die… oops, sorry, too big too fail. The new
regulations give them legitimacy and protection, as well as failing
to curb just how much debt they can take on relative to their assets.
Taxpayers’ cash As Robert Hunter Wade, professor at the London School
of Economics, told me this week; regulation is now coming into play
that will allow banks to become even more reckless with taxpayers’
money, because they have become too big for any government to allow
them to fail.
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There were 15 big global banks before the financial crisis hit. During
the crisis, however, the collapse of Lehman Brothers led governments
to encourage other banks – by means of large amounts of taxpayers’
cash – to buy up the not-so-well banks. The Bank of America’s purchase
of Merrill Lynch is a case in point. So we went from having 15 banks
to having around six. And these remaining banks have more power as
their importance is now set in regulatory stone – and they know it.
Instead of bringing the banking sector to heel – we have given it
a kiss of life and pumped it with steroids. And these steroids are
financed by the taxpayer. Secondly, we have strengthened that other
financial institution that directly affects almost every home and every
individual in the developing world – the International Monetary Fund
(IMF). G20 consensus
"IMF policies have been, despite the heartache, the wrecked lives,
the savaging of countries’ agriculture, education and institutions,
granted legitimacy during this crisis"
During the G20 meeting held in London in April, the one consensus
all the countries could reach, beside agreeing on regulation that
led to the "too big to fail" disaster, was to provide a lifeline to
the IMF that it didn’t deserve. We bolstered IMF funds by something
close to $1 trillion. This call for fortifying the role of the IMF
will be repeated in this week’s G8 summit. The IMF was used to force
neoliberalism – that poisonous cocktail of financial deregulation,
free markets, privatisation and the rolling back of the state – on
developing countries. IMF policies have been, despite the heartache,
the wrecked lives, the savaging of countries’ agriculture, education
and institutions, granted legitimacy during this crisis. So, all in
all, our leaders multilateral solutions to the crisis have been about
entrenching the existing world economic order rather than changing it.
But where does this leave us? You know, us in the real economy.
Well, the banks haven’t yet started lending. All the money, as you
will see from my previous posts, remains constipated within the new
banking behemoths. The level of toxic debt on their balance sheets
is still unknown and, because of that, we will never get a recovery.
Prolonged recession It is becoming obvious that this is going to
be a prolonged recession, as indicated by last week’s US employment
report. Half a million Americans lost their jobs in the month of June
alone. This was much worse than anticipated. Manufacturing output is
still dropping in America, Britain and elsewhere. And please disregard
those people who are high on the idea of economic "green shoots" –
mostly bankers and their spokespeople, aka the governments of the
world’s G8 these days.
Around half a million Americans lost their jobs during the month of
June alone [EPA]
They are seeking to convince you that unemployment is a "lagging
indicator" – meaning its takes a longer to catch up with the good
news that the economy is actually rebounding. No. Unemployment levels
are not the party poopers here, serving only to rain on the financial
sectors’ good news and our leaders’ attempts to inspire "confidence".
Unemployment is adding a dose of much needed reality into their very
convenient delusion. And why wouldn’t they be deluded, they’re doing
pretty well feasting on taxpayer’s money. We need our governments to
agree a better stimulus package to stem this unemployment haemorrhage,
otherwise, as the economist Paul Krugman predicts, this global
recession could turn into the Great Depression all over again. At the
same time, for people in less developed countries, the IMF is stopping
them from even contemplating fiscal stimulus packages. Armenia,
Latvia, Romania and Guatemala – who are all in receipt of IMF loans –
have been told to roll back the state and reduce their budget deficits.
And before you say it, I know it is the direct opposite of the advice
the IMF is giving America and others. Could these decisions that have
simply reinforced the old guard, possibly lead to such a ferocious
tipping point that real change in the way the IMF does business in
the future is inevitable? That depends on how much you and I – the
taxpayers – are willing to stomach. Samah El-Shahat also presents
Al Jazeera’s People & Power programme. The views expressed in the
above column are the author’s own and do not necessarily reflect Al
Jazeera’s editorial policy.