Editorial note: If you have not yet read our mission statement above, please do so in order that you can put our blogs in context. 

19 May 2012

NATIONALISE THE BANKS!

Europe’s banks should be nationalised, according to a letter from Welsh resident S. P. Chakravarty published in the Guardian yesterday 18 May 2012.

“Banks are borrowing at virtually no interest from central banks to lend to governments at a higher interest rate. This public subsidy has not, however, resulted in much new lending by banks to businesses,” he writes.

“This is madness. The banking system that crashed four years ago is now beyond repair. The start of a policy of direct lending to governments by central banks and direct lending to industry by nationalized banks would help as a stopgap measure for a couple of years, until these banks can again be privatised when legislation is in place to let banks operate under credible supervision.

“A nationalised banking sector is not necessarily incompatible with a successful market economy as the experience of Taiwan and South Korea during their years of double-digit growth demonstrates.”

Comment by Antigone1984:

A lot of what S. P. Chakravarty says seems to us to make sense, particularly his proposal to cut out the middle man – the commercial banks – between central banks and governments.  This would not only save public money by eliminating the usurious interest charged to governments for the loan of money which the commercial banks themselves have acquired from central banks at rock-bottom interest rates. It would also allow governments to direct the loans it acquires directly from the central banks to targeted businesses, thus promoting growth and employment.

However, we have the following quibbles:

1. Why propose the nationalisation of banks as merely a stopgap measure? Chakravarty provides no argument to back up this proposal. At Antigone1984 we think that as key economic actors the banks should be nationalised permanently.

Chakravarty talks of the adopting of legislation “to let banks operate under credible supervision”. Since the global banking system collapsed in 2008, we have been waiting in vain for the introduction of credible supervision of the banking system. US bank JP Morgan has just announced the loss of $2 billion as a result of unregulated rogue trading. There is no appetite in the financial community for tougher regulation nor any sign that governments have the grit to impose it against their will. Besides which, any regulation is bound to be a compromise between regulator and deregulator interests so that any resulting legislation will necessarily be full of loopholes. As Chakravarty himself writes in a passage we have just quoted: ‘The banking system that crashed four years ago is now beyond repair.”  Quite.

Why not cut the Gordian knot and simply nationalise the banks for good?

2. As regards Taiwan and South Korea, given that the banking sector in those countries was nationalised during their boom years, we think it would be better to describe their economies as “mixed” rather than “market”. In fact, this is very much the situation in China today – the state maintaining a tight rein over the commanding sectors of the economy, including the banks – and something which has contributed immeasurably to the phenomenal growth of the Chinese economy over the past decade.

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 You might perhaps care to view some of our earlier posts.  For instance:

 1. Why? or How? That is the question (3 Jan 2012)

2. Das Vierte Reich/The Fourth Reich (6 Feb 2012)

3. The shoddiest possible goods at the highest possible prices (2 Feb 2012)

4. Where’s the beef? Ontology and tinned meat (31 Jan 2012)

5. What would Gandhi have said? (30 Jan 2012)

Every so often we shall change this sample of previously published posts.

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