I've published an article at openDemocracy, as part of the Uneconomics debate, in which I attempt to stand back and take a wide-ranging look at the policy dilemmas posed by the banking system. There is, I suggest, a serious problem in that the state has become an under-writer for a wasteful and ineffective risk management system, on which it cannot now easily turn its back. In that respect, the financial system has become like the prison system: a poorly calculated strategy for reducing risk, which may have the exact opposite effect, but which the taxpayer has become entangled with. As I argue:
Nearly five years after the dawning of the financial crisis, we can now identify one of its possible long-term legacies: the implicit association between the modern state and large financial institutions has become an explicit one. It is no longer possible to specify exactly where the state ends and the banking system begins...
We are living with a situation in which billions of pounds of public money is still being effectively siphoned into the pockets of private individuals, via quantitative easing and other forms of support for the banking sector. The on-going hand-wringing over the 'fairness' of bankers' pay tends to ignore the graver public insult, that billions of pounds are being removed from the banking system in the form of bonuses, which the taxpayer will have to provide if the system collapses again. Gordon Brown cites figures ↑ showing that if bankers had reduced their pay by a mere 10 per cent between 2000-2007, the banks would have had £50bn more of capital available to them when the crisis struck, which is the same amount that the government injected into RBS and Lloyds-TSB in October 2008.
There is a structural problem here that has still not been dealt with. If this situation is to change, the government will need to take risks with its modus operandi of risk management. While regulators and policy-makers view the future via traditional risk management techniques, they will effectively endorse traditional risk management institutions of the City of London. Only with an ethos of experimentation can anything genuinely new be anticipated and valued.
You can read the rest of the article here. Comments might be better placed underneath the article itself, rather than on this blog.