Two years ago, you were mugged. So was I. So was everybody we know. You remember that night. The mugger wore a pin-striped suit from Saville Row, and when he cornered you at the cash machine, he said if you didn't hand over $1 trillion in cash guarantees now now now, he'd knife the global economy in the heart. Oh, he was polite enough: he called the mugging a "bank bailout," and promised that, sure, tomorrow he'd change my ways, so this will never happen again, guv'nor. But since then he has been laughing in your face -- and preparing for an even bigger mugging next time.
There was a time when we left the question of banking to nerds, wonks, and lobbyists. You can leave this question to them again, if you want -- but the price could be your job and your home.
To understand the renewed disaster that is waiting for us, you need to recap the story of how the bankers crashed the global economy. In the Great Depression of the 1930s, everybody realized the banks had behaved in a reckless and risky way with the people's money, and they resolved to never let it happen again. President Franklin Roosevelt called them "malefactors of great wealth", and said "I welcome their hatred." In response to public pressure, he introduced strict regulations. Banks had to behave conservatively. They couldn't take the deposits of ordinary people and gamble with them on Wall Street. They had to hold substantial capital reserves. They were locked in a golden cage, and similar rules spread across the world. For sixty years, it worked well.
Then in the 1990s the banks demanded to break free of these "outdated" rules. In the US, they gave massive donations to both political parties and in return demanded an end to regulation: it was legalized bribery. In Britain, the City threatened to simply move offshore, a method of intimidation that was just as effective. So suddenly the old rules were dismantled by Bill Clinton and Tony Blair. Now the financiers were allowed to run an unregulated "shadow banking system" with almost no rules. They could gamble with your cash. They could invent complex money-shuffling instruments like derivatives that nobody really understood, not even the people selling them.
And they could run most of their businesses "off balance sheet", turning their accounts into an elaborate fiction: Lehman Brothers claimed it had a net worth of $26 billion when it actually had a hole in its balance sheet of close to $200 billion.
Many people predicted that the invisible hand of the market would push the economy over a cliff. When Clinton's deregulation bills were pushed through, the Democratic senator Byron Dorgan was almost shaking as he said: "I think we will look back in ten years' time and say we should not have done this, but we did because we forgot the lessons of the past."
It all happened just as he predicted. By the time the banks were bankrupt, there was no choice. If our governments didn't bail them out, the cash machines would have run dry, and there would have been anarchy on the streets. But we should never have got to that point. It was entirely preventable: Canada never abolished it strict banking regulations, and its banks sailed through this crisis unharmed, without hoovering money from its tax-payers.
So you would expect that the urgent priority of our governments after the bailout would be to put the banks back into a cage of sober regulation. But it hasn't happened. Two years on, the paltry new regulations have been the equivalent of a heart attack survivor deciding to cut back from smoking sixty cigarettes a day to fifty. They are gambling with derivatives again. They are gambling with our deposits again. They are using our money to pay themselves record bonuses for record failure. Most economists believe the banks need to hold capital reserves of 30 percent to protect against another crash. The new rules say they have to hold 3 percent, by 2019, if you wouldn't mind awfully.
For the bankers, it's a dream deal. When they make profits from gambling in the good times, they pocket them. When they make losses in the bad times, you and I pick up the tab. The people we have been told for decades to worship as "wealth creators" turned out to be the biggest wealth-sucking parasites in history. The only part of the banking sector that isn't partying like it's 1999 is the only one we actually need: lending to ordinary people for mortgages and small businesses. We bailed them out, but they are refusing to bail us out.
It's clear where this story will end. The US Treasury Department's Inspector General, Neil Barofsky, reported to the Senate in January this year: "If we do nothing to correct the fundamental problems in our financial system [we will] end up in a similar or greater crisis in two, or five, or ten years' time. It is hard to see how any of the fundamental problems in the system have been addressed to date. [The bailouts] saved our financial system from driving off a cliff in 2008, [but] we are still driving on the same winding mountain road, but this time in a faster car."
Why would our governments allow this? Why would they disregard our interests so blatantly? They have, in effect, been hijacked by a small elite bribing or threatening them. No American politician can run for national office without taking money from these financiers, and they then have to dance with the men who took them to the Washington ball. British politicians suck up City donations too, and are terrified of bankers threatening to relocate. Simon Johnson, the former chief economist at the IMF, says "the finance industry has effectively captured our government."
But incredibly, Wall Street and the City are actually complaining that our politicians have already done too much to reregulate. After one senior Wall Street banker protested that Barack Obama was "beating us with a stick", the comedian John Stewart replied: "What you call a stick on Wall Street, I guess Americans call a trillion-dollar bailout of your industry. So a lot of Americans will be saying to Obama right now: 'Hit me with that fucking stick.'" In 1929, some of the bankers who caused the crash had the decency to kill themselves. This time, they've demanded bigger bonuses.
It is all going to happen again, unless there is hefty public anger and pressure to bring back the banking regulations that worked so well between the 1930s and the 1990s. We need to take our government back from the corrupt clutches of the City. If we go back to sleep, we will be mugged again, and next time it will be with a bigger knife and deeper stab wounds. You can, at least, bank on that.
This article originally appeared in the British edition of GQ magazine. To get Johann's columns for them a month earlier than they appear online, subscribe to the magazine here.
Follow Johann Hari on Twitter: www.twitter.com/johannhari101
Just how many regulations do you think have been written free and clear of all corporate voices? Without the advice of the to-be-regulated businesses? Without the guiding hand of the invisible hand? How could you expect any regulations to properly restrain a Goldman-Sachs when that monolith is so deep in government that to remove the one is to kill the other?
The author of this article noted an interesting fact--the last time we had a catastrophe like this happen, some of those responsible really did commit suicide--not because they were ruined, but because they were disgraced. They knew they would be held responsible for the depression, and rightfully so--government corruption existed back then too, of course, but we had a determined President and enough competent public servants to make reform happen anyway. The public was behind it, and the government made it happen.
Today, however, we have seen a total lack of government action on this important issue, and the absence of concern has been shared by those bankers responsible. The impetus for change has to come from us, or it won't come at all.
Here are three books for the re-education of America:
Nullification, by Thomas Edwards
How Captialism Saved America, by Thomas DiLorenzo
The Creature from Jekyll Island (A second look at the Federal Reserve), by G. Edward Griffin
End the Fed, by Rep. Ron Paul
The rest of your article is closer to home, and I am glad you're upset and want to do something about it. And since it seems you're in the information game, please do us more service by trying to understanding different economic theories and just why our country was started: economic tyranny.
Yes, we do have collectivist, pro-banker socialism for the rich. The Revolution was a substitution of aristocracies. To vote, you had to own property, be white and male. But the dark hand of European old money has continues to subvert whatever good there was over here.
It will give you a real good understanding of what's been going on and why...
Good post, F&F
Is Canada as corrupt as other nations?
The TRUTH is that BOTH parties are now sold out to corporate interests and it is also true that Wall Street, the Bankers and also some big unions own and control Washington.
Most so-called "progressives" know this, but it doesn't stop their push for every bigger and more powerful government controlling every aspect of our lives from what we eat, to what we drive to confiscation of wealth, to everything else that goes on.
When you begin to realize that a more powerful central government is the same thing as turning the reigns of your life over to Wall Street, you may begin to wodner why that is a good idea. That is IF you are somewhat intelligent.
Campaign contributions= bribes and pay-offs.
Mussolini called the fusion of government and big business "Fascism" and he knew a thing or two about it.
So facism has finally come to America.
By the way, that Democrat financial reform touted as "needed" regulation was just a show. In truth, it legitimized the "too big to fails".
No attempt whatsoever was made to break up the TRUE powers behind the throne.
Republican/Democrat has become a useless dividing line; it's become the corporate oligarchy vs the people of the world.
I bank at a small regional bank, don't use credit cards (it helps to have kids that are grown and on their own), buy local etc,etc,--but where do I put my money (what little is left)?? I would like to invest in something that keeps up with inflation-how?
So far--all I have come up with is by land in the boonies, put up solar, grow some of my own food, know a farmer who has critters on pasture etc.--but that doesn't exactly help create a strong economy.
Anybody got ideas on how to create an economy that can function without big banks???