Yes he can! Barack Obama has finally found his voice and has used the full authority of the US Presidency to make a profound moral intervention in the debate about the future of the world economy. He has decided to take on Wall Street, the greatest concentration of financial power on the planet, in what promises to be an epic battle over who runs America. Echoing Franklin D. Roosevelt, Obama has served notice on Wall Street that he intends to break up the behemoth banks and end their speculating with other peoples’ money. This could be a defining moment in economic history, and the howls of anguish have been heard across the world’s financial centres.
Last week, this column appealed to Gordon Brown to emulate Barack Obama and take on the banks on their own terms. I make no apology for returning to the theme this week, following Alistair Darling’s refusal even to contemplate a levy on bank profits, similar to that proposed by Obama ten days ago. This week, before he rejects out of hand Barack Obama’s latest bold attempt to cut the banks down to size, perhaps he should reflect on the editorial in Friday’s Daily Mail, the Prime Minister’s favourite tabloid, which celebrated the US President’s fighting talk. “At long last”, said the most consistently conservative paper in the UK, “the days of undeserved plenty for greedy bankers may be numbered”.
But not over here, unfortunately. Number Ten appears to be content to allow the culture of greed and irresponsibility to run unchecked in the City of London, even as the financiers asset strip British manufacturing. Last week, Royal Bank of Scotland – 84% state owned – helped finance the buy-out of one of Britain’s few remaining world class companies, Cadbury, by the US junk food manufacturers, Kraft. So much for patriotism. So much for the government hopes of rebalancing the economy away from financial services. The banking sector has become an economic version of nectrotizing fasciitis, a disease that eats the flesh off the very bones of UK PLC
Gordon Brown has assumed, mechanically, that challenging the financial kleptocracy will be regarded by voters as a lurch to the Left – a revival of old Labour. The PM and his ministers are afraid of being accused of ‘socialism’ or Marxism. But they are living in the past. What we have today, following the banking bail out, is actually much closer to state communism than any kind of functioning market economy. Our economy is dominated by half a dozen state-supported financial conglomerates, too big to fail, making speculative trades secure in the knowledge that the tax payer will step in again and bail them out. Whatever it is, this is not capitalism. And the voters are sensible enough to understand this, even if Gordon Brown isn’t.
The bankers’ pigheaded refusal to recognise their debt to society places them in a worse moral position than the most cloth-headed trade union dinosaur of the 1970s. At least the old union barons were fighting on behalf of their membership – around 12 million workers at the height of union influence in 1977. The bankers are only in it for themselves, and have an insensitivity to public sentiment that makes Arthur Scargill look like the Archbishop of Canterbury. If George Osborne, the Tory shadow chancellor, can support the Obama scheme, so can Gordon Brown. Obama needs all the support he can get, and the vociferous backing of the UK Prime Minister – who is still a force in the G20 salons of developed nations – could be crucial in the drive to curb big finance. For it will not be easy.
“If these folks want a fight, I’m ready to fight”, said Barack Obama last week, and he’d better believe it. Since he made his announcement on Thursday, legions of bank lobbyists have been Blackberrying the length of Washington and London, calling in favours, making threats, pushing the line that undermining the banking sector will undermine America. 10% of American GDP comes from the financial sector, and Wall Street banks operate across the world. Obama’s announcement led to dramatic falls on all the world’s stock markets, indicating the extent to which they have been pumped up by bank rescues.
For a decade and a half, the banks have been quietly colonising the upper reaches of British politics and administration. There is a revolving door between the UK government and the financial sector through which a whole raft of cabinet ministers and senior civil servants have followed the money. In America, the overlap is even more conspicuous because of party donations. Barack Obama’s biggest campaign donation came from Goldman Sachs – aka “Golden Sacks” – the biggest investment beast on Wall St.. Yet was Goldmans that prompted Obama to act last week after it announced profits of $45bn for 2009 – the very year it was saved by the taxpayers – and said that it was handing out $16bn to Goldman employees in salaries and bonuses. The US President could simply could not let this continue.
What he intends is a fundamental and irreversible shift in the balance of power from Wall St back to Main St.. He plans to stop banks from playing the markets with depositor’s funds, bar them from speculative activity like hedge funds and private equity, and to concentrate on old fashioned banking: mortgages and business loans. If Obama fails, the consequence will be dire. The banking kleptocracy, which has managed to plunder taxpayers’ money on an epic scale on both sides of the Atlantic, will become even more entrenched, even more powerful. If Obama fails, the ground will have been laid for the next great financial crash, of even greater dimensions than the crash of 2008. Already, the banks, gorged on public money, have been quietly reflating the bubble economy. Speculative cash is pouring back into property, shares and commodities.
The infamous “carry trade” is back, where banks borrow money at near zero rates in countries like Japan and America and then lend it in higher interest rate countries like Australia. The mountain of unstable private debt that underlay the 2008 crisis has been transferred to the public sector – with no clear idea of how it is going to be repaid. The future economic and political stability of the world is at stake. If Obama fails, we could all find ourselves living like Haiti. It’s as serious as that.