The banking sector must be overhauled as profoundly as in the wake of the Great Depression or financiers will "game the state" over and over again, the head of the Bank of England's financial stability arm has warned. On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested. The warning, which follows Governor Mervyn King's (pictured left) call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far- reaching reforms. It also coincided with news that the combined effect of rescuing Britain's biggest banks is likely to increase the national debt by a staggering £1.5 trillion, instantly making the UK one of the world's most indebted countries. – Telegraph
Dominant Social Theme: Reregulate! Reregulate!
Free-Market Analysis: Yes, the masters of the universe have "got it going on." Well … no, they don't, in our opinion. It is going from bad to worse for the monetary elite we tend to believe. Why do we write this? Because our tender ears, cleverly attuned to every yowl and mewl, have detected, in the latest noises, a certain tone of frustration.
Surely, by now, the financial crisis should have consolidated the world's great banks under one regulatory roof. Surely by now there should be aggressive plans underway to consolidate the world's great currencies under the generous dome of the IMF. (Well, those plans are going forward but very slowly – and driven by the Chinese and Indians of all folks!)
What happened? First, the bust was so bad and people were so upset by it that those who run the money game could not do what they intended to do as fast as they would have liked to do it. And what was that? Call a thousand government hearings, back-to-back-to-back to discuss ways to regulate the hell out of the system not only regionally but worldwide and with an international currency as well – to make sure that the economic crisis "never happens again."
What got in the way? The Internet we figure (we're partial to the ‘Net). Too many people "get it" by now. It's not the bankers, not the traders, not even the regulations that cause booms and then busts. No, it's CENTRAL BANKS. This is the big secret (not so secret anymore) that people were never supposed to realize. Central banks do the same thing over and over. They print too much money and cause terrible economic havoc. They ruin people's savings and destroy people's lives.
We'll give the monetary elite the benefit of the doubt here. We'll present as a given that after more than a century of disastrous boom-and-bust cycles, those who run central banks still don't get it. These folks, good-hearted to be sure, really think they are doing the rest of us a favor by fixing the price and quantity of money. (Though, for some reason, not one of them will publicly explain why price-fixing is terrible when it comes to widgets but OK when it comes to money.)
Anyway, we'll assume the brightest people on the planet, running the most sophisticated banking institutions, never woke up one day and began to wonder if maybe, just maybe, central banking had something to do with the endless financial disasters that bedevil the West, and thus the rest of the world. Having established this, we'll take the Bank of England at its word. The good gray bankers there are TERRIBLY concerned that the private-market banking establishment is out of control.
Not the central bank, mind you. The system isn't at fault. It's those guys that run the private-market operations. The trouble with this argument is that it's not being made in a vacuum. Free-market Austrian finance is readily available on the Internet now, so when the Bank of England announces how concerned it is over a private-sector banking death spiral, a lot of people either wince or giggle. Twenty years ago the wincers and gigglers were probably confined to a single room, but today they number in the millions.
It's one thing for politicians to feel smug and superior about pulling the wool over the eyes of poor, dumb voters. It's another thing to recreate a regulatory regime when many people in your voting district KNOW that it's not going to make a damn bit of difference. In the first instance, you're a member of secret club. In the second instance, you're starting to look like a hypocrite and, just as badly, a fool. So there is a lamentable lack of enthusiasm (lamentable from a central banker's point of view) about implementing an international regulatory regime. It's not that the bureaucrats aren't trying, but when the game is up, it's up.
We have no doubt that ever more regulation is coming to the financial sector. But gone are the days when the intelligentsia welcomed such with open arms. Along with many other groups and grouplets, the Western intelligentsia, so important to the imposition of dominant social themes, is peeling away from the central-bank-good/private-market-bad meme. This is very dangerous for the monetary elite as image protection for central banking is the most important meme of all. Without it, there's almost no point to all the rest. So, no doubt, they will keep trying, the monetary elite and their assistants, the central bankers, even though their efforts will look increasingly transparent and even eventually silly. What the world needs is a private gold and silver standard of the type that served well in centuries past. What it doesn't need is the pot calling the kettle black.