Was it Just a Banking Crisis?

A really good article was published on St.Paul’s Institute website, written by Rt Revd Peter Selby – President of the National Council for Independent Monitoring Boards  and former Bishop of Worcester. Here is an extract:

With more or less reluctance the proposals to reconstruct the banking sector are being accepted as either desirable or inevitable. Increasing the fractional reserve and insulating the ‘retail’ functions of the banks from their investment function are seen as the means to prevent the 2008 crisis from recurring.

Nobody wants to live through another 2008, and while there may be short-term turbulence as the changes are brought in, and while bankers continue to express some concerns about the effect on their competitiveness, the proposals are widely found to be acceptable, by general public and by the government.

But when something claiming to be a radical restructuring gains that degree of acceptance we ought to be cautious. The theory of ring-fencing is that ‘our savings and current accounts will be safe‘. But where are our pensions, the major savings of most people, going to find themselves – on which side of the fence, that is?

Just because the changes may mean that we don’t again see queues of people trying to withdraw their money from Northern Rock doesn’t mean that the possibility of the destitution of the population by the irresponsibility of some financiers has been done away.

Nor is that the only dimension of self-deception which I sense in what we are being offered, nor the only point at which I find myself questioning the sturdiness of this ‘ring fence’ that is being constructed. For what will survive the changes essentially unchanged is the fractional reserve banking system itself. A few more percentage points of capital reserves does not alter the fact that we shall continue to let the banks be the principal producers of money, funded by their multiplication of the deposits they hold – many of which have themselves been created by multiplying the deposits of other banks.

In short, the overwhelming proportion of the ‘money supply’ is the virtual, debt-based money we now have and will continue to have. That is the house of cards in which we live, and it is in that system that the roots of the 2008 disaster lay.

All this was put to the Independent Commission, and it is no credit to its members that the issue was cavalierly dismissed.

The reality is that it is not just ‘speculative activity’ that goes on outside the ring fence: we have allowed that activity to be the driver of the creation of money itself.

Read the whole article here.