How Our Government & Banks Made Fools of Us All

There were 120,000 bankrupticies last year, about three times the number in 2004. In spite of the economic slowdown and, also, due to it, people have been heaping their debt onto credit cards. The consequence of this is that a credit card crisis is looming as banks increase interest rates. However, although lenders in the UK are bracing themselves for a rising wave of defaults among consumers, the banks, including those the taxpayers bailed out, are awash with profit enough to pay out the same grand ole' bonuses they did in the good ole' days.

The International Monetary Fund estimates 7 per cent of the £1,900bn of European consumer debt will be lost. As the continent's leading credit card using country, much of that loss will with UK banks. Moody's, the ratings agency, shows that annualised charge-off rates rose from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009. To protect themselves, credit providers have been raising interest rates charged to customers. They have been doing so in spite of the fact that the Bank of England base rate has dropped to a record low of 0.5 per cent. One suspects that these rises also help the bankers running these credit providers to pad their executive salaries further with outlandish bonuses -- the same bonuses that are being further subsidised by the taxpayer's bailout of banks.

So, in other words, while the rest of us are finding it harder and harder to stay out of debt (and although we bailed the banks out of their debts), the bankers are squeezing us more -- in spite of the falling base rate -- while they pay themselves more in the form of huge bonuses. And the government is letting them do it.

The lack of banking reform by the government is not just immoral. It should be regarded as fiduciary irresponsibility and not at all in the national interest in a deep recession such as this one. Rather than reverse course on deregulation of the banking sector in the face of common sense, the facts and the advice of the governor of Central Bank, Mervyn King, the cabinet's economic policy continues to be guided by the Thatcherite pro-corporate ideology of the Blair years: 'When it comes to banks, deregulation is always good, regulation is always bad, no matter what' -- this reveals more than ever the intellectual poverty within New Labour.

With interest rates so low credit providers need to make credit cheaper. The exhorbitant charges they put on consumers who can't pay, another form of profiteering, should be outlawed. Banks should restrict credit availability to people who cannot afford it, but they should not be allowed to charge loan shark rates and then heap arbitrary charges on those caught in the credit trap the banks themselves created. And those who do make their payments every month should get the low interest rates justified by the low base rate.

As Mervyn King has advised the government, banking retail operations need to be split from investment banking. Retail banking operations are essential to economic recovery and should be protected by the government. Investment banking operations, which are often little more than gambling operations, as the current crisis clearly shows, definitedly should not receive such protection.

If the investment banking profiteers were not being given such protection by the government, you and I surely would be getting cheaper credit. On the other hand, those foolish bankers whose profiteering was guided purely by greed, equally surely, would not be getting the bonuses they are getting now. There is a quote from a very educational book written by a bond salesman called Michael Lewis. The book is called Liars Poker and I recommend everyone read it. It goes something like this: 'Every market has a market fool; if you don't know who it is, the chances are you're it.' Our government has allowed those bankers to make fools of us all.