Don't be fooled. This is still a banking crisis

And our elected politicians should call the bankers' bluff.

RBS chief executive Stephen Hester Source: Getty Images

Let's get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.

EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone and in particular, taxpayer largesse.

For more than thirty years of financial de-regulation, western taxpayers have shored up and guaranteed the immense wealth and reckless lending of private bankers and their shareholders. Without their sacrifices, many private, global banks would have been liquidated during the financial crises of the 90s and through 2008. Thanks to public largesse, private bankers, their shareholders and bondholders survived. Some even thrived as weak western politicians failed to demand 'terms and conditions' for bailouts.

Now private banks are once again faced by liquidation - because of reckless and costly lending to poor and economically weak Eurozone governments and banks. If their losses are not socialised, they and their shareholders are doomed.

And so bankers are doing what highway robbers have done throughout time: holding a proverbial gun to the heads of Eurozone politicians and central bankers, and demanding they hand over cash.

Politicians should call their bluff.

Two weeks ago, EU leaders promised to set up a 440 billion-euro fund (the European Financial Stability Facility) that would, for example, help finance Greece's repayments for expensive loans made by UK, French and German banks. But politicians were fuzzy about numbers, because they had to consult EU parliaments. Bankers, facing insolvency, cannot wait for wider consultation.

"Bailouts need a bigger bucket" roared the banker's magazine Barrons. And, it appears, they need it now. The "bucket" is considered "wholly insufficient." Trillions more Euros are needed to shift the burden of losses from the private to the public sectors.

And just in case holidaying politicians failed to get the point, financial markets swung into action, and last Thursday piled on the blackmail.

That is not of course, how bankers see it, or tell it. On Friday, Stephen Hester, chief executive of RBS, told Radio 4's Today programme that "this is not a banking crisis." Instead he argued this is a crisis of "confidence in governments." Governments, he said, "need to give confidence to markets....that they will play their proper role in providing liquidity [my emphasis]. . . not to banks, but to governments, to enable funding to go normally...." He trailed off at this point, but I assume he had meant to add, "to enable funding to go normally to private bankers". Yes, those same bankers that had lent recklessly in the first place.

The fact is this: private bankers need a Eurozone bailout. Eurozone taxpayers do not need private bankers. It is possible, desirable even, to break loose from the chains of financial injustice and untie the cords that yoke the taxpayers of Europe to the interests of a financial elite

We know, because it has been done before.

The last time the world threw off the yoke of private wealth was in the 1930s. In September 1931, Britain's finance sector demanded high interest rates and austerity as the 1929 financial crisis hammered the very people innocent of its causes. At this point Britain, like Greece and Spain today, became defiant. The UK threw off its fetters and left the gold standard - the Euro of a century ago.

Under Keynes's tutelage, Sterling was revived as a money managed in the interests of the domestic economy by the Bank of England. It was protected from speculation and from the vested interests of the financial elite. After the war Britain embarked on one of the finest programme of public works expenditures known in modern history - and society thrived.

Interrupted by war, and diluted at Bretton Woods in 1947, finance was still restrained as servant, not master to the economy through the age of economic and social advance from 1945-1970.

If the Eurozone were to throw off the ties that subordinate it's prosperity to a small financial elite, it would feel the full force of the banking sector's anger through its friends in the media, academia and politics. But very soon, Europeans would come to understand that the alternative was very much better than subjugation to a small, arrogant and morally bankrupt elite.

Ann Pettifor is a director of PRIME, an economic think-tank, and a Fellow of the New Economics Foundation.

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"Michael Gove is a nasty bit of work": A Thatcherite's lonely crusade for technical colleges

Kenneth Baker, Margaret Thatcher's education secretary, has been in a war of words with one of his successors. 

When I meet Kenneth Baker, once Margaret Thatcher’s reforming education secretary, conversation quickly turns to an unexpected coincidence. We are old boys of the same school: a sixth-form college in Southport that was, in Baker’s day, the local grammar. Fittingly for a man enraged by the exclusion of technical subjects from the modern curriculum, he can only recall one lesson: carpentry.

Seven decades on, Lord Baker – who counts Sats, the national curriculum, league tables, and student loans among his innovations – is still preoccupied with technical education. His charity, the Baker Dearing Educational Trust, oversees university technical colleges (UTCs), the specialist free schools that work with businesses and higher education institutions to provide a vocational curriculum for students aged 14-19. He is also a working peer, and a doughty evangelist for technical education and apprenticeships in the upper chamber. 

But when we meet at the charity’s glass-panelled Westminster office at 4 Millbank, he is on the defensive – and with good reason. Recent weeks have been particularly unkind to the project that, aged 82, he still works full-time to promote. First, a technical college in Oldham, Greater Manchester, became the seventh to close its doors since 2015. In three years, not one of its pupils passed a single GCSE, and locals complained it had become a “dumping ground” for the most troubled and disruptive children from Oldham’s other schools (Baker agrees, and puts the closure down to “bad governorship and bad headship”). 

Then, with customary chutzpah, came Michael Gove. In the week of the closure, the former education secretary declared in his Times column that the UTCs project had failed. "The commonest error in politics," he wrote, quoting Lord Salisbury, "is sticking to the carcasses of dead policies". Baker is now embroiled in a remarkable – and increasingly bitter – war of words with his successor and one-time colleague.

It wasn't always this way. In 2013, with UTCs still in their infancy, he told the New Statesman the then education secretary was “a friend”, despite their disagreements on the curriculum. The bonhomie has not lasted. In the course of our hour-long conversation, Gove is derided as “a nasty bit of work”, “very vindictive”, “completely out of touch”, and “Brutus Gove and all the rest of it”. (Three days after we speak, Baker renews their animus with a blistering op-ed for The Telegraph, claiming Gove embraced UTCs about as warmly as “an undertaker”.)

In all of this, Gove, who speaks warmly of Baker, has presented himself as having been initially supportive of the project. He was, after all, the education secretary who gave them the green light. Not so, his one-time colleague says. While David Cameron (Baker's former PA) and George Osborne showed pragmatic enthusiasm, Gove “was pretty reluctant from the word go”.

“Gove has his own theory of education,” Baker tells me. He believes Gove is in thrall to the American educationalist E.D. Hirsch, who believes in focusing on offering children a core academic diet of subjects, whatever their background. "He doesn’t think that schools should worry about employability at all," Baker says. "He thinks as long as you get the basic education right, everything will be fine. That isn’t going to happen – it isn’t how life works!" 

Baker is fond of comparing Gove’s heavily academic English baccalaureate to the similarly narrow School Certificate he sat in 1951, as well as the curriculum of 1904 (there is seldom an interview with Baker that doesn’t feature this comparison). He believes his junior's divisive tenure changed the state sector for the worse: “It’s appalling what’s happening in our schools! The squeezing out of not only design and technology, but drama, music, art – they’re all going down at GCSE, year by year. Now children are just studying a basic eight subjects. I think that’s completely wrong.” 

UTCs, with their university sponsors, workplace ethos (teaching hours coincide with the standard 9-5 working day and pupils wear business dress), and specialist curricula, are Baker's solution. The 46 existing institutions teach 11,500 children, and there are several notable success stories. GCHQ has opened a cyber-security suite at the UTC in Scarborough, North Yorkshire, as part of a bid to diversify its workforce. Just 0.5 per cent of UTC graduates are unemployed, compared to 11.5 per cent of all 18-year-olds. 

But they are not without their critics. Teaching unions have complained that their presence fragments education provision and funding, and others point out that hard-up schools in disadvantaged areas have little desire or incentive to give up children – and the funding they bring – at 14. Ofsted rate twice as many UTCs as inadequate as they do outstanding. Gove doubts that the vocational qualifications on offer are as robust as their academic equivalents, or anywhere near as attractive for middle-class parents. He also considers 14 is too young an age for pupils to pursue a specialist course of vocational study.

Baker accepts that many of his colleges are seen as “useless, wastes of money, monuments to Baker’s vanity and all the rest of it”, but maintains the project is only just finding its legs. He is more hopeful about the current education secretary, Justine Greening, who he believes is an admirer. Indeed, UTCs could provide Greening with a trump card in the vexed debate over grammar schools – last year’s green paper suggested pupils would be able to join new selective institutions at 14, and Baker has long believed specialist academic institutions should complement UTCs.

Discussion of Theresa May’s education policy has tended to start and finish at grammar schools. But Baker believes the conversation could soon be dominated by a much more pressing issue: the financial collapse of multi-academy trusts and the prospect of an NHS-style funding crisis blighting the nation’s schools. Although his city technology colleges may have paved the way for the removal of more and more schools from the control of local authorities, he, perhaps surprisingly, defends a connection to the state.

“What is missing now in the whole education system is that broker in the middle, to balance the demands of education with the funds available," he says. "I think by 2020 all these multi-academy trusts will be like the hospitals... If MATs get into trouble, their immediate cry will be: ‘We need more money!’ We need more teachers, we need more resources, and all the rest of it!’."

It is clear that he is more alert to coming challenges, such as automation, than many politicians half his age. Halfway through our conversation, he leaves the room and returns enthusiastically toting a picture of an driverless lorry. It transpires that this Thatcherite is even increasingly receptive to the idea of the ultimate state handout: a universal basic income. “There’s one part of me that says: ‘How awful to give someone a sum for doing nothing! What are they going to do, for heaven’s sake, for Christ’s sake!’" he says. "But on the other hand, I think the drawback to the four-day working week or four-hour working day... I think it’s going to happen in your lifetime. If people are only working for a very short space of time, they will have to have some sort of basic income.” 

Predictably, the upshot of this vignette is that his beloved UTCs and their multi-skilled graduates are part of the solution. Friend and foe alike praise Baker’s indefatigable dedication to the cause. But, with the ranks of doubters growing and the axe likely to fall on at least one of its institutions again, it remains to be seen in what form the programme will survive.

Despite the ignominy of the last few weeks, however, Baker is typically forthright: “I sense a turning of the tide in our way now. But I still fight. I fight for every bloody one.”