The wrong questions are being asked about banking reform

How the Vickers Commission fluffed its lines.

It is extraordinary that more than three years into the biggest global economic breakdown for nearly a century, precipitated by a financial crash, virtually nothing has been done to reform the banks which were the major cause of it. It is even more extraordinary that the two initiatives that have been taken -- the Vickers Commission and Basel III -- are so ineffective as to be risible.

Vickers didn't even ask the right question, which is: how can public control of the money supply be regained? The question it did ask -- how can retail High Street banking be separated from casino investment banking? -- it fluffed, by proposing the erection of Chinese Walls which City financial engineering will have little trouble quickly getting round.

The international Basel Commission on Banking Supervision, a private body made up of (guess who?) central bankers as well as a few regulators, was little better. It proposed increasing capital ratio requirements on banks from 7 per cent to 10 per cent, though capital ratios have little influence over bank lending. Besides, it did not demand this change till 2019, even though the chances of another financial crash within the next 8 years are very real.

The reason why banking reform is urgent isn't just the risk of another finance conflagration, but because banking policy has played a major part in the continuing and relentless decline of the British economy over the last half century. Previously bank credit had been rationed by quantity, but from the 1971 Competition and Credit Control reforms it was increasingly rationed much more flexibly by interest rates.

That began the staggering rise in broad money in the economy from miniscule quantities in 1963, to £2.2trn today. Then in 1979 exchange controls were lifted, and at Big Bang in 1986 all controls over consumer credit were abolished and housing finance was de-regulated.

These measures have given the banks enormous powers and privileges. They can create wealth out of nothing simply by making loans to businesses and householders, and they can decide who uses it and for what purpose. If they fail to meet their liabilities, they are not even penalised; someone else pays up for them. The first £85,000 of an individual's deposits are covered by guarantee underwritten by the State, and even in the event of a major financial collapse they are bailed out by the implicit taxpayer guarantee. In the current crash, that amounts to over £70bn in direct bailouts and a further £850bn indirectly in loan guarantees, liquidity measures and asset protection schemes.

The charge sheet against the banks is that they have used these powers -- particularly in the neoliberal era since 1980 -- recklessly and in self-interest, which has done huge long-term harm to Britain's economy. By the issuance of loans they are now responsible for generating over 97 per cent of the money supply, and have used this privilege to allocate just 8 per cent to productive investment. This means that 11/12th of bank lending goes towards mortgages, real estate and business, foreign investment, high-risk speculation and financial intermediation.

This has been a significant cause of Britain's long-term decline. Last year the UK balance of payments deficit on trade in goods reached an unprecedented £100bn; equal to 6.8 per cent of GDP. British manufacturing, the lifeblood of the economy, has been systematically hollowed out. Britain remains low in productivity and innovation, and output per worker is still 40 per cent below US levels, and 20 per cent below Germany and France. Within the OECD only the UK had a lower share of GDP spent on research and development in 2000 than in 1981.

Of course, not all this can be laid at the door of the banks. But a great deal can. UK banks' relationship with industry is far more distant and unhelpful compared with Germany's Mittelstand.

The City has relentlessly driven short-termism at the expense of market share. The UK banks have used their control of the money supply to regularly generate unsustainable asset bubbles which destabilise industry and, when they crash, beggar the taxpayer. They have engineered a massive mis-allocation of global capital into tax havens which, worldwide, now shelter over £11trn of global wealth. They have exacerbated inequalities between the super-rich and the rest, the growing disparities between regions, and the crowding out of manufacturing by finance.

And by setting up a huge and powerful shadow banking system, buttressed by the proliferation of credit derivatives and securitisation, they have deliberately evaded public controls in order to boost their own selfish interests to the detriment of the nation.

So what should be done? Above all, control over the money supply must be brought back into the public domain. This is not a partisan objective. Direct credit controls have been used by many of the most successful countries over the last century; notably Japan, Korea and Taiwan after the Second World War.

Unproductive credit creation -- for example, speculative transactions like today's lending to hedge funds -- was firmly checked. Consumer loans which would trigger inflationary demand for consumer goods or draw in increased imports were discouraged. Priority was given to investment in plant and equipment, key services, and enhanced productivity via new technologies and R&D.

Of course other reforms are urgently needed too. These should include control by public authorities over potentially toxic and dangerous financial derivatives, a clean separation of retail from investment banking and specialist banks for infrastructure improvement; as well as development of the new digital green economy and reform of credit rating agencies.

But the key issue, so far ignored, is to restore accountability to the banking system via public control over the money supply.

Michael Meacher is Labour MP for Oldham West and Royton.

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“I felt very lonely”: addressing the untold story of isolation among young mothers

With one in five young mothers lonely “all the time”, it’s time for employers and services to step up.

“Despite having my child with me all the time, I felt very lonely,” says Laura Davies. A member of an advisory panel for the Young Women’s Trust, she had her son age 20. Now, with a new report suggesting that one in five young mums “feels lonely all the time”, she’s sharing her story.

Polling commissioned by the Young Women’s Trust has highlighted the isolation that young motherhood can bring. Of course, getting out and about the same as you did before is never easy once there’s a young child in the picture. For young mothers, however, the situation can be particularly difficult.

According to the report, over a quarter of young mothers leave the house just once a week or less, with some leaving just once a month.

Aside from all the usual challenges – like wrestling a colicky infant into their jacket, or pumping milk for the trip with one hand while making sure no-one is crawling into anything dangerous with the other – young mothers are more likely to suffer from a lack of support network, or to lack the confidence to approach mother-baby groups and other organisations designed to help. In fact, some 68 per cent of young mothers said they had felt unwelcome in a parent and toddler group.

Davies paints what research suggests is a common picture.

“Motherhood had alienated me from my past. While all my friends were off forging a future for themselves, I was under a mountain of baby clothes trying to navigate my new life. Our schedules were different and it became hard to find the time.”

“No one ever tells you that when you have a child you will feel an overwhelming sense of love that you cannot describe, but also an overwhelming sense of loneliness when you realise that your life won’t be the same again.

More than half of 16 to 24-year-olds surveyed said that they felt lonelier since becoming a mother, with more than two-thirds saying they had fewer friends than before. Yet making new friends can be hard, too, especially given the judgement young mothers can face. In fact, 73 per cent of young mothers polled said they’d experienced rudeness or unpleasant behaviour when out with their children in public.

As Davies puts it, “Trying to find mum friends when your self-confidence is at rock bottom is daunting. I found it easier to reach out for support online than meet people face to face. Knowing they couldn’t judge me on my age gave me comfort.”

While online support can help, however, loneliness can still become a problem without friends to visit or a workplace to go to. Many young mothers said they would be pleased to go back to work – and would prefer to earn money rather than rely on benefits. After all, typing some invoices, or getting back on the tills, doesn’t just mean a paycheck – it’s also a change to speak to someone old enough to understand the words “type”, “invoice” and “till”.

As Young Women’s Trust chief executive Dr Carole Easton explains, “More support is needed for young mothers who want to work. This could include mentoring to help ease women’s move back into education or employment.”

But mothers going back to work don’t only have to grapple with childcare arrangements, time management and their own self-confidence – they also have to negotiate with employers. Although the 2003 Employment Act introduced the right for parents of young children to apply to work flexibly, there is no obligation for their employer to agree. (Even though 83 per cent of women surveyed by the Young Women’s Trust said flexible hours would help them find secure work, 26 per cent said they had had a request turned down.)

Dr Easton concludes: “The report recommends access to affordable childcare, better support for young women at job centres and advertising jobs on a flexible, part-time or job share basis by default.”

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland