Friday, 14 January 2011

We have got this wrong.

Why do politicians think that they have all the answers? They don't, they have the answers to a few problems that affect themselves and nothing else. They are narrow minded and ineffective in finding effective solutions for anyone other than themselves and the people around them.
Our country is over centralised and over dependant on the financial whims of a few hundred guys in the city. This is not a way to operate a country and too many successive governments have pandered to them because if they don't then 'We will lose some of the best people' (as quoted frequently on SkyToryNews. These people are not the best people - they are a big part of the problem. The need to keep this tiny section of society comfortable often ensures that the rest of us are not!
So - rather than diessecting it issues in great detail, I am going to give my solutions to the problems. This is why I am not a politician and have no political leanings either way.

My first change would be to seperate Investment banking from Retail banking. Retail banks should be a safe way for everyone to store money for retreival as they wish. Investment banks should take funds that people are willing to risk losing and invest them on behalf of those individuals. Retail banks would be allowed to invest a maximum of 15% of their deposits with an investment bank, provided this has a guaranteed return greater than the value of the interest the bank is offering on those deposits e.g. If the retail bank is offering an interest rate of 1%, the Investment must have a guaranteed return of at least 1.1%.
Retail banks would not be allowed to invest customers deposits in any fund which does not have a guaranteed return - this includes the StockMarket.
This would protect peoples savings and deposits and protect Retail banks from the fluctuations and whims of the Stock Market and other volatile investments.

So, how would Retail banks make enough profit to ensure the doors stay open?
A lot of the big heavy costs of banking are actually in the Investment sections or they support the investment sections, so the removal of these costs would ensure it remains easier to run a Retail bank. Banks would be forced to make many through traditional lending and insurance products such as Mortgages, loans, car Insurance etc.

But they would not have enough money to lend! I hear you say.
I would also ensure that Pension Funds are not part of Investment banks. Investment banks would not be allowed to run Pension Funds as the funds invested need to be secure rather than volatile. Pension Funds would be allowed to invest in Retail banks (Retail Banks could offer their own Pension Funds) so that the return for Funds would be more consistent and Retail banks would then have the funds to lend responsibly to businesses and individuals.
I would also ensure that Investment banks have at least 10% of their overall balance, on loan to small businesses. As the value of Investments increase - through investment on World markets, so would the value of lending to small business.

These measures would mean that the money we deposit in a bank is used constructively to ensure the steady and sustainable growth of an economy. Yes we would lose the top end of high earners in Investment banking - they are very welcome to continue to destroy other countries economic prospects or work harder to earn the wage they do. More people would have access to loans and pensions, which would probably be at a higher rate than at present but they would be able to access it easier.

The next time a Politician, or a politicians friend (often referred to as Finance experts) says that the consequence of changes to the City would be disastrous - ask yourself this. Who would they be disastrous for and why? Then we can really start to make some changes.

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