News & Media Opinion Pieces Are Commercial Banks a Health Hazard?

Are Commercial Banks a Health Hazard?

Global determinations will determine whether humanity survives relatively unscathed from the ecological crisis. One of the major players in determining the outcomes will be the international banks for they determine whether money will be spent on environmental innovation. Since we all accept the relationship between the environment and health then it is quite clear that some operations of the banks are a health hazard.

The indictment
The history of banking is one of recurrent financial crisis due to greed and mismanagement, each crisis necessitating government funds to restore economic equilibrium. ‘Government funds’ means your money and so there is less money to be committed to health and the environment. In the savings and loans crisis in the US in the mid eighties, deposits were gambled or stolen in the wake of deregulation and between 1986 and 1995 the cost was huge– 3% of GDP, most of which was covered by the taxpayers. This lead to the Commissioner of the California Department of savings and loans, William Crawford, saying “the best way to rob a bank is to own one” Five hundred and fifty of those involved were convicted and 326 went to jail.

Move on two decades to the present crisis. Sub-prime mortgage loans were made to persons with a poor credit risk by local brokers using intensive advertising and misleading small print. There was no way the loans could remain viable if interest rates rose—which they did. The brokers pocketed large commissions and avoided the risk by selling the loans to Wall Street banks. There can have been little due diligence in deciding the quality of these mortgages, or perhaps there was, and the banks were too keen to make a profit from the scam, so in turn they passed on the risk by bundling them into “mortgage backed securities”. Their friends in the rating agencies gave the investments a good rating and the banks sold them around the world. We know what happened.

There was a long track record of crises before the savings and loans crisis. Over a century, the culture of the banks has remained unchanged and there will surely be more crises. In the words of President Barack Obama “The problem that I’ve seen, at least, is you don’t get a sense that folks on Wall Street feel any remorse for taking all these risks,” The evidence of unchanged culture comes from two surviving banks Goldman Sachs and Morgan Chase, which were bailed out with public money, paid it back, announced a jump in profit and paid themselves big bonuses. It appears that the profit came from lending public money at profitable rates. The bonus rewards for making short term profits works against any consideration of long term funding needed for the future of society.

One can feel the President’s frustration but he has to tread carefully for the banks are at the fulcrum of financial power. As a student of history he is aware of previous presidential contests with banks which inflicted only temporary inconvenience on them.

Why is this malfeasance a heath hazard?
A vast amount of public money has been printed to bail out banks and mitigate economies from recession. Seeing their own re-election under threat from increasing unemployment most governments have acted with Olympic record speed. In economic terms everyone’s assets will be eroded to pay this debt. In Western society this amounts to health, environment, social services etc. The need for action on climate change has been elbowed aside on the priority charts. As we have seen the financial crisis has impacted in the poorest developing countries to increase poverty and starvation.

The banks represent the antithesis of a sustainable society. But the bank is only fulfilling functions bestowed upon it by society which allow bankers to take the actions they do; its capacity to operate depend upon the law. Its defined mandate is to pursue, relentlessly and without exception, its own self-interest regardless of the often harmful consequences it might cause to others. It creates the money upon which the economy depends and makes the decision on who shall get it based on profit alone. Since most “development” is environmentally exploitive and remediation would not qualify for a loan, governments are left to pick up the tab.

Does this apply to Australian banks?
The Australian banks have not participated in the destructive practices displayed by many international banks. This has helped them and Australia to weather the crisis. Although they are poor relations in the culture of bonuses and social indifference, this culture is nevertheless present and we must consider what reform is necessary to enable us to service many of the real needs of society. Not many individuals enter this arena of reform for the task seems insuperable

Surely we have to address this issue case by case. Here is the text of an article published by Crikey 9.7.09 which highlights health issues and investment by rural communities

Banks and the rural sector

“Although Australian banks have not soiled their nests and everyone else’s like international counterparts, pragmatic alternatives are needed in special circumstances.

The health and well being of rural and regional Australia is at stake. My colleagues, rural doctors, tell of the personal ravages of drought, climate change, withdrawal of services and government policies. There is stress, anxiety, depression, family and community breakdown and adverse impacts on child social and emotional development.

Whether or not you believe in climate change, these are the communities that will sustain Australia in a world of increasing population and food shortages. They need finance to increase efficiency, revive marginal land and create programs for future carbon offsets. Their lives could be made more sustainable by diversified incomes from local renewable power sources and biochar programs.

The culture of existing banks, short term profits rather than long term investment will remain unchanged. Rural production cannot remain at the mercy of speculation that can affect market interest rates; nor is it credible to have managed investment schemes damage productive land and people.

While not suggesting that Prof. Muhammad Yunus and the Grameen Bank be invited to help the Australian rural poor, please recall the Commonwealth Bank helping thousands of small businesses over 30 years prior to privatisation; it was attuned to community needs. The Charter of a Peoples Development Bank for the needs of rural and regional Australia would avoid the plethora of financial creations that have destroyed so many lives. Will Bailey, formerly of the ANZ Bank, made such a proposal in 2001 after talking to rural communities “ One group of 350 stood as one person and suggested it was time that someone had a damn good look at providing financial services to that 15 or 20 per cent of people who had been left behind following deregulation”.

Nationalised banks lead to cries of “unfair competition” and terrify politicians in case they are blamed for failure. This no longer matters in a complex world needing health equity and sustainability. But there are alternatives; investors who want to see their money used to help the nation could create a rural bank.

Some thoughts
Because the banks sit at the fulcrum of power, it is not possible to consider any environmental or social issue without recognising and discussing their involvement

Questions for you:-
Are you satisfied with the service from your bank?
Do you think the commercial banks should create most of the money in the economy and therefore fund projects that only they think appropriate?
Do you think these banks should limit themselves to funding business and industry rather that speculative paper investment?

If you have answered No, No Yes, then what reforms would you suggest which would help promote the ideals promoted by DEA! Your thoughts will be published.

David Shearman
.The views expressed in this article are my own