Banks, inequality and citizens

The world is growing ever more unequal, yet nothing is being done about it, laments Roberto Savio.

Every day we receive striking data on major issues which should provoke tumult and action, but life goes on as if those data had nothing to do with people’s lives.

A good example concerns climate change. We know well that we are running out of time. It is nothing less than our planet that is at stake … but a few large energy companies are able to get away with their practices surrounded by the deafening silence of humankind.

Another example comes from the world of finance. Since the beginning of the financial crisis in 2009, banks have paid the staggering amount of $178 billion in fines – US banks have paid $115 billion and European banks $63 billion.

But, as analyst Sital Patel of Market Watch writes, these fines are now seen as a cost of doing business. In fact, no banker has yet been incriminated in a personal capacity.

Now we have other astonishing data from Oxfam – if nothing is done, in two years’ time the richest 1% of the world’s population will have a greater share of its wealth than the remaining 99%.

The richest are becoming richer at an unprecedented rate, and the poorest poorer. In just one year, the 1% went from possessing 44% of the world’s wealth to 48% last year. In 2016, therefore, it is estimated that this 1% will possess more than all the other 99% combined.

The top 89 billionaires have seen their wealth increase by $600 billion in the last four years – a rise of 5% and equal to the combined budgets of 11 countries of the world with a population of 2.3 billion people.

In 2010, that figure was owned by 388 billionaires, and this striking and rapid concentration of wealth has, of course, a global impact.

The so-called middle class is shrinking fast and in a number of countries youth unemployment stands at 40%, meaning that the destiny of today’s young people is clearly much worse than that of their parents.

It will probably take some time before those figures become part of general awareness but it is a safe bet that, as with climate change, they will not lead to any action.

US President Barack Obama is the only leader who has announced a tax increase on the rich, although he stands little chance of succeeding with his Republican-dominated Congress.

In a world where the value of solidarity has disappeared (Europe’s debate on austerity is a good example), apathy and atomization have become the reality. We are going back to the times of Queen Victoria, substituting a rich aristocracy with money coming from trade and finance, not production.

But up to a point: 34% of today’s billionaires inherited all or part of their wealth, and interestingly, “inheritance tax is the most avoidable of levies”, as James Moore noted in the Independent on 20 January.

The “father of modern times”, late US President Ronald Reagan, saw it clearly when he said that the rich produce richness, the poor produce poverty. So let the rich pay less taxes.

Well, in a just-released report, the US Institute on Taxation and Economic Policy notes that in 2015 the poorest one-fifth of Americans will pay on average 10.9% of their income in taxes, the middle one-fifth 9.4%, and the top 1% just 5.4%.

Unfettered finance

Now, 20% of the richest billionaires are linked to the financial sector and it is worth recalling that this sector has grown more than the real economy, and has regulations only at national level.

Finance is no longer at the service of the economy and citizens. It has its own life. Financial transactions are now worth $40 trillion a day, compared with the world’s economic output of $1 trillion.

At national level, there are now half-hearted attempts to regulate finance. But let us look at what is happening in the United States.

The new, bland regulation is the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as Dodd-Frank, and it does not go as far as restoring the division between deposit banks, which was where citizens put their money and which could not be used for speculation, and investment banks, which speculate ... and how! This separation was abolished during the US presidency of Bill Clinton, and is considered the end of banks at the service of the real economy.

In any case, the lobbyists on Wall Street are intent on having Dodd-Frank chipped away at, little by little.

There is some schizophrenia when we look at the relations between capital and politics. The US Supreme Court has eliminated any limit to contributions from companies to political elections, declaring that the companies have the same rights as individuals. Of course, there are not many individuals who can shell out the same figures as a company, unless you’re one of the top 89 billionaires!

Meanwhile, banks are not only responsible for the corruption of the political system, and for the illegal activities which have earned them billions of dollars, they are also responsible for funding only big investors and leaving everybody else out from easy credit. The efforts of the President of the European Central Bank, Mario Draghi, to have banks give credit to small companies and individuals have largely gone nowhere.

But a new and imaginative initiative comes from the very stern Dutch bankers.

All 90,000 bankers in the Netherlands are now required to take an oath: “I swear that I will endeavour to maintain and promote confidence in the financial sector. So help me God.”

This is not so much oriented towards the customer, and it is very self-serving; and it brings God in as the regulator of the Dutch banking system.

Perhaps the Dutch bankers have been paying heed to the words of Goldman Sachs CEO Lloyd Blankfein who said at the time of the financial crisis in 2009 that bankers were “doing God’s work”.

Well, God will have to be actively involved. All the three biggest Dutch banks – Rabobank, ABN Amro and ING Groep – have been involved in scandals that have hurt consumers, or were nationalized during the financial crisis, costing taxpayers more than $140 billion. In one case, Rabobank was fined $1 billion.

New York’s Wall Street and London’s City are said to be open to the idea of introducing a similar oath.

It is probably only that kind of Higher Power which could turn the tide in this world of growing inequality and lack of ethics. (IPS Columnist Service)  

Roberto Savio is founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News. The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS.

Third World Economics, Issue No. 585, 16-31 Jan 2015, pp13-14