Last night, Mervyn King, former head of the bank of England gave his opinion about the avarice of the banks. They haven't changed much, he thinks. Nor will any of the so-called regulation currently imposed and proposed have much effect. They know they are getting off lightly and the bonus culture will be fully back in action.
He explained that there are only two ways of dealing with banks taking undue risks in the pursuit of profits. One method is heavy regulation, but Merv reckons that's still doomed to fail because no one can really predict the level of protection banks might need.
Listening to his speech, it seemed to me that Merv really wants to go for his alternative - to ensure that no bank is too big to fail. He was careful not to sound absolutist, but he certainly strongly hinted there really was no other way.
I agree. It is anathema to the free market philosophy to allow any entity to profit hugely from high risks but without any real fear that thy face extinction if the risk turns nasty. Part of the problem with free market economics is that it naturally devours itself. If you let the market run wild it automatically tends towards a situation which undermines a free market. For instance, free markets breed larger and larger entities and favour the creation of monopolies at exponential speed. Another key aspect is the one that Mervyn King identified - you get companies that are too big to fail.
Merv hints at breaking up the banks and particularly splitting the functions of operational retail banking which does all the nice things for you and me and the trickier high-risk shenanigans that make the quick bucks.
I agree - the Vedic idea is:-
1. Enterprise must be encouraged to aid the distribution of essential goods and services
2. Risk should be rewarded, but businesses must also accept the consequences of failure.
3. The economy must be regulated to a degree.
4. Keep all enterprises to a level in which competition can thrive and no one or no community is utterly dependent on it.
5. Ideally avoid the mega-deals.
It has to be a principle of a regulated economy that banks and businesses face risk equally with reward. It may be required to avoid banks growing to the scale that their demise would destabilise the rest of the economy. That should also apply to other major corporations - supermarkets, car companies etc. We fall into the illusion that we all benefit when they're doing well - but it would have been better all around if the companies had stayed smaller. Big corporations concentrate wealth in the hands of a few and award inordinate power and influence which undermines political and social integrity.
This sounds like the ranting of a radical anti-global demonstrator and I do sympathise with a lot of their concerns. But, no, the answer isn't a utopian world of sharing or totalitarian uniformity. Rather, we need enterprise, ownership and entrepreneurship to ensure all the important jobs get done and we have all the necessities in life we need. It just need a little clipping from time to time - and that is what the government failed to do with the banks.