Is it time to Civil-ise Financial Services and the Economy?

Seamus McAleavey
9 September 2009 - 2:23pm
2 comments

“Casino Capitalism” is the term being used now to describe much of the so-called sophisticated financial instruments developed to fuel growth in Western economies in the last 20 odd years.  Securitization was the new wonder word.  Ten million sub prime mortgage borrowers in the US – it was thought – could be de-risked by pooling them and issuing new securities backed by the asset pool.

There is general agreement that things have to change.  The big question is how and by how much?

Regulation will have to become better but even Sean Fitzpatrick, former Chairman of Anglo Irish Bank said he was for “better regulation” as opposed to more regulation.  The biggest opposition to regulation was in the US, Britain and Ireland and it’s no surprise we are all hit hardest and will lag behind France and Germany in recovery terms.  Regulation is part of the solution. One of the first things it needs to do is outlaw the wholesale redistribution of loan debt to other banks.

In the Carnegie Commission of Inquiry into the future of civil society we have been thinking about the role of the civil economy in the future.  So have others from Will Hutton to Pope Benedict in his papal encyclical Caritas in Veritate published in June 2009.

The 1980s and 1990s saw a culture of greed develop and become the norm. Starting with financial services it infected everyone.  In the scramble to de-mutualise Building Societies everyone, Directors, small savers and mortgage holders were all seduced by getting rich quick with “money for nothing”.  Then we piled into property development, big players and then ordinary people too became landlords.  Short term gain became everything and all those involved thought the new ways were here forever.

Noticeably, the mutuals that remained, the cooperative banks and the credit unions did not suffer like the big banks as they had little exposure, for in general they lived within their means and had strong balance sheets.

We need to go beyond patching up banking regulation.  To develop and maintain a good society we need a plurality of institutions, nowhere more so than in banking and financial services.  Which brings us to the role of the civil economy; new mutualism incorporating credit unions, mutual banks and building societies and mutual insurance companies, firmly rooted in place and community are the counter balance to the casino gamblers and silly risk takers.  But this isn’t simply a plea for a return to the past.  We need to enhance these organisations efficiency by developing micro money markets.  Create a clearing system that thousands of credit unions can share. 

We need our pensions funds invested here in public projects that give a decent return, not promise the stars and deliver a pittance as many of our current pensions will, wagered and lost by financial shock jocks.  We can fund with our investments local clinics, renewable energy projects, residential homes etc that would all produce reasonable returns on the investments based on their income generation ability.

Most of all we need to finance economic development with the emphasis on the long-term not the short-term, we need to be more prudent in our approach rather destroy the lives of ordinary people who did not realise that others had wagered their future inflating an economic bubble that would burst spectacularly.

[This article first published in AgendaNI, September 2009]