The storm ahead!
2021-06-10 - Ledaren - Av Mats Lönnerblad och Ulf Sandmark
June 3, 2021 (EIRNS)—Glass-Steagall needs to be reintroduced to meet the challenges of the pandemic and the financial storm ahead. This article is circulating in Sweden to institutions and the parliament. So far it has been published, May 29th, 2021, as the editorial by Mats Lönnerblad and Ulf Sandmark, on the homepage of the Swedish Association for Justice for Bank customers.
The eradication of the COVID-19 pandemic needs much more than vaccines, as the treatment of the patients in all nations requires a functioning health system with access to well-staffed hospitals with beds, electricity, water, sanitation and an entire supply chain for equipment and medicines. The Swedish government has so far donated two billion SEK to the UN vaccination program COVAX.
What is needed now is to redirect the Foreign Aid from Sweden, but especially the Swedish policy for industry, trade and credit to make it possible for us to take part internationally in the construction of the modern health care needed to cope with the pandemic on top of the need for vaccines.
To block the evolution of new mutations of the virus, it is not enough to reach halfway. The target must be to do what is needed in every nation to reach a modern health standard, so the pandemic can be eradicated everywhere. It is a gigantic task, but it is possible if all industrialized nations concentrate in developing their own capacities of production and infrastructure, instead of devoting its major resources to the financial speculation now dominating the world economy.
The governments of the rich nations are held hostage by the megabanks, whose reckless speculation activities are regularly causing global financial crises, as these banks are infinitely guaranteed by the state. Afterwards it is the well behaving public citizens and businesses who, together with the rest of the world economy, are forced to pay for the mistakes of the megabanks.
What is important with the proposal by the Minister of Finance Magdalena Andersson for implementing a banking tax, is that it provides an opportunity for us Swedes to finally react to the warnings for the coming financial tempest and start a public discussion about the risk Sweden is taking to support the big banks every time they are in crisis. What Minister Andersson proposes is a tax compensating for the unlimited state insurance which gives the big banks advantages in the form of lower borrowing costs. “The banks are a risk to the economy, and it could cost a lot of money for the taxpayers to save the banks”, the Minister of Finance Andersson said in the press conference announcing the new banking tax.
We oppose the banking tax on the grounds that it is totally insufficient. Any banking tax, as well as any bank resolution fund, are far from being sufficient if governments are forced to be the guarantor to the globalized banks and pay the enormous financial losses in the banks each time there is a banking crisis in in any country.
Andreas Cervenka, a leading economy journalist, was on the same line when commenting on the banking tax proposal as “a heavy blow in the air” and “meaningless”. The headline of his article in Dagens Industry, June 4th, is “Small change in a Financial Crisis”. The opinion of Cervenka is, just like ours, that “the banks must learn to stand on their own feet”.
Our proposal is straightforward. With a bank separation the government could limit it´s risk by renouncing it´s responsibility for the gigantic dangerous speculative excesses of the financial system. The government keeps its guarantee for that minor part of today´s banking system, which is systemically important. That is the commercial banking section running the customer accounts, the payment system and the credits for trade and businesses according to the [Swedish] banking law. This would make the risks manageable for the government, which in the case with a banking tax would not be even close. The system, with an ownerwise fully separated banking system, was first implemented in 1933 in USA with the Glass-Steagall Act. The commercial banking activities of the banks were then separated from the investment banking of securities trading etc. It blocked the temptations of the commercial banks from the short-term profits in the securities trade of the investment banks.
This system stabilized the banks in the entire Western world, including Sweden, until the deregulations process in the 1980-ies and 1990-ies. However, in today´s universal banks a feverish trade in derivatives and other exotic financial products have created the biggest bubble in history. It makes the Mississippi bubble in France and the South Sea bubble in England small in comparison. The trade in the money markets in Sweden has a turnover each week of amounts more than half the yearly Swedish GDP.
The reintroduction of the banking separation has been discussed in this century in many leading Western nations and the EU, as well as in the Swedish parliament. Also, the leading economist Paul Krugman considers scrapping Glass Steagall a mistake. The benefits of a boundary clearing between the commercial banking and the securities trade, extends far beyond the stabilizing of the banking system and the liberation of the nation from the dooms-day risk following today´s guarantees to the megabanks.
Commercial banks cleared from speculation opens the possibilities for exactly the vast expansion of credits to the productive businesses, which is needed to make it possible for Sweden to expand its productive capacities to take part in building the global health system and its accompanied infrastructure, which are absolutely necessary to halt the current and future pandemics.
When the credit capacities of the banks are prevented from the hemorrhages into the securities speculation, the bank can become tools for handling a vastly expanded system of directed credit from the Central Bank, the Ministry of Finance, and the capital markets to finance the urgently necessary big infrastructure projects like the tunnels under the Sound between Denmark and Sweden, new nuclear power plants and a network of maglev high speed trains. Under the Ministry of Finance, a national bank for infrastructure and housing construction should be instituted for such directed credits financed by the issuing of bonds that could be bought by the Central Bank and the capital markets. Actually, this system of bond issues has since last year been allowed for Green Bonds, which have a government guarantee but lacks guarantee for productivity. When the ideological barrier against such government directed credit has been removed for the insecure Green Bonds, there should be no reason to block a system of bonds promoting infrastructure with high productivity to replace the system of Green Bonds.
Standard magnetically levitated trains with a speed of 500 km/h or more are a guide-line for the kind of productivity enhancing technology which must be the character of the infrastructure that is to be financed. High technical productivity and energy density inherent in the investments will stabilize the financing of both the project itself and, by increasing the general productivity, also the national financial system.
For the Swedish banks, a banking separation would lead to an upswing for much closer cooperation with the business entrepreneurs and the huge efforts needed to build up the Swedish infrastructure and production to be able for real to contribute to the global challenges of the current and future pandemics.
Banking separation means that the security-trading financial activities will be forced to take responsibility for its own speculative economy. For the public and the businesses it would mean a relief from being hostage for risks which are not their own. It is the most important first step to get out the financial crisis where the Central Bank is pouring out money creating an explosion of debt for both housing and speculative activities. The spotlight provided by Minister of Finance Andersson on the financial risks with the banks, must be welcomed as it opens for a debate on how Sweden as a nation in the coming financial tempest should survive, grow and take part in the solutions for the global fateful issues.
By Mats Lönnerblad, author and commentator of financial law
and Ulf Sandmark Economist and Chairman of the Schiller Institute in Sweden
Från bankkris till börskris, 2003
Från folkhem till fattigstuga, 2004
Falskspel i affärer och politik, 2006
Pengarna eller livet, 2007