How to Avert A Great Depression Through the Hungry 2010s?
Answer, By Making All Banking Very Much Cheaper
december 2008 norman macrae
If banks in rich democracies had been truly competitive institutions, at least one of them somewhere would have seized the main opportunity created by the computer. This main opportunity was to make all deposit-banking vastly cheaper than ever before. By this cheapening it should make such banking hugely more profitable. Then further competition would search for the cheapest ways to guide all the world’s saving into the most profitable (or otherwise most desirable) forms of capital investment, thus enriching all mankind.
Instead, during 2008 the total losses of banks in rich democracies – in
North America, West Europe
– soared into trillions of dollars. Fearful for their solvency, these banks
virtually stopped lending. The issuance of corporate bonds, commercial paper,
and many other financial products largely ceased. Hedge and insurance firms
also crashed. Mankind is thus threatened in the 2010s with its longest great
depression since the hungry 1930s. Japan
Why? The strange answer seems to be that other happy consequences of modern technology promised to make this cheapening even faster. Call centres in
the middle class salaries of Bangalore Midland bank
clerk who until the 1950s expensively answered clients’ questions in their
branches in the City of .
Cheap mobile phones kept village ladies in once miserable London as
fully in touch with market prices as is the chief research officer of the First
National Bank of Somewhere in Bangladesh .
His weekly salary is still 1000 times greater than the previous annual earnings
of that village lady. The cost-effective way of running the old California or First National
then seemed to be to cut its total salary cost by something like 99%. This did
not please Western welfare governments, or the decent chief executives of the
old Midland or
First National bank. Midland
Awaiting the sensation of a short sharp shock
From a cheap and chippy chopper on a big black block
– WS Gilbert in The Mikado - why it is uncomfortable to work in an industry which needs 99% redundancies.
Western welfare governments have long preferred to run their banks in high cost cartels, and even invented reasons why this seems to be moral. Their deposit-banks have usually kept in cash only 10% of the total amount deposited with them. If 11% of depositors suddenly feared that their banks might go bust, this could accelerate a run that would send them bust indeed. Governments therefore thought that depositors would be less fearful if they were assured that the banks were officially and tightly regulated. Actually, this mainly meant that the banks had to hire ever more expensive lawyers so as to escape any crippling consequences from this regulation. The attached quote shows that Samuel Pepys understood this fact of life in his Diaries of
. July 21, 1662
I see it is impossible for the King to have things done so cheaply as do other men
– Samuel Pepys on discovering an important commercial fact of life in his Diary,
The decent bosses of the deposit banks felt that the best way of avoiding sacking nine tenths of their staffs was by competing with a very different sort of financing called merchant banking whose earnings and bonuses were far more generous than those given to their own staff. These merchant banks were of peculiarly differing pedigree. In
it was assumed that they could best be run by families like Barings who had
done the job for over 200 years. In the 1990s, Barings went totally bust
because one of its hired traders bet much of its money on a hunch that a bad
earthquake in London
meant that the shares of Japanese banks and insurance companies would become
more profitable. In Japan ,
merchant banks felt it most moral to keep the accounts of their depositors
totally secret, especially if these accounts were being used to defraud their
own countries’ tax authorities. In 2008 those secretive banks were then
defrauded. In Wall Street, Goldman Sachs and Lehman Bros bid up their annual
bonuses to millions of dollars for each partner. In 2008 even Goldman Sachs
made a loss and Lehman Bros went bust. Zurich
A former chairman of the Federal Reserve argues that “fearful investors clearly require a far larger capital cushion to lend unsecured to any financial intermediary now”. He therefore thinks that taxpayers money should be ladled into them to make those investors less fearful. This seems far more likely to make depositors intermittently more terrified and cause any depression into the 2010s to linger on and on.
In the 1930s, the chief economic adviser to the government of
– quote from former director of International Monetary Fund.
One of the few big banks to make a profit in 2008 was the Grameen Bank (which means Village Bank) in that once basket-case country called
sole staff in a branch serving several villages was once a woman student. It is
now more usually someone who has learnt to use the computer in the right way. Bangladesh
How to create cost-cutting banks? Learning from Dr Yunus and those who have exponentially sustained community rising microcredit seems to be the best way forward worldwide women and
Congressmen can get. http://www.results.org/website/article.asp?id=3709
As a child, Norman Macrae bumped into Peter Drucker. It was dinner time at the British Embassy in Stalin’s
where Moscow ’s father
was a consulate. Both Norman
and Peter’s experiences of the 1930s determined their love of writing up for
big management stories of why and how entrepreneurial systems are born micro.
The teenage Norman
studied economics from an Indian correspondence course whilst waiting to fly
RAF planes out of Norman
in world war 2. He then went up to Bangladesh
as part of the last student generation to be lectured by Keynes. He married the
daughter of the British Raj judge who was tutored for 25 years in change by
Mahatama Gandhi –Kenneth Kemp went from being the Mumbai judge who imprisoned
Gandhi in the 1920s to helping write up the legalese of Cambridge ’s India in the