Money Makes the World Go Down – part 3 of a #RealGreenRevolution

This is the 3rd in a 7-part essay on the type of policy innovations that would respond to the truth of the environmental predicament and, also, why most environmental professionals ignore such ideas to promote limited and limiting ideas instead. These ideas on a #RealGreenRevolution provide a contrast to current agendas, with the aim of encouraging a global environmental movement as a rights-based political force.  Having looked at taxation and market reform in the last part, here I turn to that even sexier topic of monetary reform and currency innovation, and how to transform the operating codes of our economy that to alter behaviours in fair ways.

To receive each part of the essay, subscribe to my blog, using the box on the right. To engage with other people who are responding to these ideas, either engage on the Deep Adaptation Leadership group on LinkedIn (where I will check in) or the Deep Adaptation group on Facebook, or by following the hashtag #RealGreenRevolution on twitter. The introductory Part 1 provides context.

Banking Transformation

Most people, including politicians, still do not understand that in advanced economies well over 90 percent of all our monetary transactions are not in government issued currency. Our electronic payments and the bank transfers use the private ledgers of private banks and the systems that they have established to transact between themselves. What we are paying and receiving are units of the bank’s commitment to us. The “money” that sits in our private bank accounts was not created by government but by the banks themselves when they issued loans, or (much less by comparison) took in physical cash deposits. The problem with our money supply being created by private banks is that they decide how much new credit money is created and what for. Therefore, in most countries they lend most of it for property, which warps the price of property and therefore creates a debt-enslaved ‘house owning’ group and others renting precariously month by month. In addition, because they charge interest, there is more debt in the world than money to pay it off, which means that the money must be earned, paid to service debts, then spent by the bank or its shareholders so to be earned again, in a cycle which is never perfect, especially when high levels of inequality mean that some people remove the money from circulation (by neither lending or spending it into the real economy). That means an expanding amount of loans are needed to keep the system running smoothly and avoid a scarcity of money leading to job losses, bankruptcies, loan foreclosures and house repossessions. Banks will only issue more loans for activities that they assess will generate the necessary profits to pay interest. Therefore, the economy must expand whether a government or population wishes it to, or chooses to focus on measures other than increasing GDP (gross domestic product). This compulsion to growth the money supply or risk economic instability is called a Monetary Growth Imperative.

That imperative to grow is especially problematic because a decoupling of natural resource consumption and carbon emissions on the one hand, and GDP on the other, has not occurred significantly at an international level, with some countries decoupling only by importing products from abroad. Overall efficiencies that lead to reduction of resources or pollution per item produced has not reduced overall consumption of natural resources and pollution. Therefore, the Monetary Growth Imperative that arises from the nature of our banking and monetary systems means that a society will be prevented from effective climate change mitigation and regeneration without monetary reform. The current monetary system does not allow a steady-state economy that stays the same size with the same level of transactions. That compulsion to grow the economy also compromises the ability for us to adapt to disruptions, as there is a requirement for GDP to keep increasing to avoid the negative effects of the money becoming scarce. Unfortunately, the ‘degrowth movement’ has largely ignored or downplayed this aspect of the monetary system, and instead preferred to argue that all societies need is for our leaders to deprioritise their attention to GDP and the problem will go away. That could be an easier position to take for scholars and activists who imagine themselves as the educators of people, rather than recognise how we are engaged in a struggle against anti-democratic forces. A realisation of the latter, implies very different tactics than more nice conferences and books – tactics more in the realm of organising counter-veiling power to the banks, and preparing for the backlash.  

Another problem from the current monetary system is the anti-democratic power of the bond markets. Currently the way governments create the money that they need additional to taxes is by selling bonds, which are bought by banks that actually create the money in the process. That provides a ridiculously powerful position to those banks, as their views on government policies affect whether the government can access the money. That creates a situation where a government is always concerned about a crisis in confidence in the bond markets. That is not democratic and restricts the degrees of freedom for a government to pursue a bold #ClimatePlus agenda (described in my first part of this essay). One answer to the two problems I have described is a dual approach of scaling back the amount of money being created by private banks, and increasing the amount of money being created by central banks and governments. Therefore, governments would no longer sell bonds, but create digital cash and sell or lend this to banks and other financial intermediaries, and businesses, that would in turn then lend it out further or spend it. Some of the money would be spent into circulation directly by the government. An independent group would oversee the amount of money created by the government to avoid election cycle manipulation. This approach has been dubbed “sovereign money”. Not liking the potential to reduce their power and profits, the public relations firms working for private banks have set out to demonise central bank digital currencies (CBDC) through conspiracy theories that it would curtail freedom. That is despite how CBDCs could be designed to provide complete privacy for daily transaction amounts within national borders, and at least more than the current systems of electronic payments that are monitored by multiple companies (a subject I return to below, when discussing Basic Services Vouchers). Without these monetary reforms, trying to mitigate, adapt, restore, regenerate and make reparations will be as impossible as swimming against a riptide. Therefore monetary reform has to be central to a #RealGreenRevolution.

In addition to monetary reform, another type of banking reform is necessary to harness the massive power of banks to support a ClimatePlus agenda. This is the role of credit guidance. Banks would be required to curtail lending to carbon intensive projects unless securing a specific exemption, and also to maintain a significant percentage of their lending to enterprises that register with the government as working on mitigation, drawdown, adaptation or regeneration activities. The individual loan decisions would be made by the banks, as well as the terms and costs of the loans, but a certain percentage of all lending would have to go to such activities, and so if the bank wanted to expand its lending for other activities, it would have to expand its lending to ClimatePlus related business activities by the same proportion. The ideas for useful business activities that relate to the necessary transition of economies would come from local entrepreneurs, based on their local knowledge, but suddenly those people and projects that respond to the needs to our predicament would have better access to credit than ever before. The use of credit guidance in this way has been a tool used around the world by governments that have sought to shape the trajectory of their economic development.

In addition to reprogramming the money system to make it help – not hinder – the ClimatePlus agenda, it is also important to pluralise the means of exchange in ways that help people cooperate. The main way to do that is a massive investment in the establishing and growth of community-owned and not-for-profit ‘collaborative credit’ networks. These networks use their own currency, which is merely a unit that measures transactions between participants, and can only be used within the network. Such networks can enable local collaboration and trade, in ways that are not dependent on people earning money from the market economy, or on the ongoing stability of national or international monetary systems. That is important for adapting communities to increased risk of global financial volatility, as well as encouraging re-localisation of production and consumption. Local governments should become key organisers and/or participants in such collaborative credit systems. Some of the systems could focus on small business, while others can focus on individuals, or both. Technological dependence would need to be avoided through the use of open source software systems and physical means of transaction as well as digital.

To benefit from major government support, for-profit business barter networks (also known as trade exchanges) would need to sign up to various standards for their professional performance. Then regulations could be upgraded to make it easier for them to operate in all countries. Digital tokens which derive their value from speculation (e.g. crypto currencies) are entirely different from collaborative credit networks and business barter networks. Such currencies should not be outlawed but require targeted regulations to reduce their carbon footprint. A global carbon energy tax should be set at a level that would mean certain crypto currencies would be less favourable. However, as that will take time to implement, and there are unprecedented energy demands from ‘proof-of-work’ cryptocurrencies, they should all be given a deadline to move to far more energy-efficient code, or be banned from interaction with the financial system or mention in legal contracts. (NB: as a libertarian socialist I do not agree with the counter-factual argument that Bitcoin is not a problem due to its carbon footprint, and notice that – despite years of critique and huge financial capacity – the crypto industry has done nothing significant on this issue voluntarily, just some PR; so it is sensible to recommend regulation of speculation and greed when it is particularly counterproductive).

Basic Services Vouchers

Very few of us live in ways where we produce the food, water, fuel and other items that we consume. Therefore, the current economic model requires all of us to either sell our time within the market or to a government agency for a wage, or if we have assets, lease access to them or successfully speculate with them, in order to generate an income to cover our costs of living. With the levels of automation displacing employment, the need for a full time job to cover costs of living has been recognised as problematic. A situation where countries consider creating more jobs of any kind to keep people earning to pay for their costs reflects both a peculiar approach to life and drives consumption. In response, some people have argued for a Universal Basic Income (UBI) to be paid to every person, whether they are employed or not, or need it or not. I am against this idea for a number of reasons. I do not believe in public money being given to people (or companies) that are already relatively well off in society. Neither do I believe that governments can afford it if using the current monetary system, and therefore a UBI would involve major cuts to welfare that targets the most in need. If UBI existed, governments would argue there is no need for free provision of basic services of health and education, as everything could occur through the market. Then if inflation rose, suddenly the income poor could be a lot worse off if they were not able to find work to supplement their UBI.

Instead of the UBI, I believe that Basic Services Vouchers (BSV) should be provided to anyone who self-declares their personal assets to be below a certain threshold (assets including all kinds of savings, investments and properties). These vouchers could be in physical or digital form, and accepted by any person or organisation. However, only registered cooperatives (of any size), small-to-medium sized companies (SMEs) and government-owned companies (local or national) could open accounts to receive the vouchers, and have the facility to exchange them for national currency through a clearing house (owned either by a central bank or the financial ministry of the government). Individual users could also exchange them with each other but not have the facility to cash out into national fiat currency. The vouchers would be issued by an agency working with a central bank, which would provide the backing for the vouchers in the form of a proportion of central bank fiat currency (not necessarily a full 1-2-1 backing, as the backing also comes in the form of the legal requirement for the government to accept the vouchers as payment). Any payment services provider could provide voucher accounts to the end users (i.e. not just banks). Loans of vouchers would not be allowed and neither could these payment providers enable transfers of vouchers into national currency, unless by the registered organisations mentioned above. The users could spend their BSVs on whatever they wanted that was offered by those registered organisations as available for BSVs. The payment service providers would be required to operate in ways where information of transactions under a certain size would be private, either in the instance of transaction or very soon after (i.e. to mimic the anonymity of cash transactions). There would be no requirements on the users of BSVs apart from to register their identity and self-declare their assets being under a certain level in order to receive the regular BSV stipend. All users of the BSVs could use them to pay government taxes and/or fees, both national and local. It would be illegal for any company to require staff to accept the BSVs for payment, although people could accept them if they chose. Creating the system this way would mean that the new money in the vouchers would not quickly leak out of the economically-deprived areas where the BSVs would be required the most, and instead help encourage local trade amongst smaller and more locally owned organisations, as well as remunerated forms of cooperation between local people. The restrictions on transactions into the national fiat currency system would moderate any potential effect on inflation. The BSVs would not be at risk from financial collapse within the global banking system, as they would be using a parallel payment infrastructure. Once the BSVs grew in usage, so the sovereign money policy I described above could be increased and the share of monetary transactions done through private banking systems would gradually diminish. In addition, the fact that BSVs would be a parallel system to national fiat also means that governments would not face the same concerns over budget deficits for funding them, as they would not be created through bond sales of their national currency, and 1-2-1 backing of the vouchers with the national currency would not be necessary.

This BSV system would help with climate mitigation, regeneration and adaptation, by supporting the relocalisation of economies and providing alternatives to a monetary system that requires growth and systematises the extraction and centralisation of wealth. If you understand how current banking works then you may have guessed already that the current banking system would initially organise aggressively and comprehensively against such proposals. That is because it would break the monopolistic position of banks in providing the means of daily transactions. One tactic would be to fund the promotion of conspiracy theories that such a voucher system would involve surveillance, social control and affect the ability to work. Unfortunately, most people fall for such conspiracy lies for two reasons. First, they don’t realise how they are currently surveilled by multiple companies and governments with their current monetary transactions, that their ability to transact can be curtailed by those companies already, and that the control of the money supply by those banks means that the availability of money for someone to pay their wages is already not in their, or their governments power. Second, they don’t realise that a BSV can be designed to provide privacy, prevent government interference, and could provide new forms of liquidity so the job market would not be affected by downturns in the supply of credit to an economy by banks. Unfortunately, because of almost a decade of lobbying against digital cash innovation by governments in the west, the country that has moved ahead with such a system is China, which is introducing it in ways that do not uphold the basic principles of privacy and freedoms as I’ve outlined above. That is then fodder for the conspiracy theorists who do the bidding of the bankers by demonising new forms of government-issued digital currency and the provision of free forms of money to people in need.

Unfortunately, this BSV system also has a new major opponent in the form of Big Tech. They regard themselves as the next providers or partners in the provision of the future currencies. The crypto currencies are not used for everyday transactions and most are unlikely to be because of their technical features. Large platforms that have billions of users are highly suited to becoming transaction systems that use their own units of account, or digital currency. With the BSV system I have outlined, they would only be able to make transaction fees, rather than the larger incomes that come from either interest on loans or the right of seigniorage i.e. creating the units for themselves. Because both Big Tech and the banking systems would likely be so against a country leading on this BSV system, they could attempt disciplining a country through the bond markets and other nefarious approaches. Therefore, a BSV system would need to be developed at an international level, and with some backing from organisations that represent the real economy, rather than Big Tech and banking. Unfortunately, I have not seen that kind of principled and systemic thought, let alone leadership, anywhere in any part of the intergovernmental system in my decades working with it since 1997. Which brings us onto governance reform, the subject of the next part of this essay on a #RealGreenRevolution.  

To receive each part of this essay, subscribe to my blog, using the box on the right. To engage with other people who are responding to these ideas, either engage on the Deep Adaptation Leadership group on LinkedIn (where I will check in) or the Deep Adaptation group on Facebook, or by following the hashtag #RealGreenRevolution on twitter. The introductory Part 1 provides context.

Finding the Opportunity in Crisis – the Greece currency workshop

Outside the Academy
The Academy in Crete

Here is the final line up for the 1.5 day event in Greece on alternative exchange and currencies…  There’s still time to register for the summit. Crisis is opportunity!

October 10th

900-1000
An introduction to money and its effects
Thomas Greco, best selling author on community currencies 1hr

1000-1030
Why “Sustainability” Professionals Need to Embrace Alternative Exchange
Professor Jem Bendell, Uni of Cumbria 30 mins

1030
Coffee, 15 mins

1045-1200
The Effects of Different Currencies: The Trading Game
Jem Bendell and Sybille Saint Girons, Les Valeureux, 1hr 15mins

1200-100
Experiences with TEM in Volos and Chania
Giannis Grigoriou, Volos TEM & Giannis Bouleros, Chania TEM, 1hr

100-215
Lunch, 1hr

215-300
Lessons from Argentina’s Social Money Movement 2001-2002
Sergio Lub, Favors.org and Thomas Greco, 45 mins

300-345
Design and Software Issues for Alternative Exchange
Matthew Slater, Community Forge 45 mins

345-400
Tea, 15 mins

400-515
Expert Roundtable
Thomas Greco, Matthew Slater, Giannis Grigoriou, Hamish Jenkins (United Nations) and Sybille Saint Girons. Chaired by Jem Bendell, 1hr

October 11th

900-930
Breakout meetings on key questions, 30 mins

930-1015
Research findings on alternative exchange in Greece
Irene Sotiropoulou, University of Crete, 45 mins

1015-1030
Coffee, 15 mins

1030-1130
Key success factors and limiting factors in mutual credit
Thomas Greco, 1hr

1130-1200
Software Demonstration
Matthew Slater, 30 mins

1200-100
Facilitated dialogue on key questions from breakout meetings
Facilitated by Jem Bendell, 1hr

100-130
Conclusions on next steps
Facilitated by Jem Bendell, 30 mins

130
Lunch
1hr

In the afternoon, depending on interest and attendance, experts and practitioners in community currencies may convene for a hosted dialogue on “Globalising Localisation: how can we help each other?”

The answer to financial chaos lies on an island in Sweden

The financial crisis is actually a monetary crisis, and you can do something about it now.

On an island next to Stockholm, leaders in systemic solutions to financial chaos are gathering at a sustainability festival. Join them at the Future Perfect festival in Stockholm on 23-26 August, and hear a panel on monetary reforms and innovations for sustainability, and a workshop for executives who want to start, scale or participate in alternative means of exchange.

Panel: “Currencies of Transition: monetary reforms and innovations for sustainability.”

Chair: Professor Jem Bendell (Lifeworth Consulting, Community Forge and Griffith Business School)

Ben Dyson, director of Positive Money, which campaigns for a systemic solution to monetary crises, by full reserve banking.

Josh Ryan Collins, New Economics Foundation, the Brixton Pound and co-author of “Where does money come from?”

Lynnea Bylund, Board Member, Ormita, the international business barter network.

Matthew Slater, Board Member, Community Forge, a leading provider of open source software for community currencies, and editor of Community Currency magazine.

The panel will address the questions: Is a fair and sustainable economy possible with our debt-driven money system? If not, what needs to change? What is being done already? What can we do to get involved, personally and professionally? How can we make this a movement? What mistakes can we avoid?

Workshop: “How alternative exchange systems work and how to get started”

Trainers: Professor Jem Bendell and Matthew Slater

The trainers work with Community Forge, which provides free open source software for community currencies. This video explains why, what and how Community Forge operates.

You will be able to interact with these experts and others attracted to the topic, at a world class music festival! To book your tickets to the festival, visit http://www.futureperfect.se

The workshop will also be offered in Greece in the second week of October. Contact the European Sustainability Academy for more information.

New Italian premiere Mario Monti vows to make Neutrinos run on time

After announcing his new cabinet, which includes no elected politicians, Mario Monti got to work in reassuring the public and markets of their focus in restoring confidence in Italy. “Further evidence this week that Italian scientists have measured neutrinos travelling faster than the speed of light, has damaged confidence in Italian precision and efficiency,” said banker Monti. “I vow to make the neutrinos run on time,” said the leader of Italy’s first unelected government since the War. Along with creative austerity measures, such as making politicians redundant, Italy may be able to restore confidence in its bond issues. “This will enable us to fund international banker bonuses for another two years” explained Monti, demonstrating an acumen from his vast banking experience.

Some speculated that if the physics experiments are actually correct, it could be more unsettling to the markets. “For a neutrino to arrive faster than the speed of light means we must ask whether it is the same neutrino. Instead, could it be that the neutrino is being created out of nothing in the expectation of the arrival of a future neutrino? Might that create a momentary quantum debt that could be unsustainable if replicated on a larger scale?” pondered a theoretical physists who preferred not to be named. It is rumoured that the potential for this quantum-debt-default alerted Monti to settle the markets by outlining his neutrino doctrine. “There are so many quants in banking, who design the algorythms that do the high frequency trades, these neutrino results could knock their confidence in Italy’s science, or worse, in Italy’s time-space continuuum,” said the anonymous source. He added “being a Goldman Sachs man, Monti is used to controlling the universe, so subatomic adjustments might not be beyond his imagination.”

Unfortunately Professor Finzione, from the Italian laboratory Gran Sasso, was unable to attend the press conference, after his train was delayed. He sent your correspondent the following sms: “Time is not so linear. It could be a little bit of history repeating… Me ne Frego! [I dont give a damn!]”

[For more news of this type, check out the onion, news biscuit, daily show, colbert report, or, well, the latest headlines!].

Will Swiss Economic Ideology Harm Global Health and Humanitarian Efforts?

The Swiss franc has increased 30% against the US dollar and 20% against the Euro since last year. The pain felt by Swiss businesses is being well documented. But less well documented is the effect of this currency imbalance on international efforts to promote health, peace, human rights, and humanitarian action. Switzerland is home to many international organisations, including United Nations agencies and international charities. Many have their assets and grants denominated in US dollars or currencies other than the Swiss franc, yet their fixed costs of buildings and staff are in the extremely overvalued Swiss francs. Consequently their budgets are being ravaged by the currency imbalance, leading to mass redundancies and the cutting of various programmes, at key organisations for world affairs, such as the World Health Organisation to the International Labour Organisation. Those with seniority in such organisation are more able to hold on to their jobs, so the harder-working and far less well-paid staff are often the first ones to be shown the door. Although there need to be efficiencies found in international organisations, a sinking-ship mentality is not the way to achieve it.

The current efforts to reduce the value of the Swiss franc, by the Swiss National Bank, are reported by the Financial Times to have completely failed. Their tactics have been to increase the volume of Swiss francs, and slash interest rates. Yet as the international financial markets are spooked and want to buy Swiss francs, banks are simply buying up the excess francs. Not only is this causing a problem for Swiss businesses, it is creating a massive future risk for the Swiss economy when one day people decide they don’t need to hold so many francs. In addition, in efforts to keep the Swiss franc down, the government’s debt is spiralling. That will be compounded by recent commitments to spend billions in bail outs to suffering businesses. Such bail outs will be open for mishandling and corruption and propping up inefficient companies – especially if they are spent quickly enough to have any effect. But worse, these bail outs are like a sticking plaster for a haemorrhaging wound, as systemic solutions are required. If we compare prices across the border, the Swiss franc might even be 100% overvalued already, and the Western monetary crisis is only beginning its latest phase. This is no momentary problem. Imagination beyond old ideologies is required for systemic solutions.

The answer is so simple. The Swiss government could impose a currency transactions tax on any purchase of Swiss francs or assets/instruments denominated in Swiss francs. This transaction tax would reduce the demand for Swiss francs, and generate revenues for the Swiss government. These new revenues could be used to pay down the wholly unnecessary new Swiss government debt, and finance a new emergency international cooperation fund. That fund could issue core-budget grants to Swiss-based non profit organisations and international agencies for them to maintain or increase their employment of non-senior staff. In terms of the UN, this would mean staff below P-3 level. Such staff spend a greater percentage of their wages on local businesses than more senior staff, who invest it abroad, or drive over the border to get cheaper goods, services and property in the Eurozone. Targetted action like this would maintain a key element of the Swiss economy and society, and its contribution to the world.

The arguments against a currency transactions tax have always been vacuous, ideologically driven and about protecting short term profits. Its not workable? Tell that to countries like Brazil who have had a transaction tax for years. It will dent confidence in the economy? Well what do we mean by economy? The current market for the franc? That needs denting! The longer term prospects for the economy require effective denting right now. Given that leading Eurozone nations want to impose a similar tax in future, this is a great opportunity for Switzerland to lead the way. There are strong business arguments for a currency transactions tax, due to the effect on cooling volatility, and strong government reasons, by making up for falling tax revenues. We documented these issues in a report for the Swiss charity Bread for All, yet we found bankers and top government officials wedded to an unthinking belief in no new policy innovations to harness financial markets for the productive economy, public finances or common good.

Why is it such a crisis when the world wants to own your national currency? It should not have to be a crisis, indeed it could be a major opportunity for the Swiss people and the wider world who benefit from its role as a home for agencies of international cooperation. The only thing stopping this being an opportunity is the ideological blinkers of top bankers and politicians who are currently exhibiting zero creativity in transforming this situation from crisis to opportunity. Impose a transaction tax, to release Swiss business from the high franc, pay down the government debt, and fund a more dynamic international cooperation community. If such effective action isn’t taken, some citizens may start asking if the private ownership of 45% of the national bank by private banks like UBS in some way compromises its ability to take action in the public interest. And if such action isnt taken, we will see once again how economic ideologies in certain circles can harm the lives of poor and vulnerable people many thousands of miles away.

Professor Jem Bendell: http://www.twitter.com/jembendell

Loose Change We Can Believe In? Why Salary Caps Won’t Do

Barack Obama has made international news announcing a salary cap for the heads of companies that are being bailed out by government. Other governments are expected to follow suit. Billions have been lost, and trillions pumped in to keep these companies afloat. Compared to that, these salary caps are loose change, not the ‘change we can believe in’ people hoped for.

That bankers are being bailed out, while home owners struggle, and people are laid off, is galling to many. Robert Borosage, president of the Institute for America’s Future, has said that “many homeowners were misled by predatory lenders to taking mortgages that they didn’t understand and couldn’t afford. It would be simply obscene to help the predators and not those that they preyed on.” Some also question the revolving door between bankers and regulators, and whether people like former Treasury Secretary Hank Paulson, who became super-rich from working in one of the firms whose practices had helped create the crisis, should have been deciding how to hand out billions to the same sector. News that the bankruptcy courts released $2.5bn to secure Lehman Brothers bonus payments at a time when savers were losing out, is just one example of a situation that seems to many like a systemic abuse of power by a professional elite of regulators, judiciary and bankers. Then Merryll Lynch giving out more millions to its staff as the crisis really crunched is not just obsence, as time may tell, it is likely criminal.

The bail-outs are defended by the fact that a financial institution is “too big” or “too interconnected” to fail and that its failure would cause a systemic risk. If governments and regulators have let financial institutions become so big that they cannot be allowed to collapse, shouldn’t they be encouraging more competition and more diversity? This is at least the view of trade unions. UNI Finance, the global trade union for finance workers, has repeatedly called for a diverse finance market that includes not only private banks and insurance companies but also public banks, savings banks and insurances, co-operative banks, mutual insurance companies and foundations. However, this does not seem to be the view of governments and regulators who are pushing failing institutions into the arms of healthier ones (e.g. acquisition of Merrill Lynch by of Bank of America in the United States or the takeover of HBOS by Lloyd’s TBS in the United Kingdom). As Lina Saigol, a Financial Times columnist, has argued, this “new generation of gargantuan institutions [will have] the power to dictate the next financial boom and bust.” With the new injection of funds from governments, many banks have since turned their attention to attempts at buying each other out, and thus compounding the problems associated with market domination by too few players, rather than quickly getting back to the business of lending money to people in the business of making things for others.

In many cases the bailouts have became part nationalisations of the banks involved. This gives governments some additional influence over their practices, yet most politicians are currently cautious about what influence they exert, and act on issues like future executive pay, as the new announcement from the US illustrates. The irony of increasing government ownership of the banks, is that the tax payer may face a double whammy of their own. Not only have they bought up bad debts, but they have bought into potentially massive legal liabilities. In a comment in The Guardian, Nick Leeson, the trader who brought down Barings Bank in 1995, said: “For my role in the collapse of Barings I was pursued around the world, and ended up being sentenced to six and half years in a Singaporean jail. Who is going to go after the reckless individuals responsible for the financial catastrophe? Apparently no one”. However, there appears to be growing pressure to hold companies as well as individuals responsible for the global financial crisis. Regulators have announced the broadening of the investigations into the collapse of the subprime mortgage market to include Fannie Mae, Freddie Mac, Lehman Brothers and AIG. In addition, many observers expect a sharp rise in shareholder lawsuits against investment banks and other financial institutions following the millions of dollars of losses they made by gambling money in asset-backed securities and the like. Law suits are emerging from Hong Kong to Paris to Rekjavik.

These actions slam the legal door after the capital horse has bolted. Rather than punishing the individuals who profited from using other people’s money to buy derivatives they did not fully understand, but knew could turn a profit in time for their next bonus, this legal action will cost the companies’ new owners, including the tax payer. First the bankers, then the lawyers, will have bled the collective purse. The sick irony of this is that many ex-bankers are getting in on the game: they are helping fund the lawyers to pursue claims against financial institutions for those who have lost their money. In doing so they aim to make a nice commission. They screwed the public purse once, and now will do it again, through taking a slice of payments paid out by their old employers. As this situation becomes visible to the general public, calls for the people who made millions from speculating with their money to replenish their depleted pension funds may grow. There could be investigation into whether there was abuse of fiduciary duty by those who received large bonuses through creating, investing, rating or trading in mortgage backed securities or credit-default swaps since the deregulation of those markets in 1999. Given the mobility of capital, such processes would require international cooperation, to freeze assets of those being investigated. If this happened, it would remind us of Interface CEO Ray Anderson, who said that people like him would in future be regarded as criminals for doing things that at the time they considered normal business. Letting bankers live as millionaires, some as billionaires, from creating a crisis that has emptied the pensions funds and now the coffers of government, would sadly stand as a testament to systemic injustices of contemporary societies. However, it is unlikely that governments will want to see such a wave of litigation. As such there may be growing calls for some form of ‘financial truth and reconciliation’ commission, to explore how this crisis developed, where fault lies, and how to repatriate some savings.

Those calls will grow louder in the coming months, with major activist mobilisations planned to call for financial justice before the G20 meeting in London. Obama was expecting a hero’s welcome at his first big meet up in London. But saving a few million in salaries in return for the trillions thrown at the financial sector, while millions of people lose their jobs? Salary caps aren’t the loose Change We Can Believe in. He will have to do more. Far more. As will the rest of the G20. They can start by endorsing a more legitimate and inclusive process to develop principles and rules for a new financial order, and coordinating a process to repatriate some funds from the pockets of the irresponsible bankers, some of whom now seek to even profit from the coming litigation.

– More analysis of the future of the financial system will appear in the next Lifeworth.com Annual Review of Responsible Enterprise, released at the end of the month.

– For a discussion of the corporate responsibility movement’s contribution to the future of capitalism see my new book http://www.greenleaf-publishing.com/productdetail.kmod?productid=2767