For a group of people, the phrase “a government for the people, of the people and voted by the people” has rung hollow.
During much of recent protests, a majority thought of the detractors as left wing, anarchistic nutters.
The banking collapse of 2008 led to many more people challenging their preconceived notions of government. Even earlier, there were rumblings over the relationship between business and government.
The ‘Libor scandal’ has taken this to a new level.
Austerity Times
There is now a common perception that the ordinary public are being forced to pay for the economic sins of governments and businesses alike.
For years, people had worried about government profligacy and had wanted to pay less tax. The hope was less revenue would mean cleverer spending.
The Labour government in Britain (1997-2010) spent any extra money it had on buying votes through creation of public sector jobs. The failure forced the Party to borrow 25% of its spending budget, an unsustainable amount.
No account was given as to how the budget shortfall would be balanced and debts paid off. The current coalition government has begun to make amends, but is barely making a dent, while civil servants seem to be targeting the wrong people.
As suspected, newspapers in Britain have been suggesting that austerity measures would shorten the life of the current Parliament (2010-15) but it is set to last at least a generation.
Bank Bailouts
Luckily, for many governments, old and new, the banks have made for suitable scapegoats for the entire crisis.
It is important to note that banks in Scotland, Iceland, Spain and the US, among others, were culpable of major sins. Questions need to be asked why the banks were bailed out in nearly every country instead of being restructured, broken up or allowed to fail.
Another question is why governments on both sides of the Atlantic allowed regulations to be slashed. Gordon Brown (Former Chancellor of the Exchequer) Ed Balls (Shadow Chancellors) deregulated the banks in Britain in 1997.
This was followed by the ‘Financial Services Modernisation Act of 1999’ created by President Bill Clinton and the Republicans in the US.
Everybody knows what happened a decade later as bank debts grew to an unsustainable level and several collapsed. Homes were repossessed and businesses found their credit lines cut.
In Britain alone, the collapse in credit killed several companies, shrinking many others. Money went from the public purse into the bank, nothing was reformed, bonuses continued to be paid out, and small business lending shrivelled.
The final bank question has to be, ‘Why was nothing changed?’
Libor
The scandal broke with news concerning one of the British banks, which was keen not to get into trouble.
Barclays stood apart from the crisis, was not forced into merging with a near- bankrupt Scottish Bank like Lloyds of London. It has, however been caught in an American investigation into interest rate fixing.
Libor (London Inter-bank Offered Rate) sets a standard for all interest rates on mortgages, loans and inter-bank lending.
Barclay’s Bob Diamond fired the first salvo in a war to prove that banks were not colluding just between themselves, but also with regulator and the government.
It was suggested that people within the Bank of England and the previous government knew of the ‘Libor scam’ and were actively calling for it.
In America, federal documents have shown that banks and regulators were colluding, while billionaire Warren Buffet believes that it is a worldwide phenomenon.
In Japan, the economy is built on such collusion, which is why bankrupt companies rarely go bankrupt.
Layla Horton is the nom de plume of a freelance business and finance writer with a keen interest in how governments influence or hinder private sector business success. She began her career in banking, where she was initially selling a host of banking products including current accounts and unoccupied home insurance
