– The UK Is Preparing To Return To “Glass-Steagall” (ZeroHedge, June 16, 2011):
In a very surprising move, the AP reports that the UK finance minister George Osborne has announced a major overhaul of British banks, the key provision of which will be the separation of bank retail and investment business “in order to help avoid another financial crisis” – an act which is in essence a reintroduction of Glass-Steagall. What is stunning about this development is that the banking cartel has allowed the UK to get so far as to effectively repeal Gramm-Leach-Bliley, the act that ended Glass Steagall and allowed unprecedented deregulation to convert formerly safe banks into the mastodon, 50x levered, TBTF hedge funds they are now. And if this is happening in the UK, how long before Europe adopts the same overhaul in order to placate its austerity-ired population, and deflect populist anger where it belongs: the banking oligarchy which continues to defy nature, and the simple laws of bankruptcy, and demands that there is never even the smallest impairment of senior claims. All this may very soon be changing.
From the AP:
Osborne backed the findings of the government-appointed Independent Commission on Banking (ICB) which earlier this year called for a “ring-fencing” of retail businesses.
“Today I have told the Commission that the government endorses both these proposals in principle… We will make these changes to banking to protect taxpayers in the future,” he said.
Osborne said he had taken the decision bearing in mind what he said was a British dilemma.
“As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests,” he said.
“But we cannot afford to let it pose a risk to the stability and prosperity of the nation’s entire economy.”
On Zero Hedge, as well as on any other thinking financial websites, the repeal of Glass Steagall has been excoriated to the core, as the gating factor that allowed the financial collapse of 2008. It seems others share the sentiment.
The practice of banks using money from their retail arms to fund investment operations has been widely blamed as a major factor behind the global banking crisis.
Additionally, Osborne seems to mean business by putting Northern Rock up for sale:
After months of speculation over Northern Rock, which was nationalised by the previous Labour government, Osborne said the coalition had to “clear up the mess of the past”.
“I can announce tonight that on behalf of you the British taxpayer, I have decided to put Northern Rock up for sale,” he said, adding that they could “at least get some of our money back.”
He did not set a price but the BBC said the government planned to sell it to a single buyer for about £1.0 billion (1.14 billion euros, $1.62 billion), rather less than the £1.4 billion it cost to bail out the lender.
Potential buyers for Northern Rock could include Virgin Money, the Coventry and Yorkshire building societies, investment groups NBNK and Olivant, and Tesco Bank.
Northern Rock plunged into crisis in mid-September 2007 when its exposure to the US-triggered credit crunch forced it to seek emergency assistance from the Bank of England, sparking the first run on a British bank in recent history.
To avert financial meltdown, the government agreed in December 2007 to guarantee all customer deposits and then later nationalised the bank in February 2008 to prevent its collapse.
The lender was broken up into two parts last year, forming a so-called “good bank” that will be up for sale — and a “bad bank” management company to run down the remaining toxic assets.
Osborne, who has been a regular critic of the banking cartel did not stop there.
He also warned that Britain’s economy faced tough challenges.
“Failure to tackle the imbalances during the seven years of plenty before 2007 threatens seven lean years thereafter,” he cautioned.
“Storms from the world economy are likely to stir up the waters through which the UK economy must pass as it too adjusts to a new equilibrium with lower levels of debt and a rebalancing from domestic to external demand.
“We have to pass through turbulent waters. But we have set the right course,” he added.
In an interim report published in April, the ICB also recommended that banks set aside more capital to avoid future state bailouts.
We wonder just how many mbillions in bribes will it take for our own corrupted politicians to do the right thing and follow the UK’s lead in repealing the worst law to have ever been conceived by the banking lobby. Our guess is: a lot. Which is why we are not hoping that this one true means to begin fixing the system will ever come to the US. Instead, America will have to deal with the aftermath of that bloated of worthless legislation known as Dodd-Frank for years, which will likely never be instituted in our lifetimes courtesy of banks’ ongoing and successful attempts to delay implementation, preferably until infinity (and not in the Norwegian sovereign wealth fund sense).