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Bankers are not exactly popular these days. The global economy is only just recovering from the financial crisis of 2007-8, and citizens (understandably) greatly resent having had to bail out the banking sector with public money. Even more than that, they resent immediately afterwards having had to endure a long period of austerity and public sector budget cuts.

In the wake of the Brexit, some economists warn we are now heading for another European banking crisis. Deutsche Bank’s chief economist recently urged the EU to put aside 150 billion euros for a new round of bailouts. In particular, market pressure has been building on Italy to offer assistance to its banks (leading to grumbling from the German finance minister).

It’s safe to say that public trust in the global financial system is pretty low. We had a comment sent in from Nikolai, who didn’t think there was much that could be done about it. He argues that the 2008 financial crisis, and subsequent public bailout of the banking sector, has irrevocably damaged public trust. To him, it feels like the financial sector works for the elites, while hurting ordinary people.

To get a response, we spoke to Joris Luyendijk, a Dutch writer and correspondent, who is well-known for the Banking Blog he kept on website of The Guardian newspaper. What would he say to Nikolai?

LuyendijkWell, I would say it’s a really good thing that trust has collapsed, because there really is no reason for trust in the current financial system because bankers are still rewarded for taking risks but they face no penalties or liability when these risks go wrong. So, I think to rebuild trust would mean to rebuild the financial sector in such a way that it begins to act responsibly, and then trust will appear magically – after a couple of years of decent behaviour on the part of the banks.

We also had a comment sent in from Catalin, who pointed out that Iceland was the only nation in the world that sent its top financial executives to jail. She believes that other countries should have followed their example (and this was a very popular suggestion among our readers). What would Joris Luyendijk say?

LuyendijkIt’s very difficult, because most of the top bankers didn’t break the law. So, to send people to jail simply because the outcome of their actions was so negative would be a really dangerous precedent. I think what we should have done is: Where bankers broke the law, send people to jail, as in Iceland. But, more importantly, top bankers should be held personally liable. So, if they cause damage to the tune of, say, 10 billion euros, then they should be fined collectively 10 billion euros, so that they know that if they wreck their bank, nobody will pay a higher price than the bankers themselves.

Finally, we had a comment sent in from Rui, who argued that the global financial architecture designed in the late 1970s and early 1980s had completely failed, and needed to be redesigned from the ground-up. Did Joris Luyendijk agree? Or would he advocate more moderate reforms?

LuyendijkI would think that you need on the deepest level a fundamental redesign, and it needs to start with the science of economics. So, right now, if you increase productivity in an economy – meaning you create more so the pie is bigger – we call it “Growth”. But if you create lots of money out of thin air and you pump it into assets, you create bubbles, and then people start spending on consumption on the basis of that bubble, that is also called “Growth”. And so both making the pie bigger and eating the pie faster comes under the same concept: “Growth”. And I think that’s where we need a really big rethink and change. So, “Growth” should only mean the increase in the actual productivity of an economy.

What will it take to restore faith in the global economic system? Should more countries have followed Iceland’s example, and sent their top bank executive to jail? Or should the management of collapsed banks have been made financially liable for the damage to the economy? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!

IMAGE CREDITS: CC / Flickr – Eden, Janine and Jim


70 comments Post a commentComment

What do YOU think?

  1. Tarquin Farquhar

    Jail the “cogs” and the “orchestrators” of corporate greed.

    Jail the bureaucrats that “smoothed” the way for corporate greed.

    Jail the politicians that did as their corporate greedy masters wanted.

    Jail the ex-politicians that join finance companies after having pedalled their greed as EU doctrine for too many years.

  2. Giorgos Christeas

    Δε Δε De De Leveraging!!……This is Private dept(1000%-40,000%!!!…..) as Exposure to Derivative Products / Total Assets!!……Easy!

  3. Christos Mouzeviris

    It can’t be done… To have faith it needs justice for everyone on this planet… And this system has been designed to reinforce and protect the status quo… Some elite people in elite nations remain rich, while other nations and their people are less fortunate… How can you have faith in this system? Unless of course you live in one of those elite nations and you rather comfortable financially…

  4. Monique Taxhet

    Well Christ is this has always been the case. Even communism has failed in sharing wealth, there were also rich and poor people, even worse, there was no freedom. Humans cannot be changed, everyone wants more and more and no one really cares about the rest..only pretending, until such time the money runs out and then they will do what needs to be done to get it all back…sad but don’t know how to change it. Everyone who has tried so far has failed.

  5. George Diplas

    Μονο η Wall street? Η σφηκοφωλια των Βρυξελλων? Ο ΜΠΑΡΟΖΟ μετα την πολιτικη!!!! θητεια προσεληφθη απο την…GOLDMAN SACHS!!!! Αμ πως.

  6. John Hillbery

    It needs Truth. Honesty Justice Equity.Good management, sound lending policies and a deep knowledge of Humanity before anyone should call them selves qualified to be a banker.Insolvent Banks should be allowed to fail. Corrupt bankers who lend to their friends with no intention of repaying the loan should be fined and jailed.All that would help.

  7. Bianka Pavšič

    Very easy…closing bank accounts and do the homework to find better one….as long as it takes…andthus can do every single individual…about 5 bilion precissely…until banks understand that even small humans can burn them down. But this is far away from “comfort zone” so unreachable.

  8. Alain Rak

    Not very new. Most of the European banks have not enough assets. Old story. Most of the biggest, French,German and Italian banks are not far from bankruptcy.

  9. Alain Rak

    En français dans le texte, vieille histoire la majorité des banques françaises, allemandes et iitalienes sont
    sous-capitalisées et ne gagnent plus assez d’argent car les intérêts sont pratiquement négatifs. La dispersion de la BNP Paribas qui veut posséder toute l’Europe en fait une des banques la moins “sécure” du monde sauf véritable capitalisation?

  10. Rafael Miralles Ferrández

    I don´t want to belong to an “organization” in which the ANGLOGERMANS are the owners and the rest of Europe (Russia included) are nothjng but their slaves.

  11. Ιωάννης Ράπος

    Τι θα χρειαστεί να αποκατασταθεί η πίστη στο παγκόσμιο χρηματοπιστωτικό σύστημα; Να έχει όλος ο κόσμος δουλειά με εισόδημα που να τον επιτρέπει να ζει αξιοπρεπώς και με ασφάλεια./What will it take to restore faith in thw G.F.S.? To have everyone job with an incoming to allow him to live with decency and with financial security.

  12. João de Oliveira

    To restore the faith (should no be faith, but TRUST!! ), THE problem called Deutsch Bank and its 20x Germany’s GDP in derivatives potentially toxic, needs to be resolved… IMF recently published a report in which calls the world attention for the “biggest threat to world’s financial system”… And what does the German Finance ministry ? Ignores the issue, avoid responding to questions about… And highlights that Portugal should get penalised because their deficit were 0,2% above the 3% threshold !!! WTF???

  13. Mário Bruno Brandão Cruz

    What is the point of putting too much pressure in weak countries like mine? If you lived here you would see and feel the suffering this pressure is bringing to our people. :(

  14. EU reform- proactive

    The final royal flush- to end the happy, deregulated- merry go round- at our costs!

    Overseen by the ghost of the Rothschild’s, protected by the might of the banking institutions- in cahoots with their political institutional partners (Bilderbergers)- both too big to fail. Therefore too big & dangerous to exist! An invincible, unbelievable con? What have we got?

    The “Basel series” of voluntary regulations:
    https://en.wikipedia.org/wiki/Basel_III

    Banking reputation remains in mafia territory- despite………:
    https://www.theguardian.com/business/2016/jan/18/banking-standards-boards-fails-outline-standards

    The European Banking Authority’s (EBA) aims to supervise itself through a “single rule book”.
    http://www.eba.europa.eu/regulation-and-policy/single-rulebook

    The EC develops directives & enforcement policies for its 28 members- to keep themselves busy & fake moral leadership:
    http://ec.europa.eu/finance/bank/index_en.htm

    In the meantime, the next big trigger to collapse the over stressed system is not another EU EXIT, but a probable Banking collapse lead by Deutsche Bank. The “casino royal”- gambles its last royal flush! Beware!

  15. Ian

    Joris’ book Swimming with Sharks is an excellent read. In it he shows very clearly how perverse incentives within the system mean that people can make huge rewards from acting in their own short term interests regardless of the consequences for society. As he argues, the system needs to be reformed to remove these perverse incentives. But I also think we need to undestand how attractive the financial system is to people with certain disorders, namely narcissists and psychopaths, who thrive in such an environment. If we understand this we will be in a better position to reform the system to guard against their destructive influence. My blog post on this is here http://bit.ly/29wqbHH

  16. Maurizio Flores Felis

    Breaking down big banks, creating more cooperative banks, putting a limit in interest rates bringing them back to 1 and a maximum of 3%, creating more and more cooperatives lesser corporations and stock markets…..

  17. Kyriakos Papadopulos

    The nature of the global financial system is running with “imaginary” money creating debts and fake obligations. Debate about creating faith on this?

  18. Eleni

    There is only one way to gain Trust in any system.
    Transparency and simple rules applied to everyone.
    This has never been the case in our societies.

  19. Maia Alexandrova

    Adopting stricter rules that will take the banking system back to basics – keeping people’s money safe, not playing games with it. For example, obtaining individual permission from every customer on whether they are happy for the bank to use their money for investment, lending and other business, or not. On this basis accounts can be simplified to just two types – non-secure and secure. The bank pays to customers with non-secure accounts to cover the risks it takes by using their money, and in turn is paid a small fee by clients opting for secure accounts – only for safe keeping of funds, but with no permission for the bank to use the money in any way. Responsible attitude and behaviour will gradually regain people’s trust.

    It is also essential to regulate the salaries of bankers. For example, they should only get a certain percentage of the profit as a salary, not a fixed amount plus fixed bonus. In this way they will personally feel in their pockets the losses from taking any irresponsible actions and the pressure to remedy the mistakes, well in time before the bank is in trouble. There should be a connection between the performance of the bank and the salaries of staff and their bosses. Otherwise, greed and gambling will continue to rule this sector.

  20. ironworker

    Regulations and/or nationalizations. It’s not about “restoring” anything, banks are not harmless institutions.

  21. Jeroen Matthee Jay

    They only way forward is to give back to the people what was stolen from them.
    Instead of pumping money to the corporations who just spent it on CEO bonuses.

    In our economy we must create win win situations.

    With all the automation people are freed from dirty jobs, these companies should pay higher tax.

    A basic income can then easily be provided and take care of everyones basic survival needs.

    In europe we should bring all countries to the same levels of equality, to unify the EU as one nation with many cultures.
    Unification is good with the right intentions behind serve the greatest good of all.

  22. Stefanie Müller

    Please register for free on jobsallovereurope.com to find your dreamjob.. not answering to job ads, but getting discovered by interesting companies..

  23. Ivan Burrows

    .

    The global economy is recovering, the Eurozone isn’t and is the main threat to that recovery.

  24. Ainhoa Lizar

    The global financial system is the problem and it should not be restored or even exist. Globalisation is a failure. Globalist bankers, multinational owners and corrupt politicians, lobbies and co. should go to jail and every country and nation should try to restore their economy and create a fair and honest trading agreement between each other.

  25. Mj Jansen

    What a stupid question! The (global) bank system is the problem. Reforming is not possible as long we accept wall Street and the corporations as we know it.

  26. Yordan Vasilev

    The global financial system needs of new rules, laws and regulations, which will inspire respect and justice. Despite of that, the guilty ones for the crisis must be sentenced and gone on jail.

  27. Michael Šimková

    Fundamentally it needs to make people richer rather than poorer, purchasing power needs to go up rather than down, increased productivity needs to translate to increased prosperity rather than an increased stratification resembling feudalism.

    Furthermore, and aside from that, people should be made economically literate at least on a basic level. Most people do not even understand that a loan is not free money, do not understand what mortgages are beyond “something they have to pay every month” but are still granted mortgages anyway, they do not know that their deposits are mostly loaned to others and not simply locked in a vault like in Spaghetti Westerns, and do not understand that the money banks lend out, for better or worse, is the same money they deposit into the banks as savings and not some secret stash of ill-gotten profits from general evil-doing, such that a bankrupt bank means all of the clients of that bank are bankrupt.

    In some sense this ignorance has actually protected banks in the financial crisis from a run on the banks. People are so ignorant of the nature of finance today, even of the services they themselves use, that they do not understand that if a bank busts and the government underwriting the bank busts, the money they have deposited into that bank cannot simply be conjured up. They are more ignorant than bank users were in the Depression when rumours of insolvency and bad loans caused runs because savers mostly understood that the money banks lend is the same as the money bank customers deposit.

    In the long run this ignorance, like ignorance in general, is very bad. It creates a cauldron for recklessness and political demagoguery. For example, people support allowing banks to fail (rather than simply forcing bad bank managers to pay for their negligence by being personally liable for a bankrupt bank’s losses, which I do support) without understanding the ramifications that.

    People looking to open deposits and to take out loans and mortgages should be mandated to complete Finance 101 courses to ensure that have a basic understanding of what they are doing, because private banks have a perverse incentive to hook in ignorant clients and sell them far riskier financial products than they would be inclined to accept if they weren’t so damned ignorant about everything that they sign off on.

  28. eusebio manuel vestias pecurto vestias

    CETA/TTIP the good news is that European workers want to join the middle class in are European places hand have an opportunity I want trade agreements that push standarts and there is no reason to do so

  29. Frank Wouters

    The first step is to stop saying “how to fix trust” and to start saying “how to fix the system”.

  30. Giorgos Beitis

    A new one based on social principles and not concentration of wealth to the hunds of the few

  31. George Titkov

    Return to the gold standard and make the banks lend only what they’ve got as deposits, not 10 times more. In other words, stop creating money out of thin air.

  32. Julia Hadjikyriacou

    Islamic banking is interest-free and still makes a profit. I would suggest interest-free loans for the people and charging interest on corporation loans that currently pay 0% interest. Also QE for the people and public services and infrastructure instead of for the banks. And stop bailing banks out with innocent peoples money.

    • Ishar Wyrm

      Maybe it won’t truly fix the problem, but I’m certain it will help to ease the problems it is creating, as byrpoduct of savage de-regularization

  33. Andre Lopes

    No faith… just waiting to the completed collapse. Then I will see who is right, who was wrong decades ago….. u are good creating problems, zero resolving them

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