By Walter Stewart
“Once a nation parts with control of its currency and credit, it matters not who makes that nation’s laws.” – William Lyon Mackenzie King
Bank-bashing has always been popular in Canada, and rarely undeserved. In this latest attack on the giants of Bay Street, Walter Stewart argues that our banks are too big, powerful, and arrogant. They operate inefficiently, are a scourge to small business, and offer terrible service to the public.
At times, Stewart seems merely cranky. Automatic banking machines (ABMs), for example, while clearly a device for gouging the public, are also a genuine convenience. But on more important points the news he brings is bad enough. Our financial system is now an oligopoly. The banks have digested the mortgage industry, the trust business, personal finance companies and security firms. “Conflict of interest” has no real meaning and competition is obsolete.
Ironically, despite this overwhelming consolidation of power, the banks continue to criticize government for being too big. They also like to give lectures on fiscal responsibility – even when 90 per cent of the federal debt created over the last 30 years has been due to interest charges paid to banks.
The core problem with the banking industry is one that we can see everywhere today – the failure to connect with reality. The banks, without any primary reserve requirements, are free to make money out of nothing (which is exactly what they do). They can thus continue to grow out of all proportion, indeed all relation, to the rest of the economy.
Those who have been watching the Toronto Stock Exchange’s spectacular rise may have noticed the same thing happening with stock prices. Many stock prices today have lost their connection to the notion of value, to something “real” (e.g., corporate assets or earnings). Nick Leeson, the rogue trader who brought down Barings Bank by speculating in derivatives later claimed it was “like trading ether.”
Reading Stewart, one gets the disturbing feeling that our banking system is a mighty glass tower built in air. This does not bode well for the one aspect of it that we tend to be most confident about – its stability. In fact, this stability is beginning to sound more and more like a refuge for scoundrels. John Kenneth Galbraith has suggested that almost any amount of injustice will be tolerated as the cost of stability in a “culture of contentment.” The same would hold true in an age of anxiety. In a time of resentment and discontent? Perhaps not.
Review first published August 30, 1997.