It's no wonder that ordinary people all over the world, who have lost homes, businesses, jobs or pensions or who are now facing massive government cuts, have come out on the streets to vent their anger against government policies in response to the ongoing global financial crisis largely caused by "casino banking practices".
Many are furious that governments are forcing them to pay the price while the fat cats running major banks and financial institutions are getting richer. This year alone there were major public rallies against banks in Britain, the US, Italy and Spain.
Even during these cash-strapped times when would-be homeowners can't get on the housing ladder and business people are prevented from injecting new finance into their companies due to tight lending restrictions, bankers are still paying themselves fat bonuses.
Take Britain for instance. In spite of a property slump, UK banks, which were bailed out with almost £1 trillion (Dh5 trillion) of taxpayers' money, remain tight-fisted to preserve their own liquidity. You don't have to be an economist to figure out that if banks won't loosen up their purse strings to viable businesses, chance of economic recovery is dim.
The UK government has made efforts to rein in the banks by setting lending targets which have largely been ignored.
It is also considering "ring fencing" British banks — splitting banks' retail and investment units — to protect customer deposits. But banks warn they will move their operations to friendlier climates.
Malpractices
It's evident that bankers take no responsibility for malpractices that led to recession, exemplified by the devious circumvention of a government ban on cash bonuses by a major British bank in which the taxpayer is a major shareholder.
Instead of cash, the bank gave its employees 650 million new shares as part of a deferred bonus, half of which were sold on the market in June, thus reducing the taxpayers' share in the bank.
Worse, in March, a well-known British bank, which rejected a bailout, but accepted emergency funding from the Bank of England and the US Federal Reserve, rewarded its chief executive with £6.5 million and gave £33 million in shares to the co-head of its investment arm. Five of the banks' executives and brokers received bonuses totalling £38 million, which is nothing short of an obscenity.
In April, the same bank announced a nine per cent decline in first quarter pre-tax profit just hours before its AGM which saw its shareholders seething in anger.
One private shareholder complained: "The shares have plummeted, the dividend is 20 per cent of what it had been, while the high earners are back to where they were."
When banks everywhere are vulnerable due to their incestuous relationships at a time when the Eurozone is in danger due to floundering Greek, Irish, Spanish and Portuguese economies, governments should intervene to stop the culture of greed that riddles the entire banking sector which is still being managed by the same self-serving individuals whose questionable dealings triggered the downturn.
Indeed, certain US banks admitted to misdealing before agreeing to pay a sizeable amount of compensation to the SEC, after they were sued. The banking sector needs new brooms to sweep away old mentalities.
Since banks won't regulate themselves, it is up to governments to control the system with an iron fist or abandon their economies to banking executives who are more concerned with fattening their own accounts than satisfying what their customers and shareholders want.
Such regulation should be agreed at a global level to prevent unfair competition from unregulated banks. In fact, the G20 has been seriously focusing on reforms, in particular, implementing effective monitoring and requiring levels of capital and limits on leverage. But some member countries are less keen to proceed than others.
Some analysts would like the industry to go back to basics when banks primarily served domestic economies and adhered to lower-risk investment strategies. This would lessen worldwide contagion and insulate countries with steady economies. With the US, the UK and the Eurozone doing their utmost to keep a double-dip recession at bay, banks in less unstable parts of the world must be prudent.
In the UAE, the biggest problem for individuals and businesses is the high interest rates on loans, which have skyrocketed to an unsustainable 20 per cent in some instances. Such exorbitant interest is adversely affecting large companies and small businesses alike, not to mention employees with moderate fixed wages looking to buy a home or a car.
There must be a balance between capitalising banks with boosting the economy as a whole. In the long run, high interest rates will depress business, place a cap on new projects and result in lenders ultimately defaulting on repayments.
It seems the 18th century-born British businessman Josiah Stamp was right when he said: "If you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit".
If, as some gloomy analysts predict, there's another financial crisis on the horizon which will make 2008 look like a walk in the park, governments and banks must work closely together to prevent poverty, unemployment and homelessness on a scale never before witnessed.
Khalaf Al Habtoor is a businessman and chairman of Al Habtoor Group.
