The dramatic and damaging collapse of the New Zealand finance company sector over the past three or four years has attracted a good deal of attention. One of the consequences has been a boost to the confidence felt in banks which have reinforced their reputation as the best place to
Bryan Gould: Checks and balances for banks
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The role of credit-creation by the banks in inflating the money supply should be our central concern in controlling inflation, particularly when the vast majority of that credit is created and lent for non-productive purposes like house purchase.
Over the past two or three decades banks have used their ability to create money to invent a whole range of new financial instruments of dubious value which they then sell to gullible investors; so profitable was this trade that it became much more important to banks than their traditional role.
It was this prospect of unlimited profits created out of nothing that led in due course to the global financial crisis. And when that irresponsibility inevitably ended in collapse, it was that same mentality that led bankers into the realms of fraud and criminality.
In a world where anything goes, the rules are made to be broken, and personal fortunes are there for the taking, who can wonder that bankers could not accept that the ordinary rules applied to them?
In case we should assume that none of these problems afflict us, don't forget that our own banks, pillars of propriety as they may seem by comparison with their overseas counterparts, have made strenuous attempts to avoid their tax liabilities and have only been made to pay up by court action.
In our case, banks have made huge profits by exploiting their capacity to create money, then exported those billions across the Tasman, thereby placing a huge burden on our already beleaguered balance of payments.
Isn't it time to establish a banking system that supports the economy rather than places it at risk?
Bryan Gould, former vice-chancellor of Waikato University, was previously a UK Labour MP.