Phew! The Global Financial Crash has passed!

Posted on: March 1st, 2016 by Noel Kinahan

brken-bankIreland’s broken banks are fixed, backed by future tax take. The bankers are safe and secure. The Oireachtas Banking Enquiry is finished. The economy is on the rise and unemployment is going down, which means we can pay off that massive debt. We have it well covered. But, just in case the party peters out, let’s be prudent and keep a few billion for a rainy day for when the hangover comes around again. After all, a storm can blow up pretty quickly.

So, whose economy is it anyway?

Should we be really prudent and design a more sustainable economy in readiness for the next financial crash and as an option to compete with the current oligopolistic system? And how can we take steps to mitigate such a recurrence, while at the same time building a vibrant local economy; an alternative for the people, which are the real economy? In other words, how can we create a banking system run for the benefit of the local community in which it operates: one which serves the economic growth and development of the region where its stakeholders operate, rather than simply extracting value exclusively for the bank’s shareholders?

The most recent crash is just part of the boom-bust cycle inherent in the modern banking system. That system from the start has been for the benefit of its shareholders and driven for excess profits. It is built into their system to create bubbles. This private-only banking model has been thoroughly tested, and it has proven to be a disastrous failure for this nation and not fit for purpose to service our needs and wants as individuals and communities.

Is there a real, sustainable solution?

The Local Public Banking model in Germany went unscathed by the recent global crash and its characteristics are in line with what IRL is advocating, a banking system that truly serves the needs of the people and of the communities they live in.

To better understand the fundamental difference in the way these banks would operate our policy researcher went on a fact-finding visit to Bonn in December. This included a visit to a regional Sparkasse (regional public bank) in rural Germany where IRL discovered the very different experience of SME clients of that bank during the crash of 2008.

The strict regional basis under which the banks operate and their public mandate ensure that they approach the client relationship in a more collaborative manner, recognizing that both are embedded in their community. The banks provide local loans based on local savings, are committed to providing a service to all customers in the region and operate strictly within that region. Surpluses are fed back into the community where the bank operates leading to further sustainable regional growth and development. Additionally, because they operate strictly within their defined region, the banks develop lasting and knowledgeable relationships with their customers, and act as a partner and de facto stakeholder in the development of the community in which they operate.

During the visit to this bank a reciprocal visit was proposed that would include a selection of their SME clients visiting Ireland to share their experience with their Irish counterparts. This visit is expected to take place mid-2016.

Last Words

George Berkeley (TCD) was one of Ireland’s greatest philosophers and empiricists, but is less well known for his work on monetary policy. Berkeley is regarded as a precursor to Adam Smith (regarded as The Father of Economics), who is known to have studied his works.

In the wake of what is now regarded as the first global crash that affected Ireland’s economy, which was a result of the South Sea Bubble, Berkeley proposed the following:

“210. Qu. ‘What would happen if two of our banks should break at once? And whether it be wise to neglect providing against an event which experience hath shewn us not to be impossible?’

317. Qu. ‘Whether that which employs and exerts the force of a community deserves not to be well considered and well understood?'”

From The Querist, 1735.

Noel Kinahan
Policy Researcher
Irish Rural Link

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