The Tyee | By Nick Fillmore | December 19, 2013

Back in 2006, into 2007, too-big-to-fail superbanks, complacent governments and boosterish business media ignored the few economists who predicted there would be a financial crisis. Today, governments lack the will or the legal weapons to control the greed endemic to elite bank culture.

Given the persistence of that culture in big banks, I am not at all optimistic that we will avoid another, even more serious, financial collapse in the not-so-distant future.

To prepare for that day -- and perhaps avoid it altogether -- we need to reduce the power of big banks, weakening their grip on society's financial resources, and challenging their support for destructive, neo-liberal economic policies.

Ordinary people and public-interest organizations have to do two things: First, we must demand that our governments crack down on reckless, corrupt bankers and protect our money in the process.

Second, we have to take matters into our own hands, rewarding and inventing independent financial systems that we can trust and control.

As I reported earlier in this series, normally powerful governments, such as those in the U.S. and Eurozone, have either been unable or unwilling to crack down on the out-of-control financial sector. To a considerable extent this is because big bankers and financial-sector regulators are cut from the same cloth, come from the same circles, hold the same free enterprise views and indeed are often the very same people.

In particular, the U.S. government is under assault from the bankers' massive lobbying efforts. In 2012, JPMorgan Chase spent the most of any U.S. bank on lobbying for softer rules: $8 million. Wells Fargo and Citigroup spent at least $5 million each.

Despite President Barack Obama's tough talk about "fat cat" bankers, his actions have been less than forceful. He has largely chosen people recently up to their necks in murky Wall Street back-room deals to now police their old associates.

If Obama really does care about the plight of ordinary Americans, he sometimes sends the wrong message. His first vacation golf game after winning re-election was with his chief Wall Street fundraiser.

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Volcker will help

Last week, five important oversight agencies in the United States adopted the so-called Volcker rule. It will, to some extent, prevent banks from using the savings and investments of everyday people to engage in high-risk ventures for their own benefit, such as dabbling in hedge funds and derivatives. However, critics point out that the rule has no shortage of loopholes that banks will be able to benefit from.

It should interest Canadians that both Finance Minister Jim Flaherty and then-Bank of Canada governor Mark Carney opposed even the Volcker Rule's leaky reforms. Each man separately told U.S. authorities -- without offering proof -- that the new U.S. law would have a negative impact on savings and borrowing costs in Canada.

Avoiding the next train wreck

This series has explored several threats hanging over the banking industry, such as small reserve funds, derivatives and outright greed and fraudulent behaviour.

If the private banking system is to become safer, and have less control over our lives, a number of things need to happen:

Break up the banks: Both in Canada and the U.S., governments need to reduce the size of major banks, so that the collapse of any one of them will not devastate part of the economy. Equally, regulators need to limit inter-connections among banks, to try to prevent the domino-effect collapse of two or more banks at one time.

In Canada, the Harper government is moving in exactly the wrong direction: helping six large banks become even larger and more powerful. A better course would be to limit banks' growth to the size they need to work internationally, without getting so large that they would damage the economy if they run into financial difficulty.

Put thieves in jail: One of the main reasons that rampant, billion-dollar corruption continues in the financial sector is because not one executive at any of the dozen or so most corrupt giant international investment banks has gone to jail, or even been prosecuted.

The famously "law and order" Harper government should toughen up laws that allow a bank to write off a fine, instead of sending an executive or top trader to jail.

Mandate deep reserves: Cash reserves of only seven per cent in Canada and 10 per cent in the U.S. are ridiculously small against risky bets into the billions of dollars (think derivatives). Because the newly-approved Volcker rule appears to have a variety of loopholes that still allow big U.S. banks to endanger the accounts of ordinary people, and because Canada doesn't even have that protection, the minimum reserve requirement should be increased to perhaps 20 per cent of a bank's loans and investments.

Eliminate derivatives: Derivatives used irresponsibly could destroy huge parts of the world's economy. Regulators must act in the public interest and ban financial instruments, such as exotic derivatives, that contribute absolutely nothing to society or the real economy.

This isn't the first time derivatives have endanger economies. In 1936, U.S. President Franklin Roosevelt outlawed all derivatives, to stop predatory speculators from manipulating the prices of wheat and corn. In 1982, free-market fanatics convinced President Ronald Reagan to reintroduce all kinds of derivatives, no matter how dangerous.

I'd also banish the heinous derivatives called credit default swaps, which -- believe it or not -- are bets on things such as whether a country or company will go broke. Sometimes the banks even bet against governments they have assisted.

(In idle moments I imagine the conversation over dinner: Wife: "How was your day dear?" Husband: "The usual. I bet $2 billion on Spain going broke by the end of the year." Wife: "But didn't your bank loan Spain several billion just the other day to help it get out of trouble?" Husband: "So?")

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