They’ve been at it again; or rather, we have found out about it. HSBC has got a branch in Switzerland which its clients were using to hide profits from tax authorities (and thereby evade tax properly payable in their home countries).
What has this to do with lending?
The simple answer is bankers.
You see the problem I am trying to address is not lending itself but the way in which it gets misused. And it seems that relying on bankers to change their ways is too much to ask. After all it was bankers that came up with the idea which led to the collapse in 2008 and it was bankers who came up with the idea of creating an artificial “LIBOR” interest rate which led to Bob Diamond, the chief executive of Barclays bank, resigning in 2012.
Whether the former head of HSBC, Stephen Green, will need to take a similar course and resign as a Tory minister is yet to be seen.
And of course it is not just the bankers, but also borrowers who create lending problems. If you cannot afford it, you should not take out a loan and yet many people get into financial difficulties because they think they can borrow their way out of trouble and end up owing lots more than they can afford in pay-day loans and overdrafts and mortgages with negative equity and credit card debts. And not just individuals but countries too have ended up borrowing so much that they cannot now afford to pay for health and education or other important public services.
So the evidence is that we cannot trust bankers or borrowers and so need to do something about the problems associated with lending a different way. And my suggestion is legislation which outlaws commercial lending.
Yes, there are downsides. Yes borrowing does help some businesses to grow, but it is also the reason for most bankruptcies – if businesses could not borrow, they would have to grow more slowly, but would have a stronger capital base. And slower business growth probably means lower growth in living standards for those in the rich western countries.
The upsides are removal of debt (obviously) which would be good for highly indebted countries both poor and rich as well as those with unmanageable personal debt.