Once upon a time, when terms such as “economic recession” or “business cycle” weren’t part of our lexicon, the banking industry represented the pinnacle of commercial activity – the invention of a genius, no less. Bill of exchange, otherwise known as bank draft or cheque, has an illustrius history dating back to ancient Rome. During the Harun al-Rashid era, a bank draft written in Damascus for two thousand miles away would reach its destination in two days’s time thanks to an elaborate system of couriers; and a Muslim businessman could routinely cash cheques in China drawn on sources in Baghdad.
The Italian city states, Florence, Venice, and Genoa, took banking to another level, endowing it with the modern-day connotation and meaning. Finance and credit became synonymous with banking, the lifeblood of all industry and commerce, its nerve center. It’s only through finance and credit that the Italian city states became economic powerhouses through shipbuilding, seafaring, and commercial ventures; and it was no different with the Hanseatic League or the would-be colonial powers during the Age of Exploration.
The Colonial era, marked by mercantilism, saw further extension of finance and credit, not to mention its innovative uses for the purpose of Empire-building via the installation of such entities as the East India Trading Company as joint ventures: while Christian missions served the Spanish and the Portuguese as the main instrument of conquest, for the British, not to mention the Germans and the French, trade was the vehicle of choice. And we’re all familiar, I suppose, with a rather euphemistic (though not altogether inaccurate) portrayal in Mary Poppins of the British banking system, run with precision, as the mainstay of the Empire.
In short, credit and finance which banking afforded were the necessary lubricants to keep a sound economy sounder still. Aside from providing it with a stable foundation, it allowed for its global outreach. In a manner of speaking, banking and finance, by virtue of their necessarily international character, represented the first push towards globalization, an aspect in the absence of which globalization wouldn’t be possible. While trade provided the impetus and manifested itself in the form of transactions, the (international) banking system was the glue which held otherwise disparate economies as part of a unitary global network. More succinctly, perhaps, if trade was a process, the banking system was the medium. It was so in the past, and it’s no different today.
Fast forward to the present, marked by what surely promises to be a systemic economic crisis of near-global proportions . Chronic unemployment brought about by a decimated industrial sector and increased productivity, reduced demand for goods and services due to loss of income, and a rapidly shrinking taxpayers’ base, the pattern of endless borrowing and ever-growing sovereign debt (diluted in spurts by the policy of “quantitative easing”), austerity measures designed to cut government spending in order to make up for the loss of revenue – these are some of the symptoms of an economy which, having long ceased being anchored in fundamentals, is running on fumes. And it’s a pervasive condition, characteristic not only of the US economy but also of the economies of the post-industrial West; moreover, it’s likely to spread.
A few years back, when the economic picture was anything but gloomy, the UE was formed, along with Eurozone, in hopes of forging a formidable coaliton against such economic powerhouses as the US and the rapidly growing economies of China and India. A response in kind soon followed in the NAFTA agreement, and the world was bracing itself for healthy dose of competion in the course of which, according to script, everyone was a winner. What was lost in the translation was that the economy and strictly economic considerations were in the driver’s set and provided the impetus behind this modern push towards globalization. In the case of the UE, the political followed the economic as mere formality, ratifying the agreement by endowing it with polical reality.
What a difference a few years make, and now the UE faces the eventuality of imminent breakup. The precipitating event is the possible default of Greece on its sovereign debt. Although prominent economists, Nouriel Roubini amongst them, suggest it’s the lesser of all evils, there may be repercussions. As this NPR report makes it abundantly clear, the likelihood is that equally stressed members of the UE, Spain and Portugal most notably, will follow suit. And from thence, it might be a domino effect, everybody running for cover. The UE, the house that Jack built, may well prove to be a house of cards.
Which brings me to a radical reapraisal of the banking industry when shit hits the fan. When the economy is no longer based on fundamentals, the financial sector becomes a force all its own. Unable to make money the old-fashioned way, by earning it, it becomes parasitic upon it by running it further to the ground. And if this is not a sign of capitalism’s ultimate decay, I don’t know what is.
Rats abandoning the sinking ship used to be an apt metaphor, but I’m afraid our once respected banking industry has raised it a notch better: while at it, why not sell what remains for scrap?