(Episode 833: 18 minutes 24) Listen on iTunes.
The $2.3 billion in debt racked up alleged rogue trading by Kweku Adoboli has highlighted the risks involved in investment banking. The CEO of UBS Oswald GrÃ¼bel is quoted as saying, "If someone acts with criminal energy, then you can't do anything. That will always be the case in our business."
If that's the case, and the banks are powerless to stop such actions, then it surely raises the need for regulators around the globe to step in.
Many people would agree with the call for more control on banking activity, but there isn't a global agreement on what it is that we're trying to reign in.
In the UK the plan is to separate out the divisions of banks, so households and small business owners are shielded from the high risk casino-style operations of the investment arm. Presumably, the UK government would be more prepared, next time, to let a wholesale operation collapse, provided retail customers were protected.
That doesn't fix the behaviour of investment bankers, who seem to be getting more out of control the more technology has eased and automated the process of trading. In a previous BTalk I spoke to Ross Buckley from the University of NSW about how a bankers tax could slow this process by making each trade more expensive.
Steve Keen, Associate Professor in economics and finance at the University of Western Sydney, says none of these moves go far enough. He says banks create a false boom through speculation, instead of the intention of capitalism that people invested in the growth of companies with money they actually have.
Keen believes we need to address the issue of how much power the banks have because their influence spreads too far and negatively impacts production.
So what sort of reforms does he suggest? One of his ideas is Jubilee Shares --- where shares bought off a company last forever, but shares bought from a speculator last only 50 years. That would devalue shares that are traded, but encourage long term investment in a business. It's one way of drawing back the use of money back to its intended purpose. Another, which he discusses in this edition of BTalk, is to tie home loans to a multiple of the rental value of that property.
The role of banks is certainly a conversation that needs to be had. Yet the Aussie government's answer to banking reform has been nothing more than abolishing exit fees on home mortgages. Makes you wonder whether they're missing the point, doesn't it?