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There is an alternative: what Venezuela can teach us about the banking sector

Revolution is eternal | February 16, 2012

The year is 2008. In the US the housing bubble has burst, leaving major financial institutions with a large mess on their hands. It will always be remembered as a time of failing banks, the ‘credit crunch’, plummeting stock markets and declining trade worldwide. The causes of the financial meltdown are a complex interplay of forces, but at the core of the issue is Wall Street’s greed and risk-taking, as well as a failure on the part of regulators and the financial market to prevent the situation from exploding. The end result on the world economy has been nothing short of disastrous. Since 2008 we have seen too many reports of famine, joblessness and uprisings (after all, these things tend to be related).

So what steps were taken to “rein in the excesses of Wall Street?” Well, governments and central banks handed out bailouts to poorly performing financial institutions of a magnitude never seen before.

We have come to normalise the reckless disregard for human life so characteristic of the banking sector. We could have walked down many different paths to deal with the financial crisis – so what else could we have done?

In Venezuela the government takes a very different approach to the banking sector. For example, there is a law in place that means that at least 10% of a bank’s lending should support development projects. President Chavez has recently threatened to nationalise the banks that are not delivering on this. The Venezuelan government wants to see more loans going to support small farmers rather than just going to big businesses. “Either you finance agricultural production or we will take measures. There is no alternative,” Chavez has said. And the irrefutable warning, “If you can’t do it, give me the banks.”

Chavez has made similar threats to the commerce sector, having angered the business community by imposing regulations that will guarantee a fixed maximum price on basic consumer goods. This is to avoid the price of goods being driven up by speculation, the catastrophic effects of which were seen in the Horn of Africa last year. Speculation on the world food market helped to fuel the widespread famine that endangered millions of people.

Venezuelan businesses have predictably complained about the new price fixing measures, calling them “unviable” for business as usual. But rather than balking at the first hurdle, Chavez has said he will seek investment from outside the country if the companies are not able to deliver within the new constraints. It seems that in Venezuela they are unwilling to let big business hold the country to ransom.

Lets take a case study in the UK for comparison – the Royal Bank of Scotland (RBS). Consider this worrying timeline:

2009: the UK government provides an unprecedented bailout to banks, and now officially owns 84% of RBS

2010: bonuses totaling almost £1 billion were paid to top executives of RBS, despite reporting losses of over £1 billion in the same financial year

2011: the massive drop in the price of RBS stocks meant that UK taxpayers lost £26 billion on the value of their investment

2012: there was much controversy over the £1 million bonus offered to the RBS Chief Executive.

Luckily for the UK taxpayer, the RBS Chief Exec turned down the £1 million bonus following intense pressure. But the government could have demanded this of him in the first place. Why didn’t they? The tired old argument of “we don’t want top people or businesses to leave the country” just doesn’t fly in the face of 2.7 million unemployed people in the UK and cuts to much needed welfare payments and disability allowances.

If Venezuela can teach us anything, let it be that:

It is possible to take a stand against ugly business practices

It is possible to expect our banking and commercial sectors to make a positive contribution to the world

There is no better time than right now

January 3, 2013 - Posted by | Economics | , , ,

5 Comments »

  1. We Americans can only dream of having a government like Venezuela. One could only wonder how better off this country would be if the Native Americans ran things rather than these greedy European Con-Men.

    Comment by Jay Colbe | January 4, 2013 | Reply

    • I would love to see Native Americans running things…the liberals would have be having heart attacks though, that s the reason it will never happen. Liberals couldn’t stand giving up the comforts of luxury and hedonism that come from dominating the third world.

      Comment by Jay | January 6, 2013 | Reply

    • Its not liberals or conservatives its certain liberals and conservatives, i know way too many conservatives stuck to their material things. all the liberals here are in touch with nature, hippies, and wed be happy to live off the land and be done with this giant federal government. They have us thinking that that its the left or te right – NO! its the GOVERNMENT!

      Comment by Max Dean | January 6, 2013 | Reply

      • Liberalism and conservatism simply offer differing rationales for the same crimes.

        For the most part the adherents are influenced by their own interest in maintaining the status quo, however, sometimes they are promoting change. The fact that it is change rather than reaction does not alter the reality that they see their own interest as being served by the agenda at hand.

        Both liberals and conservatives both adhere to the fallacy of American exceptionalism just as missionaries of various faiths do.

        Comment by aletho | January 6, 2013 | Reply

    • Less then 1% of the US population is Native American… Why should such a tiny minority rule the majority?!…

      Comment by ScubaMan | January 7, 2013 | Reply


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