After the second world war, households saved for buying a home and retirement. Savings were kept with banks that granted housing loans and made loans to companies to finance trade, working capital, and investments. The government funded basic services and infrastructure with tax revenues and with money borrowed in the bond markets.
Now households can save with investment funds and direct investments in the equity markets, retirement savings are placed with many private, expensive and opaquely managed pension companies, while banks and pension companies, along with their myriad partners, have grown in size due to consolidation and are involved in some many complex activities that their thick annual reports are as easy to read and understand as the hieroglyphics on Egyptian pyramids.
Banks and pension companies have gradually evolved into rent-seeking fiefdoms for their bosses and shareholders, and definitely not for their customers. This has happened because the financial sector lobby is the most powerful in protecting its own “interests” with friends in politics and among the regulators, both of whom can expect to benefit from possible work opportunities when they are mindful of these “interests”.
The customers of this financial sector are ordinary people who work or who have retired, and yet these same people are having to pay outrageously high costs for basic services like home loans, and pensions, while the interest rate on deposits is negligible. Ordinary folk as taxpayers are ultimately on the hook for any losses caused by poor risk management or negligence by the financial sector because they are now “too big to fail”. Moral hazard – “tails you lose, heads I win” or “the privatisation of profits and the socialisation of losses” is today’s truth when looking as this sector.
The sector is in need of basic and urgent reforms… at least here in the Nordics, banks need to be smaller, and pension companies need to be consolidated into single public operators as in Singapore and Norway.
However, the lack of any significant reforms during the last two and three decades tells readers of the strength of the financial sector’s lobby. It is said that they have ears everywhere – the main politicians from all of the big political parties and trade unions have positions in boards, supervisory boards and steering committees where remuneration is generous. There are always great opportunities to work for this sector as a well-paid lobbyist or spin doctor for these companies if politics becomes tiresome!
The revolving door spins fast here as in many other countries, and that keeps reform at bay…
