As they became more adventurous, delving ever deeper into uncharted depths of risk, western banks gambled themselves into massive debts, which in turn required equally massive taxpayer rescue packages, dragging governments along with them deeper into debt.

To re-capitalize themselves, banks conserve their assets and reduce lending. And governments cut spending with a regime of extreme austerity. Yet the commonsense of ordinary folks tells us that neither individuals, nor families nor governments can pay down their debts if they are not working.

Get a job, an income that goes with it, cut down on spending, and personal debts can be brought down. Similarly, jobs with taxable incomes swell government revenue, so again in combination with prudent expenditure, debts can be brought down. But without jobs, disaster is inevitable.

In these days of highly capitalised industry, job-creation requires sufficient, reliable, committed investment. But for that we lack the necessary financial institutions, a longterm structural problem which goes to the basic, fundamental nature of banks and banking.

The fact is simply stated: banks are private institutions whose function is to make money for their directors and shareholders. Serving the needs of the nation’s economy is not their prime concern. In fact quite the contrary. Bankers tend to shrink from involvement in an economy suffering downturn or recession. As bank loans are reduced or refused many a business has found bitter truth in the old saying that ‘banks lend you an umbrella when it’s sunny, and take it away when it rains’. If we regard the financial and banking system as an element – the most important indeed – of a nation’s infrastructure, it becomes immediately apparent that our current systems fall far short of the needs of a properly functioning economy.

Two major banking reforms are urgently required.

First we need to separate the day-to-day basic banking services – payments in and out, standing orders, transfers, credit and debit cards – known as “Retail Banking”, from the “backroom operations” where banks borrow short-term to boost their gambling pool then speculate in financial devices of ever-increasing complexity. Retail Banking should be strictly limited in the scope of its activities, tightly regulated and supervised... but also government guaranteed. While the “backroom casino operations” are more lightly regulated, basically left to their own devices...and not government guaranteed.

The British Government has already decided to make this move, of separating retail and casino banking as recommended by the Commission on Banking. Well done. But a brilliant revolutionary move to save banking? Sadly, no. In the aftermath of the 1929 Crash, the USA did exactly the same thing with the Glass-Steagall Act (GSA) passed in 1933 which separated retail from investment banking. The major banks gradually and persistently eroded it away over the years until its final demise in 1999 when, after 12 attempts in 25 years and $300 million worth of lobbying efforts, Congress finally repealed Glass-Steagall. Supporters hailed the change as the long-overdue demise of a Depression-era relic, and less than 10 years later, we were back in a Depression. We never learn!

Second we need a totally new financing facility in the form of Industrial Development Banking, a national institution with regional branches which thoroughly evaluates new business propositions, or proposals for expansion or modernization, makes the required loan, then monitors progress on a realtime, semi-partnership basis. In this way jobs can be created, industry can grow, productivity can be improved, and local infrastructural investment can be financed, all without deficit-increasing grants and handouts. Sorry, but once again, not new or revolutionary. It’s all been done before – with immediate and dramatic effects of job creation and business expansion. Click the link, read all about it.

One: separate retail from casino banking. Only retail banking qualifies for taxpayer support.

Two: Institute a network of Industrial Development Banks to create jobs, expand and improve industry, and finance public infrastructure... without adding to the deficit.

With these two essential facilities in place and operational, the pivotal role which conventional, especially the big Wall Street banks currently play in our national economies would be bypassed, leaving them free to gamble with their own resources, without any guarantees of taxpayer bailouts.