The Bank of England, London. Photo Workers.
Finance capital rules the roost here in Britain to the detriment of our economy. No wonder Britain’s leading business newspaper has long been the Financial Times, not the “Industrial Times”…
When elected in 1979 Margaret Thatcher further forced the domination of finance. One of her earliest decisions was to abolish exchange controls, turning the City of London into an offshore financial market.
Over the following 30 years finance capital, with the connivance of governments, brought about the conditions for the 2007-2009 financial crisis. Hedge funds, high-risk private investment vehicles, created the market for collateralised debt obligations (CDOs).
Between 2002 and 2006 hedge fund assets tripled to $1.5 trillion, and the number of funds doubled to 10,000. In that time, outstanding CDOs rose 12-fold from an estimated $250 billion to about $3 trillion. This market had grown so big that its collapse triggered the collapse of confidence in the money markets in general.
In March 2008, Goldman Sachs collaborated with hedge funds Citadel Investment and Paulson & Co. to short-sell Bear Stearns stocks. They aimed to make huge profits from Bear’s collapse – one of the key events as the crisis spread.
Faced with a declining rate of profit, capital has shifted operations even further away from industry. Finance capitalists used their power to get governments to boost the unregulated offshore economy, a logical development for finance capital.
Evasion
Tax havens allow capital to escape national control. They are designed to facilitate tax evasion and money laundering. Capitalism is hand-in-glove with criminality.
In 2009, the Labour government bailed out the Cayman Islands tax haven, giving it $39 million to plug a hole in its budget. The present government, despite fine words, is similarly supportive of tax havens.
In 2016, HSBC admitted to helping Mexican drug cartels launder $900 million of drug money. Yet the US Justice Department (like the British government) turned a blind eye, explaining, “Prosecuting the bank could result in a global financial disaster.” And that wasn’t an isolated action by the bank.
In 2015, five of the world’s largest banks, JPMorgan, Bank of America Merrill Lynch, Deutsche Bank AG, Nomura Holdings and Morgan Stanley, reported zero corporate tax in Britain. Goldman Sachs and UBS did pay some UK corporation tax that year – but just £21 million. Together the British operations of these seven banks employed 33,000 staff, reported revenues of £20 billion and profits of £3.5 billion.
Risk
In 2016, the twenty biggest European banks posted profits of at least £18 billion in global tax havens. They did not pay a single euro in tax on those profits. The European Central Bank supervises around 110 of the eurozone’s biggest banks. But in May 2023 the EU’s own body, the European Court of Auditors, reported that the ECB is too lenient in handling how these banks manage credit risk.
The report stated, “The ECB recently flagged that the outlook for banks is deteriorating, amid weakening economic prospects and increasing credit risk.” It concluded, “more needs to be done for the ECB to gain increased assurance that credit risk is properly managed and covered.”
Instead of controlling the banks, the 2022 to 2024 Sunak government did the opposite. It dreamt up Pisces – the Private Intermittent Securities and Capital Exchange System – supposedly to revive Britain’s equity markets. This system allows private firms to trade shares at intervals, offering investors the chance to sell their stakes.
The election put Pisces on hold, but the Labour government is going ahead, badging it as a good thing for the economy. Chancellor Rachel Reeves has already confirmed that shares traded on this exchange will not have to pay stamp duty.
Wall Street
Naturally, finance capital rules in the USA. President Trump’s tariffs scheme benefits Wall Street, not US manufacturers and businesses. He is harming the real US economy, in much the same way that Liz Truss’s 2022 mini-budget hurt Britain.
And like Truss, even Trump has to bend to international capital markets. The US dollar hit a three-year low on 21 April. US Treasury bonds are being sold off, prompting the largest weekly increase in ten-year yields since 2001.
US business responds by expanding abroad. US private equity firms acquired 181 British businesses in 2023, up 35 per cent from 2022. Inward mergers (foreign companies acquiring those based here) totalled £19 billion in 2025’s first quarter -– the highest total in the last three years, four times last year’s last quarter’s figure. Most such mergers do not achieve greater efficiency. Their aim is not investment but asset-stripping.
With finance capital in command, the world is on a “recessionary path”, as the UN says. But not for everybody. Bankers here seem to be doing very nicely out of economic troubles. The City of London’s bankers got the biggest bonus packages in the world last year. They each trousered an average £114,000 bonus, up 25.7 per cent from 2023. Goldman Sachs was first to raise bonuses, followed by JPMorgan and Barclays.
Lloyds Bank’s chief executive got £5.6 million last year, 53 per cent up on his 2023 pay. Nat West is proposing a 43 per cent boost to its CEO’s pay package, taking it to £7.7 million.
Profiting from complexity
Profits can be made even out of regulations. The more regulations imposed by governments, the more opportunities for financiers. The more complex the regulations, the higher the fees that can be charged for regulatory advice. Sabotaging rules and regulations has become probably the single biggest source of profits for some of the world’s largest banks.
Since the 2008 crash, Britain’s governments have ignored the shadow banks – operating outside regulation – with their hidden risks. The shadow banking system has been allowed to continue to develop, adding to the sources of financial fragility and increasing systemic risk.
‘Bankers seem to be doing very nicely out of economic troubles. City bankers got the biggest bonuses in the world last year…’
Securitisation – the practice of turning illiquid, hard to sell, assets like mortgages into tradable securities through legal fictions and financial engineering – is now standard practice. That is despite the evidence which emerged after the crash demonstrating the inherent dangers – so accurately portrayed in the 2015 film The Big Short.
Capitalists across the world still see mortgage-backed securities as safe investables. The European Union sees “high quality and liquid” securitisation as the European capital market’s main driver.
Risks are ignored in favour of the supposed gains from the efficient use of capital – in the end the nation states (and their citizens) so despised by finance capitalists pick up the bill for financial misadventures. And the cycle begins again.
In this market, profits come from sabotaging the price mechanism. Information and facts are misrepresented, and predatory practices adopted which harm clients, competitors and governments.
The freer and more deregulated the market, the wider the scope for sabotage. Governments assisted by shifting from curbing dodgy business practices to prioritising financial stability. That is, they ignored the sabotage, the cause of systemic failure, and focused on instability, the symptom of failure.
Finance absorbs too many resources, at the expense of industry, jobs, education and health. The dominance of finance capital has caused huge short-term cross-border flows of hot money.
It creates and profits from the debt dependency of governments, industries, local authorities, and households. It crowds out productive investment, and leads to ever-more punishing crises. Predatory capital undermines our civilisation; the parasite is destroying the host.