The UK media is once again reporting another banking scandal involving the Royal Bank of Scotland. This time the bank is under scrutiny for two offences: one, a report by the businessman and government adviser Lawrence Tomlinson, which claims that the bank deliberately pushed viable businesses into default in order to take over their assets on the cheap; the other, from Sir Andrew Large, former deputy chairman of the Bank of England, which concluded that it was not lending enough to small and medium-sized businesses.
Comment
Five years on from the worst financial crisis the world has witnessed in living memory, and there is no let up in financial scandals involving West’s premier banking institutions. In the UK, Royal Bank of Scotland (RBS) is again the centre of a new banking scandal, involving small businesses. It was only last month, RBS agreed a $150m settlement with US regulators over allegations it cut corners in a 2007 sale of $2.2bn of mortgage-backed bonds. The bank is also being sued by US mortgage giant Fannie Mae, and two RBS traders have been suspended amid an investigation into foreign exchange rigging. Another of UK’s premier financial institution Barclays Bank revealed in October 2013 that it was under investigation for attempts by its traders to manipulate the $4 trillion a day foreign exchange markets. Both Barclays and RBS alongside HSBC have also been implicated in the fixing of interest rates that include both London and European interest borrowing rates known respectively as LIBOR and EUIBOR. The rigging of EUIBOR has also incriminated some of Europe’s biggest banks like Deutsche Bank, Credit Agricole, and Societe Generale (SG).
Across the Atlantic, the story is no different. American banks are mired in huge financial scandals. In October 2013, JP Morgan Chase reached a tentative $13 billion agreement with the US Justice Department to settle government agency investigations into bad mortgage loans the bank sold to investors before the financial crisis of 2008. In the summer of 2013, Bank of America was embroiled in a foreclosure scandal worth billions of dollars. Misleading investors seems to be the hallmark of American banks. In 2010, Goldman Sachs agreed to a record $550m fine to settle civil fraud charges of misleading investors.
Yet, despite the hefty fines many of the aforementioned banks continue to post record profits. For instance RBS posted a profit of $658 million in the 3rd quarter of 2013, and Bank of America posted a profit of $2.5 billion in the same period. Higher profits for Western banks coincides with rising wealth for the super rich and decreasing wealth for the ordinary citizens of Western countries. For instance in America, the super rich have become richer since the financial crisis. According to Forbes Magazine the 400 wealthiest Americans are worth a record $2.02 trillion, up from $1.7 trillion in 2012, a collective fortune slightly bigger than Russia’s economy. In the UK, the number of Britons earning more than £1million a year has almost doubled to 18,000, over the past 2 years. Most of these people work in the financial sector. Matthew Whittaker, senior economist at the Resolution Foundation, which works to improve living standards, said the richest had bounced back since the 2008 financial crisis. He also mentioned that the inequality between rich and poor is the highest it has ever been. He said, “For most people in the bottom three-quarters or so, wage growth pretty much stalled from 2003. But hidden behind all that is a new phase of inequality, where the top 10 per cent – but more particularly the top 1 per cent – are moving away from the rest of society.”
It is quite apparent that the capital of the super rich is responsible for much of the inequality in wealth witnessed in the West. The super rich deposit some of their vast capital in these banks, and the bankers work on their behalf to make their capital grow. The growth in capital takes place by bankers adopting dubious strategies that involve fixing interest rates, misleading investors and selling unsound financial products. When such tactics are exposed to the public in Western countries, the super rich through their army of hired politicians and media pundits are able to engineer circumstances that always protect their wealth at the expense of the majority. For instance, using tax payers’ funds to pay for the recklessness of the bankers or by imposing financial fines that are easy to meet.
Even new legislation enacted by governments to penalise the bad behaviour of bankers, fails to prevent banks from fleecing the ordinary people. This is because the legislation is drafted by supporters of the super rich, and politicians ensure that new banking regulation is peppered with enough loop holes to assist bankers in their financial irregularities. In return for their devilish work, politicians secure the support of the super rich for future re-elections. In this way, the super-rich have crafted a financial system, which is a closed circuit and wealth continues to pour into their hands at the expense of the majority. Hence, it is no surprise to discover that six years on from the financial crisis, banking institutions are embroiled in ongoing scandals, the super rich are getting richer, and the politicians lack the spine to stop them.
In Islam, the alliance between super-rich, bankers and politicians to siphon money from the majority of the people is forbidden. Allah says:
مَا أَفَاءَ اللَّهُ عَلَى رَسُولِهِ مِنْ أَهْلِ الْقُرَى فَلِلَّهِ وَلِلرَّسُولِ وَلِذِي الْقُرْبَى وَالْيَتَامَى وَالْمَسَاكِينِ وَابْنِ السَّبِيلِ كَيْ لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاءِ مِنْكُمْ وَمَا آتَاكُمُ الرَّسُولُ فَخُذُوهُ وَمَا نَهَاكُمْ عَنْهُ فَانْتَهُوا وَاتَّقُوا اللَّهَ إِنَّ اللَّهَ شَدِيدُ الْعِقَابِ
“whatever booty Allah gives to His Messenger from city dwellers belongs to Allah and to the Messenger and to near relatives and orphans and the very poor and travellers, so that it does not become something which merely revolves between the rich among you. Whatever the Messenger gives you you should accept and whatever he forbids you you should forgo. Have taqwa of Allah – Allah is severe in retribution.”
(Al-Hashr: 7)
Additionally, in Islam Allah سبحانه وتعالى is the Law Giver, and the Islamic state does not suffer the same fate as Western countries where the law is perpetually tampered with to meet the whims of the super-rich. When the Caliphate returns, it will be an eye opener for the masses of the world, especially for those living in the West.
Written for The Central Media Office of Hizb ut Tahrir by
Abed Mustafa