According to a BBC report the UK national debt stands at £799bn (or 56.6% of GDP). This is the highest since records began in 1974. One of the major causes of this debt, according to the BBC report, is the banks bail-out package in the UK. Another interesting figure was quoted by Alyssa McDonald (New Statesman Magazine, July 20, 2009), which indicated that the UK national debt had quadrupled since January 2007. Vincent Cable, the economics spokesperson for the UK Liberal Democrats political party, although expressing a political viewpoint, talks about the "institutionalised passivity of UK Financial Investments Ltd (UKFI), the Treasury-backed bank shareholder body" to deal with the activity of large banks, and the conduct of bankers operating through such institutions. In his article (New Statesman, June 29, 09), he asks three important questions: "(1) How can a semi-nationalised banking system best serve the different but overlapping interests of UK bank borrowers, depositors and taxpayers, as well as private shareholders and bank executives? (2) How should the systemic risks of banking – and the City generally – be managed through regulation, in order to safeguard the wider UK economy? (3) Is it actually possible for the UK to play host to a major financial service sector?" Considering the role that the UK has played in financial services, finding answers to these questions could have a profound impact on the financial markets of the world.
Perhaps, one thinking behind such questions lies in the ability to open up the banking sector to more innovative players -- albeit those that are regulated in some way. One approach would be to enable people (borrowers and lenders) to directly interact with others, and provide a more Peer-2-Peer approach to banking. As trust in the centralized banking sector erodes, perhaps trust built through knowledge of people and communities could be used to establish borrowing and lending institutions. Zopa happens to be one such company, operating in the UK, USA, Japan and Italy. The idea here is to allow people not large institutions to lend and borrow to each other, thereby sidestepping banks. Essentially, individuals decide who they want to invest their money in, and the rate of return they will see. A number of credit checks are used to identify the financial status of a lender/borrower. Zopa makes money by charging a fixed fee for each transaction conducted through it's site. In April 2009, Zopa transactions added up to a lending of £3 million, an increase of 3.5 folds from April 2008. Since it's launch in March 2005, over £40 million have been disbursed. Carpet Bagging provides a good summary of such Peer-2-Peer lending/banking approaches -- identifying other market players in this area, such as Prosper (US) and Smava" (Germany).
The role that the state should play in the regulation of such entities should help address some of the questions that Vincent Cable has asked in his article. Although such P2P lending sites could also fail -- as demonstrated in the collapse of Boober in The Netherlands -- affecting almost 1,200 people. Could technology and recent surge in interest in social network lead to a new form of community banking -- akin to the ideas being proposed by Silvio Gesell in his Natural Economic Order?
image from: http://fc.sharon.k12.ma.us/~soreilly/economics
Posts
