The recent appearance in parliament of the chief executives of the Big Four banks was notable for its well orchestrated apologies, which were about as convincing as a life insurance ad that promises only to pay out to the immortal.
The strategy was clear enough. Blame the whole thing on a need to improve impersonal 'processes', imply that there have been a few bad apples but overall things are fine, and promise to do better in the future. The greatest challenge was probably to hide the smirks.
A royal commission is being held up as an alternative, and no doubt it would be more effective in exposing some of the appalling rorts in the banks' financial advice and insurance activities. But a royal commission would not address the main issue.
The central problem is not specific misbehaviour by bank employees, or even a 'culture' problem in the organisations. The main issue is how the finance sector, especially the banks, are changing and dominating the system we live in. We are entering an era of 'financialisation' that is both a form of servility and a symptom of underlying economic stagnation.
In the Australian context, the figures are unambiguous. Australian banks are the most profitable in the developed world (Bank South Pacific in Papua New Guinea is substantially more profitable). Their earnings account for 2.9 per cent of GDP.
The finance sector accounts for 9 per cent of Australia's GDP and about 25 per cent of the value of all companies listed on the Australian Securities Exchange. The finance sector provides $22 billion in company tax revenue, almost twice the contribution of the mining sector.
The central problem is that what banks do is not productive activity; it is simply shifting money around. When such a large part of a country's 'economy' is banking activity, the genuine economy is, in reality, shrinking. It means the parasites are getting bigger and the host is getting smaller.
For example, the massive lending to the Australian household sector is accounted as part of the economy but it is only a process of weighing down households with debt on an asset, land, that does not produce anything in itself. Australian households now owe 125 per cent of GDP, the highest level in the OECD.
"Because of these circularities of neo-classical economics transactions are considered real and everything else is regarded as only a secondary reality. Instead of money being a servant, everything else serves