Sorry George, You've Lost My Interest. I'm not Investing ! ; Why we need to build an alternative to our current banks. Where people can invest their money knowing it will not be used to under mine the economy.

In recent days, George Osborne and David Cameron have announced that there are to be new regulations which will protect retail banking from the so called 'risky' investment banking.....

If the new law gets through, it will take at least another year before it will begin to be enforced.

There are however some reasons why we should not count on this new regulation actually ever making any difference to the banking system. These reasons are as follows;

First of all,
Politicians have been talking about this division between retail banking and investment banking for a number of years, but have avoided actually activating the rule. This is because of the effects it will have on the investment banking side. If this law is enforced vigorously on the British banks, it should mean investments in deposit account are only used for mortgages to buy homes, personal loans, overdrafts, and similar. I think this is more likely the illusion that George Osborne would like to create. The chances of this actually happening are I think are in the region of one in a million.

The reason for this is that, investment businesses like hedge funds and private equity companies borrow money from all the big banks. Up to now, much of this money has originated from ordinary deposit accounts.
Therefore, the deposits of ordinary investors has bolstered activity in the private equity buyout business, Asset management businesses, hedge funds etc. All activities by the previously mentioned firms, whilst carrying out their activities then support the stock markets, and thus the stock markets support these businesses. Therefore, contrary to what is popular belief, ordinary money in ordinary account is an important part of investment banking. Come the day you ring fence that cash, investment banking, stock markets and all that are related are without doubt going to suffer as a result...............

It is likely to affect the share values of big companies. Hedge funds and asset managers are always buying and selling shares in these companies, and the money they borrow which originates from me or you affects the values of the big companies as a result. If there is suddenly a reduction in the amount of cash available to these investment businesses, share values on the whole will reduce. In fact if you were running one of these investment businesses, you would probably want to start selling assets off as soon as you are aware that the ring fence becomes imminent ! Currently, in the beginning of 2013, the big business buyout market seems to be on the move, with a number of big business buyouts such as Heinz- $28 Billion, Virgin Media- $23.3 Billion (£15 Billion) , the merger of American Air Lines & U.S. Airways, total value $11 Billion . Also, potentially one of the biggest ever mergers has just been given the go ahead between X-Strata & Glencore by all share holders and various regulators......If there was to be a significant change in the way the banks operate, which reduced the money on the investment banking side, the success of the afore mentioned deals could be put at risk. When buyouts take place, the last thing the new owners of these companies would want, is for there to be a reduction in available cash to buy them should they be put on the market again in the future. A significant reduction in available cash to the business finance world will damage the values of big  businesses. It could contribute to a 'recession' in the business finance world. Some hedge funds and asset managers could even decide not to take a chance, and decide to sell off their assets long before any enforcement of a ring fence begins and shut down completely. Then a domino effect could begin, leading to a major stock market crash ! Has George Osborne thought of this? Without doubt he has. I don't believe this ring fence is going to be enforced, because it simply will not work. I believe the whole thing is to create an illusion that something has been done, when virtually nothing has. The proof of the pudding will be in a years time when the rule begins to be enforced, if given clearance. The retail side will have to invest in the things we all need the banks to invest in. Mortgages and loans for home improvements. Otherwise the retail side will be investing in nothing at all which will mean that it will not be possible to pay interest on deposit accounts. If the rule really is enforced, there are other major problems ahead.....

The second problem is that, as much as politicians may refer to the U.K. financial system, implying it as being separate from the Eurozone and the United States. The truth is that all though there are variations on regulations, the U.K., the United States and Europe are all part of the same financial system. It is also joined to financial industries all round the world. Nothing could have made this more clear than the financial crisis.
Even though reducing the amount of money available to the apparent riskier side of 'investment banking', on a world scale, would probably reduce the risk of the industry creating problems in finance and the wider economy, there are clear problems on individual countries reducing access to available cash. One is obviously that hedge funds, asset managers etc will turn to countries where restrictions are less, where there is no ring fence of retail banking. This is in fact what made the U.S. and the U.K., the leaders of the world finance industry in the build up to the financial crisis. There simply were very few restrictions to stop banks lending cash and gambling with it, and lending to other businesses that only wanted to gamble with it. I'm fairly certain that George Osborne and David Cameron have no intention of the U.K. taking a back seat in the financial industry. For one reason, governments have a direct pipe line into the financial system. This pipe line, the leaders certainly will not want to obstruct. Has George Osborne worked out away of creating a ring fence around retail banking, without affecting investment banking. May be he has. But I think there needs to be a lot more clarity on how exactly this ring fence is going to be applied. I hope this is not a publicity stunt for the build up to the next election, which is a lot of hot air and no substance. After all it wouldn't be the first time that a high profile announcement by the current U.K. leaders evaporated into nothing within a few months.

Incidentally, going back to the international financial system. Obviously individual countries bringing in their own regulations to improve their finance industry will always invite problems as other nations could exploit the situation and profit from even more deregulation themselves. (The U.K. has done this at great cost to the rest Europe in the past !) This is why this problem needs to be dealt with unilaterally. It simply will not be solved any other way. Until this happens in fact, I do not think there will be any great improvements in the way the big banks take care of our finance. This is one of the reasons why we should begin to look to a new alternative for those who want to opt out of the current mess!