DIE LINKE: Crash Programme to Stabilize and Reform Financial Markets
The current financial crisis is the product of neo-liberal deregulation and liberalization of capital markets and the distribution policy it entails. It harbours enormous risks and has to be combated by political means. But it is not only the present situation which is problematic: already prior to this crisis, the impact of the unrestrained financial markets had caused completely undesirable results. This has to be prevented in the future.
The present crash programme can help to stabilize the financial sector by a number of short-term measures and to rapidly remove particularly harmful practices. Reforms with medium-term effect have to be tackled immediately in order to subject the players in the financial markets to the primacy of politics, and reduce them to their function as service providers to the producing economy. This requires that business models be radically simplified and standardized and that part of them be totally outlawed.
The current crisis in the capital markets must serve as an impetus to press for a thorough reorganization of the international financial system. The dramatic aggravation in the past few weeks holds the opportunity to create the necessary public pressure for real changes.
DIE LINKE demands:
I. The immediate safeguarding of central tasks in the financial system
1. The guaranteeing of sufficient and low-interest credit supply by the German government in cooperation with the ECB and the public-sector banks; if necessary through a special programme for small and medium-sized enterprises.
2. The guaranteeing of bank deposits of unlimited amounts by the compulsory increase of deposit security at private banks, saving and cooperative banks. This is to be added to by setting up a security fund provided by private financial institutions to avoid serial breakdowns, so that the state does not have to pay for salvaging actions.
3. The permanent prohibition of empty sales.
II. The abolition of particularly destabilizing practices
4. Stringent game rules resulting in a drastic curbing of trade with derivative and other ‘innovative’ financial instruments including the prohibition of specifically risky and speculative instruments (e.g. credit default swaps, off-exchange futures, securitizations, etc.)
5. The rescinding of the admission of hedge funds in Germany because of their destabilizing effect, a ban on deals by German banks with foreign hedge funds and on the activities of foreign hedge funds in Germany; a marked rise in the prices of high-credit-lever deals through considerably higher compulsory securitization by equity.
6. The removal of misleading incentives with managers’ remuneration: the prohibition of share options, minimum holding periods of management’s shares, tightening of the liability of managers.
III Steps for a medium-term reform of the financial system
7. The introduction of an international credit register,
8. The far-reaching confinement of banking activity to deposit and credit business; the curbing and strict control of investment banking.
9. The tightening of restrictions regarding funded pension insurance systems (e.g. private pension funds); no speculative business e.g. with foreign currencies, lessening of the requirement of private and enterprise-funded insurance systems by way of bolstering the legal contribution-financed pension insurance.
10. The public admission and surveillance of rating agencies; separation of consultation from rating; financed from a pool funded by enterprises; the establishment of public rating agencies.
11. The obligation to seek permission for existing and newly developed financial products and services by a financial control board, which checks thoroughly for potential dangers and examines the expediency of products.
12. The levying of transaction tax on trade with security papers and foreign currency (both in and outside the market) in order to decelerate financial markets.
13. The guaranteeing of global regulation standards by way of closing tax havens.
These measures should be implemented in the medium-term at both European and international levels. Apart from the credit register which in Germany already exists, those measures can and must be implemented nationally. To support initial progress at national level, controls of capital movement can be introduced if necessary in accordance with Art.59 of the EU Treaty.
At the European level, all attempts at further liberalizing capital markets must be halted. Instead, European regulation and surveillance structures that give priority to implementing the above points, should be built and strengthened.
Moreover, internationally, a reform of the currency system is necessary which is suited to markedly stabilize exchange rates e.g. through target zones and overcoming the dependence on lead currencies such as the US Dollar. Likewise, a non-partisan system is required for tackling crises caused by excessive indebtedness through international insolvency law.