The package of measures which was announced by George Osborne in his Mansion House speech, on June 14th, was worth a total £140bn for the banks. Out of this amount, £80bn will go to a "funding for lending" scheme (the "credit easing" already announced in the April budget), while another £60bn will fund an "extended liquidity facility" allowing banks to borrow fresh cash from the Bank of England, using any toxic assets they may have - and they still have a lot! - as collateral. At the same time, Bank of England governor Mervyn King hinted at a third round of quantitative easing to be announced in July, which City commentators expect will bring the banks another £50 to £75bn of fresh cash.

Of course, this wasn't described as a bailout. After months in which his government had been lampooning eurozone governments for their failure to resolve the euro crisis, while boasting about the healthy state of British banks and finances thanks to its austerity policy, Osborne wasn't going to admit that, after all, British banks needed more public funding!

Fortunately for Osborne and his cosy relationship with the City, however, the downward trend of the British economy, after three quarters in which GDP as a whole had shrunk - and even more so, the production of material goods - provided the ConDems with the excuse they needed: it wasn't really the banks that needed help, they claimed, it was the economy at large and the banks were to be the vehicle for that help.

According to the government, the enthusiasm of "hard-working" small and medium businesses (the "power engine" of the economy, in Osborne's words) for creating new jobs, was being paralysed by the shortage of loans. Likewise, first-time buyers were apparently queueing for mortgages that they couldn't find, thereby depleting the order books of the construction giants and, therefore, the headcount employed in construction.

In short, not only had Osborne's Mansion House package allegedly nothing to do with a banking bailout, but, by a cynical sleight of hand, it was presented as the basis for a "policy for growth" for which the same jobless who are being stigmatised by Cameron as chronic delinquents, should undoubtedly be grateful!

The myths behind the banks' lending to the economy

Not that such a sleight of hand is really new, of course. A precedent was so-called "Project Merlin", launched soon after the ConDems' first "quantitative easing". At the time, the main British banks had undertaken to "lend to the economy" in return for the government's flooding of the banking system with fresh cash and repealing previous tentative plans mooted under Labour, to cap and tax top bankers' bonuses.

However, nothing came out of "Project Merlin". Bank loans to the economy as a whole have been shrinking for most of the past two years and loans to businesses for three years! Following a blunt assessment of this situation by the Bank of England, even Osborne had to admit to his scheme's failure, although not in so many words. From this point of view, the Mansion House package is merely the unceremonious funeral of an "Project Merlin" which was never anything more than make-believe, designed to defuse the electorate's general hostility to having yet more public money splashed out on the very same banks which had caused the crisis.

Of course, it is only partly true to say that the banks do not want to lend to the economy. As usual, lending is always available to those whose credit-worthiness is considered by the banks to be sound enough. There may be a cost attached to these loans - high interest rates - but it is not high enough to deter everyone.

So, for instance, property prices in the richest parts of London have been soaring to unprecedented levels over the past "crisis years". Those who are rich enough to buy houses worth hundreds of millions can pay high interest rates into the bargain and have no difficulty in getting the loans they need.

As to the big companies whose return on capital has been going through the roof since the beginning of the crisis, thanks to the way they have increased the exploitation of workers, they too could afford such high rates, if they chose to. But they don't, especially the big companies operating in manufacturing, construction and industrial services - that is, those which, contrary to Osborne's Thatcherite mythology about small businesses, are the biggest private sector generators of direct and indirect employment.

Over the past years, far from investing in new production, these big companies have cut jobs. But not only that, some have been reducing their debt, while others have chosen to sit on growing mountains of cash which are safely invested in the financial sphere, for short-term gains. The latest estimate of this cash mountain in the hands of non-financial companies is over £230bn - more than the annual budget designed to cater for millions of welfare and pension claimants! Obviously, increasing the availability of credit won't get these big companies to borrow more, let alone to create jobs through new investment.

Of course, many small businesses, shops, pubs, etc. have been forced to the wall for lack of cash, because they could no longer pay their rent nor pay for their stock of goods, as a result of lower sales. But were these businesses able to find new loans, the high interest rates they would have to pay would probably merely postpone their bankruptcy and make it more painful, but would not avoid it.

Likewise, it is certainly difficult, if not impossible, for working class households to find a mortgage they can afford for a first home, due to high interest rates, expensive Payment Protection Insurances and low loan-to-value ratios. It is even often difficult for them to re-mortgage their existing home under reasonable terms. The high cost of mortgages, together with a shrinking social housing stock, the pathetic number of affordable housing new builds and the general fall in living standards, has fed an explosion in overcrowded private rentals, which, in turn, has kept housing prices close to their exorbitant pre-crisis level. The result is the vicious cycle of today's growing housing crisis. Breaking it would take far more than just an expansion in bank lending - it would take a massive state programme of social housing.

In fact, Osborne's claim that an increase in private lending could in any way offer a "solution" to the economic downturn, let alone counter the rise of unemployment, is particularly farcical in Britain's context. After all, isn't Britain already, among all the rich countries, holding the largest stock of both household and corporate debt in proportion to GDP? And wasn't this crazy indebtedness, which fed the pre-2008 so-called "boom", the main driver of the speculative bubble whose implosion caused the crisis?

Finance capital calls the shots

But, anyway, why should the Mansion House package prompt the banks to increase their lending? The same causes producing the same effects, the lack of any enforcement mechanisms to get the banks to deliver on their commitments, can only ensure that, just as in the case of the "Merlin Project", the banks will ultimately do what they want - that is, they will keep interest rates high while lending only to those with high credit ratings.

Of course, Osborne boasts that, this time round, he has built into his measures a "market-based enforcement mechanism". The banks, he says, will only have access to the £80bn "funding for lending" part of his Mansion House package, provided they offer new loans as collateral. But what will stop the banks from seeking "funding for lending" by using loans they would have made anyway? And what will stop them from imposing the same high interest rates, or even from increasing them? Predictably, there is no provision in Osborne's "market-based enforcement mechanism" to ensure that this does not happen - since, in Osborne's book, it is the market which is supposed to take care of that...

Obviously, behind Osborne's proclaimed "policy for growth" and alleged aim to encourage job creation, lurk the City giants, especially the big banks, which are pulling the strings of this government, just as much as they did with the previous Labour governments. No wonder Cameron spoke about banking as Britain's "main industry", which should be protected at all costs, when he attended this June's European Union summit. As if creating fake money out of thin air and making profits by speculating at the expense of the overwhelming majority of the population, could be described as an "industry"! But never mind. As far as the politicians of all stripe are concerned, Britain must remain a safe haven for the parasitism of the finance giants!

In the meantime, the two Mansion House schemes ensure that the banks will be given access to £140bn of cash at a rock-bottom 0.75% interest rate. This is to be compared to the 5% plus rates which are standard for mortgages or the much higher rates attached to credit card and other consumer lending. It's not hard to guess what huge profits the banks stand to make out of the Bank of England's super-cheap loans - without putting one single additional penny into the real economy.

Meanwhile, in addition to loading its balance sheet with the unsaleable toxic assets used by the banks as collateral, the Bank of England will be lending them fresh money at an interest rate which is less than a quarter the rate of inflation - meaning that it (that is, ultimately, the taxpayer) will be paying the banks to borrow this cash, whether they do something with it or not!

In total, between the Mansion House package and the July quantitative easing, over £200bn of fresh cash should flood the banks' coffers. One may ask what the function of this enormous amount of money may be, if it is not being converted into new lending. The problem, however, is that due to the opaque nature of banking operations - which is even written into British law, thanks to the last Labour government - there is no definite answer to this question. But there are some clues.

The official assumption is that the banks' failure to lend to the private sector is due to a shortage of cash. However, the Bank of England's own figures show that roughly £500bn worth of cash is hoarded by the British financial sector - mostly by the banks. So, if the banks need another £200bn of cash, this can only mean that their existing stockpile of cash is no longer large enough to counter-balance the potential losses implied by the toxic assets they have in their books, and that these assets should probably be written off.

In other words, far from being as healthy as Osborne claims, the British banking system may well be heading back to where it was in the first two years of the crisis. And whatever the government may want to call it, the raft of measures announced at Mansion House is really just another stage, dictated by the City, in the endless bailout of the banks on public funds which began with the collapse and nationalisation of Northern Rock, back in 2007.

A delinquent system

Ironically, the Mansion House package was still being discussed by media commentators when a string of banking scandals started to come to light.

First, there was an announcement that the big banks had conned 28,000 small businesses into buying insurance against increases in interest rates, without stressing that a cut in interest rates would result in higher premiums. The scale of this fraud was nothing compared to that of the mis-selling of Payment Protection Insurance, of course, but because it concerned "businesses", it caused a big stir in the media.

Then a sudden computer breakdown prevented 13 million RBS, NatWest and Ulster Bank accounts holders from accessing their balances and/or withdrawing cash, for over a week. The system collapse was blamed by Unite the Union on job cuts at the RBS IT department and on the off-shoring of some of these jobs.

But what really made the headlines, was a scandal which hit Britain's three largest banks - Barclays, HSBC and RBS - in the last week of June. It emerged that having been caught red-handed in criminal dealings, Barclays had agreed to grass up its partners in crime, and was thus awarded a reduced "transaction fine" of £290m for its own misdeeds. The other two banks had not yet been sentenced - and several other international banks are also potentially in the dock.

This all came about as a result of a protracted investigation into the role of these banks, between 2005 and 2009, in "fixing" the so-called "Libor" (London Inter-Bank Offered Rate) - which is supposed to reflect the level of current inter-bank lending rates on a day-to-day basis, according to the banks' own statements.

There may have been all sorts of different reasons, at different times, for the banks to manipulate these rates. One reason was certainly that the rates are used as benchmarks for many complex financial instruments (but also many variable rate mortgages, particularly in the US), thereby affecting billions of pounds worth of financial transactions every day. So that anyone who is in a position to artificially influence the level of Libor in a predefined direction, even by just a tiny amount, can make considerable profits out of it.

But what seems to have triggered the investigation leading to the Barclays' fine was the fact that the bank was accused, together with a number of others, of having provided, in 2008-9, false information used for computing the Libor, in order to appear to be in a better shape than they really were, thereby distorting these rates.

Ironically, although the setting of the "Libor" is supposed to be overseen by the British Bankers' Association with the help with the big international banks operating in London, this investigation was actually initiated by US regulators in New-York, while their British counterparts at the FSA (Financial Services Agency) seemed to have been looking the other way. It was this move, which eventually prompted the FSA to act - but it did so rather reluctantly, judging from the fact that the US component of the total fine was £230m compared to a British "share" of just £60m! Presumably, the FSA's determination to stick to the City's well-known "soft-touch" approach must have been stronger than its determination to enforce its own regulations.

After the scandal had finally broken out in the media, the FSA head, Adair Turner, candidly explained on the BBC1 Andrew Marr show, on July 1st, that, although the FSA had known all about these crooked practices, there was nothing it could have done, since they did not come under Britain's criminal law. So, the fact that such practices might wreak havoc on financial markets and, by the same token, in the real economy - for the sole benefit of these big banks' shareholders - was neither here nor there! Obviously, whatever Osborne may say about tightening banking regulations, the City's status as a safe-haven for financial parasitism remains paramount, including for its own "regulators".

From "normal" to "crooked" practices

Having pointed an unconvincing finger at the usual suspects - the "rogue traders" - as responsible for the Libor fixing, the media finally changed tack. Building on the unpopularity of bankers' bonuses among public opinion, they opted to target Barclays' arrogant CEO, Bob Diamond, whose refusal to forego such extravagant bonuses had already caused numerous scandals in the past.

In a pre-emptive move designed to protect Diamond, Barclays got its chairman to carry the can by resigning, while Diamond himself and two other top executives of the bank told the media that they would forfeit their bonuses this year. In the end, however, the media furore was such that Diamond himself had to resign the next day, together with another of Barclays' executive directors.

Meanwhile, a wrong-footed Cameron had to face MPs' demands for an independent enquiry into Barclays' dirty dealings and, more generally, into the workings of the banking system, with the judicial powers to initiate prosecutions against the top brass found responsible of criminal activity.

Obviously Cameron wasn't going to have that and Labour didn't push too hard in this direction either. The compromise, therefore, will be a much "safer" parliamentary enquiry, which promises to drag on endlessly, without causing too much embarrassment to the banks. All the more so, because Cameron makes no secret of the fact that he intends to use this enquiry far more to expose the leniency of the previous Labour government towards the banking system than to expose the banks' recklessness - which, by putting Labour on the spot, neutralises any potential exposure of the ConDems' own cosy relationship with the City.

While this enquiry will focus, at best, on the top bankers' behaviour and responsibility in this scandal, the real issue is neither there, nor even in the scandalous bonuses that top bankers award themselves, thanks to huge profits generated by their banks more or less crooked methods.

The "fixing" of Libor rates was treated as a criminal activity in Barclays' cases, and possibly in the case of other banks, because it amounted to cheating and going against the rules - not because it could have destabilised financial markets. But what is financial speculation, if not a kind of cheat poker, in which every possible trick in the book is used to deceive others, regardless of the consequences for the real economy? From the point of view of society as a whole, speculation is potentially criminal - and yet, it is considered a "normal" activity for banks and other financial institutions. In the world of private profit, the dividing line between what is "normal", and what is "crooked" or "criminal", is extremely blurred.

In his speech on the Barclays scandal in the Commons, Cameron stressed that his government was already equipped to face up to this "crooked" behaviour in banking, thanks to the new regulatory system included in its future Finance Bill based on the Vickers Report which it had commissioned.

But the regulatory framework which has been in place so far, in which the FSA was supposed to prevent the kind of "fixing" in which Barclays got involved, did not work, did it? In fact, had proceedings not been initiated in the US, Barclays would probably have got away with it.

As to the ConDems' future banking regulations, which are supposed to protect savers from risky speculation by "ring-fencing" retail banking from the more risky investment banking activities, John Vickers was already writing in June, in connection with the proposals in his report, to "urge the government to resist pressure to weaken their effectiveness". He specifically complained about the government's watering down of his proposal concerning the level of reserves that the banks should have, compared to the size of their lending book, particularly when it came to loans abroad. Likewise, Vickers remonstrated against the government wanting to allow retail banks to use certain categories of risky speculative financial products. In other words, even before they are actually enacted in law, the ConDems' new regulations, which are supposed to prevent a repetition of the 2007-8 banking collapse, have already been distorted under the influence of the government's City chums.

Ultimately, however, the real issue is not so much which regulations are in place, than who enforces them. The men and women appointed to regulating bodies like the FSA, the Bank of England and those which will be created by the ConDem Finance Bill, belong not just to the very same class, but in fact the very same milieu, and probably the very same clubs, as the bankers they are supposed to police. Such people just cannot put the overall interests of society above the short-term interests of their own class!

In this capitalist society, banking remains a necessary activity, which oils the cogs and gears of the economy. But there is only one possible way to bring its parasitism and recklessness to an end - the full nationalisation of the banking system, without compensation, and its consolidation into one single bank to serve the economy as a whole, under the control of the working population!