Does anyone believe the Government know what it’s doing? I’m not talking about the budgetary U-turns or that sinking sensation one gets when viewing images of the troika of Lenihan, Coughlan and Cowen on our television screens. No, it’s the bank guarantee. First, the Government stated that the banks which sign up will be liable for bail-out costs to any bank that falters. This would, they argued, protect the taxpayer by shifting the cost on to the banks. But the hapless Minister must have been reading David McWilliam’s demolition of this provision in the Sunday Business Post.

So the Government rowed back- banks participating in the scheme would not be liable for any bail-out subsidy; it would revert back to the taxpayer. There was an even an announcement of this on the Department of Finance website. Now it appears that is not the case (or is it - today in the Dail, Eamon Gilmore couldn’t get a coherent answer from the Tanaiste). What confidence building.

It hasn’t gone away, y’know: the banking crisis. Take Anglo-Irish: on the eve of the guarantee, it’s share price collapsed to €2.30. In the immediate aftermath it climbed higher but then started another decline. But as of yesterday it ‘rallied’ - to close at €1.70, well done on the level that provoked the guarantee in the first place.

There are a lot of ‘unknown unknowns’ around the place: exposure to toxic loans, need for capitalisation, the impact of long-term de-leveraging, etc. We’re on the surfboard, the waves are high and the circling sharks have that hungry dead-eye look. The lack of information is one of the main impediments to getting to shore - somebody has put a blindfold on us.

But let’s look a little further - when we’ve managed to reach sandy shore. We can make a couple of educated guesses. First, credit will be tight and will remain tight for some time to come. This will have a considerable impact on enterprises and households who, in other times, would be sound candidates for credit. Second, we should expect to see fewer banks as mergers, acquisitions and takeovers subsume the weak; in short, less competition and less choice.

These are the last things we need to grow ourselves out of the recession - restricted credit and decision-making falling into the hands of fewer CEOs and Boards. While regulation is necessary, it will probably not be sufficient from a broader economic view (the state can prevents banks from doing certain stupid things, can incentivise through loan guarantees; but its hard to see how it can micro-manage to ensure positive outcomes). So here are a couple of suggestions that progressives can start knocking about:

Public Banking: We may have lost the chance to create a third-force banking sector back in the 1980s (and it seemed superfluous in the financial go-go nineties) but surely this must be back on the agenda. Public banking, however, is not ‘nationalised’ banking. It is a different kind of beast with a different mission. Let’s take a look at the premiere community development bank’ in the US: Chicago’s ShoreBank.

ShoreBank was founded in 1973 and sought to address the economic decline in the South Shore area. It is a commercial for-profit bank but it’s charter focuses their activity on credit to poorer areas - households and small businesses. It now has branches throughout the country, has assets of over €2 billion, and even operates joint projects internationally. It’s business record matches that of any commercial bank but with the added proviso that depositors and shareholders know their monies are being used locally for maximum social and economic benefit.

A similar imitative could be launched here, drawing on the strengths of ShoreBank and other successful developmental banks throughout the US and Europe. They could be organised on a regional or even local basis within a national framework. Though it would operate to commercial criteria, there would be participation by the appropriate stakeholders (trade unions, business, consumers, environmentalists, etc.). They could be initially capitalised by the Reserve Fund (again, on a commercial basis) but could also seek capital from the public -a way of diverting investment into productive activities. Where a national network of development banks linked up with the An Post Bank, it could provide a strong network of commercial activity.

Socialising Investment: A more forensic way to fund private and public enterprise activity - especially start-up and developmental enterprises - would be to ’socialise’ a portion of the deposit base of banks in Ireland. It could work this way:

• A number of Enterprise Development Funds could be established (e.g. Green Technology, Tradable Business Services, etc.)
• A small percent of the deposit base in Irish banks would be lodged in these Funds for enterprise investment. This investment could be on the basis of loans or equity.Thereturn on these Funds would go back to the banks.
• These Funds would be managed through the Social Partnership framework- on, say, a sectoral basis

This would open up the possibility of creating SSIA-vehicles for savers to put money into these Funds with long-term maturity - another way of redirecting savings into productive investment.

Of course, these are only broad sketches. There will be other and better ideas of how we can sustain the flow of credit and capital to enterprises and households, bringing some accountability over the disbursement of these monies.

But those ideas will only flow once we break from the idea that financial institutions are a wholly private matter. In one sense, the financial crisis has knocked that idea on the head, what with bail-outs and taxpayer-driven capitalisation. Financial institutions are, ultimately, social assets. They are, or should be, driven by partnership. And most of all, finance should be subordinated to the wealth-generating activity in the economy: people and businesses, public and private.

That’s a long-term vision we should start to hammer out now. As for our current surf ride, we just have to hang on, keep steady, and say a silent prayer to Kahuna, the Hawaiian god of sun, sand and surf - hoping it will guide us safely to shore.

Cowabunga, dudes!