Tag Archives: Bankers

FRED GOODWIN no longer “Sir”

It is amazing what happens and who crawls from the undergrowth when the “establishment” is attacked.

In order to gain the favour of the public, the very people who were courting the Bankers, the city and large corporations, are now falling over themselves to nail a banker to the wall and then take the plaudits.

It is all very amusing.  However, we now have the “backlash”, saying politicians and the general public are using “Fred the Shred” as a scapegoat.

Even, the ultra left wing 80’s politician turned new labour “Darling”, Alistair Darling, (seriously no pun intended), is now voicing concern that people who manage to obtain an honour bestowed on them by the state may refuse their honour, because the “people” may wish to hold them to account for their behaviour following their receipt of this honour.

God forbid you may say.  For then we may ask Lord Archer to leave the House of Lords and not allow proven liars, nay, even a perjurer, to make laws in this land.  A ridiculous constitutional arrangement where no matter what a Lord does, we cannot get rid of them.

Or if we give a Knighthood to a dedicated member of the community, who is then found to be a paedophile, should we not take away the honour?

The very argument that we should not take away an honour because some may think twice about accepting it; or that this will just open the flood gates to taking back honours from others that have fallen from grace, is pathetic in the extreme.

I say, let the flood gates open, and let the great and the good and yes the “not so good”, think twice before taking an honour.  They should know full well that if they behave in such a disgraceful manner that society deems it necessary to take back that honour, that this is exactly what we should do.  Not to gain a percentage point in the polls, but on principle and because it is right.

WE HAVE NOTHING TO FEAR EXCEPT FEAR ITSELF

Sir Mervyn King has stated about the World Economic Crisis that:

This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever.

Just the latest in a line of adjectives to be uttered by world leaders; economists; the IMF; the World Bank; politicians and commentators.

This latest declaration of doom is nearing the end of the last roll of the dice for the Euro and the current system of capitalism as we know it.

Even John Major is being seen as being back in vogue as he waded in to the debate on the economic crisis by stating that the Euro is unbalanced and that Germany has massively benefited while the weaker Euro nations have suffered. His argument is that the Euro was formed with the wrong exchange rate causing massive imbalances within the Euro zone, so it was formed at the wrong time, without the right convergence policies in place and at the wrong rate.

He may well have a point, but sadly, his analysis probably comes from his own personal inadequacies on economic policy in the early 1990’s when he himself made those very same mistakes when entering the ERM.  The result was a massive home grown recession.

The past week has been another turbulent week for the markets, banks, investors and savers.

The latest of many shocks to the system has been the downgrading of British Banks by the credit agency Moodys.  A bizarre evaluation of the Vickers report which  actually means that the UK government is less likely to bail out banks in future.

I have thought about the logic of the markets and credit rating agencies a lot recently, and this latest news just confirms many of my suspicions.  Basically there really is no hope for the system as it works at the moment.

The markets are so divorced from the realities of the real world that the two cannot coexist.  Those that profess to believe in the Capitalist system as we know it today, are the very people who seem to forget how it works and why.

The Vickers report, although welcomed by many, may well be seen as weak in some areas, but is the least that could and should be done to try to make the capitalist system within the UK work. Indeed, reform of the world system is required, but few are contemplating such a move.

Capitalism works on the basis that those that take unnecessary risks that do not succeed are allowed to fail.  The survival of the fittest is crucial to it working properly within the boundaries of laws and regulations.

Sadly, the way the markets and credit rating agencies react appears to be without any logic.  Some might say, in a simplistic sense, almost Socialist in intent.  You couldn’t make it up.

The idea of Vickers is to make those that take the biggest risks and fail, to be allowed to fail and for the burden not to be taken by the tax payer or government.  What the credit agencies appear to be saying is that we should not let anyone fail and the government should intervene.

By downgrading banks in this way, it causes a further climate of fear which is already in a severe cycle, much like a whirlwind, causing havoc across the world.

The credit rating agency Fitch on Friday, proceeded to downgrade the credit worthiness of Spain and Italy.  This further exacerbates the problem by creating difficulties for those countries financing their debt.  This in turn puts more pressure on the Euro zone and in itself creates more debts for governments making the overall debt crisis worse.  The cycle just goes on.

The credit rating agencies are now a part of the problem rather than a solution to guide where the money should go.  Rather than deal with economic realities, the agencies are concerned with only what is a safe bet, based on little more than hear say, and intuition.  Every downgrade leads to more turmoil and more reactive policy making.

The economic realities are bad enough, with many more shocks to the world economy to come, but after the many downgrades recently from credit rating agencies like the downgrade of the US from its triple AAA rating, can we really any longer take them seriously?

We know, until the capitalist system collapses, the US will still be a safe haven for investment as seen by the negligible effect this downgrading has had on the US.  This is the difference between real economics and speculation.

Is it time to finally knock the credit rating agencies on the head when it comes to their influence?  It is a wonder anyone is willing to listen to what they have to say anyway, after they AAA rated sub-prime mortgages that partly caused the financial crisis in the first place.  Perhaps a part of the failure of the capitalist system is that the credit agencies themselves cannot fail.  Indeed, at the time they themselves “failed”, and rated sub prime mortgages and the assets of banks so inadequately was the very time that they made the most money.  Does this make sense?

At home in the UK, the government has had a narrative of Austerity for the whole of its term so far.  The consequence is that people and businesses are scared to spend and invest, and banks are scared to lend, even to businesses with a strong order book.  Project Merlin has all but completely failed and the cuts are only just biting.

With a narrative of austerity and fear, along with every whisper on the grapevine of economic expectation being downgraded, it is no wonder that there is a race to the bottom economically.  We have effectively been in recession for the last 9 months, and the prospect of economic growth is bleak.

There are systemic problems with our capitalist system, but no politician or mainstream economist is even discussing it.  The credit rating agencies, banking system and speculators are all a part of this system that no longer works. Rather than dealing with the real problems, politicians and heads of central banks are chasing their tales with each bit of bad news reported.

FD Roosevelt said

 let me assert my firm belief that the only thing we have to fear is fear itself

Although, like any saying, this is simplistic, there is much in this simple statement about the predicament we face.  Much of the problems we are encountering on a day to day basis with the economy, is based on fear created by people who have no interest in economic stability, but in making money whatever the cost.

There are real underlying problems, but while speculators; credit rating agencies; the ideological madness in financial institutions like the IMF and World Bank; and the markets continue to have their hold over day to day political decision making, the chances of sorting out our problems are slim. Democracy itself is being subverted by the vested interests of the markets.

We have dark days ahead, but to see the light at the end of the tunnel, we need a radical rethink of how our capitalist system works.

THE US ECONOMY AND THE LOSS OF THE AAA RATING: Why do we maintain faith in failed institutions?

As we all know, habits are hard to break, especially when they have been reinforced by repeated behaviour for so long.

The fall out from the US losing it’s triple A rating will only be known in the coming days.  The comments in the business pages are fairly predictable on the whole.  The Spectator through Fraser Nelson writes that Obama is “addicted to debt” while at the same time stating that the triple AAA rating may not affect US borrowing at all except make it somewhat more expensive to borrow.

It’s kind of amusing that Obama is being blamed for high debt, when it was President Bush who ran up the deficit at the same time as cutting taxes they could not afford on the same ideological grounds stated by commentators on the right. Apparently the same arguments used for Cameron et al for “inheriting the crisis”, cannot be applied to Obama by the very same people.

Yet at no point does Fraser Nelson, or many others question the legitimacy of the credit rating agencies themselves.

World leaders are bracing themselves for a volatile week ahead where the markets have us all on the run, and could well create the crisis they are worried might happen by making the Italian debt too expensive to service.

Since 2008, responsible governments have been trying to contend with a catastrophic financial crisis by dealing with the symptoms and not the causes, because as usual the causes are very difficult to confront.  A financial crisis that was not predicted by most economists, the IMF, World Bank, world leaders, think tanks or credit rating agencies.

Indeed the IMF and the credit agencies were at the forefront of causing the crisis by   a) an economic orthodoxy of encouraging or even forcing countries to deregulate, sell assets and open up markets   b) valuing assets and financial products with AAA ratings that were in fact junk, thus encouraging frantic trading in worthless financial products that were too complicated and/or no one could understand or value.

Yet now, whenever a country justifies it’s economic policy or deficit reduction plan, it immediately quotes the endorsement of the IMF as an authority on sound economic management, which it quite obviously is not.  Then we trot out the belief that we have to satisfy the credit agencies, which have been completely discredited.

CREDIT CRUNCH AND RECESSION 

In 2008 governments looked to the only crisis in the recent history that matches the extent of the crisis today – the 1930’s –  and attempted to ensure that a depression did not ensue.

The US tried to let some institutions fail, like Lehmans – this was a disaster and the realisation of banks being too big to fail led to the effective state ownership of the banking system and coordinated  stimulus packages.

Recession hit, tax revenue fell and deficits increased.  Since then, rather than bouncing out of a deep recession, the western economies are stagnating and are being hit hard by other external factors and economic shocks – natural disasters, war, commodity prices, food prices and raw material costs.

While some discussions have been had regarding ensuring that the financial crisis does not repeat itself, the world financial system and the ideologies and agencies that influence it have not changed.

The IMF and World bank are at the forefront still of economic prudence; credit agencies still have the ability to sink economies and companies; neo-liberalism is the mainstay economic ideology; while the banking industry and derivative products have not been reformed.

In short – the CAUSES have not been dealt with.

THE FUTURE FINANCIAL CRISIS

Next week could see the other credit rating agencies downgrading the US – if this happens the costs of borrowing for the US will increase and further undermine markets. It could also call into question the dollar as a banker currency.

The markets could well ensure the crisis hits Italy as the interest costs to service the deficit rises toward 7%.  This would lead to a default position, even though their deficit is relatively low (under 5%) and their debt is largely held by Italian investors.  The self fulfilling prophecy of the markets acting hysterically could be the straw that breaks the back of the Euro zone with the dithering of northern European leaders.

The markets are held as the bastions of correct decision making by marketeers. “The markets are always right” is the mantra – but in reality, they can “create” the very problem they are afraid of.  Akin to the phobia of having a mental breakdown, and worrying and getting so stressed out that it creates one. Hardly logical.

When we consider the underlying problems of the world economy, the debate over how deep to cut the deficit seems “almost” irrelevant.  If we do not reform how we create money; the undemocratic and ideologically driven IMF; and allow the banking sector to be too big to fail, then a further crisis and financial collapse is inevitable.

GREECE – The End of the Euro is Nigh

UPDATE

The Greek Parliament voted through the austerity Bill yesterday with a larger majority (155 to 138) than expected while the riots continued out side. More riots are expected as culturally the Greek society goes into shock.

Of course there is no way that Greece will either pay back its debts or actually achieve the austerity measures past.  Yet continue to live in this nether world of make believe as the Euro leaders congratulate themselves on the stay of execution for the Euro.

Original article

Greece may or may not vote for the Austerity of a nation for a generation or more, but it seems clear now that the Euro cannot survive in it’s present state.

Right now hundreds of thousands of people are demonstrating on the streets of Athens with a few thousand people committed to a day of violence around the Parliament buildings, rioting and setting fire to cars and vans.

The classic signs of a fractured society being asked to pay a massively high price for a problem they did not create.

Greece has become the fall guy of the Euro zone being asked to have several decades of austerity; falling living standards; a burden of debt it cannot hope to repay and the selling off of it’s national assets in order to prevent the collapse of the Euro and to prevent a massive shock to the European banking system.

Realisation is now hitting many within the Euro zone, that for some countries, including Greece, the only way to bring prosperity back, is to obtain economic growth.  To do this they cannot be subjected to a generation of austerity, where a downward spiral of division and poverty is the only future they have to look forward to.

Around 70% of the debt of Greece is held by German and French banks, and austerity measures is the price Greece is being asked to pay in order to prevent a shock to the banking sector that could yet again freeze up the wholesale banking system and grind the world economy into another recessionary dip.

The sticking plasters of the last 4 years have not worked and the Ostrich like behaviour of the European leaders to deal with the structural problems of the Euro has led us to a slow motion Domino Effect.

The Euro was never a united currency with a fiscal and monetary convergence within Europe.  The Political ideology of the French and German political leaders of the past led to a blind eye being shown to certain economies within Europe.

GREECE is a sacrificial lamb in such a disgraceful way, leading to the sell off of national assets quicker than Margaret Thatcher could ever have dreamed of.  Selling national assets in a quick fire sell off to satisfy such undemocratic organisations like the IMF at rock bottom prices just at the time when investors are least likely to pay a fair price for them is madness.

The IMF has become the standard barer yet again to impose an ideology imposed by the US and other western governments.

How the IMF has been able to rise up the ranks of importance in world financial affairs is staggering.  When we consider that 6 months prior to the financial crisis they were arm twisting governments all around the world to deregulate the financial sector to follow the UK and US banking systems, just before they collapsed.  Yet we are now swallowing medicine from the same doctor that should have been condemned 4 years ago.

The real loser however is democracy.  Democracy is fragile and evolves over time.  The flag barer of democracy is legitimacy.  Legitimacy of governments, laws and policies is paramount for democracy to work.  However, now we are in a cycle of democracy that is disconnected from reality and legitimacy.

The power is no longer with the citizen, but with the banks, IMF, European Commision, and politicians who no longer speak for their own electorate. Unaccountable institutions now have a disproportional amount of power in society.

The Domino Effect will continue  – in slow motion – until the inevitable defaults occur, and the Euro is restructured.  This is just one economic shock that is inevitable, and unless we wake up to the necessary reforms of the financial sector more economic shocks are on the horizon.

bb

The Conservative Party is Still Living in the 1980’s

As an article from Tim Montgomerie and various other editorials from the right wing press over recent weeks show, much of the rhetoric of the archaic right wing commentators  urge David Cameron to look back rather than forward.

It amazes me how many people on the right and left of British politics are fighting the battles of 30 years ago rather than trying to find creative solutions to the immense problems and challenges of the next 30 years.

The article by Tim Montgomerie in the Telegraph  got much of the narrative right in terms of there not being enough done for economic growth by the UK government, but the analysis and suggested solutions were taken straight from the “New Right” handbook published circa 1981.

The assertions by many right wing commentators are that the current Tory led coalition is simply not doing enough to crush the unions, deregulate, privatise, and cut taxation.  The familiar trotting out of Mrs Thatchers name and how the Conservative Party needs to look to her successes.

If these people were actually looking at Mrs Thatchers “successes”, they would not be looking at her individual policy making, but rather at how she approached politics.  She saw the problems that the country faced and applied policies that she thought would produce a solution.

Rather than looking back for inspiration, she picked up an ideology that was considered new, that could be inspiring to some and deal with the problems of the time.  Now, it would only be a fool who thought that the neo-liberal policies of the past 35 years could solve the problems of the future, being as these neo-liberal ideas are a PART OF THE PROBLEM.

Incidentally, I am not arguing whether Mrs Thatcher was right or wrong 30 years ago, only that her political success and perceived success was due to finding solutions for the time, not the past.

Our political elite, which ever party you care to mention, live in a bubble of old ideologies, the traditional left-right of politics that has nothing to offer the average person living in Britain today.

People do not care about public or private, they care about what works and what doesn’t.  Ideologies of state intervention or privatisation for the sake of it are at the root of most evils within our political system.

Old ideologies of political commentators and political parties are engrained into a stale political party system.  A tragic continuation appears to be happening where a “one size fits all” approach is being applied to all our problems for economy and society.

You would think, after the upheaval’s of mainstream political and economic thought over the past 4 years, that this stale approach would have been shaken to the core.  Sadly, people seem to be forgetting not only the lessons of history, but also what the causes of these shocks have been.

It is hard to imagine that a New labour government who championed the filthy rich; lauded the virtues of bankers and brought private enterprise into the heart of public services would then effectively nationalise the banking industry.  Even less so that President George W Bush, probably the most right wing president of the post war years would advocate the same and bail out the banking industry.

Yet, the lessons are never learnt, the same old rhetoric keeps coming around again and again.

Tim Montgomerie and the rest of the die hard Thatcher Mythologists will stop at nothing to put forward their version of the New Right ideology, to inflict on the rest of society and to influence government.

Simply nationalising ailing private companies would not be the answer to our economic woes and neither would privatising core public services because of the mistaken view that “private” means “better”.

One of Tim Montgomeries diatribes floats the familiar idea that Unions are at the heart of the problem in the British Economy. This is as fanciful as arguing Bankers are born with a morality gene.  Union membership has steadily declined since their peak of membership in 1979 at over 13 million members.  It is now at an historic low of 6.5 million with less than 50% of the population working in situations where there is union presence.

There is also a large myth that unions are the evil barons of modern political society that cause so much trouble and strife with strikes galore and that Mrs Thatcher was the one who reversed this trend.  In the 1970’s the amount of strikes declined from a high of 5,000 to 1,500 by the time she was elected in 1979.

There were about 158 strikes in 2006 and over the past 15 years the UK has been continually lower than the EU and OECD average for stike days lost.

We are not the sick man of Europe in terms of strike days lost, and we are not about to reverse a trend that has been continuing for at least 40 years.

Unions are not THE PROBLEM.  It is only rhetoric and nonsense of the ideologies of the past that keeps on playing the same tune.

Another often quoted requirement for the rescue of our economy is “deregulation”.  Again, nothing like a history lesson to exercise those little grey cells.

One of the reason for our mess at the present time IS Deregulation.

A sad unpalatable truth for the right wing is that markets are not a religion but simply a tool for distributing goods and services.  In order to work properly they require laws and regulations so that they operate efficiently for the benefit of our society.  If they are not properly regulated, then anarchy in the market place ensues and massive corruption and imbalances occur as well exploitation in the marketplace.

It is also not about how much regulation you have, but having the right regulation.  The banking collapse shows what happens when the ideology of a moral imperative over rides the necessary government job of regulating the market.

Yet there are still those who think that deregulation automatically brings better economic conditions.

We get ourselves stuck in a narrative, and then wonder how we could possibly have made the same mistakes we made years before. We are currently on a course of economic austerity that was last tried on this scale in the 1930’s with the terrible consequences that had.  Are we to repeat the mistakes of the past?

In reality though, our politicians and economists appear stuck in an ideological vacuum of the past.  No one appears to be looking forward for something new.  To break out of the constraints and barriers of the past, or even to learn from the past.

Where are the new economic theories?  Where is the acknowledgement that the world has now changed?  I see very little original thought in the current crop of Parliamentarians, only a mirror image of what has gone before.

Will we ever learn?

BANKS BEHIND ON THEIR SMALL BUSINESS “LENDING TARGETS”

The current figures so far show a 12% short fall in the lending of the 5 main banks to small and medium sized businesses as based on their commitment in the weak Project Merlin.

No one is really panicking yet as ministers will wait until the end of the year before responding, but the figures are certainly interesting.

First of all, of the main banks it is the almost wholly state owned bank that is making the most commitment to lend, with RBS having a share of 46% as opposed to their market share in this sector of 30%. Perhaps state ownership does have an affect??

On the one hand this shows how RBS have been intervening in this sector, but perhaps highlights that the other Banks, Lloyds, Barclays, Santander and HSBC are frankly not doing enough.

There are two aspects to this tale.  One, that there is plenty of enecdotal evidence to suggest it is harder to obtain credit by companies with healthy order books, especially in the service sector, as there is less or no collateral for the banks to feel happy about lending against.  There is also evidence that Banks are no longer providing the close support networks that successful small and medium sized business had prior to the crisis.

Secondly, the Banks insist, with some evidence, that the demand for the loans is just not there.  Some ministers and the Bank of England are less than sympathetic to this argument.  But this could well be, at least in part true.

All indications with the economic figures over the past 8 months show a poor, stuttering or stagnating economy, with rising costs and a lack of demand with rising taxation affecting the consumer.  The lack of growth could be the reason for the lack of companies even applying for loans.

But then we have to ask, if RBS can do it, quite spectacularly, why cannot the other banks?

We are now 3 1/2 years since this all started and there is absolutely no sign within the UK economy that the problems either in the financial sector or the real economy are any where near over.

In the type of economy we have, we need growth, without it, were doomed to a decade of declining standards of living and an ever increasing deficit.

BAIL OUT CARTOON

No words can explain . . . . . . . . . . . .the hang over

Maybe the Portuguese who have only had 1.1% annual growth over the past decade, wouldn’t be able to understand why they have the hangover, or indeed find this funny!

Fred Goodwin and other banker jokes