Most people who like to think of themselves as living in developed countries are sitting around hoping the financial crisis will go away without any effort from them. It’s a bit like students put into groups to do something on their own – most are work shy, shy or just want to free-ride on someone else’s efforts.
Of course, the crisis hasn’t gone away and most of us have no clue what it has cost us – £6K each in the UK for QE alone. We don’t know anything about the ‘opportunity costs’ – like, say, where Britain would be if we had not allowed Big Bang and focused the money into agriculture and manufacturing. The real rip-off of financial services remains unknown to most, though it could have been picked up with 20 minutes a week of Mad Max Keiser on RT (ignoring his dud stuff on return to a gold standard) and the blogs golemxiv, naked capitalism and zerohedge. Given it’s really almost that easy, we have an awful lot of free-riders prepared to vote without the effort of knowing why. Of course, I have no vote because I have put the effort in. I should really cash in, join a bank and laugh at my derision as a know-all, waving my bonus cheque in your face.
The banks started lying when they conned us into thinking they were a valuable part of our economy. Finance is a cost on production (our hard work) just like any other in standard profit and loss. You want to push that cost down, like any other, to get reasonable profit. If we lived subsistence lives turning sod, keeping sheep and cattle, building our own homes, what would we think of a set of suits wanting 15% of our output for doing nothing? We’d tell them to engage in overexertive sex and travel.
Of course, in our quasi-modern world, finance is partly a genuine work activity – estimates I think generous are that about a third of what is done is legitimate, the rest parasitic. Down at the pub, my mate Dave can put up a litre of vodka, put the takings through his special till and make £60 quid. Most of what he steals is tax. The pub trade is hard these days and Dave is competing with low priced drugs and unlicensed premises where you can get a speedball, a few lagers and a whore for about 50 quid. Finance has a lot in common with the smuggler-tax-stealer. Think Starbucks, Google, Amazon – any of the companies you use a lot in the UK and what they declare as profit for tax. All legal and above board and called tax avoidance, global wage arbitrage, transfer pricing …
It’s much worse than this because tax is not the only pot to be stolen from. You may think it’s great your house has gone up in price. Yet much of this inflation is stolen by the banks in a Ponzi scheme in which they lend more and more, taking more and more in fees and interest. This steals from the next buyers because they have to pay more. Imagine your reaction to someone trying to sell you a five year old car for twice its original cost.
Now imagine what you would want to happen to a bunch of people discovered investing in slavery. Have a look at what actually happened to this bunch when Britain abolished slavery. They got paid out half our exchequer costs in that time (vast amounts in today’s terms), the slaves were ‘freed’ into indenture (40 hours work a week for board and lodging) for seven years to allow the slavers to adjust. No slave financiers in gaol. Gladstone was a major player protecting his family’s investments. Cameron’s lot got a major bail out.
Now you could say that investment in slavery was legal back then (around 1830), much as you might say the Moses of Numbers 31 (a clear war criminal) was a man of his time. This is moral piffle. Our governments have been bailing out banks – the finance system generally – to massive tune and the crimes are going unpunished much as the slave investors were bailed out. What would you have wanted in 1830 – for the slavers to have lost their investments and gone personally bankrupt, the slaves receiving what could be liquidated of the estates or what actually happened?
One bank manager I knew went to jail because his investment scheme involved donkeys at Haydock and his bets left a £7 million hole. Finance as a whole has left Greece and Cyprus in a mess, and Ireland probably has a hole (after the bail out) as big as a third of planned total EU rescue. You must have noticed the first submissions of bank holes are tiny compared with reality – pulled as someone from Anglo-Irish said from his arse. The Irish face a bail-in similar to the Cyprus template – from deposits. Even the Coop, supposedly ethical, are in trouble. It’s hard to think they weren’t in trouble before they bought Britannia and were about to take on the unwanted bit of Lloyds – this looks like a gamble to cover-up by takeover. If people in banks are so dumb they can’t do due diligence, why don’t we pay them accordingly – that is sack them as incompetents. If the Coop got in this trouble without fly-boy wizards into high-yield Zambian collateralised dead donkeys, what is the state of the rest?
I should be able to tell you the current state of banks from their accounts. After all, I could be teaching your kids finance. I can’t tell you because no one could on the basis of what they publish. Like poor students with a bit of guile they can equalise the balance sheet by pulling something from thin air. Equity (from shares) and deposits are about 30% and after that we are into the nether world of derivatives and values from bank models. Further in you discover they are claiming past losses as capital – because this can be claimed against tax on future profits. Spanish banks alone want to turn 35 billion in losses as tax credits so they can use this in Basel III capital. Don’t smirk about southern Europeans – our banks are already allowed to do this. 70% of what the banks are claiming as assets are valued by – er – banks. If they gave me the details I could run up a spreadsheet that would show what these assets are worth in a range of situations – my current guess is that as little as a 4% drop in asset prices would crash most banks. The capital they claim to hold is not a reserve pot they could dip into – much of it is futurology accounting including tax they won’t pay in the future and a variety of tricks with CDOs and other acronyms to make transactions look profitable in future outcomes – very Enron. Academics have produced a spreadsheet to warn of crash potential – but guess what – the data needed for it is ‘confidential’ and it can’t be run on the real figures.
Ask yourself how, if banks got us into all this trouble (I think 10 times worse than admitted) on past practices, how can we expect them to recover if they are just doing the same things over again? Many of the assets they are claiming and the security of loans made depend on the real economy they are not investing in (like house prices might rise if we got more wages – but how can this happen without good jobs for us invested in by them). Do we want them selling us more dud insurance like PPI and interest-rate swaps? Or front-running our trades? They were doing much worse.
In a standard liquidation of, say, a manufacturing company, I would be sent off to visit assets. Plant and machinery listed as worth £100K often turned out to be a liability worth how much it cost to get scrap people to shift it. What we should do with the banks is send people in with cops to identify what needs to be kept running as a utility, with the rest put to market to find the real value. I’d actually sequestrate this as I would have sequestrated the slavers’ assets. The cops should be allowed criminal investigation without political interference. As we find out what has really gone on, we should decide on a structured debt jubilee (we have, after all, been quasi-slaves of the rich) and economies based on job guarantee before it is too late.
None of this is about capitalism – it’s about getting to genuine democracy and real changes in the way we can live. Our society is as captured by an idiot, dominant ideology as surely as the Soviet Block once was, or the society that allowed slavery (pretty much all in history). We need a sea change in our attitudes on money as surely as we needed change on slavery in the past. The crisis is in leadership – and take a look at what that really was across history (Barbara Kellerman‘s ‘The End of Leadership’). They have made us apathetic and snide in attitude to criticism, politics so boring no sane person not after feathering his own interest could take part, our political parties hence wide open to infiltration by vested interests of left and right minorities and most of the world in poverty.
I don’t think we have much time to take control. Flat-bust Germany was able to re-arm under the Nazis in a few years. They were despicable scum and what we should learn from this is we could mobilise for world peace and to make poverty, like slavery, a thing of the past. So far, the nearest we have got is Italy and the election of a real clown. In the UK we have UKIP – much as I like Farrage – and what we need is the opportunity to vote for what matters.
The big crash is coming, the plan now for rich interests to be holding the cash and physical assets when it comes and then buy the rest of the world in the fire-sale. The crunch may come in Greece, Spain and Portugal (Ireland will go under in a whimper) where there is substantial communist and fascist pedigree (all bent in the past) and the potential for governments that will give up on international debts by declaring national insolvency. It will start in a couple of months by deposit haircuts in Ireland and later EU (German) moves against Iberia.
I really don’t think our Establishment could bail out slavers today – but the point is they will bail out (and have) the modern slavery we haven’t recognised as such yet, and given the access I could probably link a lot of old slavery money to today’s oligarchs. 1% own nearly everything you can put a monetary value on in a non-slave economy? I don’t think so. A lot of the world does live in what we would call slavery – the sweat shops we buy our clothes from and worse. There has been a third world war (in Africa) most of us didn’t notice – remember the UK war with Indonesia (28,000 dead plus 128 of our brave lads).
There will be a burglar-borrower-from-shops family in the next street to you. It’s likely they stole a lot less than the bank clerk next door through PPI. Welfare is puny and mostly well spent compared with what financial services cost us. Try to work out how the banks make money. You don’t really know – and there lies the rub – education didn’t tell you. How is money created and by whom? The banks create it from thin air and they make money because they get first use of it (the Cantillon effect). If you put money in a shoebox under the stairs does it breed? Go and put £100 in your pub’s one-armed bandit and see how long you last until it has gone. That machine takes 25% of all money that goes in it. Banks are looking for that kind of cut too. Supermarkets run on 4 – 5% – but some of them may be creaming profit from elsewhere like paying their people squat, laying-off health care costs on welfare, transfer pricing offshore …
Look around and find out what has happened to CEO and bankster “wages” over the years since WW2. They have been getting more and more money as unemployment rises and everyone else’s wages and general share of wealth has been going down. So their claims to be working harder and smarter seem unlikely – if they were the engine of rugby team we’d boot them out and bring in someone else – but their work is not under the scrutiny of the modern rugby player.
Imagine ordering a couple of lagers in a pub. You have no money, but do have capital to back up your order. This is in the bank form of previous losses on various derivative bets that failed. You can use this as Tier 1 capital because you can claim it against future tax liability on future profits. The economically literate barkeep asks where your future profits will come from and you say your future bets are bound to come up smelling roses. The barkeep says it will take a minute or two to authorise the transaction.. He comes back with two full glasses. You take a sip and announce ‘But barkeep, this is urine’. He points to two large gentlemen sitting in a corner. ‘No mate, it’s rehypothecated lager those two drank earlier’. The situation is not eased by the appearance of an Irish banking colleague claiming he can pull 7 billion Euros from his erse.
Moral: the average barkeep knows more about money than the smartest politician or Gaussian copula swinging banker.