On this morning’s Today Programme (Radio 4) there was a spokesperson for one of the UK banks (Stephen Hester of RBS), discussing the current economic turmoil in Europe and the US.
Essentially the message from the contributor was that the banks are just innocent victims in all this! The gist of the claim is that “Our economic problems have been created by Government excesses, and so it is Governments that need to show resolve to address fiscal difficulties in order for the financial crisis to be averted”.
In other words he was stating that the Government and the people created the problem, and so the Government and the people need to pay for it through austerity.
What is most troublesome is that this is the popular narrative being conveyed to the public, and most people seem to be buying it. It is little more than the UK’s equivalent of the US anti-state Tea Party movement, yet the logic is a complete contortion of the facts.
Firstly, this assertion completely evades any consideration of how the banks contributed to high levels of sovereign debt. The Gvts borrowed the money from the banks in the first place! If the banks didn’t think that Gvts would be credit worthy, then why in the world did they lend to them. Only a partially sighted amnesiac could make an honest declaration that there has been absolutely no Irresponsible and Incompetent lending by the banks! See Irresponsible borrowing and irresponsible lending.
Secondly, if you want to understand the source of Gvt income woes then look no further than the offshore banking system where the super wealthy squirrel away their assets out of the reach of scrutiny, regulation, or taxation! Nicholas Shaxson’s “Treasure Islands” demonstrates how an ideologically lax approach to taxation has been implemented by the UK, US and others (and not just in far way Caribbean Islands, but actually within the City of London and Wall St). Profits and income gain are booked in low tax, semi-secretive havens, whilst liabilities sit with us full exposed and law abiding tax paying chumps who are lumbered with underwriting losses through austerity and inflation.
Finally, it shows a complete ignorance of historical facts! Banking crises precede sovereign crises. Not the other way round. This is the conclusion of Reinert & Rogoff in “This time is different” where they study 800 years of financial crises.
Credit liberalisation (born from excessive bank lobbying) leads to asset speculation which leads to excessive banking leverage which then embroils Gvt / sovereign balance sheets.
Does Mr Hester not recall that following a pure “banking” crisis in 2007-2008 the UK Gvt stepped in and has underwritten large private sector losses? Not only that but they have lowered Gvt spending and commenced the debauching of the pound.
In sum, the banks are not the passive victims of financial instability, but the very perpetrators of it! The humble UK tax payer and the enviable public services are the real victims of this crisis.
To be told otherwise is a complete insult to everyone’s intelligence.
I guess this is the equivalent of Goebbel's Big Lie… If the lie is big enough most people will end up believing it…
They repeat it over and over and people whose brains hurt if they think about finance eventually passively accept it. Ireland has been a shock to me… a highly educated and fairly young population and hardly a peep from them as they are robbed blind.
Another big lie I have noticed repeated over and over is the idea that Public services are not "wealth creating". That only private enterprise creates wealth so that say an electric company that is nationalized is not wealth creating but if it is privatized then magically it is. I have heard this one dozens of times now.
Recent comments by Peston and Mason shows the BBC do have people willing to look at the reality but they need to go on the attack to counter the rubbish spouted by Hester and Angela Knight and all the usual PR propagandists for the banks they stick on.
@Wirplit
I think you have it right there, people here in Ireland believe all of the lies that are being told by the news media who are just propaganda puppets for our politicians. There are a lot of people like myself who can see through the lies( I have the great David Malone to thank for the beginning of my education) The problem is that there is no platform from which to shout about it loudly enough to be heard. The only hope of getting a platform I think was if David Norris had been able to stay in the presidential run here but he has been 'taken out' by slightly twisted press stories that made him out to be something that he is not. He would have won if he had made it to the election day, I'm fairly certain of that. Maybe when enough people can't afford a beer here they will start to revolt, Its a frustrating situation to be in but there is no media outlet to the wider population to stir things up, if there was I think WhistleblowerIrl would be right up on that podium letting them have it.
For now we have to come here and rant 🙂
Jonathan Davis in the Media tells it as it is but he is a lone voice but his presentation,can I say, lets him and the truth down.
And here we have it: it's all about lies and liars and the effect of lies on the individual. The financial crisis gives the lie to the underlying human crisis, which appears to be one of belief. Confronting a lie is personally threatening, the visceral reaction is to protect one's security and stability and so the deceived are bound to defend the lie, strengthening the delusion.
In public life we have become inured to official lies, because the alternative is even more threatening, at least since the exiting of Kennedy and the story of the magic bullet. And we get used to just getting on with it as the notion of truth withers for lack of regard, and the ground we stand on is riddled with fear.
Those who stand for truth in public are brought down with 'truth' about their personal and private lives (cf David Norris). The fear of being revealed drives conformity to the delusion; reason is used as a weapon so debate is a form of combat; and education (from educare, to draw out water as from a well) is inverted as we are forced to accept whatever is deemed appropriate. Fear is organised to prevail.
So I come here to sip from the pool of emerging truth and give thanks to David for the massive public service he is doing, and all the contributors who add their efforts to this work.
Thankfully we are now being forced to confront the fear and lies that have formed our personal, political and social cocoons. Stepping out of the lie takes us into our own little hell towards the world of truth and assocociate qualities.
What an opportunity!
Golem!
I know this is off topic, but I would like Your and your commenters views' on this article. Are the figures correct? Can they be interpreted in another way? or was the QE2 nothing but a bailout of European banks? A bailout of the same magnitude as the complete EFSF, I should add.
If what is stated and implied in the piece from ZH is correct, my problem with this action is not primarily whether it was right or wrong, but the fact that is has not been discussed properly. The interpretation of the effect of the QE2 on the US economy, the collaboration between the EU and the US, the role of the ECB, the state of the European banks, etc, etc all are shown in a different light.
Greateful for your comments.
Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went
90% of the Irish are sheep and may well know it is untrue. But they will take the easy way out because of conditioning, fluoride and because they have no other option.
Like cattle, they will be corralled before, not slaughter, but pruning and shoehorning into a Federal Europe.
It will be galling, but they will lick the boot.
@ ProfessorPelotard
I think what you need to to focus on is the fact that the QE efforts have gone to banks who, regardless of where their nominal HQ is, have not put the money to any productive use in the 'real' economy (as opposed to 'casino' economy) much anywhere. We know that some S America countries (& others?) were very concerned about mountains of $$ heading their way and creating asset & commodity bubbles. Some instigated capital (inflow) controls.
It's not really that surprising. The banks know full well that unless there is signs of growth in consumer demand, no (productive) investment funds are desired or warranted.
The US & EU banks, highly interconnected in any case, are all operating in their interests & very much against ordinary citizens anywhere.
The injection of money created debt free by sovereign currency issuers is very much the answer (with some proper banking reforms minimum & politics & media as well), but it must be spent into the 'real' economy directly NOT given to banks. This distinction CANNOT BE UNDERSTATED. It will not be significantly inflationary in a recession with so many unemployed & other under utilised resources BUT MUST be targeted carefully not to crowd out (rather enhance & stimulate) existing private sector activity.
Warren Mosler (MMT advocate) and Richard Douthwaite (feasta.org) & others have proposed such solutions. It does rather blow the lid on the banks' exclusive debt-money creation free lunch tho'. I suspect that's why we're not hearing too much about it.
Good banking reform proposal here:
http://www.positivemoney.org.uk/wp-content/uploads/2011/07/Submission-to-ICB-4-July-11-Positive-Money-nef-Soton-Uni1.pdf
"Credit liberalisation (born from excessive bank lobbying) leads to asset speculation which leads to excessive banking leverage which then embroils Gvt / sovereign balance sheets."
The only asset which matters here is land. The price of gold or shares does not impact the whole economy.
What we need to wean the banks off is land, which is the prime collateral for loans.
Commercial land is quite heavily taxed which moderates the price. Agricultural land is not taxed at all and residential only very lightly and that is where loose credit always ends up.
The remedy is so simple. You know: tax the land.
Gramsci described the people 'buying' the banker's line as 'false consciousness'. Psychologists would describe it as 'cognitive dissonance'. Conmen would describe as 'punters buying the gimmick'…. Marx wrote about it and Robert Tressell wote 'The ragged trousered philanthropist ' about it.
The BBCs 'objectivity' colludes with the nonsense by presenting the political lines, the bankers' lines and the transnational management consultants' lines. The so-called 'free-press' is virtually all owned by the super-rich. It is no wonder that people buy the frame of reference. People need the facts, figures in comprehensible form. The price of freedom is eternal vigilance ie. knowledge and insight into what is really going on. Thank you David Malone.
An indication of the ignorance problem (or is it just nonchalance) is that blogs like this get ten comments and I guess a few dozen readers whereas a Robert Peston blog gets a couple of hundred comments and probably a couple of thousand readers.
Mainstream will always triumph. Therefore we have to hope that mainstream self transforms.
Professor,
Sorry for the delay. Fruit picking, jam making and general spending time with the children.
I read the peice. Very interesting to see those charts. The US bail out of European banks is one of those long running sores as I'm sure you know. People have been shoating about it since the first evidence cane to light a year or more ago. But the close correlation is new – to me at least.
The only thing I found struck a false note for me was the slight jingoistic tone of 'us American's bailing out those Europeans'. Not that it isn't true. It's the tone that worries me.
It's actualy poor people and general tax payers in every country bailing out teh financial class of every country.
Neither the US Treasury nor teh European central banks bail anytone out our of generosity. The Americans were bailing out Dexia and others because they had and have huge Dollar denominated loans and liabilities for which they need dollars.
I think the surges of money are in part due to the on-going war between Berlin and Washington about bailing out. I wrote about this a long while ago – about how Berlin is against bailing out and I think what you are seeing is Washington feeling forced to bail our banks it wants bailed out which Berlin and Europe were not so keen on bailing.
The other thing to remember is it is not just the Americans bailng out Europe, European money has been flowing the other way. Consider the hundreds of Billion of Dollar debt the BoE has purchased over the last year.
Thye BoE buying US debt whiel we are being told we much make savage cuts because our borrowing is too high. I see this as a reciprochal bail out.
Something which I think we are about to see a great deal more of in teh last ditch attempt to head off melt down in Europe.
Hawkeye, I think you superbly answered your own question.
I think uncle Hester is worried, as he should be, he has been forced to stick his head over the parapet to defend the indefensible. A PR exercise in damage limitation to prepare for another infusion of blood from the British taxpayer.
I would be worried if I was him. The fact that the Torygraph has published articles that seem to doubt, what has been the accepted rationale to deal with the present crisis, should have him adopting the current fashion amongst the other practioners of feral finance, brown tailoring.
& Lo & behold, I have just found this, an article from "The Mail", which, although I am not that familiar with British newspapers, I assume is a right wing tabloid usually occupied with the pursuit of single parent mothers & immigrants etc as the cause of all that is evil in the world. If my assumption is correct then I am right in my delight that such a publication could present such an article.
It contains a great pic of a smug Bob Diamond & it quotes his earnings. The man who last week congratulated Osbourne on his AUSTERITY measures. Maybe it's just me, but was't that an unfortunate use of language. I wasn't aware that the UK was undergoing austerity, I thought it was necessary cuts to balance the defecit, which were left over from the previous Labour government. Could it be that this souless prick has gotten to sure of himself ?
Here's the article :-
http://www.dailymail.co.uk/news/article-2022993/Capitalism-crisis-80-years-ago-banking-collapse-devastated-Europe-triggering-war.html
I think this sort of thing should worry Uncle Hester.
Just my imagination probably, but I think there is something deeper going on as regards these Tottenham riots. I get a strong sense of early 1980's deja vu. I was part of some of those riots, there were then labels attached to the why of it, poll tax, sus, etc. But I actually think they stemmed from an underlying anxiety, a feeling that someting just wasn't right, a feeling of repression.
Promises to be yet another interesting week.
Stevie
Yes, your caricature of the Daily Mail is correct, so it is a surprise – unless Diamond is getting softened up to be hung out to dry just like Fred Goodwin – or the paper might just revert back to type the next day.
The Tottenham rioting could lead to copy cat events – all looking worryingly like the UK's first bout of the US inspired "Flash Rob" phenomena.
An interesting week ahead indeed.
– Hawkeye
Carol
I won’t get too drawn into policy formulation just yet, as I’m mentally still in “diagnosis” stage.
However, I will state that taxing land satisfies that one key criteria is that it is immovable and non-evasive. So therefore it can’t be squirreled off-shore.
I guess it would need to be tied to Land Use. Agricultural land and woodland should have low tax (but tight restrictions) to preserve the ecology. Dense residential areas should have high tax (to deter excessive developments). Business rates should be quite high too.
Also consideration for Taxing consumption – with tax rate proportion to the extent of social good – so food, clothes and necessities 5%, non essential consumables 10%, higher order capital goods 15-20%, and out and out luxuries, high powered cars, yachts etc. 40%). No exceptions, no loopholes.
It seems a bit complicated, but it needn’t be. And might well be simpler than current reams of tax code policy!
Ultimately, taxation policy should be arranged to incentivise the desired behaviours for broader social benefit.
I’m not that familiar with this whole area, but I would like to know how close your proposals (and my tentative efforts) are to the Scandinavian model, which one would summarise as: High tax but high productivity, high wages, high living standards and high social welfare.
This seems the most appropriate model to adopt in the near term as it is up and running and proven to be effective.
– Hawkeye
Syzygy
Thank you for the excellent phrase:
“The price of freedom is eternal vigilance”
Hopefully this site and others provide this, albeit on a small-ish scale.
Judging by the comments on many of the mainstream blogs, BBC / Guardian etc. there are quite a few people who get it, but they don’t represent the majority I’m afraid.
Hardly any of my friends or family share my enlightenment, and I dare not push too far for want of appearing too zaney or preachy!
The ceaseless scrutiny of money & power must continue, and one by one we shall get stronger.
@Hawkeye
You are making things too complicated. Taxing land is simple. You value all the land, apply a single rate nationally and send the bill to the owner. Agricultural land is low value relative to residential. Residential land in Mayfair is lower value than that in Stoke. The value depends on permitted use, natural attributes and, mainly public, investment.
All other taxes on land should be abolished, i.e. business rates (which actually collect quite a lot of land rent – hence the commercial property market is not so volatile), Council Tax, stamp duty land tax (why do we want to hobble the land market?), there are a couple of others.
I agree with you that we need a consumption tax and it should apply only to consumption of non renewables. This would leave services untaxed, although any consumables that are used would be taxed.
Income tax should be abolished for those earning the average wage and corporation tax could be reduced to compensate for the increase over business rates (recognising that capital is so very mobile).
However, there should be a hypothecated tax on incomes (NICS?) for health, pensions, care of the elderly to make the link between tax and public services more up front.
Some of this is in the new manifesto of the Labour Land Campaign, see http://www.labourland.org.
Carol
I don't think I'm making it any more complicated than the current system.
I'm highlighting that the tax system should encourage the desired outcome for land use – for society's benefit overall.
Is the proposed tax a flat rate proportional to land area or to market value of the land?
@FS, I don't know how to make it any plainer for you. You value all the land (regularly – it's perfectly achievable – they do it in Denmark, Australia, etc.), you then apply a rate (preferably approaching 100% rental value – there are standard algorithms for this conversion), you then send the bill to the landowner. Take a look at some of the LVT sites which explain in more detail.
So far as land use is concerned, we already have a planning system which restricts use to what is wanted by the whole community (given that the system could be improved). The market value reflects permitted use.
Oops "Residential land in Mayfair is lower value than that in Stoke." Got that a bit wrong!
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