Reforming banks - A fight to the death?

Whilst some (e.g. Gordon Brown) focus on spin, others focus on substance (e.g. Barack Obama).  Whilst some try to paper over the cracks (e.g. UK), others try to focus on solving the problem (e.g. USA).  This has become ever clearer over recent days and weeks .... in relation to dealing with banks ...  

Gordon Brown decided to introduce a one-off 'bonus tax' for bankers, which involved far more spin than substance.  Barack Obama on the other hand plans to introduce a bank levy and made it clear 'Wall Street' must pay back all the $117bn (£72bn) that US taxpayers are expected to lose from bailing out the banks during the financial crisis. "My commitment is to recover every single dime the American people are owed ... We want our money back and we're going to get it", the President said.


However over the last two days he has gone much further.  President Barack Obama has proposed significant new curbs on the activities of banks to try to prevent future financial crises.  The plans include limits to the size of banks and restrictions on riskier trading. "Never again will the American taxpayer be held hostage by banks that are too big to fail," Mr Obama said.   He added he was ready for a "fight" with any banks prepared to lobby against tougher regulations.


"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Mr Obama said.  His proposals also include a ban on retail banks from using their own money in investments - known as proprietary trading. Instead, banks would be limited to investing their customers' funds.


I, and many others in the blogosphere, have regularly pointed out the fallacy of allowing retail banking and risky investment banking being joined together and remaining together, but the UK Government has singly failed to address this issue, and the BBC failed in it's duty to press home this issue either.  


Mr Obama's proposals appear to be a return to the principles underlying the Glass-Steagall Act. That law - from the 1930s in the aftermath of the Great Depression - separated commercial and investment banking and was eventually abolished in 1999 under President Bill Clinton.


"I am proposing simple, common sense reforms" Mr Obama said, and vowed "If these folks want a fight, it's a fight I'm ready to have".

Economic Justice: Land Value Tax

The Coalition for Economic Justice recently organized a House of Commons Seminar on Land Value Tax, hosted by Vince Cable MP. The seminar was aimed at parliamentarians and policy makers and saw a packed house. It examined the advantages of land value taxation, how it might be introduced and how transitional problems could be dealt with.

"Sir Sam Brittan (Financial Times) said the case for LVT was clear and simple. But perversely, people find this difficult to grasp; they expect complexity in taxes. Being a tax on unearned value increment, LVT was no disincentive to Labour or Capital. As a temporary expedient, pending the full introduction of LVT, he advocated the auctioning of planning permissions.  

Ashley Seager of The Guardian cited instances where public expenditure had led to massive increases in property (i.e., land) prices. In one case, the building of a school had led to such a big increase in local property prices that teachers in the school could not afford to live in the area. As the land of this country is provided free of charge by nature, “rising property prices do not raise national wealth one single penny”. They serve no useful economic purpose and are an obvious target for taxation. 

Professor Iain McLean (Politics, Oxford University) explained how, as a member of the independent expert group set up by the Calman Commission, he was looking at LVT as a way of financing public services in Scotland and Wales. LVT would replace council tax, business rates and stamp duty. 

David Triggs (Henry George Foundation) in the opening address also highlighted “The challenge that confronts those interested in establishing a just and equitable division of the fruits of production lies essentially in recognising that land values impound that part of the value created which is attributable to factors external to the individual, e.g., the country’s infrastructure, the system of governance, law and order and the density of population. It is manifestly unfair to tax the individual on what he produces while those community-created values are provided tax-free to the benefit of the landowner. These land values, arising essentially from location, should be the primary source of taxation.”  

Fred Harrison (Land Research Trust, and author of 'Boom Bust: House Prices, Banking and the Depression of 2010') reinforced this message. He showed how failure to collect location value led to diminished opportunity and life expectancy at the marginal location. James Black (a sixth-former) said LVT made common sense to the young and the opportunity should not be missed". 

This seminar was the first step in a campaign to interest parliamentarians in the formation of an all party parliamentary group on Land Value Taxation.  However a lot more work will be needed due to counter the huge vested interests of those who currently accumulate great wealth without adding any value, and who will resist the introduction of such a tax using all their influence, power and wealth.

Criminals, Pirates and Propaganda

Many bloggers (including myself) point out the importance of splitting retail banking from investment banking once again, but a fellow blogger recently highlighted some of additional challenges ahead too: 

"The difference between the reality of banking and finance and the propaganda that their publicity machines exude is just as apparent as it ever was. However because they have so much money, muck like tobacco companies, they are well able to resist change. This reality of capitalism will not be done away with by a few blogs!

I really do not see any genuine prospect of any nation stopping the banks from sucking the lifeblood out of the World's people without genuine revolutionary change. All banks will have to become smaller and less powerful and it is now a battle for the World's nation states to achieve this and it looks like the nation states are failing badly.

It must no longer be a source of pride that any nation has a world dominance in banking and financial services. Instead it should be a badge of national humiliation and shame. Being a World power in banking must be seen as akin to being a failed state and no better than present day Somalia. Bankers need to be see as pirates and leeches on the lifeblood of any nation and the World.

The propaganda of the banks must be resisted and countered for the very simple economic reason that the people of countries like the UK cannot afford to bail them out. We must see and portray bankers more as international criminal and pirates in order that we counter their propaganda ..."

Banking ... Wealth creation, wealth manipulation, or wealth destruction ... you decide ... and if you're not sure, take a look at a few of my previous posts here (e.g. wealth manipulation, wealth destroyers).

Bearing witness unto the truth

Lord Christopher Monckton or Lord Monckton for short, spoke during a global warming event sponsored by the Minnesota Free Market Institute on October 14th, 2009.

The full video of Lord Monckton's speech is quite long but it's worth the watch. If you want to hear some of the key challenges ahead, as well as the many issues related to Global Warming, this is definitely one to watch. 

Mathematicians and Scientists do not believe in any old consensus ... but seek the truth ... enquire and check ... and by doing so they help to find answers to real problems.

Apocalypse Postponed ... Until after the Election

Mark Easton looks under stones to see what wickedness lurks in the slime below ... and produces one of his best blogs ...

If one can draw any meaningful insight from the events of one year just past, I would venture that 2009 saw people grubbing about under some of the foundation stones of our society, burrowing beneath the pillars of British life and extracting core substance which now threatens to undermine their stability.

What made those grim discoveries so potentially devastating is that they exposed institutional rather than merely individual improbity.

The scandal of MPs' expenses was all the more outrageous because it went beyond dishonourable members to reveal how Parliament itself had apparently systemised the abuses...to protect itself.

The revelations that oozed from the banking crisis were all the more troubling for revealing how, as greedy individuals took ludicrous risks with other people's money, the City stayed largely silent ... to protect itself.

It was not abusive Irish priests that made last year's revelations about the Catholic Church so shocking, but the way in which the institution had covered up those vile activities ... to protect itself.

Yes, in different ways, the actions of individual priests, politicians and financiers were appalling. But the real damage was done, I suspect, by the discovery that institutional structures regarded as bastions of our society conspired to keep dirty secrets.

The response has been apologies and promises of transparency. This is a high risk (if necessary) response, at least in the short term: 2009 may come to be seen as the start of a process which continues to undermine rather than rebuild public trust in institutions.

Over centuries, church, state and commerce have employed many tricks to add credibility to their claims of honour and fidelity. Tradition and ceremony grant mystique to the mundane. Ermine and gilt act as camouflage. Exclusivity keeps a lid on indiscretion. The aim is enigma.

That is why allowing illumination of your dark corners may prove problematic. You cannot be enigmatic under floodlights ...

... what adds to the combustibility of the current situation is that the promises of transparency (and the likely prospect of further expose) come as Britain endures a period of austerity. The "establishment" is blamed for the hardship faced by ordinary citizens and there is little forgiveness left in the locker.

Last year, I think, might be entitled "Apocalypse Postponed". We were warned that we could face the worst flu epidemic and the worst economic crisis since the First World War. The implication was that we might have to endure medical and financial carnage.

And yet, here we are in January 2010 and we have escaped, not unharmed, but still in one piece. The flu bug proved to be far less virulent than feared: officials warned of up to 65,000 victims, there have been 300 to date.

The impact of the credit crunch on the real economy was dissipated by a stimulus package which delayed the worst anguish until after an election.

So, looking ahead to the next 12 months, I think the question is how much resilience British society possesses.

The currency of resilience, troublingly, is trust in each other and in institutions - presently in short supply. When things get tricky, we will need to draw on the strength of our communities to see us through.

The changed narrative, from growth and investment to cuts and retrenchment, propels a generation of young Brits into uncharted territory ... 

... There is still simmering anger at the bankers and the politicians, resentment which could spill over if the pain is poorly managed. There will be protests and demonstrations, strikes and direct action. Common sense will not always rule the day.

Whichever politicians win to run the country and whatever decisions they take, they must expect deep hostility from many quarters. It will be a year of long faces and short tempers.

Mark Easton's blog and comments.