Ineptocracy - the cause of the deficit?

Ineptocracy - (in-ep-toc'-ra-cy) -
'A system of Government where the least capable to lead are elected by the least capable of producing, and where members of society least likely to sustain themselves or succeed, are rewarded with goods or services paid for by the confiscated wealth of a diminishing number of producers'.

The above definition of Ineptocacy could easily be read in two ways ... a dig at the poor and/or least able ... or a dig at the ultra-rich who misuse power and add no value, but gain wealth from ponzi ('money for nothing') schemes (eg counterfeiting money/gambling) and/or from the backs of hard working people who are actually adding all the value (but paying most of it back in tax - e.g. income tax, national insurance and 20% VAT) ... whilst the ultra-rich accumulate more wealth, more tax cuts and pay accountants to find any possible avoidance scheme so they can avoid paying any tax at all! **

The biggest problem by far is in fact the latter ... tax needs to be applied to non-productive ways of generating wealth (gambling, land, housing) as a matter of urgency ... and income tax for those adding real value reduced ... these actions together would both remove the black hole in the countries finances and reward producers who add real value!

Can this be done? ... of course e.g. by introducing a land value tax! ... However, those currently in power would never allow this to happen as it is not in their interests to do so ... as they want to be able to continue to make money from nothing ... and off of the backs of others ... and will fight tooth and nail to be able to continue to do so!   

Ignorance is not bliss ... and Poweromics is evil.

** We've started flushing out companies avoiding tax (e.g. Starbucks), but we need to expose all the individuals involved in this practice too ... starting with those with their grip on Power!

Corrupt capitalism: Fraudulent bankers are running amok!

Following recent posts, and on from my many previous posts about the immoral and corrupt practices of bankers, today we got yet more of a glimpse into the culture of investment (casino) banking and what they really get up to ... in their immoral pursuit of profit ...

... they are running amok, creating 'money out of nothing' ('electronic money') so they can gamble on rates, derivatives, assets and currencies etc ... and they are also fraudulently ensuring the 'casino wheels' are 'rigged' in their favour! ... and how do they do this ... well today it emerged they've been fraudulently rigging the 'rates' (e.g. reported libor/euribor rates) ... that they themselves have gambled on ... to make sure all their bets 'win' (... and sharing the 'profit' between them)!

You couldn't make this stuff up ... and there are clearly lots more scandals still come out too!

The case for taking back control of money supply (i.e. the creation of 'electronic money'), and separating casino banking from retail/commercial banking, should now be absolutely clear to everyone. These are both imperative to i) take back control of our economy (and off of the banks!) ... and to ii) ensure we do not give money (either directly or indirectly) to casinos! 

Without a tie to our personal and business accounts, the taxpayer would not have had to bailout/subsidize casino banks ... as they could go bust ... without affecting the accounts of voters or businesses.

Moreover, gambling/financial transactions should be taxed, to fall into line with other forms of gambling! All 'money for nothing' schemes should be outlawed (i.e. banks creating 'electronic money' themselves) and gambling heavily taxed, to subsidize tax reductions to activities that 'add real value' to our economy and society.

Yet Cameron and Osborne actively boycott any such proposals, and vehemently oppose the introduction of a financial transaction (gambling) tax on their immoral betting ... 

Cameron and Osborne also appear to have given up on the economy in terms of trying to create jobs/growth ... and are now set on slashing benefits and blaming the poor ... instead of tackling the corrupt actions of bankers, or reversing flawed policies currently destroying jobs/growth!

They are also slashing public services and raising taxes for hardworking people ... whilst incredulously cutting tax for the rich ... and allowing/overseeing widespread tax avoidance by the rich too (schemes where the ultra-rich pay less than 1% cf the 30-40% tax paid by the vast majority)!

People can clearly now see there are one set of rules for the rich/powerful (i.e. no real rules) ... e.g. the counterfeiting of money, widespread tax avoidance, no criminal prosecution of bankers/executives ... but there are an ever increasing set of rules policing everyone else (e.g. 'big brother', 'police tasers' ...)!

As far as the bankers are concerned we need to hit them hard immediately ... as a trivial fine (i.e. £60m from the FSA ... nb the £290m includes US charges!) is not enough ... we should immediately take back control of money supply (i.e. 'electronic' money as well as 'paper' money - see the excellent Positive Money reports below!) ... and make sure our money is only used to provide carefully regulated loans directed to customers and business (i.e. not for themselves to gamble in pursuit of more profits/bonuses). 

A forensic legal inquiry should also be started to uncover all corrupt practices and to jail the ring leaders (nb which will no doubt quickly spread to the regulators, politicians and Government officials manipulated/'run' by these people!) ... and a complete separation of retail/casino banking should also start immediately too.

Positive Money Report ...

Whenever major decisions are taken about the future of the UK, news cameras will be aimed at reporters standing in front of Parliament. But is Parliament really where the key decisions are being made today, or has power shifted down the river to London’s financial sector, the City?

This news report from Positive Money finds a banking system that has more ‘spending power’ than the democratically elected government, no accountability to the people, and a massive concentration of power in the hands of a few individuals. 

However, the greatest concern is that government has surrendered one of its most important powers — the power to create money and control the money supply — to the private sector, which has exploited this power to blow up housing bubbles and indirectly transfer wealth upwards and inwards, with disastrous results. There has been no democratic debate about this transfer of power, and no law actively sanctions the current set-up.

As the last few years have shown, the banking sector can have a serious negative impact on our lives. Leaving it with such a huge and unaccountable degree of power is no more likely to work in the best interests of society or democracy in the future than it has in the past.

An Overview:

Ceding the Power to Create Money to the Banking Sector

In the current system, banks create the vast majority of money in the UK, in the form of the electronic bank deposits that appear in your bank account. They create this money without regard to how much is needed for the economy and society as a whole to operate effectively, and they put over 90% of this money towards activities that do not contribute to the growth of the real economy.

This power to create money causes inflation that insidiously transfers wealth from savers and those who hold their wealth in cash (i.e. the poor and those on medium incomes) to those who are rich enough to hold their wealth in other assets (such as property). Giving private sector banks a monopoly on the creation of money also means that whenever additional money is needed in the economy, only private banks can provide it. In effect the entire money supply must be rented from the banking sector, at great cost to the economy. The creation of electronic money is a service that could be provided by the government at no cost to anyone.

The business model that permits banks to create money—so far from the popular perception of banks as simple intermediaries between savers and borrowers—is inherently unstable and will systematically require periodic taxpayer-funded bailouts. The cost of these bailouts diverts revenue from the activities that the government was elected to do, compromising its ability to fulfil its democratically mandated objectives.

Leaving this power to create money to the private sector creates a serious democratic deficit: a process that many would consider to be the sole prerogative of the state is in the hands of corporations who have no accountability to the wider public and whose interests are completely at odds with those of society as a whole.

Overstating the True Contribution of the Banking Sector

Politicians and policy makers are misinformed about the true contribution of the banking sector because they are only shown the positive side of the sector’s contribution to government finances, i.e. the taxes they pay. The overall contribution of the UK banking sector to the Exchequer is about 6% of overall tax revenues. In the year that the banking sector paid its highest ever tax, the manufacturing sector paid over three times more.

Society is now acutely aware of the direct cost to the taxpayer of bailing out banks but less attention is directed to the hidden subsidies they benefit from, even in the good times. Firstly, because of both implicit and explicit government guarantees, when a bank borrows money it does so at an interest rate lower than it would be able to otherwise. Secondly, by giving up the power to create money the government forgoes an important source of revenue, which results in higher taxes, lower spending or a bigger national debt. Conversely, the banks benefit financially from the power to create money. These hidden subsidies more than outweigh any taxes paid by the banks.

No Accountability to Customers

Unlike pension funds, banks are not required to disclose how they will use their customers’ money. As 97% of the UK’s money supply is effectively held with banks, this allows them to allocate a larger sum of money than either the entire pension fund industry or the elected government itself. Consequently the UK economy is shaped by the investment priorities of the banking sector, rather than the priorities of society.

Just five banks hold 85% of the UK’s money, and these five banks are steered by just 78 board members whose decisions shape the UK economy. This is a huge amount of power concentrated in very few hands, with next to no transparency or accountability to wider society.

The Close Relationship Between Banking and Government

It is impossible to know how much influence the financial sector has over policy but they certainly devote substantial resources to getting it. The financial sector makes large donations to political parties: the Conservative Party is 50% financed by donors associated with the financial industry, and it offers a ‘backstage pass’ to meet the Prime Minister in exchange for a £50,000 annual donation, raising the question of whether ‘cash for access’ is subverting the political process.

Lobbying is a fact of political life and only the most naïve politician would fail to take account of their naturally biased agenda. However, the resources of banking sector lobbyists far exceed those from other sectors and therefore the views of the banking industry may be drowning out those of civil society.

The close relationship between the banking sector and its chief regulator, the FSA, should be worrying, especially given the record of the last few years.  The revolving door between the banks and their regulators revolves faster in the UK than in any country other than Switzerland and a former Prime Minister now consults for one of the world’s largest investment banks, for a salary approximately 12 times more than he earned as Prime Minister.

Policy Implications

A few economically simple changes to the banking system would return power back to the people and restore some level of democratic control over the economy. These changes are:

1. Make banks ask for permission from their customers before they lend out their money.

2. Make banks disclose how customers’ money will be invested, so that members of the public can refuse to fund activities that they are not ethically comfortable with.


3. Remove the power to create money from the banks and return it to a democratically accountable body.
 
Making these changes would help redress the democratic deficit in banking and limit the ability of the banking sector to damage society. After the experience of the last few years, these are changes that urgently need to be made.

Moral capitalism - where the purpose of banks is to support industry, not gamble

An interesting article from the Guardian ...

"To convert the business man into the profiteer is to strike a blow at capitalism … The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society."

Can we create a morally acceptable form of capitalism; and if so, what would it look like? Faced with a decade of hardship apparently caused by the greed of a few, people are asking whether bankers are no more than profiteers, and whether inequality has risen too far. Even the former US treasury secretary, Lawrence Summers, and former head of the CBI Richard Lambert, have said we need to do better on inequality.

The quote above, however, comes not from anyone today but from John Maynard Keynes, in 1923, during the postwar turmoil in the financial markets. There was hyperinflation in Germany, a collapse of the Mark, chaos on the foreign exchanges as prices had gone up and down, and violent fluctuations in employment.

Like many of those who turned to communism and fascism, Keynes had strong moral objections to capitalism – but he consistently repudiated socialism, communism, and fascism, for he believed that capitalism was essential both to create high standards of living and to guarantee personal liberty. In effect he sought a capitalist revolution.

For Keynes, the sustainability of capitalism was not only a technical question but a moral question – because if capitalism is to survive, people have to believe it is a system worth supporting. His priority was to eliminate unemployment. It was also a moral priority to design an international monetary system that would reduce the chances of capitalism descending into chaos again. And to do that, economists had to grapple with difficult technical details, but their motivation was a vision of a better capitalism.

We face the same challenge today – to develop a morally acceptable form of capitalism. As Keynes feared might happen, much business is now seen as no more than profiteering. Many people object to the bonus culture of the banking system because they don't believe those bonuses are earned. We have also learned that inequality not only undermines the legitimacy of capitalism (that was Keynes's concern) but it has corrosive effects: unequal societies are unhappier, less healthy, and have more crime.

We cannot wind the clock back, but we should not be afraid to look to the past for ideas. It is hard to make a clear distinction between profiteering and legitimate business activity and yet, throughout history, there have always been limits on what can be bought and sold in the market. Perhaps the boundaries between legal and illegal activities need to be reconsidered; perhaps derivatives need to be better regulated – or simply banned from banks' portfolios. Creating a more stable banking system so that banks do not need bailouts would help maintain high employment and tackle inequality.

We can also look abroad. A decade ago it was common to look to Scandinavia or Germany and to compare their institutions with ours. Now "Anglo-Saxon" capitalism has lost its shine, perhaps we should reconsider whether we can learn, for instance, from Germany, with its system of industrial democracy and a banking system geared up to support industry, or try to find out why the gap between rich and poor is much narrower in most of Europe.

One reason for the problems we face today is that we have stopped seeing taxes as an essential institution in a capitalist economy for if taxes could be raised, especially on those who can most afford to pay them, public services would not have to be cut. We should see taxes as an integral part of a moral capitalist economy, providing health, education and social care outside the market. People should not be afraid to join Warren Buffett in saying the rich should pay more tax. The "Tobin tax" on financial transactions should not be seen as a way to raise funds for the euro, but as a tax that could help stabilise the financial system and as a "Robin Hood" tax.

Such changes need to be analysed carefully, for technical details do matter, but they need to be on the agenda: if we are to save capitalism, as we must if we want prosperity and liberty, we must face up to its moral failings. Unless we do this, we will be unable to imagine a better future, let alone work out how to achieve it.

... and IMHO with the collective actions of UK bankers summarised as legalized counterfeiting, robbery, extortion and gambling ... coupled with their continual threats and heavy handed lobbying/bribery of politicians, it is going to take a sea-change for any morality to enter Britain's banks ... German leaders do not stand for it (and look at how they are prospering, despite having to prop up the rest of Europe!) so why do we? Well I guess the answer to this revolves around the fact that these legalized 'muggers' can only mug 'mugs'!

Taxing Times - Taxing Gambling ... Separating Gambling

Robert Peston appears to be one of the few BBC journalists prepared to probe what's going on and to question further what current leaders are doing. His recent blog eluded to the fact that the Government are considering ways to 'tax' Banks more ... partly to pay for the fact the taxpayer has had to bail them out ... but for me this does not go far enough ...

Following on from my previous post I decided to add the comment below to his blog too (Post 53):

"Tax gambling (i.e. investment banking) a lot more - absolutely ... for any Government and society, with any values/morals at all, taxing gambling heavily is a 'no brainer'.

What still makes this story more spin than substance however is that the Government is STILL avoiding the key issue ...

... We must NOT allow investment bankers to gamble with taxpayers and hard-working people's savings! ie. investment banking needs to be separated from retail/commercial banking (as well as being taxed more) so they can be allowed to fail when their gambles go wrong ...

http://poweromics.blogspot.com/2009/09/challenging-greed-and-creating-leaner.html

... We need a new Glass-Steagall type act introduced again, similar to the one brought in after the last great depression ... which the current set of clowns (with 'no brains' and/or 'no morals') in their 'wisdom' took it upon themselves to remove!

Keep up the pressure and can you challenge them on this please too Robert".

Connection between 'worth' and 'reward' obscured

The Archbishop of Canterbury, Dr. Rowan Williams told BBC Two's Newsnight programme: "There hasn't been a feeling of closure about what happened last year" ... "We haven't heard people saying 'well actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, was empty'."

What we are looking at is the possibility of a society getting more and more dysfunctional if the levels of inequality that we have seen in the last couple of decades are not challenged. Dr Williams went on to say ... "It's a failure to name what was wrong. To name that, what I called last year 'idolatry', that projecting [of] reality and substance onto things that don't have them."

He also said that the crisis was a lesson that "economics is too important to be left to economists" ... and he went on to suggest there was a role for "awkward amateurs" in examining how the City operates.

Dr Williams also said there was a sense of "bafflement" and "muted anger" at the bonus culture and said "I think that's one of those things that feeds the... diffused resentment, that people are somehow getting away with a culture in which the connection between the worth of what you do and the reward you get becomes more obscure".

He could have gone a lot further, and questioned the value/ethics of building an economy based on 'gambling' (instead of adding real value for communities), and the legitimacy of gambling with other people's money ... allowing a small minority to profit greatly when it goes well, only to be bailed out by the vast majority (taxpayers) every time it goes wrong.

He didn't mention the need to split commercial banking from investment banking, but he did mention the importance of 'wealth creation' (value creation & well-being) compared to 'wealth manipulation', which I have referred to in past blogs ... Leanomics will need to replace Poweromics (in terms of 'economics') very soon if our nations are to have any chance of a survival, 'success' and a 'sustainable future'.

More people need to take responsibility and challenge what is happening (see 'for evil to flourish') and as far as having 'awkward amateurs' examining how the City operates - I couldn't agree more ... in fact Leanomics would naturally create this ...

As time goes on, and things get worse, such messages will get progressively stronger, highlighting the fundamental lack of ethical and moral values prevailing in our 'leadership', as well as the fundamental gap (and flaws) between 'creating value' and 'monetary reward' that current exist ...

Double Dip - Double Quick ?

Following on from my previous posts (1,2 for instance), take a look at these recent reality checks from other groups today ... about what we may see in the future too.

Recovery - House prices rising ...? irrelevant ...? a false dawn ? ... and the TUC rejecting claims of recovery too, suggesting we could see a "double dip, double quick" ... with unemployment escalating to 4,000,000 (not 3,000,000) ...

... and there is nothing to say this won't happen, or in fact for it to get much worse than this, unless the Government starts to invest effectively in innovation, creativity and enterprise that can add real-value in far more effective/sustainable ways (e.g. not gambling, investment banking, and property speculation), which can also support public services, as many of my additional posts (e.g.1,2) have also pointed out (including the one below) ...

"... 21st century management practices double the value-adding capability and halve costs both at the same time - but because it's 'lean' in terms of management (and 180 degrees different to traditional management!), most 'leaders'/'managers' either fail to understand it or choose to ignore it, and prefer to stick to what they know* ... most 'leaders' and 'managers' don't mind change, so long as it doesn't change how they lead and manage ... but unfortunately that's what's now needed ... don't expect to see it in a hurry ... but you'll see successful nations/enterprises doing it ... Sir Gus O'Donnell (head of the Civil Service) has known this for years, but has failed to do anything about it ..."

Posted on Stephanomics blog (post 31).

'Cutting' your way to 'success' is flawed

Supporting enterprise that creates value for others (and wealth for the nation) would be a good idea - as the revenues, and hence the taxes paid for by corporations / workforce, is what's actually needed to fund any public services in the future ... yet little mention / action by politicians with regard to this ... they all show they have no real policy/ideas on this at all ... hence their focus on cutting costs ... and they haven't really got a clue about that either.

What we see is current 'leaders' failing to 'lead' ... the government gave hundreds of billions of taxpayers money to financial institutions ... who prefer to i) make money from money (i.e. wealth manipulation'), to ii) gamble using other peoples' money, and to iii) profit from the good times and get bailed out by us in the bad ... nothing has changed, and we are continuing down this road again ... but with very little to show for it, except a massive debt to pay off, higher taxes and less & less cash to pay for public services.

Investment in entrepreneurship and real enterprise is needed to rebuild a sustainable economy and to fund future public services ... instead of trying to get investment to return into property again (alongside gambling) in the hope that international markets believe people in the UK will be prepared to take on more debt so that they can take a disproportionate chunk of people's salary in the process (for adding little/no value at all) once again ...

If the UK still plans to go for the latter, don't expect it to last for very long, as debt will continue to spiral out of control, more unemployed will need to be supported by the state due to the lack of enterprise, and many more enterprising/hard-working people will make a different choice on where they would like to live (e.g. remember EU borders are all open now)- and they will be unlikely to choose here (e.g. because of high property prices, high taxation and imploding public services ...)

Simply 'cutting' your way to 'success' is a flawed strategy. Innovation and value-added enterprise, supported by freeing up more resources to allow more value to be created, is far better (e.g. robust & sustainable) ... but current 'leaders' haven't got a clue ... fail to understand this ... and unfortunately the chicken's will eventually coming home to roost.

Posted on the Stephanomics blog (Post 17), and links to chapter 1 (page 9) of my book!

'BAB': a new City buzzword - the 'Bonuses Are Back' !

Poweromics Lite - After all we've heard, and the pain we now face, do you think the Government has done anything at all to fix the problem of 'greed' and 'gambling' in banks? ... or have they just handed them our money on a plate?  ... just take a look at my previous post, this article from the Guardian, and this one from the Daily Mail too ...