29 October, 2009

Dan Roberts has a great column in the Guardian today. He asks the right questions. First, why is the Treasury spending £8 billion of taxpayers money reinflating the housing market? Second, why is the Treasury encouraging this now nationalised bank to increase mortgage lending, when the productive sector of the economy – companies, small businesses et al – are being starved of loans from taxpayer-bailed-out-banks, or else having to borrow at usurious rates?

A superb report from the Centre for Research on Socio Cultural Change at Manchester  (“An alternative report on UK banking reform”) suggests the answer: The nationalisation of Northern Rock is being treated as an “equity style turn around”, with the overarching objective of protecting and creating value for the taxpayer as shareholder.

“It is not clear whether the banks have been nationalised or the Treasury has been privatised as a new kind of investment fund.”

It makes perfect sense doesn’t it, given that the Treasury is advised on these matters (some would say it has been captured) almost exclusively by bankers? Get reading the CRESC report -its excellent -  the first piece of independent, academic thinking on reform of the banking sector to have crossed my path.

27 October, 2009

I promised to explain – to Alastair, a reader of this blog -  the link made earlier between 1945 and today’s supposed government ‘debt crises’.  Sorry if its a little long – but a promise is a promise.

I consider the scaremongering around government debt to be nothing more than an over-egged and salted buttermilk pudding dished up by the economic quackery of the Her Majesty’s Opposition.  Not unlike that ancient remedy for (verbal) diarrhoea, it is intended to induce intellectual constipation – in those that absorb it in spoonfuls at the Institute of Fiscal Studies, the Treasury and City of London.

We should have nothing to do with such childish prescriptions.

To illuminate and evidence my point let me offer you (below) a chart – with data provided by Her Majesty’s Treasury (Public finances databank, Table A10 http://www.hm-treasury.gov.uk/d/public_finances_databank.xls)  and with thanks to my colleagues in the Green New Deal group.

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26 October, 2009

As readers of this blog will know, together with luminaries such as Caroline Lucas MEP, Larry Elliott, Richard Murphy (he of the revolutionary Tax Justice Network) and Colin Hines, I am one of the co-authors of the Green New Deal – highlighted on this page. I am therefore proud of a publication issued in September, 2009 by the Green Alliance, and titled ‘Working on Change”. My contribution can be found on page 56 of the report, here.

The Green New Deal group is working on a new report – which argues that after the Age of Private Excesses the Age of Austerity is now flagged up as an inevitabiltiy by the finance sector and all political parties. Our report will challenge this consensus, and provide evidence to show that public spending to create jobs and deal with the ‘triple crunch’ of economic failure, climate change and peak oil, can both cut government debt and – wait for it – pay for itself.  You will be among the first to be alerted to Green New Deal II. So watch this space.

23 October, 2009

Taking a leaf out of Simon Cowell’s book – an immodest boast: a couple of days ago the Guardian invited a range of economists/commentators to give a zero to 10 rating for ‘green shoots’ in the economy – in effect to revise our ratings produced in the Spring.  I am the only contributor to argue for a zero rating – Ruth Lea of the Arbuthnot Banking Group improves her rating to 2.5 – up from 1. Bang on time, the GDP numbers appeared – and ‘unexpectedly’ (for the Danni Minogue school of economists) GDP is down again – and this is now the longest recession since records began in 1955 – which goes some way to explaining the rise of the BNP.

My comment posted below:

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Gillian Tett has a great piece in this weekend’s FT (17/18 October, 2009).  Its all about Michael Moore’s use in his latest movie, of a piece of research undertaken by Citigroup’s ‘global equity strategists” into today’s ‘plutonomies’ – economies powered by rich elites. The report (published in 2004) identified the US and the UK as ‘plutonomies’.

According to this report by Mr. Kapur and colleagues at Citi, there is no “average” consumer in Plutonomies such as the US or Britain. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending in these economies.

Anyway, the point is that the report was aimed – not at Michael Moore and other lefties – but at rich investors who need help to select stocks and shares. So Mr. Kapur is annoyed at Michael Moore’s use of the research in his movie, which he calls “salacious”..and believes “takes liberties with the truth to inflame (his, Moore’s) polemics.”

Michael Moore is undeterred: “Someone from Citigroup discussing getting things right and wrong is like Bernie Madoff discussing ethics – their credibility ranges between zip and zero….this is a bank that played a major role in the economic meltdown that has hurt so many people, paid their executives enormous bonuses and taken billions in taxpayers’ dollars – nothing squeals as much as a banking pig caught in the poke.”

He does have a lovely turn of phrase.

PS for more on how the wealthy live in our plutonomy, visit the Financial Times’ “How to Spend it” page-  “a website of worldly pleasures” – aimed at plutonomos…..

Lloyds Bank’s audacious takeover of its major competitor (HBOS) – heavily disguised at the time as a rescue bid  – has been challenged by ‘Brussels’ – that is the European Commission.  In fact it was not a rescue bid – the hasty takeover almost sank Lloyds, and the taxpayer had quickly to undertake another rescue – this time of the by-now massively bloated Lloyds Bank.

The EU keeps an eye on state subsidies and unfair competition. and because Lloyds now provides almost one third of all current accounts in the UK, the Commission “wants to see Lloyds’ share of the market reduced by just 8%.”

Hardly radical, but sad that it takes a couple of bureaucrats in Brussels to spot a monopoly, and demand action.

In the meantime, Lloyds in March sought insurance, or guarantees against losses (the so-called ‘asset protection scheme’) from taxpayers. The government duly obliged on our behalf. Lloyds is now baulking at paying taxpayers an insurance premium for this protection – a fee of £15.7 billion.    So the bank – 43% of which is owned by the taxpayer – is now trying to raise £25 billion from the private sector to escape – I am not sure what?  Its need for insurance against losses – and/or its obligation to taxpayers?

Its clear there has been a ‘compression fracture’. Labour’s spine needs further stiffening.

18 October, 2009 Dear friends of this  blog. Its been a hectic autumn, and so have to apologise twice: first, for failing to post regularly, and second, for a string of posts to follow that I hope will not cause irritation….I am catching up.

My excuse is that I have been in America for a couple of weeks, and what an eye-opener that was. There, awareness of the causes and culprits behind the crisis of economic failure is much more widespread and openly debated, and much better understood than it is here in the UK. There the debate is now led by individuals like Michael Moore and his new movie and Arianna Huffington’s HuffPost. Both clearly  identify the finance sector’s (and Goldman Sachs’s)  responsibility for the suffering of millions of unemployed (without healthcare) and homeless Americans, as well as those who have lost investments whose businesses have gone bust, or whose pensions have evaporated. ..

There the battle lines have been clearly drawn between Wall St. and Main St. Between the American People and Wall St. Banks.  And in the United States people are mobilising…see this planned event: “Showdown in Chicago: Put People First.”

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25th September, 2009.

This was my comment on the conclusion of the Pittsburgh G20 Summit – posted on the Huffington Post.

Today the Summit of world leaders — the G20 — ended in a spirit of good cheer. World leaders are united, they’re confident and they’re looking forward. They have looked closely at the system that crashed, and decided simply to reboot it. It appears we have all been fooled: there is no bug in the operating system that is the international financial architecture. It simply needed to be switched back on.

This they have done. Of course they didn’t just switch it on. They met first in London in April, made a statement, and threw some of our money at the problem. On Friday they made another long statement, a resounding commitment to sustain and defend ‘an open world economy based on ‘price stability’ and market principles.’ And then they vowed to throw more taxpayer money at it.

$6 trillion by the end of next year, since you ask. And just in case more cracks should appear in the architecture, central bank governors will continue to dish out free money (‘expansionary policies’) to the banks — ‘for as long as needed.’

“Taken together,” declared the G20 on Friday, “these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support program for the financial sector in modern times.”

You heard that the first time. For the financial sector. Not for suckers like you and me.

However, while G20 leaders are confident that the system is sound, they acknowledge that there is one glitch in the works. Bankers’ bonuses.

So they put their minds to what to do about bonuses, and it’s no secret: they disagreed. In the end they decided to do very little. Why? Well, news had filtered through to the conference that bankers were in trouble: they had made only $5.2 billion trading derivatives last quarter. The G20 resolved to bring them back from the brink. All mention of capping bonuses was erased from the Summit Communique.

And then they started putting their money where their mouth is.

As a small contribution to boosting the construction sector, they’re setting up a permanent new office. To cheer up their friends in submerging markets, they’ve appointed additional directors from China, Brazil, etc. Then, to show they’re serious about creating jobs, they’re hiring a few admin staff.

To help the poor of the world, they shuffled the deckchairs on the board of the International Monetary Fund. No doubt this will cheer up those families in drought-stricken Kenya whose babies were snatched by starving hyenas.

Then Gordon Brown rallied all the Mums of Africa and Asia: “We need to work together,” he said, “to make the policy and institutional changes needed to accelerate the convergence of living standards and productivity in developing and emerging economies to the levels of the advanced economies.”

So there you have it. A triumph of leadership and international diplomacy. Expect the global economy to go from strength to strength — and our leaders to go down in history for their courage, their foresight and their wisdom.

And don’t worry your little heads about bugs in the system.