woensdag 2 februari 2011

Western Regimes

The Tunisian example and Britain

Britain’s street riots lie ahead

By Christopher King

2 February 2010
Christopher King views the structurally-corrupt British political and financial systems. He argues that the upheavals in the Arab world should be instructive to British politicians and the British public because the “same factors underlying the desire for reform in the Arab world are operating in Britain”.

It is heart-warming to see the people of Tunisia and Egypt take their destiny into their own hands and seek to throw out their American-backed dictators. If truly democratic governments do emerge in these countries it will not be thanks to the US and Europe. Nor can we expect such governments to think well of the neo-colonialists of America and Britain. Their credibility has been lost in Palestine, Iraq, Afghanistan and Pakistan.

Following Tunisia, citizens of Jordan, Yemen and Lebanon have also taken to the streets. The sparks for these protests are not political but economic. Unemployed, poverty-stricken populations are rebelling against governments that treat them as sheep to be shorn.

Parallels with Britain

“The seeds to Britain’s own street riots have been securely planted by its government, however. They will grow in the field of 'the market', tended by a financial elite. Their fruit is poverty.”
In Britain these events are viewed with mild detached interest, as if riots are to be expected in unenlightened parts of the world. The seeds to Britain’s own street riots have been securely planted by its government, however. They will grow in the field of “the market”, tended by a financial elite. Their fruit is poverty.

Last November, across Britain, students 
protested in the streets against increased university tuition fees that from now on will leave most students in debt by between GBP 30,000-40,000 by the time they graduate. More demonstrations were held on 29 January for the same reason. These demonstrations will not continue to be non-violent. The number of young adults aged under 25 who are out of work is now just under one million. These are the first signs of serious problems ahead and they have emerged very quickly, triggered by a credit bubble and banking crash.

The students’ debts are publicly justified by the government’s view that since graduates will earn more than non-graduates, they should pay extra for their education. This is merely a fig leaf. These debts are transferred losses from the British banks that were bailed out by taxpayers in an enormous cash transfer of wealth from the future and present working population to the financial elite of the country. Britain’s wealth is being concentrated in its business elite and the banks are the key institutions in doing this. The banks hold the country’s capital, use it to finance the expansion of big business, manipulate credit to transfer cash from the population to themselves and protect the wealth of the business elite.

It is easier and more profitable for the banks to use British deposits and government funds in international big business transactions than to support small British businesses.

Our future graduates will be fortunate to find jobs of any sort, much less the skilled positions that they expect. Unemployment is growing and will increase long-term. Current under-25s will be poorer than their parents due to the long-term decline of the British economy. This is not merely a statistical phenomenon that can be spun in the jargon of “double-dip” recessions and “manufacturing recoveries”. It is the inevitable result of greedy business and political elitism operating in a rapidly-changing world market.
“The great virtue of free market theory is that governments need do nothing whatever. 'The market' will provide. Unhappily, this is not and has never been the case.”
It is true that the Blair-Brown government squandered public money and built structural waste into a government apparatus of incompetent bureaucrats. The present Cameron government is attempting to rectify this by firing public employees and leaving their re-employment to jobs created by “the market”. The great virtue of free market theory is that governments need do nothing whatever. “The market” will provide. Unhappily, this is not and has never been the case.
Britain’s credit bubble disguised a much more serious problem. As I have said before, Europe and America have for the last 300 years enjoyed a trend of increasing prosperity due to their monopoly of capital and technology together with cheap raw materials. Economists and governments have ascribed this to “the market”. Economists learn their trade by reading other people’s books rather than by thinking. Governments found “the market” a useful justification for doing whatever they wished in lesser developed countries. Europe and America no longer enjoy their monopoly and must now compete for scarce commodities with other developing countries that have lower cost structures. “The market” now favours Asian economies.

The response in both America and Britain has been to concentrate their nations’ capital in their business elites and to use armed force directly and by proxy to seize other countries’ resources. The most obvious direct seizures are in Iraq and Afghanistan with plans to re-proxy Iran. Libya with its oil was the first North African proxy to break free – hence its demonization. Others are now following, together with former South American puppets.

The Blair-Brown and current British governments are American proxies whose politicians perhaps genuinely think that they have a “special relationship” with the US by virtue of secret political and financial deals. They are remarkably greedy, stupid and naïve people who qualify as traitors and war criminals. Hopefully, whistleblowers will pass more on to WikiLeaks and its clones about their activities.

The result of their greed, ignorance and delusions is that our government is making destructive responses to Britain’s long-term economic decline, most notably in the transfer of public wealth to private banks. The elite is looking after and gathering power to itself for the same reasons that the dictators of Tunisia and Egypt did: greed and self-interest.

You might imagine that politicians control our country. That is not correct. Those who control the country’s
wealth control both politicians and the country. Politicians usually have no money; they need sponsors. Their sponsors are primarily in the banks and secondarily in big business. The country’s banks control all the capital of Britain. We deposit it with them and they do what they like with it, including setting up secret companies (off-balance sheet, i.e. hidden activities) in tax havens to enable them to undertake risky and conceivably illegal transactions. These might be, for example, to finance bank directors’ personal projects or pay off politicians.

We do not know and have no control over what the banks are doing with our money. An important example is the case of the government-owned Royal Bank of Scotland, bailed out by taxpayers, that part-financed the American Kraft takeover of British Cadbury while British small businesses were starved of capital and collapsing. The country’s elite comprises a political-banking-big business cabal or conspiracy if you like. We may glimpse how this works in another example – HSBC, Britain’s and Europe’s biggest bank.

The case of HSBC

HSBC under Chairman Stephen K. Green lost USD 53bn (GBP 35bn – repeat, billion!) as of March 2009 in the banking crash. It did not accept government money but raised capital from the Gulf states and shareholders. You might think Mr Green to be grossly incompetent, negligent or both, having lost 35 billion pounds. But no! The Cameron-Clegg government gave him a knighthood! Allegedly, this is “to make him accountable to the House of Lords” which is the most absurd reason ever given for knighting anyone.

Stephen K. Green left HSBC and now, as Baron Green of Hurstpierpoint, he is the government’s present minister for trade and investment. He is there, not to tell government how to manage the banks and develop UK businesses as, again, you might think. He is the banking and big-business cabal’s inside representative who tells the government what to do. The loss of 35 thousand million pounds means nothing to HSBC when it can use a large proportion of Britain’s money plus those of other countries’ citizens as it pleases and charge whatever interest rates it wishes.

The Hong Kong and Shanghai Banking Corporation originates where its name suggests. In 1991 it registered HSBC Holdings in London as a UK company to enable it to take over the UK’s Midland Bank. I have mentioned before that the Hansard record (proceedings of the British parliament) for 22 June 1993 at Column 199, 
shows that Douglas Hoyle MP accused the ruling Conservative Party of accepting a GBP 1 million donation by one Mr Li Ki-Shing. According to Mr Hoyle, Mr Ki-Shing was the Chinese government’s representative at the Hong Kong and Shanghai Banking Corporation. The record also mentions another mysterious donation of GBP 17.8 million to the Conservative Party at that time.

If this is true, HSBC obtained British government approval for its takeover of the Midland Bank by a corrupt bribe. I will return to this.

The buccanneering British banks

The British Bankers Association, the mouthpiece for 200 British and international banks, is fighting two critical constraints on the banking industry that are currently under review:
  • Much higher reserve asset ratios, i.e. the amount of cash available with which banks must back their loans;
  • Splitting “high street” banking from the international gambling activities of investment banking.
Higher reserve asset ratios are essential both to limit the amount of lending that the banks can undertake and to provide cash reserves in case of consumer withdrawals. To date the lending criteria of the Basel II agreement have applied but were ignored and circumvented by the banks.
“Banking is no longer a safe repository for savings or a support for small businesses. It is an international gambling racket, financing big-business takeovers that concentrate wealth, while extorting high interest from domestic small businesses and homeowners though coordinated oligopolistic … operations”
The most important financial constraint is to split ordinary financing activities for business and mortgages from investment banking. An example of investment banking can be found here with the potential purchase of HSBC shares by Goldman Sachs and JP Morgan possibly using US government funds. One does not know the origin of such funds or what secondary deals underlie such transactions that involve enormous sums of money.
The British Cooperative bank, which is mutually owned, is a good model of high street banking that was untouched by the banking crisis. The building society mutuals do not undertake investment banking, although many were caught up in the greedy frenzy of de-mutualization and bad loans that resulted in widespread collapses among them. The building societies also have problems and I will return to this too.

The banks want low reserve asset ratios because they are able to lend more and make more money, although at greater risk. They desperately want to keep high street banking amalgamated with investment banking because:
  • Consumer deposits are guaranteed by the government (taxpayers!), giving consumer confidence, freeing the banks from consumer scrutiny and providing a case for “too big to fail” bailouts.
  • Consumer deposits, i.e. the capital of the country, can be used for any purpose the bank desires, including risky international investment banking which caused the banking crash.
  • If investment banking must stand alone, not only is its available cash limited to shareholders’ capital, but any losses must be born directly by shareholders. There is no cash cushion provided by consumer funds and no case for a bailout with taxpayer funds.
  • The banks at present have accounts with the Bank of England, which lends them cheap money that they re-lend at higher rates (at present at extortionate rates in making up their recent losses). Investment banks have no case for having access to Bank of England funds.
For these reasons the banks want business as usual. This is in no way in the interests of consumers, taxpayers or the country. The banks must have investment banking split from domestic consumer banking and higher reserve asset ratios must be enforced.

The banker case for keeping business as usual is that they generate income for the country that is realized in taxes paid and jobs maintained. That is a false argument demonstrated by the instabilities of the recent past, neglect of small business lending and the bailouts that will be paid for over generations. Banking profits are not generally through support of British business but through interest rate manipulation and investment banking that creates paper profits from insider deals that are in the end paid for by consumers.

A favourite banker and government argument is that regulation must be internationally coordinated. This argument has the virtue of stopping all discussion of possible British government action, enabling international lobbying and bribery to be carried out indefinitely and enabling other countries to be blamed for weak regulation or any problems whatever.

The immediate remedy to the “international coordination of regulation” argument is to set up more UK mutual banks to operate as government guaranteed mutuals serving UK small businesses. The taxpayer-owned Royal Bank of Scotland and Lloyds Bank should become mutually-owned business development banks to operate exclusively in the UK.

The 
Financial Times quotes Robin Budenberg, Chief Executive of UK Financial Investments, which manages Britain’s nationalized banks, who gave evidence to a parliamentary committee last week. Mr Budenberg said that splitting up these banks would be “negative for value”. He means that the government could make good profits by selling them back to the international market. Mr Budenberg is certainly saying what the banking industry and some interest group within government want him to say.

What matters more than immediate profit is creating long-term value to the economy by financing British businesses rather than gambling with the nation’s capital in the currency and other markets and financing other countries’ projects.

Both the failed Northern Rock Building Society and the mortgage accounts of Bradford and Bingley Bank, itself a failed de-mutualized building society, also remain in government hands and should be returned to business as mutual banks. The sale of Bradford and Bingley’s banking network to Santander Bank is a disgrace that is in accord with the government and banking wish to do favours, gain payoffs, reinforce big business and concentrate wealth.

The bankers and British politicians have learned nothing from the banking crash. Indeed, there is no payoff to politicians nor bankers in supporting mutually-owned banks or small business. It is big money that gives the quick payoffs in political donations – loans as they are now called – future directorships, contacts and jobs.

Banking is no longer a safe repository for savings or a support for small businesses. It is an international gambling racket, financing big-business takeovers that concentrate wealth, while extorting high interest from domestic small businesses and homeowners though coordinated oligopolistic (i.e. a small group acting together) operations. Root and branch reform is essential.

Building societies

Building societies are in principle much safer than banks, particularly those with investment banking arms. Most failed British building societies simply made bad loans, that is, they loaned to people who were unlikely to be able to afford their mortgage repayments. Northern Rock was also borrowing on the short-term money market to lend for long-term mortgages. My granny would have known that this was a recipe for failure. These practices were market share and bonus-driven, with societies accepting borrowers’ inflated statements of earnings without any confirmation. Making such false statements of earnings is criminal and accepting them is negligence but no accountability has ever been called for despite losses of billions of pounds.

Nationwide Building Society

In general, the Nationwide, Britain’s biggest building society, is well run, although it is also part of the oligopoly that is paying savers next to nothing while extorting super-profits from home owners. During the banking crisis, Graham Beale, Chief Executive of Nationwide, spent GBP 1.4 billion of its members’ money in taking over two failed building societies with their losses, the Chelsea and Derbyshire Building Societies without asking his society’s members such as myself. At the same time he raised his pay from GBP 784,000 to 1.7 million. I complained to both my Member of Parliament, Richard Ottaway and Hector Sants, Chief Executive of the Financial Services Authority (FSA), which had to approve the takeover.

Mr Sants is an ex-investment banker who failed in his job to regulate the banks or at least to detect problems before the crash. He is still FSA chief executive. Mr Ottaway, a dull political hack, doesn’t understand these issues, doesn’t care to try and didn’t want to know about them. I had hoped that he would resign over discrepancies in his expenses but was disappointed in this.

The FSA approved Nationwide’s give-away proposals. My own proposal to the FSA was that Nationwide should take over management of these building societies with government backing while keeping them separate and getting them into order for independent operation again. Nationwide directors had no authority to use members’ funds to bail out the losses of other building societies.

The Remedy for building societies

The Nationwide board and management are using members’ funds as if they were their own in the same way as the banks use depositors funds and this is probably typical. At present the building societies’ board members are drawn from the same socio-economic elites as the banks’ boards.

The building societies need drastic reform to give their shareholder members the ability to appoint their own board members, approve executive salaries and vote on major issues. In particular, shareholder members need facilities for communication between themselves and the ability to hold meetings organized by themselves that are not controlled by the building society’s officers or board.

At present, building societies’ officers and boards have a monopoly on communications, permitting individual members to communicate only with the society rather than with each other as well. Building societies’ articles of association should specifically exclude the possibility of de-mutualization which recently produced rich directors, failed ex-building societies and contributed to a housing price bubble.

The remedy for the banks

  • High street and investment banking must be completely separated
  • Only high street banks should have access to Bank of England funds
  • Investment banks should in no way be backed by public funds. Their losses are their own.
  • Only consumer deposits in mutuals should be guaranteed by government.
  • Depositors must have control over the type of activity to which their funds are applied
  • Those banks and proportions of banks currently owned by taxpayers must be split off and mutualised
  • In no circumstances should currently taxpayer-owned bank shares be sold to the market
  • A mandatory code of practice should give bank customers specific rights as to services and standards. This should be backed by a complaints body that is more investigatory and competent than the present Financial Services Ombudsman
  • Salaries of high street bank executives and directors must be regulated
  • Allegations of HSBC’s takeover of the Midland Bank by bribery should be investigated. If true, facilities and accounts equivalent to those taken over should be split from HSBC and mutualised.
  • Economic crimes with custodial penalties must be defined in respect of negligence and bad practice, particularly relating to losses, with responsibility falling on directors and chief officers. It is extraordinary that there has been no accountability whatever for grossly negligent banking practices and regulatory failures.

Financing the British economy

“The only structures that can justify access to Bank of England funds and accepting British government-guaranteed deposits are mutually owned high-street banks and building societies that exclusively serve the British mortgage and small to medium sized enterprise markets.”
The private sector international banks have no interest in developing the British economy and indeed there is no reason why they should. Their declared interest is in making money for their executives and shareholders and they have every right to do this:
  • Using their own capital, without access to Bank of England funds
  • Doing whatever they wish with their profits while sustaining their own losses
  • Using funds from depositors who have been informed that they have no government guarantees against loss.
The banks as presently constituted are no longer operating in the interests of the British economy, just as “the market” no longer favours the British economy. New structures are needed. The only structures that can justify access to Bank of England funds and accepting British government-guaranteed deposits are mutually owned high-street banks and building societies that exclusively serve the British mortgage and small- to medium-sized enterprise markets.

It is impossible to envisage any justification for providing private sector banks that operate internationally with cheap money from the Bank of England, guaranteeing their deposits with public funds nor rescuing them from failure with public funds on the expectation that they can go back to business as usual.

The upheavals in the Arab world should be instructive to our politicians but above all to the British public in whose own hands their future lies. The same factors underlying the desire for reform in the Arab world are operating in Britain.

I believe that our present parliament is incapable of understanding these economic factors, accepting that action is needed and devising effective responses. On their record, our politicians are unable to divorce themselves of their prejudices and self-interest to act in the interests of their country. If so, there is trouble ahead.

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