Free public transport instead of bailouts for the banks

Rather than bailing out the banks with trillions of dollars of public money, which governments in Europe and North America have been doing, ecosocialists in Britain are calling for "environmentally friendly job creation" and "a massively expanded public transport system that is fully integrated, publicly owned and free".

£40bn more to be added to banking bail-out ‘fiddle’

from Socialist Resistance
3 November 2009

Today, it has been announced that another £40 billion is to go into the Lloyds/HBOS & RBS Bank bail-outs. Alastair Darling says it represents a “better deal for the taxpayer”. But “better deal for the taxpayer” than what?

The reality in fact is that best deal for the tax payer would be the complete nationalisation of all these banks without compensation, this since without the state’s intervention they’d all already be bankrupt and likely have dragged down the entire UK banking system with them. This would have made most shares and not only those of the Banks completely worthless.

Given the Government stepped in precisely to avoid the latter, and indeed to avoid the possible collapse of the entire Capitalist system as a whole, surely the very least a due diligent, astute and businessman-like ‘taxpayer’ should have expected is for ‘the state’ to have picked up these bankrupt businesses lock stock and barrel for absolutely nothing - especially given the unknown liabilities being taken on. That’s usually what happens in the real ‘free market’ world, and in some cases with criminal/civil proceedings being taken out against those responsible for the bankruptcy.

However, instead of taking over these banks entirely as it did with Northern Rock, the Government decided instead to allow these banks’ shareholders to keep their shares, giving them a financial value they wouldn’t otherwise possess. In so doing the Government effectively unnecessarily transferred many £billions of ‘taxpayers’ money directly to the value of the share portfolios of those banks’ current and former investors.

Furthermore, if the Government’s plans work out and the share-value of these banks rise and the banks themselves can be re-floated (i.e. re-privatised) the biggest beneficiary won’t be so much the taxpayer who has effectively taken on all of these banks’ entire liabilities and the ‘risks’ associated with them (and will likely continue to do so), but their existing private shareholders i.e the very same people who had they invested in other sectors of the economy would have lost their shirts and have nothing to show for their investment whatsoever!

The part nationalisation of Lloyds/HBOS/RBS is one humongous fiddle that needs exposing. It’s not the nationalisation part that’s wrong but that the state has decided to reward the shareholders of these otherwise bankrupt banks with anything (i.e. a part share in a nationalised bank) and is currently directing huge resources to their re-privatisation.

Also, if state intervention including nationalisation is right for the banks (and/or under certain circumstances) why not other sectors of the economy in other circumstances? And if such huge sums of money can be found almost at a drop of a hat to ’sort out the banks’ (the £40 billion injection today just further shores up existing investors, will not create any new jobs, but rather is to be accompanied with staff cuts) why not much smaller amounts for environmentally ‘friendly’, job creation and economically more reflationary measures such as a massively expanded public transport system that is fully integrated, publicly owned and free to everyone at the point of use, such as is being advocated by the Campaign for Free Public Transport?

Along with the complete nationalisation of Lloyds/HBOS/RBS without compensation, free and better public transport and many other similar ideas would be much ‘better value’ to the taxpayer, whatever they cost, than the £40bn being used to re-capitalise these otherwise ‘bankrupt’ banks today, and the ultimate purpose of which as already indicated, is to nothing other than to assist in their future re-privatisation.

We really should be making the bankers and bank shareholders pay for the financial shit we’re in rather than rewarding them! Plus if we can find the money to bail-out and re-capitalise the banks, which we wouldn’t actually need if we owned them outright, then that should be being used to defend existing jobs and to create new ones and/or avoiding us ordinary folk having to pay for it.

US protest against the banksters

by Mary Bottari
from PR Watch.org
26 October 2009

With the newspapers full of talk about “zombie” banks and parasitic “vampire squid” financial institutions, it was particularly fitting that the “Showdown in Chicago” started with a ghoulish group of zombies rocking out to Michael Jackson's “Thriller.” Chicago's own South Shore Drill Team opened the three days of banks protests with a bang and had the crowd of thousands of activists dancing in no time.

The Showdown promises to be the first major American protest against the banks since the financial meltdown in September 2008. Thousands are expected to join three days of educational activities and the large march on Tuesday to the American Bankers Association (ABA) convention at the downtown Sheraton hotel.

The Reverend Eugene Barnes of the Central Illinois Organizing Project opened the evening’s festivities, stating:

“Welcome to the Showdown in Chicago, we have come together to reclaim America and hold Wall Street accountable. Imagine a story as terrible as this, the same financial institutions that created the crisis, sent the economy into a tailspin, handed out bonuses on top of bonuses, and needed hundreds of billions of dollars of taxpayers money, are back in business as usual. They are spending millions on Capitol Hill trying to defeat legislation that would help ordinary people and strengthen our economy. Each of us has traveled here to Chicago today because we will not stand what is being done to our families and communities. If we needed confirmation that we are all in this together, the financial crisis caused by Wall Street is living proof. Everyone has been impacted by the greed of the big banks. Bank-owned properties are littering our communities, rising unemployment, sky-high credit card interest rates, payday loans at 1,000% interest, and not to mention billions of dollars in lost pensions. It is a sad fact when you are 65 years old and you realize you have to go back to work. We have come here in Chicago because we are sick and tired of being sick and tired, but we are also here because we have hope because we know America can do better. It is time to put people first.”

Here is a smattering of the speakers who followed:

* Tom Balanoff, the President of Service Employees International Union (SEIU) Illinois, noted that not a single person in this room caused the economic crisis. He reminded the crowd that it was appropriate that they were are starting this movement for reform of the financial system in the same city where the push for an eight-hour workday began and spread around the globe, referring to the 1886 Haymarket massacre.

* U.S. Senator Dick Durbin of Illinois demonstrated that he was in touch by showing up and telling harrowing tales of hard-working constituents who had been scammed by adjustable rate mortgage firms. Even though the Senate failed to pass legislation that would have allowed judges the discretion to modify mortgages to help keep people in their homes, Senator Durbin said he had not giving up the fight. He also hinted that he working on some new approaches, including an idea that would allow families whose homes have been foreclosed on to rent their own homes from the banks, keeping them off the streets and keeping the homes occupied and cared for. He noted, “We are working on this idea, and it would be helpful if one bank would step up to the idea.”

* And, the audience heard from regular folks as well: people caught in the payday loan trap, like Mitzi Rivers-Singleton of Witchita, Kansas, who finally worked her way our of crippling debt with the help of a credit union and a local community group. She said, “I stand with you toe to toe up against big banks. I want to let the know that enough is enough, so I tell my friends and family you don't go there. You have other options.”

But this was the warm up act. After the welcoming comments, the activists took to the streets. Carrying signs featuring Dorothea Lange’s famous photo of a Depression Era mom with her two children. The activists marched through the streets to the Sheraton where the ABA was meeting, chanting: “ABA, you’re the worst! It’s time to put people first!” And, “Bailout? No, thanks! Bust up big banks!” And, “Enough is enough!” Huge posters portraying Jamie Dimon of JPMorgan and Citigroup’s Vikram Pandit were part of the crowd.

The rambunctious, but peaceful, crowd gathered outside the hotel, quickly attracting a large police presence. At least seven luxurious limousines pulled up in front of the Sheraton, but their parties seemed reluctant to appear and face the crowd. Soon a large group of well-dressed people exited the Sheraton chanting. At first, this reporter was confused. Could this be the bankers rushing their own limos? But when I recognized Hugh Espey of Iowa Citizens for Community Improvement, it became clear that these were protestors, too. They were chanting: “We’ll be back!” Later, “We laid low in the building all day until we simultaneously converged on the lobby and burst into changes. It was all very quiet and then all of a sudden it was very loud,” Espey said with a grin on his face.

Aretha Franklin was a theme of the evening as a singer performed “Think” at the Showdown conference, and one activist sang “Shame, shame, shame on you,” to the tune of her song “Chain of Fools” in front of the Sheraton. Oddly enough, none of the Banksters seemed to share the sentiment.

The protestors attempted to deliver a letter to ABA President Edward Yingling listing their concerns and demands, but no representative of the ABA would come out to accept the letter, guaranteeing that the protestors would try again later.

See also moves in Britain to break up big banks, go to Government to break up the banks.

Follow my lead: ditch that tax-dodging bank

by Finlay MacDonald
from Sunday Star Times
18 October 2009

IT'S EARLY for New Year's resolutions, I know, but here's a suggestion in advance: fire your Australian-owned bank. If you need a reason, look no further than the recent billion-dollar judgement against Westpac for tax avoidance. That came on the back of a similar judgement against the BNZ for half a billion. Tell your Aussie bank you're mad as hell and you're not going to take this any more!

Continue

Why Do Bankers Make So Much Money?

Below are some instructive comments from Rick Bookstaber, formerly a senior risk manager and derivatives creator for big banks in America.

Speaking from the point of view of a somewhat cynical insider who retains his essential faith in "free markets", Bookstaber comments: "I think the invocations of talent for money producers in finance are akin to those that, in times past, were set aside for the mystical powers of saints and witches."

Why Do Bankers Make So Much Money?

by Rick Bookstaber
23 October 2009

A tenet of economics is that in competitive markets there are no economic rents. That is, people get fairly paid for their efforts, their capital input, and for bearing risk. They are not paid any more than is necessary as an incentive for production. In trying to understand the reason for the huge pay scale within the finance industry, we can either try to justify the pay level as being a fair one in terms of the competitive market place, or ask in what ways the financial industry deviates from the competitive economic model in order to allow economic rents.

Do the banks operate in a competitive market?

No one expects competitive levels of compensation when there are deviations from a competitive market. In what ways might the banks – and here I mean the largest banks and those banks that morphed over the past year from being investment banks – fall away from the model of pure competition?

One way is through creating inefficiencies to keep competitive forces at bay. Banks can do this, for example, by constructing informational asymmetries between themselves and their clients. This gets into those pages of small print that you see in various investment and loan contracts. What we might call gotcha clauses and what the banks call revenue enhancers. And it also gets into the use of complex derivatives and other “innovative products” that are hard for the clients to understand, much less price.

Another way is to misprice risk and push it into other parts of the economy. The fair economic payoff increases with the amount of risk taken. If a bank takes on more risk it should get a higher expected payoff. If the bank can get paid as if it is taking on risk while actually pushing the risk onto someone else, then it will start to pull in economic rents. The use of innovative products comes up again in this context. They provide a vehicle for the banks to push risk to others at a less than fair price. Or, they can push the risk onto the taxpayers by hiding the risk and then invoking the too-big-to-fail protections when it comes to be realized. The current “heads I win, tails you lose” debate centers precisely on this point.

A third, and most obvious reason banks might not be economically competitive entities is the organization of the industry. There are barriers to entry. No one can just decide to set up a major bank. And there are constraint in the amount of business any one bank can do. As we have seen with Citigroup, there finally are diseconomies of scale – after a point the communication and management issues make the bank less efficient and more prone to crisis. If there is fixed supply, then the banks can push up the price of their services. The crisis over this past year has made matters worse. If you are one of those still standing, you are a beneficiary of that crisis, which has choked off the supply even further.

Are the workers getting paid fairly for their efforts?

An alternative to the idea that the industry is not competitive is that the industry really is competitive and those who are getting these outsized paychecks are being fairly compensated for their efforts. This comes back to the term we hear bandied about in conversations on banker compensation: talent.

There is no denying there are many smart people in the banking industry. (Though I think from a social welfare standpoint, we might have done better if some of those physicist and mathematicians that populate the ranks of the banks had found greener pastures in, say, the biological sciences). But I don’t buy the notion that there are so many who have the level of talent that justifies tens and even hundreds of million in compensation. I think this level of compensation, and the notion of talent behind it, is the result of the inherent uncertainty in the financial enterprise, one that makes it very difficult to assess talent. Indeed, I think the invocations of talent for money producers in finance are akin to those that, in times past, were set aside for the mystical powers of saints and witches.

Far more than other fields of endeavor, it is difficult in finance to tell if someone is good or lucky. A top trader or hedge fund manager might have a Sharpe Ratio of 1.0 or 2.0.But that Sharpe Ratio is nothing less that a statement that if you get a hundred people trading, a few will do well just by luck. (And it doesn’t matter if that Sharpe Ratio occurred over the period of one year or twenty – though the greater sample size helps, it is still the same point in terms of statistical inference, so a long track record does not get you away from this problem).

How does this tie in with saints and witches? People want certainty, and if they can’t get the certainty they want from the empirical, they fall back on superstition and witchcraft, or at least they used to way back when. In some medieval village, a priest prayed and a supplicant was healed. The odds that the supplicant would have healed spontaneously was whatever it was, but there was more of a sense of certainty to feel that it was the manifestation of healing power.

There were false saints and true saints. The difference between them became manifest over time by how frequently the prayers were answered with affirmative results. Not that any saint had to bat a thousand. Sometimes there were understandable, exogenous circumstances that inhibited the saint’s healing talents from being operative, most commonly a lack of righteousness on the part of the supplicant, occasionally an inevitability, a higher power that overshadowed that of the saint. Maybe the will of God, maybe an unknown, evil curse.

I hope the analogy is apparent. And there is a related one, an analogy to Pascal's Wager. The bank should wager that the talent of its star employee exists, because it has much to gain over time if it does, while if it does not exist, the bank will lose little in expected terms. And in a competitive world, it is even worse if they incorrectly let the talent go for lack of proper compensation, because then some competitor will pick it up.

BAD BANKS leaflet #3: 'Their Pollution Market Stinks!'

Bad Banks leaflet #3 is available now. It addresses the link between global banking power and the ecological crisis, specifically focusing on the finance class's prosposed "solution" to climate change, pollution markets (or as they're calling them, emission trading schemes).

This leaflet has contributions on the back page from David Parker (writer for http://www.wellsharp.wordpress.com/), Mike Treen (Unite Union National Director), Omar Hamed (Unite Union organiser & Rainforest Action co-ordinator), and Roger Fowler (editor of http://www.farefreenz.blogspot.com/).

Aussie tax dodging robber banks make bank robbers look like amateurs

by Murray Horton
from CAFCA

The Australian-owned banks have been congratulating themselves on what a good recession they’ve been having and how it was all down to their prudence in not getting involved in any exotic financial transactions. Quite right, there’s nothing exotic about good old fashioned tax dodging, even if it was done via deliberately complicated structured financial transactions. So that’s how they rode out the recession, by not paying nuisance costs such as taxes. Not an option for the rest of us mugs, though.

So far the courts have ruled that two of the Aussie banks (BNZ and Westpac) avoided taxes totaling more than $1.5 billion. The IRD’s cases pending against the ANZ and National Bank, if successful, could push that well over $2 billion. This is theft from the NZ taxpayer on a truly monumental scale, particularly at a time when the Government is cutting back public spending. This huge shortfall in tax could be used for health and education.

NZ taxpayers are the guarantors of the deposits of these banks. Yet we get no say in their running, let alone ownership. Massive tax dodging can be added to the list of recidivist corporate crimes committed by these robber banks who make bank robbers look like rank amateurs. How come we never hear from the Sensible Sentencing Trust about locking up these criminals and throwing away the keys? Where are the judges who sermonise about beneficiaries stealing from the taxpayer?

The taxpayer needs to be directly represented on the boards of each one of these Aussie banks that we’re underwriting with our money. And, if that doesn’t do the trick, nationalise them.

And why is the Government still using Westpac as its bank? As Bill English would say, “it’s not a good look”. Too right, Bill, and you’d know all about that. How about only using a bank that actually pays its taxes, just like everybody else has to?

Download Bad Banks leaflet #2

Click here Bad Banks leaflet # 2.