Sunday, 23 January 2011

Bankers, bonuses, bullshit, bluff and blackmail

A Guide for the Morally Perplexed

If you had a printing press set up to produce perfect legal copies of £50 notes, you would consider yourself lucky, wouldn't you? It would be almost as if you had a license to print money. No, that would literally be a license to print money. Before long, you'd be pretty rich and no doubt boasting to your mates down the pub about how clever and hard-working you must be to be making all this money. After all, money doesn't grow on trees; it takes a lot of effort to press the 'on' switch on your money-making machine and then harvest all those £50 notes every day. In fact, it's so time consuming that you're absolutely pooped, what with the effort of stuffing all that money into your trousers. Of course, this is just a little fantasy story or fable, isn't it? I mean, no one actually does have a license to print money like this, do they?

Let's change the rules very slightly. You have your money printer, just as before, but you can't just print all the money you want. You're limited by how much you already have. Let's say that this time you're only allowed to print up to 9 times the value of all your current assets. Still, that's not bad. You might not be able to join the super-rich, but at least you can very quickly become 10 times as rich as you are now, with almost no effort. But there's another catch: you're not allowed to spend the printed money yourself. Instead, you are required to lend it out. Actually, that's not as bad as it seems, because you can charge interest on these loans and assuming they don't go bad, you'll still get your money back in the end, plus the interest. So, after a while you will indeed be 10 times richer than before. Better still, as the loans get paid back, you can print more money; always 9 times whatever you get back in repaid loans. That's fantastic, because it means that there's no limit to how rich you can get. It's just a matter of time, and to be quite honest, it's a damn sight easier than producing consumer goods, growing coffee or doing anything that might tangibly benefit anyone in a real sense. Surely, no job or industry in the real world can be anything like what I've just described, can it?

Actually, I have just described the essential elements of the fractional reserve banking system which is the basis of the global financial system. In the real world, the multiple is not usually 9; it's generally higher, often as much as 100 or more. It's a lot more complicated than this in practice, of course, but the basic truth is that banks are licensed to create large sums of money out of literally nothing and the money they create is the ultimate source of most of their profits. The complications come from the various different forms in which money can be created, together with the enormous gambling and insurance industries set up by the banks alongside the money fabrication process. These latter activities serve both to magnify and obscure the process of conjuring money out of thin air.

If you doubt these claims, please take a credit card from your wallet and think about it for a while. Do you think that there is any 'real' money behind that card? No. When that card was issued by a bank, a credit facility was born out of nothing but the bank's reserves, which are only a small fraction of the value of the credit facilities they issue. You can, however, spend all the way up to your credit limit, as if the card represented real money. Indeed, once it is spent, it is real money and you have to pay it back to the bank. If you go to work and do a job producing real goods or services, you have to earn the money to pay back to the bank the money they simply conjured out of nothing. So, would you rather be a worker, or a banker?

Its ability to create money from nothing puts the banking 'industry' in a uniquely privileged position and makes it quite unlike any other endeavour. Bankers' profits come largely from their ability to print money rather than the actual goods and services they provide. In fact, bankers produce very little of real value. Their primary product is debt, which is loaded onto the rest of us. Bankers are also allowed to gamble on that debt and when those gambles go catastrophically wrong, they are not required to pay up: instead the rest of us have to step in to cover those gambling losses, just as we did in 2008.

So, should we be worried when bankers threaten to move out of the UK if we don't allow them to pay themselves massive bonuses? No. In fact, we should encourage them to go, if that's what they want. They do absolutely nothing which a nationalised bank couldn't do much better and with less risk. Banks are literally parasites upon the real economy, and we should be relieved if we manage to get rid of those parasites. The money they make comes out of the pockets of the rest of us.

This is why we should all find it utterly nauseating to see the seemingly endless parade of bankers on our TV screens at present, attempting to 

1) Justify their astronomical salaries and 

2) Blackmail our legislators into caving in to their demands for light regulation.

They hope to achieve these aims by convincing us that they make a vital contribution to our economy, when the truth is the exact opposite of this. A good case in point is Goldman Sachs, the 'world's most pre-eminent investment bank', which was fined $550 million by the US regulator, for fraud. It's hard to tell exactly how much this fraud netted for Goldman Sachs, but suffice to say the bank's profits are measured in billions, and its directors were left completely unpunished. If you or I were to commit fraud, we'd be going directly to jail, without passing 'Go' and certainly without being allowed to keep the majority of our ill-gotten gains. Not so, if you happen to be a banker. They must be laughing all the way to ... uh ... themselves. 

Yet bankers seem to know no shame, as last Thursday night on British TV (Channel 4's '10 O'clock Live' show), a Goldman Sachs employee told the audience that he deserved every penny of his astronomical remuneration. Goldman paid out over $39 billion to its employees last year, or $431,000 each on average, some of it deriving directly from fraud, but most of it simply due to the fact that banks are allowed to create money from nothing. Nice work, if you can get it, and Goldman is just a typical example.

So, should we be desperately grateful for the presence of these fraudsters in our midst, pushing up the cost of housing, school fees and Ferraris, with salaries based on money stolen from the rest of us, or in effect just counterfeited? I hope you have all the information you need in order to decide on your answer, next time a prominent banker threatens to move to Switzerland if we don't give him exactly what he wants, given that you are aware that even a trained an untrained monkey could make huge profits from banking.

Please let us stop referring to the banking sector as an 'industry'. It is not an industry, but a scam, very closely resembling a Ponzi scheme, which we keep falling for. If it is not radically reformed, then there will be another global financial crisis within 10 years.

Wednesday, 19 January 2011

They say 'cut back', we say 'fight back'

Last weekend, shoppers crowded the streets of austerity Britain in search of bargains in the January sales. Some prices were down, even though VAT was up, adding over 2% to the cost of most items. With inflation also running at over 3% but wages stagnant, it's now or never if you want a genuine bargain. On Friday I bagged one for myself: a new pair of shoes at half price. You see, I too am a consumer, not too socialist to wear shoes made by The Man – or more likely by some young girl in a sweatshop in some unspecified country. When I bought those shoes, I was in truth more concerned with their affordability than the ethics of their manufacture. Indeed, I was never confronted with any ethical decision, since the shoes did not announce where they were made or by whom; they were just a half price pair of shoes – a bargain. On Friday then, I was a good consumer.

On Saturday, I donned a different guise and became a subversive, an agitator, a protester, demonstrator, irritant, pain in the arse. That’s certainly how some shoppers and shop workers might have described me and the band of protesters known as UK Uncut, who mounted a series of demonstrations outside shops in Oxford Street that afternoon. We briefly closed down Vodafone, before moving on to BHS, Topshop and Boots. However, whilst some bargain hunters may have been slightly irked by our presence, many others stopped to listen to our message and voiced their agreement with it. That message was that corporate tax avoidance was largely responsible for the size of the budget deficit and that spending cuts plus the VAT increase are not a necessity but a political choice by this government, to favour big business and wealthy individuals whilst making the rest of us shoulder the burden of a crisis largely created by rich bankers.

UK Uncut Protesters outside BHS
As a mark of the egalitarian, democratic nature of our group, we took it in turns to speak through a megaphone, which was passed around among us, like some electrified conch. Sitting outside Vodafone, the first point to make was that Vodafone had been trying to avoid £6 billion worth of tax and that the Treasury had very generously let them off all but £1.25 billion of this. If you are self-employed and doing your tax return this month, I suggest you try striking a similar deal and see how far you get. We may all be ‘in it together’, but it seems that some of us are very much more in it than others. The amount of tax legally avoided or illegally evaded each year has been estimated at over £40 billion by the Treasury, although other sources suggest that the true figure is closer to £120 billion.

Much of that gap is due to corporate tax avoidance, using well-known loopholes which the government shows no interest in closing – instead they are reducing the number of tax inspectors. We informed the shoppers of Oxford Street that if corporations and the rich were made to pay all the taxes they owed, then there would be no so-called ‘structural deficit’ whatsoever, and no need for any spending cuts at all. The tuition fee rise, the VAT increase, rail fare increases, public sector job losses, library closures, welfare cuts: all these and more could be completely reversed at a single stroke. In addition to allowing corporations simply to avoid the taxes they owe, the government is also pushing ahead with a cut in the headline rate of corporation tax from 28% to 24% over the next 4 years, which will more than soften the blow of any bank levy they might impose. It also means that in effect, large corporations will be able to lower their tax bills to under 20% of their profits (Boots only paid 3% last year), which is less than the small business rate and the standard rate of income tax.

Does anyone still believe we're 'all in it together'? Just as most people are preparing to tighten their belts, bankers in the City are preparing to pop the champagne corks yet again, despite the fact that the banks are still receiving support from the taxpayer to the value of £512 billion, down from a peak of £1 trillion, in addition to about £115 billion in direct bail-outs. Bankers still think that they deserve to share a bonus pot of around £7 billion, which happens to be roughly the same amount which was cut from higher education spending, leading to the rise in student tuition fees. Given such figures, it is no wonder that our message was very well received by the great majority of passers by. The minor inconvenience we were causing to shoppers paled to nothing beside the inconvenience caused to us all by corporate venality in its various forms.

Our action was entirely peaceful, although there was just one moment when a scuffle threatened to break out. I was standing next to a fellow protester just outside Topshop when the police insisted that we move away from a doorway. My colleague wanted to discuss the legality of the matter, but the police were not in a chatty mood and decided to shove us back with considerable force. Had we reciprocated, we would have been arrested, of course, but we had no interest in provoking such a confrontation, which would only have detracted enormously from an otherwise successful and peaceful day of protest. The actions of those two police officers did remind us, though, that the police usually need very little provocation in order to escalate a situation from peaceful protest to violent confrontation. We had to exercise a degree of self-control not to take their bait, but always to steer a course just on the right side of the law, which in the last decade has become increasingly hostile to many of our democratic freedoms, including free expression and the right to protest.

Still, I do not want to characterise police officers as being all the same. I personally know some to be very decent people, and most of those we encountered were simply trying to do their jobs, cheerfully and dutifully, for which I thank them. Indeed, they are supposed to be public servants, and many of their jobs are under threat. We pointed out the irony that Sir Philip Green, the owner of Topshop and BHS, avoids paying income tax in the UK because he siphons his earnings through his Monaco-resident wife and therefore does not contribute his fair share to the wages of the police officers protecting his interests.

Sir Philip Green's tax avoidance assisted by his friends in government
In a further ironic twist, this fact has not dissuaded the government from employing Sir Philip (at taxpayers' expense) to advise it on making efficiency savings. Perhaps Sir Philip would be good enough to advise David Cameron that a great deal of money could be saved by closing tax loopholes which allow people like him and our Chancellor of the Exchequer to sequester most of their wealth and income in tax havens. Perhaps they think that taxes are just for ‘the little people’, like us? Well, the little people are serving notice that we are not going to take it lying down any more.

A friend of mine on the protest did manage to get herself banned from Topshop for 3 months, presumably for daring to challenge Sir Philip Green’s legal right, as a billionaire, to pay less tax than the rest of us. Happily, I can report that she is bearing up well under this terrible hardship, in the knowledge that she is now a martyr to our noble cause. One has to smile ruefully at the thought that the right to go shopping – and avoid paying your dues to society but only if you’re rich enough – now seems to be accorded greater respect than rights to such things as education, job opportunities, fair taxation and even free speech. We need to change that.