How Long Will The Uk Economy Be Run For The Benefit Of Banks Like Rbs And The Co-Op?

[Sancho Panza]

Mindful Money 4/11/13

'One of the features of the UK economy and its response to the challenges of the credit crunch era has been the way that the economy has been tilted towards and become an ever increasing servant of the sector which caused the problems. The idea that the modern form of government is a bankocracy comes from this. If we look at the official response to the UK’s problems we have had large interest-rate cuts,taxpayer funded bailouts of much of our banking sector, the Special Liquidity Scheme, £375 billion of Quantitative Easing, the Funding for (Mortgage) Lending Scheme and now Help to Buy. The common denominator in all of these moves is that they help the banking sector.

Back on September 27th 2011 I argued for a change of course from a plan which had already done this.

In essence we let via the “too big to fail” strategy, problems for banks become problems for the nations which bailed them out. What those in favour of this strategy did not foresee at the time was that whole nations would be crippled by such a plan and that many others would be seriously affected.

Even back then I was arguing that economic policy was becoming ever more in thrall to the banking sector.

Indeed I would argue that with bail out after bail out the influence of the banking sector has grown and not weakened.

Some of the measures I have outlined above have been introduced since then and a further £175 billion has been spent on Quantitative Easing.

Furthermore I have argued over the time that I have been blogging that there will be no sustained recovery for the UK until we reform our banking sector which is very different to keep giving them another sugar hit. Indeed to the extent that such sugar hits allow that banks to carry on as before we are taking ourselves further away from reform. After all the latest scandal around rigging of foreign exchange markets has an extremely familiar ring to it does it not? There seems to be an inexhaustible supply of such events that belies the cries of official bodies that they have improved things. Each new scandal leaves another set of well-remunerated officials,experts and Quangocrats looking as out of touch as the last. On the 26th of September I wrote a piece entitled “Is Regulation doomed to fail continually?” to which my answer is yes. Indeed there is an irony in it being a an example of miss-selling itself is there not?

Yet only last month we were told this by the Governor of the Bank of England Mark Carney as he described the new Sterling Monetary Framework.

Five simple words describe our approach: we are open for business

As it only deals with banks we get a clear hint of future policy from an organisation which describes itself as the “bankers bank”. The crucial words in that speech were these.

longer…..cheaper…….any asset………banks

The Co-Operative Bank

You might think that this bank should have sailed through the credit crunch era but actually it the banking subsidiary of the Co-Operative movement was not actually a cooperative! Also it had directors who were exhibiting the same mad rush for extra business (and the consequent higher salaries and bonuses for themselves) to be seen elsewhere. Frankly the name was misleading. Also ever auditor and regulator involved in it should have sleeplessness about how far it got in this plan called Project Verde.

The Co-operative Group to acquire 632 branches from Lloyds Banking Group with an estimated 4.8m customers, thus creating an enlarged Co-operative Banking Group

If you set out to cover-up difficulties at a bank then the melee around a large merger is exactly the place to do it. Something very wrong took place there and the UK taxpayer appears to have escaped by the skin of their teeth. However today has been an example of what I feared back on June 17th.

Also those involved with the Co-Operative Bank will do well to recall that so far in the credit crunch we are invariably only told what is perceived to be good for us rather than the full truth. Thus it is extremely likely that more bad news will be along in due course.

Let me give you a bit of today’s attempted media spinning which is this.

The Group to be the largest single shareholder in the Bank following completion of the Plan, with 30% ownership

As previously it had 100% that is quite a decline to a minority stake as we see various investors (mostly hedge funds) take up the remaining 70%. I wonder how long the new “Values and Ethics ” will last? After all it was supposed to have these previously and has in fact collapsed! Along the way bondholders are being punished as are members of the overall Co-Operative group who have had to put money into the bank to end up with a lower shareholding. Workers will lose out too as job losses spread.

Still not everyone is a loser as the Chief-Executive at the time of the disastrous merger with the Britannia building society which ended up ruining the Co-Operative saw this happen at New Year.

Peter Marks was appointed Commander of the Order of the British Empire (CBE) in the 2013 New Year Honours for services to the retail trade

The removal of a Knighthood is now called a Sircumcision,what should the removal of a CBE be called?

Royal Bank of Scotland

This has continued on a troubled path since its effective nationalisation back on October 13th 2008. I say effective because UK governments of all hues have set their face against taking their shareholding from 81% to a more logical 100%. UK taxpayers have taken a pounding so far as they paid 500 pence per share compared to the current 334.5 pence on the same basis.

Along the way we have been continually told about improvements and that things are getting better the mantra of which received a rude awakening on Friday. However the mantra had a good go at presenting various types of profit before finally admitting this about the third quarter of 2013.

the Group reported a loss attributable to ordinary and B shareholders of £828 million

Also we were given broad hints that the rest of the year will not look too bright either.

Faster run-down of high risk assets is expected to entail accelerated and increased impairments in Q4 2013 of £4.0 billion to £4.5 billion

Also I am fascinated by this development.

The measures will include the creation of an internal “bad bank” to manage the run-down of high risk assets projected to be £38 billion by the end of 2013.

Exactly what does this achieve as RBS had them and it still has them? Also apparently things were going so well…..

RBS maintained its strong track record of running off legacy assets, with Non-Core’s funded balance sheet down £8 billion to £37 billion, hitting its year-end target three months ahead of schedule.

As to helping the UK economy I think that even the Sir Andrew Large review was unable to prevent some icebergs emerging from the fog.

A perception has risen among some SMEs that RBS is unwilling to lend. A recent customer survey showed that 30% of SMEs disagreed with the statement that RBS was “open for lending”

I wonder how many small businesses got that impression?

This whole section is we need to recall after five years of not only explict help for RBS but also the whole UK economy being tilted in a manner to help our banking sector. Putting it another way remember that Funding for Lending was for extra lending? Well how about cutting your lending by £6.77 billion but still getting £750 million of cheap funding like RBS!

Scandal alert

These have proliferated at Royal Bank of Scotland from payment protection misselling to interest rate swap misselling to credit default swap misselling. It gives some variety but no relief to find out that it has been involved in market rigging too with the latest incidence of this seeing the foreign exchange market added to the interest-rate one.

Comment

The UK finds itself still struggling under the burden of the too big to fail strategy employed by its political class at the commencement of the credit crunch. The whole economy has been twisted towards the banking sector with the latest installment of that being the way that the Bank of England and the government are supporting the housing market. House price rises are good for mortgage books too especially troubled ones. Yet I have shown examples today of a bank which has to all intents and purposes collapsed (the Co-Op) and another (RBS) which remains very troubled. We would do well to remind ourselves that this has happened in an environment which is extraordinarily favourable for banks. We are left wondering how many more banking icebergs are out there for our economy to hit?

Meanwhile what about the rest of our economy? If we put only ten per cent of what we have deployed for our banks there what might we achieve?

It turns out that “rebalancing” meant moving further towards our banking sector.

Number-crunching

I spotted this over the weekend concerning Spain.

a budget which assumes that 30% of the country’s spending next year will go to debt interest payments,

It was reported in various places without apparently checking that it would require bond yields in Spain well into double-figures when the ten-year is in fact 4%.'

A flurry of points with a good few that land.

Edited November 4, 2013 by Sancho Panza

[kzb]

It's not so much the economy being run for the benefit of the banks, as the fact that they ARE the economy. That's what the economy is.

The idea that we make stuff or design stuff and export it for a profit is long gone I fear. The economy consists of banks charging interest on loans conjured up out of nowhere, which are then secured against property values. Without this, we are Bulgaria.

Hence it is essential that the property bubble is kept pumped by all means possible.

[swissy_fit]

Until politics is publicly funded, nothing can change, it's fundamental.

Not that it would fix everything if it happened, lots of other things would be required, but the current situation of the City paying for the main parties prevents any progress whatsoever, no leader can take any action that banks won't like.

[TheCountOfNowhere]

How long HAS the Uk Economy Be Run For The Benefit Of Banks ?

[richc]

Until politics is publicly funded, nothing can change, it's fundamental.

Not that it would fix everything if it happened, lots of other things would be required, but the current situation of the City paying for the main parties prevents any progress whatsoever, no leader can take any action that banks won't like.

I don't think public funding would change anything. You'd still have charlatans promising the moon to the electorate in order to get elected, as they plan their post-politics career as a "consultant" to the banking industry. Tony Blair would have been delighted by public funding of political parties.

[onlyme2]

How long HAS the Uk Economy Be Run For The Benefit Of Banks ?

Since the 1500's.... ?

http://www.mirror.co.uk/news/uk-news/kick-bankers-man-remembrancer-out-1874811

The Remembrancer out of Parliament

8 May 2013 00:00

When Parliament is sitting The Remembrancer has a special seat to the right of the Speaker in the House of Commons

Privileged: City Remembrancer with Gordon Brown in 2008 Privileged: City Remembrancer with Gordon Brown in 2008

PA

As Elizabeth II takes to the throne in the House of Lords for the Queen’s Speech today, a ­little-known figure will be taking his special seat close by – all the better to scrutinise every new piece of legislation for how it benefits or damages the banks.

He’s the only non-MP or civil servant with a seat in the House of Lords and House of Commons.

His job dates back to Henry VIII.

Check out all the latest News, Sport & Celeb gossip at Mirror.co.uk http://www.mirror.co.uk/news/uk-news/kick-bankers-man-remembrancer-out-1874811#ixzz2jg9AOdAk

Follow us: @DailyMirror on Twitter | DailyMirror on Facebook

[Guest unfunded_liability]

How long HAS the Uk Economy Be Run For The Benefit Of Banks ?

since 1694.

[scrappycocco]

The drug is property and the banks are selling. They get people on it then those people get their kids addicted etc. It will never end.

[fluffy666]

I don't think public funding would change anything. You'd still have charlatans promising the moon to the electorate in order to get elected, as they plan their post-politics career as a "consultant" to the banking industry. Tony Blair would have been delighted by public funding of political parties.

You need some form of public funding to stop parties being beholden to a small number of rich benefactors.

You ALSO need a 'politician retirement scheme' that basically gives ex-MPs a decent lifelong pension but bans them and their immediate family from further paid work. Drastic, but cheaper than the current system. May need something similar for the upper reaches of the civil service as well.

Now, if we really wanted to make progress, we'd create a set of parties based on political -compass style tests, randomly select candidates from constituencies based on these tests and get them to stand. On the basis that on no account should anyone who wants to be an MP be allowed to become an MP.

[zugzwang]

The drug is property and the banks are selling. They get people on it then those people get their kids addicted etc. It will never end.

No, it has to end. Osborne's bubble is no more sustainable than Brown's. The economy has to deleverage. Either asset prices come down or current prices massively inflate. The latter strategy appears to be the one that's been adopted.

[Mr Jib Fingers]

You need some form of public funding to stop parties being beholden to a small number of rich benefactors.

Nonsense. You could just limit donations to £100 per voter per year and ban anything else.

I'm surprised at you fluffy for opting for the centralised taxpayer-funded option.

[Olebrum]

Considering the grand effort made by both Neo Labour and the Thatcher Lites to enable the banks to buy up everything, I'd say

the economy will carry on in the same way for the foreseeable future.

[swissy_fit]

Nonsense. You could just limit donations to £100 per voter per year and ban anything else.

I'm surprised at you fluffy for opting for the centralised taxpayer-funded option.

How would you prevent wealthy benefactors giving 100 quid each to every Tory/Labour/Liberal party member?

Taxpayer funding is the only way, it may seem distasteful but if we don't pay for the politicians ourselves, someone else will and it won't be to our benefit.

[SuperChimp]

It's not so much the economy being run for the benefit of the banks, as the fact that they ARE the economy. That's what the economy is.

The idea that we make stuff or design stuff and export it for a profit is long gone I fear. The economy consists of banks charging interest on loans conjured up out of nowhere, which are then secured against property values. Without this, we are Bulgaria.

Hence it is essential that the property bubble is kept pumped by all means possible.

+1

[swissy_fit]

I don't think public funding would change anything. You'd still have charlatans promising the moon to the electorate in order to get elected, as they plan their post-politics career as a "consultant" to the banking industry. Tony Blair would have been delighted by public funding of political parties.

I carefully said it wasn't the only change required and I take your point about the Blair filth. However, it is the change that is essential to permit any other changes or reform. Without this, nothing will change.

[Mr Jib Fingers]

How would you prevent wealthy benefactors giving 100 quid each to every Tory/Labour/Liberal party member?

Seems like quite an unlikely scenario. How would the benefactor indicate that the money is to be sent on to the party? How would they get hold of their bank details? I imagine most party members would simply keep the money for themselves anyway.

Tax payer funded parties is just an excuse for the current established parties to get more money for themselves as none of their members wants to fund them anymore (which is another reason your above scenario wouldn't work). No doubt any new parties would be excluded by being branded extremists and other such nonsense.

[alexw]

I don't think public funding would change anything. You'd still have charlatans promising the moon to the electorate in order to get elected, as they plan their post-politics career as a "consultant" to the banking industry. Tony Blair would have been delighted by public funding of political parties.

Public funding would help a bit in that it would somewhat reduce the perverse incentives.

But you are right about the post-mp payoff. Any MP that strongly stands in the interest of Joe Public and against the interests of the corporate world, is not going to get that consultant or speaking tour position they are all angling for.

There would need to be other measures to close that revolving door.

[alexw]

Seems like quite an unlikely scenario. How would the benefactor indicate that the money is to be sent on to the party? How would they get hold of their bank details? I imagine most party members would simply keep the money for themselves anyway.

Tax payer funded parties is just an excuse for the current established parties to get more money for themselves as none of their members wants to fund them anymore (which is another reason your above scenario wouldn't work). No doubt any new parties would be excluded by being branded extremists and other such nonsense.

The current parties would almost certainly want things to be that way but it does not mean it has to be.

Myself I would like to see some public funding matching type system.

So we would go and limit political donations to a maximum of £50 per donator per year. This would allow everybody to be a political funder, since nigh on everybody can afford £50 out of their yearly income. As this would create a massive hole in political financing that would then be matched with 5x given to the candidate from out of the public purse.

The political parties could therefore only exist through mass popular backing.

[gf3]

I don't think banks are our biggest problem thou. It is the continual stream of money going to the rich with not enough trickling down. To pay off the debts of the poor.

We need the hoarded money to come back into the economy however the rich aren't spending it fast enough. So the only way to pay off the existing debts is for some one to take out more debt. Bail in is the only way I can see this sorting this out.

[Mr Jib Fingers]

You almost have public funding of political parties already through "short money" which is given to opposition parties.

http://en.wikipedia.org/wiki/Short_Money

I guess the idea is that the party in government can get cash through rich donors, so short money is to keep the others ticking over until it is their turn at the trough.

[kzb]

The pretence that changing political parties changes anything is all part of the con. Paying for elections from "the public purse" (ie borrowed from banks FFS) will make the pantomime more obvious, I suppose. But the willingness of the public to be conned is impossible to exaggerate, so I'm not for it.

The government is the populance-management wing of the banks. The functions of the government are:

(1) management of populations on behalf of the international capitalist elite,

(2) deflecting public anger , or "taking the blame".

[BalancedBear]

How would you prevent wealthy benefactors giving 100 quid each to every Tory/Labour/Liberal party member?

Taxpayer funding is the only way, it may seem distasteful but if we don't pay for the politicians ourselves, someone else will and it won't be to our benefit.

Even if we do pay for them, it still won't be for our benefit. Just look at taxpayer funded expenses.

[BalancedBear]

You need some form of public funding to stop parties being beholden to a small number of rich benefactors.

You ALSO need a 'politician retirement scheme' that basically gives ex-MPs a decent lifelong pension but bans them and their immediate family from further paid work. Drastic, but cheaper than the current system. May need something similar for the upper reaches of the civil service as well.

Now, if we really wanted to make progress, we'd create a set of parties based on political -compass style tests, randomly select candidates from constituencies based on these tests and get them to stand. On the basis that on no account should anyone who wants to be an MP be allowed to become an MP.

None of this will work, either as you would only have people who want to have an easy life being MPs. Most MPs have little influence anyway, so the perceived bias as not as big an issues as it may be. The people we may want to have as an MP, a local small business person for example would not want to be banned from working afterwards, so would never accept being an MP. Whilst there may be issues with things as they are, only encouraging mediocre people into politics would be even worse than now I would think.

[The Knimbies who say No]

Parties already scoop public funding in an opaque manner by renting constituency office space from sympathetic landlords charging way over market rate rents(paid from the MP's office alliwances/expenses), who then donate to party coffers. The frequency of this sort of arrangement will be exposed ib the next few weeks apparently.

Edited November 6, 2013 by The B.L.T.

[gf3]

One of the things that is getting me at the moment is the political attack on pay day loan company's.

It is cheaper to take out a pay day loan than it is to go over you overdraft limit at the bank.

Banks don't like it because it is taking away their most profitable customers. But no politician seems to be saying that or criticising the banks.