Sunday, January 9, 2011

End this annual bankers bonuses farce

Happy New Year 2011, Prime Minister (and sort out this mess, please)

The bankers' bashing farce in their annual bonus season is a downright farce. It is designed to divert the public attention from the truth that the financial system is bust and that nothing is done to solve this. Looks like a politicians and bankers cynical ploy.

Posted by ant @ 02:39 PM (1237 views)
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5 thoughts on “End this annual bankers bonuses farce

  • happy mondays says:

    “A long habit of not thinking a thing wrong gives it a superficial appearance of being right” – THOMAS PAINE

    Change will come..

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  • Wake up.

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  • The bankers’ bonuses ARE quite sickening, but it’s helpful to understand from where they come, so that we may put an end to them. They come from the public’s money. It’s a process known as rent-seeking. Land prices are the private capitalisation of publicly-generated land rents. In theory, if we were to capture all land rent to the public purse there’d be no land price.

    Since the 1970s, governments around the world have tended to wind back those taxes capturing land rents. Consequently, land prices have escalated at a greater rate than productivity. So don’t let people tell you land prices are simply a reflection of supply and demand as the population grows and land becomes more scarce. And, land prices shot up particularly in the residential bubble over the last ten to twelve years.

    So, what do banks do? Why, they lend against these bubble land prices! Anyone can work out the depreciated replacement cost of their house, but less is understood about the ephemera that is land price. It can disappear overnight. (It should and it would if we captured its rent for revenue instead of taxes on productive activity.) Therefore, as banks have been lending against these bubble-inflated land prices, mortgage repayments reflect an enormous bonus. They’re getting a phenomenal return not only on the interest payments but also in bubble-affected capital repayments! They’ve been swimming in private capture of publicly-created economic rent for years!

    BTW, to “debt as money” freaks who want government to issue money may be correct, but, if governments were to do so we’d still have recessions, we’d still have depressions, we’d still have the collapse of civilisations if credit continues to be provided against the security of a chimera – land prices. We got to put a lid on land price by collecting its rent through land value taxation. Then, as there’s far less land price to be capitalised, we’d have addressed bank rip-offs and put an end to the boom-bust cycle. We’d also encourage real economic growth by doing so.

    But I’m not holding my breath for it to happen. We’ve got to mindlessly repeat property bubbles, you see?

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  • So, David and George will allow the big buck bonuses in return for the banks promise to vastly increase mortgage lending.

    What’s not to like about this one. Everyone’s happy.

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  • @smugdog: you wish. The banks cannot start lending on a big scale as the money multiplier is too high (still threatening the liquidity). Any further lending still increases money multiplier and the only practical way to bring it down is inflation and/or massive write offs.

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