Nationalisation

I prefer keen's cheddar to montgomery's, so I think that burger could be improved...

The LIBOR rate setting fraud is not going away. But it is interesting to see that one of the planks of the defence is that there was no actual loss to anyone: indeed there are some who are saying that what is alleged could not actually be done. Naked Capitalism has commented on one such argument here:

http://www.nakedcapitalism.com/2012/07/lib...to-do-math.html

Now I can't count: but even I can see how you can affect an average by putting in a submission which is knocked out as too high or too low. This is not difficult to see, at all. Unless, apparently, you are an economist working within a theory which discourages lay people from getting to grips with the subject by presenting it in the form of hard sums.

www.bbc.co.uk/news/business-19232087

So Barclay's has a new chairman. He has said some things already: he does not think the bank should be broken up, though he does think ringfencing should happen a bit quicker. Ring fencing is where the activities of the speculative traders are conducted separately from the ordinary business of a bank. Just like was supposed to happen with the Libor rate. That worked well....

It is noticeable, too that he thinks that the misselling of interest swops and payment protection insurance, for which the banks are having to pay out millions in compensation because it was a scam, was due to free current account banking. This seems to be an idea whose time has come: they banks can't be expected not to cheat you out of your money if you don't agree to give it to them. And once again no mention of the choice of cash and avoiding banks altogether.

If, as this implies, the banks just can't be expected not to steal your money then it is a mystery to me how they are gong to respect "ring fencing". How can this man hold both of those ideas in his head at the same time?

[sings] Meet the new boss/same as the old boss [/sings]

I was just hearing on the radio that there are companies which directly link borrowers and lenders through the internet. The particular example discussed was a "peer-to-peer" structure called Zopa. The wiki article is labelled "this reads like an advert" so I won't bother to link.

If you lend in this way the risk is yours: but loans are spread across a variety of borrowers and are in quite small amounts. Risk is rated through a ratings agency and I don't particularly trust them: but it is no different from what banks do and there is a high rate of rejection of potential borrowers

This seems to be a first step if you want to cut out the banks. I am not ready to endorse such a move but bank spreads are a standing disgrace so I will keep an eye on it

This is not nationalisation and to me it is second best: but it is a way of voting with your feet to some extent.

For the last two years RBS has been in discussions with Santander, the Spanish bank, to sell 316 branches to them. This would entail transferring the customer accounts from RBS to Santander. Today it is announced the deal has been cancelled apparently because the two computer systems can't be integrated, though there may be other factors too.

What is interesting about this? Well, the sale is demanded by the EU because of its rules on state aid. When RBS was bailed out it became subject to those rules, and therefore there was a requirement to reduce its market share. This makes less than no sense, no matter where you stand on economics or politics

In the first place the customers are free to move their accounts if they want to: if they have not done so then it is reasonable to conclude that they do not want to, if you happen to accept that the customers can decide for themselves how to manage their money. It is perfectly possible that they are quite comfy keeping their accounts in a bank which is largely state owned. Course they could move them after the transfer: but why should they have to go to that bother?

In the second place a forced sale is unlikely to get the best price: and since public money has been invested that is not fair, to put it kindly. That is even more true now for RBS must now find another buyer and it must do so by 2013. I do not see how this can enhance fair competition, which is apparently the aim. n

Nor do I see why it is perfectly ok for a private company to have a market share which is held to be detrimental if the same share is held by a public body. In principle, if the public body does not give customers what they want they will move: and it is not as if the share is so big that moving the account would be difficult: we have a fair few banks and they all have branches close to each other if they are in towns. In villages that may not be true: but if there is one branch of RBs in Little Piddling in the Wold it is not going to change the situation of the customer if that one branch becomes a branch of some other bank.

RBS report that these branches are a profitable part of their business and there is, in another part of the forest, a plan to separate that core business of retail banking from the investment arm which caused all the problems. So why should a bank which is largely publicly owned get rid of the desirable and profitable part of its business to the private sector yet retain the mess that is the rest?

The government's avowed aim is to return RBS to the private sector as quickly as possible. That is not going well, but even if it was why do we want to do that? There is absolutely nothing I can see to show that is a good idea and there does not appear to be any argument presented: rather it is assumed.

I think we should tell the EU to get lost on this particular issue: I see no logical case at all for this demand

http://www.ferc.gov/EventCalendar/Files/20...-IN08-8-000.pdf

Barclays, again.

The US regulators have issued a notice of intent to take action against Barclays for allegedly manipulating electricity prices in order to make profit. This is quite similar to their LIBOR manipulation: and once again there are e-mails supporting the accusation.

What seems to have happened here is that traders deliberately made losses on trades in fixed price electriticy so that they would make profits on other transactions which were based on the fixed price index. Essentially they traded is sufficient quantity to change the index.

Once again it is complicated and I was quite surprised to find all these different arrangements. It may be that there are good reasons for them, though that is not immediately obvious. But even if that is true it is perfectly obvious that such complications leave a lot of scope for cheating: and although there are rules in place to prevent such cheating there is little enforcement: it is another case of "Scout's honour": and these traders do not have any.

Barclays is not a respectable company: it does not even try to be a respectable company. No doubt they will again try to say that this was rogue traders who did not comply with the bank's aim of acting legally and responsibly: and I am sure they have a lot of "policy" documents which emphasise compliance. Such policy documents are there to make sure, so far as possible, that the buck stops with the workforce and not with the company as an entity: and to give some credence to claims of ignorance and helplessness on the part of the executives such as Mr Diamond.

If you work you will know that the policy is irrelevant if the practice is otherwise: very often staff do not even read it: there is too much of it and what people mostly do is what the rest of the staff do: new entrants learn from existing staff and so long as what they do is the same they believe they are doing what they should. For those few who do read the policy and make waves when it is breached there are costs: they are troublemakers who are quickly out of a job. Staff are discouraged from thinking about the big picture: and they easily fall into doing whatever they are measured against. Performance indicators do not often include ethics: it is hard to measure that. They are judged against stuff that is easy to measure: such as profit. What is measured becomes the job, no matter what policy might say

This is institutional corruption, IMO. The figures are staggering and fines, however high, are not going to stop it. For fines are never going to be high enough to match the profits generated.

This is not an esoteric thing, as we are asked to believe. You may recall that in California, one of the richest places on the planet, they had problems generating enough electricity to meet their needs, only a few years ago. These people do not care if you cannot boil your kettle or heat your home: and the rest of us do not understand how their activities impact on that.

www.bbc.co.uk/news/business-20767984

UBS is the latest bank to be fined for manipulating the LIBOR rate. It has to pay a total of £940 million to three countries, the UK, US, and Switzerland. According to the report it is to seek a non-prosecution agreement for other activities. It has already paid fines for mis-selling mortgage debt in the US. On this occasion it is anticipated that the bank will make a loss in the last quarter of the year: though it will still make a profit on the year as a whole.

Apparently the fines in the UK have been mitigated by 20% because of the bank's "cooperation" and there is much talk of their commitment to "doing business with integrity"; and profit being less important than reputation. Yet they had 5 internal audits which failed to find the fraud, despite the fact it was openly discussed in internal chat rooms and group e-mails and it was documented in 2000 "requests" for inappropriate submissions. How hard can it be?

http://seekingalpha.com/article/991631-it-...-rule-the-world

Interesting article on the effect of bank interest. The author cite another, who claims that 35-40% of the cost of everything we buy goes to pay that interest. That is quite a startling claim, when you consider what those who receive that money (banks, financial institutions, etc) say about the dire effects of high taxation on our prosperity.

I have no way of judging whether the estimated percentage is realistic and no doubt our elite will say it is not. But it is persuasive when you consider that at every stage of production and distribution business is done on credit. Credit commands interest so everyone in the chain is paying that interest and it is passed on to the final price.

This author proposes nationalising the banks so that the interest paid comes back to the public purse directly and can be used for infrastucture spending; tax cuts; or price reductions. What we would do with that money depends on what we are trying to achieve: but what is absolutely certain is that a majority would not think the best use of it would be to make the wealthy richer, as is happening now

Once again we see big corporations usurping the role of government with no accountability and no care for the common good.

I said I would keep an eye on this. Today in the FT there was an article about this type of institution

www.ft.com/cms/s/0/b307b3ae-55b3-11...l#axzz2H79V7Qkc

For those who cannot read it it says that Zopa has been in existence for 7 years and has lent almost £260 million gross. Other similar lenders are also in existence and the market is at £380 million, apparently: which is still tiny, but does seem to be growing. Apparently the government has noticed the idea and has decided to include one of them, which primarily lends to business and has so far lent £70 million, in the scheme to enourage lending to small businesses: they are to get £20 million to lend on from the government funds earmarked for that purpose

There is still no guarantee for those who advance money in this way, but from April 2014 they are to be regulated by the Financial Conduct Authority. The comments on the article dispute the low risk claimed by the organisations and also point to unfair tax treatment vis a vis conventional lending: they also dispute the higher rate of return on investment which is claimed. I cannot evaluate those criticisms, but will continue to keep an eye out for news about this

I was astonished to find a report in the FT that Nigel Lawson, former tory chancellor and a leading light in the Thatcher government wedded to monetarism and privatisation and all that kind of thing, has called for the nationalisation of RBS. There is more rejoicing in heaven........

I hold no brief for this odious man, but credit where it is due: he has noticed some obvious facts and has stated them in terms




I don't agree with all he says: he is still wedded to inflation targeting as a driver for policy: but this is an indication that nationalisation is no longer a dirty word, even on the far right

http://www.government.nl/news/2013/02/01/s...-sns-reaal.html

This does not look like a proper nationalisation at all. So far as I understand it they have not let the bank go bankrupt, as Iceland did, and that is the reason for the cost to the taxpayer. The necessity of letting them fail first was discussed upthread, but the linked article makes it clear that was avoided. The usual vague assertions are all that are reported in the articles I could find, to account for that decision. They say
. As I read that it is just more "propping up the banks" rather than a recognition of the real situation. Either the other banks are solvent, in which case the failure of this one should not make a difference: or they are not, in which case we will see a re-run of this somewhere down the line.

According to the article the shareholders will lose their investment and so will subordinated creditors, but it is not spelled out what that actually means. As I read it it means that preferred creditors will get their money back, and I see no justification for that at all, bar the implication that they are not protected and might then want their money out of the other banks. I suspect that is the reasoning, and what is implied by a" threat to the dutch banking system": so what? Nationalise them all if they are insolvent, as Iceland did. Stability based on pretending that which is not the case (or "confidence", as they prefer to call it) is no stability at all.

It seems that ordinary depositors will be protected but I am not clear if the other banks will cover the full cost through the DGS, and if not that is pretty much indefensible in light of the EFTA court ruling extensively outlined in the Iceland thread. I have the impression that the other banks are to make a "contribution" through a one off levy, but it is not clear that is to cover the whole cost of protecting depositors and if not one wonders why not.

As noted shareholders will not be compensated and that is as it should be. However it is also clear that the government is not a "senior creditor" and that means they are a subordinated creditor who will also not be compensated. I am left wondering who the senior creditors are, and have not been able to find that information.

It seems to me that part of the problem here is a continuing commitment to the private sector as in some way preferable, despite all evidence to the contrary. I note that the only dutch bank which has not required state support is Rabobank, which is described in the press as a "cooperative" and I interpret that as being akin to a building society. That has to tell you something........

The idea that this is due to an ideological presumption that private is good: public is bad is based on some of the things stated by the Finance Minister, as reported in the press here. There is already a commitment to return ABN to the private sector and it seems that is also the plan here. Why on earth would they want to do that? Mr Dijsselbloem has also said that
, and it seems clear that he sees nationalisation as inherently a failure. I don't agree, though if you do it this way, it is. He is reported to have said that
Well that is already the situation if you let the bank go bankrupt so there is no need for further legislation: the use of the word "rescue" is telling in this context. Nationalisation =/= "rescue" This seems mere obfuscation for the purpose of ensuring those nameless senior creditors are not harmed.

The other issue is that it is reported that this will adversely affect the public sector deficit and that the money committed to this will mean that the Netherlands will not meet the EU rule on keeping the deficit below 3%. There are some warm words about ensuring it does not lead to more austerity and about getting an exemption from that rule so as to ensure the people do not suffer any more than they are already. Interesting: if the sky will not fall when we do not meet that target what is it there for? I also suspect that if they do get such an exemption it will have to be paid for by greater deficit reduction in future years: so the people will pay no matter what. This makes no sense to me at all. There is only spending if you pay the creditors and that only happens if you choose to. The banking and insurance arms are said to be profitable so that should represent income not expenditure: unless you decide to "rescue" without bankruptcy. Or so it seems to me

Edited by FionaK - 1/2/2013, 18:51

http://www.nytimes.com/2013/03/09/business...1&smid=tw-share

An article from the New York Times which sheds some light on the people who lost money at SNS.

The article takes just one example, a greek national who invested in a subordinated bond at SNS on the advice of HSBC in Athens. He is not a very rich person, though the fact that at the age of 39 he had $65,000 to invest shows he was not poor either. Still he is not a sophisticated investor according the the article. He relied on financial advice from what he thought was a reputable company (HSBC is far from that IMO, but perhaps folk do not follow the frauds of such companies: they just see a high street bank). A return of more than 6% is very high compared to what I find I can get on any savings. Many dutch and british people put money into the icelandic banks for high returns and it is arguable that folk should have learned from that: but this man was greek and perhaps not aware of that. It is natural to seek the best deal you can get; it is understandable that you might believe an expert can get a high return for you where you cannot find such a deal for yourself. Only they are not experts: they are gamblers and they do not care what happens to you so long as they get their fees and commissions. In any case it seems clear to me that the higher the return the greater the risk accepted. It is inherent in the theory of this system, and the fact that "too big to fail" has masked that is part of the problem. Don't get me wrong: I don't think that this conception of how it works is a good one or a desirable state of affairs: but it is what we have bought into in accepting the capitalist story and we can't have it both ways. Either risk taking is a good thing and we embrace that and sometimes lose: or it is not and we look for a different kind of system. What is not credible is the idea that he can get a "mouthwatering return" compared to other investments and anticipate no greater risk is attached than if he accepted those lower returns; did it not occur to him that everybody would take the higher rate if there was no downside? Probably not: but his adviser should have made that clear

The tone of the article is ambiguous: it presents this unfortunate man as a victim, and so he is to some extent: but he is not the victim of Mr Dijsselbloem: he is the victim of HSBC, and his own double think. Once again they gambled with his money on the assumption that the government of Holland would commit the population to bailing out every single investor in every single bank in their jurisdiction. As noted above the problems of SNS were in the public domain. HSBC hold themselves out as experts and could be expected to know that. The man is considering suing them and so he should: I hope he wins. But it is quite likely that they will once again cry "no-one could have known", and get away with that. Though since this is in Athens maybe not: capital flight offshore is part of the greek economic problem and maybe the authorities there will frown on such advice.

In the banking thread I commented on the report by the parliamentary commission on banking and in that report they discuss "bailing in" as a coming principle. This is what "bailing in" means in practice: bondholders can lose money as well as gain it. That is, quite astonishingly, described as a new idea, in that report. I am sure they are right and I am sure that it is long past time for such an idea. But the article linked here lays out some of the reasoning behind protecting senior creditors, and it ties in with some of the discussion in that report too: banks won't be able to raise funds if they do not provide guarantees, and therefore will not be able to lend to businesses. That is nonsense, so far as I can tell. That is not how they get funds to lend to business for the most part. But even if we accept that it is, for the sake of argument, it is obvious that if they get your money to lend to business then that is a gamble. So you might lose. What will this joe soap do with his money once he realises that? He is not going to keep it under the bed: he will put it into the bank, I contend. So they will still have the use of that money and they will pay a lower rate for it.

This argument is the same as the little old lady in a big house with little income: she was an important figure in this country being the whole basis for the abolition of domestic rates (which were progressive) in favour of council tax (which is regressive). That little old lady did not exist but her story was an powerful narrative which served to obscure what was happening. This greek sound engineer is the same: he does exist because he was a victim of his own greed and bankster fraud. But to use him as a proxy for a story of lack of funds for the bank is a lie. Institutional investors may well put their money elsewhere, but he won't. The problem of lack of lending to small businesses does not lie here