Posts Tagged ‘Credit’

G.D.H. Cole on the Need to Nationalise the Banks

March 22, 2016

I found this very interesting passage in Cole’s Great Britain in the Post-War World. Much of the book is dated, but I think this is possibly more relevant now, post 2008, than it has been previously.

In a properly organised economy, it will be for the central bank-the Bank of England-to follow a financial policy which will provide the monetary supplies needed in conjunction with ‘full employment’-of which more anon-and for the deposit banks to ensure the distribution of credits in proper relation to the requirements of the national plan of production.

With this end in view, it is plainly necessary to socialise the deposit banks, whose existing directors will be apt to be visited by a ‘loss of confidence’ when any progressive Government sets about a policy of social control and economic planning, or threatens in any way the dominance of monopoly capitalism. the deposit banks are largely directed by men closely connected with the big industrial interests, and, with some exceptions, ten to favour big business as against small. They are for the most part bigoted opponents of Socialism, and entirely convinced that capitalism is the best of all possible systems. They are therefore likely to look with special disfavour and lack of confidence on State-promoted industrial plans, and to do all they can to aid and comfort any industrialist who is endeavouring to stand out against a socialistic Government. But fortunately the war has already put them largely into the State’s power. There are very large holders of the public debt, and have become accustomed under war conditions to doing the State’s bidding in the supply of accommodation. They will doubtless strive to escape from this position of dependence on the return of peace; but no quick escape it like to be possible. The time for taking them over is now, while they are acting in effect as the State’s agents in pursuance of war-time economic plan.

The bankers and their allies try to scare the public into opposing socialisation chiefly by two arguments-that private person’s deposits will be less secure when the banks are publicly owned, and that the tax-gather will then be in a position to know all about the private man’s affairs. As for the safety, this argument is mere nonsense. Bank deposits cannot be made less secure by having the formal guarantee of the State behind them; indeed, the truth is quite the reverse. As for the tax gatherer, he knows a great deal already, and it is entirely in the interest of the vast majority of people that the few who now successfully evade taxation should be prevented from getting away with it. Finally, there is the fear among business men that it will not be so easy to get credit from a State Bank as from a private banker. This is doubtless true, where credit is wanted for speculation or for other anti-social purposes; but a State which is deliberately following a policy of ‘full employment’ will surely be eager to grant credits to anyone who is prepared to produce in accordance with the requirements of the public economic plan. If the State decides, as I have urged that it should, to leave private enterprise in being over a considerable part of the industrial field, a State Bank is most unlikely to stint the businesses which are left in private hands of the credit needed for carrying out their part of the production plan. Indeed, the small business is likely to find State credit a great deal easier to come by than it has found private bank credit in the recent past.

There remain the ‘financial houses’-discount and acceptance houses which discount or accept bills chiefly in connection with overseas trade, issuing houses which handle new issues of capital, again, until recently, mainly for overseas, and a few private banks which conduct certain highly specialised forms of financial business for big clients, including both foreign Governments and overseas banks and financial concerns. The deposit banks are already in direct competition with the financial houses over a considerable part of this range of business, and tend to compete more and more. Socialisation of the deposit banks will bring the State right into discount and acceptance, if such transactions are to survive at all. Issuing of new capital is a rather different matter; but there is no reason why a State banking system should not make its own provision for all the issuing that is likely to be required, either directly through the State Bank or Banks, or, as has been often suggested, through some sort of National Investment Board empowered both to underwrite and issue approved loans and investments, or itself to make public investments in concerns which call for development in accordance with the provision of the national economic plan.

It’s now seventy-four years after this was written, and it’s still highly relevant. The banks have opposed any kind of socialisation of the economy. They supported Broon and Bliar only when they promised to continue regulating them lightly. And the result was the financial mess that exploded in 2008. And like the banks in the War, which became heavily indebted to the state, the banks then had to be bailed out by the state, and in the case of the Royal Bank of Scotland, nationalised. And the investment banks are still geared mainly to providing credit for overseas, not for domestic industry.

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The Groaniad on how Sanctions Leave Claimants Hungry for Months

March 10, 2015

Last Tuesday, the Guardian published a piece, Food banks: benefit sanctions leave clients hungry for months , reporting the findings of a study into poverty in Cheshire, Cheshire Hunger, carried out by West Cheshire Foodbank, the Trussell Trust and the university of Chester. The report, by the paper’s Patrick Butler on his Cuts blog, begins

A new study finds that vulnerable people who fall foul of benefit rules can be plunged into reliance on food parcels for up to half a year

Benefit sanctions can plunge families into financial crisis, hunger, and dependency on food banks for up to half a year, far longer than the period for which they have had payments stopped, according to a new study.

The study, Cheshire Hunger looked in detail at the reasons why people had been given food bank vouchers and estimated the length of time they would be dependent on food aid.

It adds to a growing body of evidence directly linking welfare reforms with food bank use, and comes as a coalition of major churches call for an overhaul of the “inhumane” sanctions system.

Overall, it found problems with social security benefit payments accounted for nearly half (47%) of referrals. The bulk of these problems related to administrative delays, benefit sanctions and incapacity benefit stoppages.

The length of client crisis triggered by negative interactions with the benefits system typically ranged between seven and 28 days, but in extreme cases up to 26 weeks. Crisis is defined as the estimated period for which a food bank client would be reliant on food aid.

The piece gives the average number of weeks claimants could lose benefits due to a number of causes. They included administrative and other delays, sanctions, changes in benefit and stoppages of Employment Support Allowance. It notes that the largest cause of people needing emergency help for food, after benefit delays and sanctions was low incomes and debt. These resulted in many getting caught up in recurrent debt cycles because of the need to use expensive credit.

The report also notes that there are few, if any safeguards for vulnerable people. It also records that the number of people referred to foodbanks increased by 14% in the period May-November compared to the previous year.

The report adds further details corroborating the findings of the Trussell Trust relating the government’s benefit reforms to the rise in foodbank use. It also indicates that the period in which claimants went hungry went beyond the three days’ worth of food provided by the foodbanks.

The article’s at http://www.theguardian.com/society/patrick-butler-cuts-blog/2015/mar/02/food-banks-benefit-sanctions-leave-clients-hungry-for-months. Go and read it, if you haven’t already.

The article demonstrates the increasing length of time the victims of IDS’ benefits reforms are kept hungry. It’s also good that it’s attempting to provide further evidence to rebut the Coalition’s claims that there is no connection between foodbank use and their reforms. We have seen time and again this falsehood trotted out by government spokesman, including Edwina Currie. As for the lack of safeguards, this was explicitly denied by Esther McLie when she was asked about a case involving a person with serious mental health problems. This is further evidence against both these self-serving lies by the Tories to deny their responsibility for the growing hunger and deprivation in Britain.

Vox Political: Labour to Regulate Banking Sector and Create New Investment Bank

February 13, 2015

Open Hours Pic

Arkwright, Granville and Nurse Gladys Emmanuel from Open All Hours: The face of the British s-s-s-small businessman, who should benefit from a proper investment bank for their needs.

Mike over at Vox Political has today published this article, Labour’s bank reform plans, including bonus clawback and a British Investment Bank, announcing that Ed Balls and Labour’s Shadow Financial Secretary to the Treasury, Cathy Jamieson, will today announce the Labour Party’s plans to reform the banking industry. The new legislation will extend the amount of time in which the government can confiscate banker’s bonuses in the cases where they’ve broken the law. They also want to increase the levy on payday lenders to support alternative sources of credit and increase competition between banks. They also want to set up an investment bank, which will support investment in small and middle-sized businesses.

Mike’s article begins

Labour is today (Friday) publishing its plans to reform the banking sector so that it better supports growing businesses, economic growth and rising living standards.

Ed Balls MP, Labour’s Shadow Chancellor, and Cathy Jamieson, Labour’s Shadow Financial Secretary to the Treasury, will publish Labour’s banking reform paper after a visit to a business in Bedford.

The banking reform paper is part of Labour’s economic plan and sets out a series of measures the next Labour government will take, including:

· Extending clawback of bank bonuses that have already been paid in cases of inappropriate behaviour to at least 10 years and enacting legislation, passed by the last Labour government, to require banks to publish the number of employees earning more than £1 million.

· Creating a proper British Investment Bank to provide vital funding for small and medium-sized businesses. All funds raised from the planned increase in the licence fees for the mobile phone spectrum – estimated to be up to £1 billion in the next Parliament, subject to Ofcom consultation – will be allocated to the British Investment Bank.

· Introducing a one-off tax on bankers’ bonuses to help pay for Labour’s Compulsory Jobs Guarantee – a paid starter job for all young people out of work for 12 months or more, which people will have to take up or lose their benefits.

· Addressing the lack of competition in the sector. We welcome the Competition and Markets Authority inquiry which we called for and want to see at least two new challenger banks and a market share test to ensure the market stays competitive for the long term.

· Extending the levy on the profits of payday lenders to raise funding for alternative credit providers.

Mike quotes Ed Balls as recognising the importance of the banking industry to this country, but states that it needs to be better regulated in order to encourage and promote economic growth.

“Banks are essential to our economy, but we need them to work better for the businesses and working people who rely on them.

“We need much more action than this government has been prepared to take. So Labour’s banking reform paper sets out how we will change rules on bonuses, increase competition and get more lending to small and medium-sized businesses.”

He also quotes Cathy Jamieson on the importance of a proper source of investment for small and medium businesses:

“Bank lending to businesses has fallen year after year under this government. This just isn’t good enough. Without access to finance, SMEs cannot grow and create the high quality, well paid jobs we need to increase living standards. That’s why our plans will deliver more competition in our banking sector and a proper British Investment Bank too.”

The article’s at http://voxpoliticalonline.com/2015/02/13/labours-bank-reform-plans-including-bonus-clawback-and-a-british-investment-bank/. Go over there and read it. Mike wants to hear what his readers think.

The Importance of an Investment Bank

I have some problems with it, but I think in broad terms it is very much a step forward. It also marks a strong break with New Labour policies. Mike’s been arguing over on his blog that Ed Miliband is not the same as Tony Blair and Gordon Brown, whose time is long past. This provides further proof. Despite the rubbish that Cameron and the Tories have spewed about the banking collapse being due to over-regulation by Labour, the very opposite was true. New labour was strongly opposed to regulating the financial sector. Indeed, it played a major role in the City’s change of support from the Tory’s to Labour during Gordon Brown’s and Mo Mowlam’s ‘prawn cocktail offensive’ under Tony Blair. Brown repeatedly reassured the bankers that Labour would regulate them with a light touch. The massive collapse and gaping black holes in the banking industry that led to the recession was not created by too much regulation, but by Labour not watching what the bankers were doing closely enough.

The amount of money bankers have been allowed to pay themselves in bonuses while very efficiently wrecking the economy and ruining the livelihoods of everyone not a millionaire banker is nothing short of scandalous. Extending the amount of time available to confiscate bonuses in cases of illegal conduct is a good start, and should start to restore confidence in the industry.

British industry has also been in desperate need of a proper investment bank for a very, very long time. The authors of Socialist Enterprise and Neil Kinnock, before he dropped Socialism in favour of the free market, recognised that the City was not geared to providing inward investment, and certainly not to manufacturing industry. The major investment banks had been set up to channel investment to Britain’s colonies during the Empire. Even after that had gone the way of ancient Rome, Assyria and Egypt, the banks still preferred to invest overseas than domestically. British domestic investment lagged far behind our competitors in Japan and Germany.

The administrations of the last three decades, following Thatcher, have also been harshly indifferent, or even hostile, to the manufacturing sector. Quite apart from destroying British heavy industry in order to break the unions, Thatcher and her circle had strong links to the financial sector, and neither understood, nor were particularly interested in the needs of manufacturers. In one of their recent issues, Lobster carried a piece about a captain of industry, who did end up mixing with Thatcher and her cabinet. The particular industrialist was a staunch Tory, and so shared her views about crushing the unions and the importance of private enterprise and competition. He remarked, however, on how absolutely ignorant she and her chancellors were about basic economics. One of the obstacles for British exports was the strong pound. This particular businessman tried pointing out to Maggie that a strong pound discouraged countries from importing from Britain, as it made our goods expensive and therefore uncompetitive. Of course, Maggie didn’t want to hear about this, and pointed to Germany as a counter-example. Look at the Germans, she said. The Mark’s strong, and it hasn’t stopped people from buying German. To which the businessman tried telling her that the Mark was strong, because people were buying German goods. It was not a case of people buying German goods, because the Mark was strong. But this was too much for the Iron Lady and her sycophants and acolytes to grasp.

Britain’s manufacturing factor needs to be rebuilt. Unfortunately, Balls and Jamieson’s statement doesn’t recognise this, but the establishment of a proper investment bank will be a very good start.

As for increasing the levy on pay day lenders, I’d rather see them either shut down completely, or have their tariffs lowered even further, as well as promoting alternative forms of credit. Nevertheless, this is another good start.

I also have objections to using money levied on the bankers to set up the compulsory employment scheme. Johnny Void has already attacked the scheme earlier this week with a piece sharply criticising Rachel Reeves. I believe he’s right. The scheme does look like another version of workfare, just slightly better in its treatment of the people forced to take it. I believe the whole welfare-to-work industry needs to be scrapped totally.

Nevertheless, even with these caveats, I believe that Balls’ and Jamieson’s policies should be an excellent step forward. And a proper investment bank that provides support to the small and medium businessman should get the approval of aspiring Arkwrights up and down Britain. Even if it does come from the Socialists.

Radical Balladry: Folk Protest Songs against the Credit Trap

May 31, 2014

On Thursday I published a post about the way the Bulgarian peasants’ party, BANU, attempted to provide reasonable credit from banks lent to peasant credit cooperatives as a way of destroying the moneylenders that had plagued Bulgarian rural society, as a result of whom hundreds of villages had found themselves in serious debt. I suggested that we needed something similar to act against usurers, such as Wonga and the other payday loan companies. Thousands of people in Britain have now also found themselves heavily in debt because of the way they have been forced to rely on such companies, as well as criminal loan sharks, because of low wages and the repeated slashing of benefits by successive governments. People have also been caught in the credit trap through the absurdly easy terms on which it was available during the boom years. Advertisers must share their responsibility for this, has the television adverts for the services of Wonga and the various credit cards suggest that this is all free money, which the borrower doesn’t need to worry about paying back. It’s a seductive message, and all too many people have been taken in and deceived by it.

Jess has also commented on this post with her encyclopaedic knowledge of the long tradition of radical British folk music. She notes that there was an outcry at the way many people were finding themselves in debt through hire purchase when this was introduced in the 1950s. Then as now, Right-wing think tanks attempted to justify the creation of easily available credit, which could lead the poor and vulnerable into a never-ending cycle of debt. This indeed occurred, and was bitterly criticised in song by Graham Gouldman and Jeff Beck. Jess writes

“Britain too in the 21st century has seen the return of the loan shark and moneylender as thousands, perhaps millions, have got into serious debt. Some of this has been through the absurdly easy credit that was offered in the boom years, ”

The availability of ‘absurdly easy credit’ was one of the cornerstones of the neo-liberal agenda.

Way back in 1958 the IEA published their apologia for the money-lending industry ‘Hire Purchase in a Free Society’ [Harris, Naylor & Seldon]

A typical IEA publication of the period, it contains a few gems;

“Social Impact;
Criticism of hire purchase has not come only from moralists who condemn the practice on the grounds that it ensnares people into debts they cannot afford to repay’ morphs into, with an aside from Walter Greenwood’s condemnation of ‘tick’ in ‘Love on The Dole’ to the assertion that;

“Harry [the character condemned by supposedly old-fashioned notions of debt as a weekly ‘mill-stone around the debtors’ neck’ got his new suit…”

Just how deeply the tally-man was disliked, generally, is suggested in this song from Graham Gouldman, (recorded with great reluctance by Jeff Beck)

“To our house on a Friday
A man calls every week
We give him a pound
When he calls on his round

To our house on a Friday
A man calls every week
We give and we get
And we’re always in debt

With his plan he carries all we’re needing
With his plan most anything is ours
He’s the Tallyman, oh yeah
He’s the Tallyman

Shoes and socks, hard wearing for the children
Village frocks all in the latest style
From the Tallyman, oh yeah
From the Tallyman

To our house on a Friday
A man calls every week
We’ve made him a friend
So he’s here to the end

From cradle to grave
We expect him to say
Here’s tick to the end
So we’ve made him a friend
Here’s tick to the end
So we’ve made him a friend”

[Beck objected to Mickie Most’s insistence on a ‘catchy’ follow-up to ‘Silver Lining’ and hated the production, rather than Graham Gouldman’s lyrics]

The debt problem is likely to become even more severe with the government’s cuts to the buffer amount of money allowed to families before they are considered to have been overpaid tax credit, and the use of private debt collectors to pursue the poor, who have been mistakenly overpaid. So this is another song that could reasonably be revived and adapted to suit the new conditions created by Wonga and the like, and now the Inland Revenue.

As for the latter, one of the experts on Japanese monster movies on TV – I think it may have been the great Phil Jupitus – once said that the only time you ever heard cheering during a Godzilla movie was when the epic fire-breathing radio-active dragon from the depths trashed the headquarters of their Inland Revenue in Tokyo. If only something similar would happen to the house of whichever vicious Tory apparatchik dreamed up this bill.

Godzilla

Godzilla: First the Japanese Inland Revenue offices in Tokyo, but will he trash Osbo? We live in hope!

Peasants of Britain Unite and Kick Out the Pay Day Loan Sharks

May 29, 2014

In my last blog post, I looked at the similarities between a community power company set up by the people of a village here in England, and the various schemes for the cooperative reorganisation of society from Thomas Spence’s Land Plan, for the communal ownership of land by each parish community, and Bulgarian Agrarian National Union’s plans for a national and then international society of cooperative peasant communities.

There’s another policy of the party of the Bulgarian peasantry, which I feel very strongly should be adopted by 21st century Britain: legislation and the reform of the banks to cut out and suppress the pay day loan companies, like Wonga and the rest of the sharks. After the liberation from Ottoman rule hundreds of villages in rural Bulgaria had been forced into serious debt to private moneylenders. Many of the Muslim and ethnic Turkish landowners had emigrated or fled to Turkey, leaving large amount of land available for the Bulgarian peasants. There were, however, no banks available to provide them with the loans and credit they needed to purchase the land and essential tools, and so they turned instead to private moneylenders.

The Bulgarian peasants’ party, BANU, and the peasants’ union which preceded it, attempted to combat this by establishing credit cooperatives. After BANU took power in 1919, they attempted to prevent the moneylenders from reappearing by passing legislation insisting that the banks lend money to the cooperatives on reasonable terms.

Britain too in the 21st century has seen the return of the loan shark and moneylender as thousands, perhaps millions, have got into serious debt. Some of this has been through the absurdly easy credit that was offered in the boom years, when people were encouraged to spend as much as they could through credit cards. Other causes include rising rents and mortgages as well as an increase in prices, while pay has been frozen or even cut. The government’s cuts to unemployment benefit have also forced some to turn to private moneylenders, as the amounts provided by Jobseekers’ Allowance is inadequate, sanctions are imposed seemingly arbitrarily according to the whim of the government and the targets set by the DWP to get people off benefit. Those, who are considered to have left their job without good reason are denied benefit for weeks, and the government is considering imposing a waiting time of about three weeks for new claimants before they can get their money.

As a result, Britain has seen a resurgence, not just in criminal loan sharks, but also in the payday loan companies, like Wonga, which offer easy loans at truly extortion rates. The Archbishop of Canterbury, Julian Welby, is recommending a system of Credit Unions to tackle this. Critics fear this will be inadequate. It may well be, but that doesn’t mean that Credit Unions need not part of a broader programme to combat this. We need legislation to cut down the rates at which Wonga and the other loan companies can lend, to reduce them from the 5,000 per cent odd interest rate they are at the moment to something far more manageable. In America, surely one of the most capitalist nations in the world, they aren’t allowed to lend at over 20 per cent. Passing legislation to insist that everyone gets a living wage would also be a massive improvement, as would a complete stop on benefit sanctions, delays in payment and actually raising the amount of money paid to something people can actually live on.

All this, however, would mean abandoning the harsh, neoliberal economic orthodoxy that demands that the poor be penalised, simply for being poor, under the pretext that somehow their poverty is their own fault. And the Tories and their Tory Democrat allies really don’t want to do that by any means. It’s time for the British peasants to follow the Bulgarians of 1919 to throw out the payday loan companies, and kick the Tories out of office.

The British Financial Sector’s Role in the Promotion of Foreign Industry

March 3, 2014

Bank pic

In a previous blog post I mentioned the statement by the authors of Socialist Enterprise: Reclaiming the Economy (Nottingham: Spokesman 1986) Diana Gilhespy, Ken Jones, Tony Manwaring, Henry Neuberger and Adam Sharples, that one of the causes for the decline of British manufacturing industry was a lack of investment and the concentration on short term returns by British banks. Later in the book, the authors expand on this statement by showing how the lack of investment in British manufacturing by the British financial sector is actually a legacy from the days of the Empire. According to the book, most British financial institutions, in contrast to their German and Japanese counterparts, were geared to investing in and developing the former British colonies, at the expense of the ‘mother country’. They write

The City’s International Role

The British financial system has failed to meet the needs of domestic industry because historically it has been geared to financing trade, in particular within the British Empire. When capital was raised in London it was more often than not for foreign investment, such as the US railroads. The City is now an international centre for managing foreign currencies – ‘Eurocurrencies’. Banks operating in the UK lend vast amounts of money overseas, many of them foreign banks.

This international role has had far-reaching results. British investors divert more of the national income to overseas investment than any major nation. For example, the two largest insurance companies, the Commercial Union and the Royal, do 70 per cent of their insurance business overseas. Since the removal of exchange controls, 60 per cent of unit trust investment has gone abroad.

In Germany and Japan, by contrast, industrial reorganisation has been closely linked with the provision of long-term finance tailored to the needs of domestic industry. Financial institutions have accepted responsibility for industrial performance, and so developed a detailed understanding of the problems facing industry, both technical and managerial. This tradition of industrial banking laid the basis for special credit institutions. In West Germany, the Kreditanstalt fur Weideraufbau – owned by the federal and regional governments – concentrated on regional policies, with the banks focusing on industrial financing. The Japanese economy is dominated by large holding companies, which include both industrial and financial companies: these have worked closely with MITI, the main government department responsible for industrial policy.

This bears out the Austrian Marxists, Karl Kautsky’s observations about the role of British capitalists in developing and promoting overseas rivals to Britain itself from about the time of the First World War. If these policies have continued – and I really don’t expect they’ve changed much in the nearly thirty years since the book was written – there needs to be a complete revolution in the priorities of the British financial sector. One of the solutions the book proposes is the establishment of a state-owned national investment bank for domestic industry, as recommended by the Labour party and the TUC. I like the idea, but it would face strenuous opposition from the established, vested financial interests, who fear any criticism and encroachment on their domination of the financial sector and British industry.