´óÏó´«Ã½

EVIL DOERS AND FAILED GODS

Surely money lent to an enterprise should be an act of faith in THAT enterprise - stand or fall. The farther that investment departs from that simple one-two-one relationship, the more pernicious it (potentially) becomes, ultimately yielding something for nothing, or worse: a gain for a loss. A long time ago, Buddha said that the trouble with winners is there have to be losers. Nuf sed.

Once again the loss of 'taboo-sense' in modern life is demonstrated. Money MUST ever remain as a token; when it becomes 'of itself' the taboo has been broken, and the gods would once have had revenge. The vilest face of global money is that - thus far - the money manipulators have fooled the gods into punishing the innocent. HOW EVIL IS THAT?

Paul,

You are right on the money! Don't let this story drift off the core message. Alas, if the bankers can't stand up for themselves, don't worry the politicians are just as likely to get the knife out, or just surrender at the first hurdle; e.g. the Lib Dems' Oakeshott:

"A Tobin tax is interesting but is unworkable without international agreement, which could take years and probably will never happen" - Whatever happened to global solutions to global problems??!! Let's hope that Vince has the foresight to give him a rap over the knuckles!

Can't wait to see the Newsnight cake graphics this evening!

In any banking system based on 'usury', sooner or later all money, followed by all assets end up in the hands of the bankers.

In the past that problem was dealt with by, from time to time, having a pogrom, confiscating Jewish assets (Jews being the only ones allowed usury) and starting again.

We are at the point where we shall have to do the same: confiscate all bank and other financial assets and start again. For an excellent explanation of why the banking system cannot survive click here: .
Good luck

Btw, yet another excellent article, Paul.
Keep up the good work without fear or favour

This comment was removed because the moderators found it broke the house rules. Explain.

This comment was removed because the moderators found it broke the house rules. Explain.

Let's hope that Vince has the foresight to give him a rap over the knuckles!

Shame on you Hawkeye_Pierce, Vince should only be known as Saint Vince!.

Paul,

Any chance you can get Michael Hudson on the programme tonight? He will give a pretty damning critique of modern finance:

What we have is "exactly the opposite of what Adam Smith, and Ricardo and the classical economists defined as a free market. Classical economics defined a free market as one that is free of overhead charges, free of unnecessary charges of production, free of watered stock. Today a free market means that predators are free to extort any price from the public, they are free to deregulate, free to lie to consumers, free to exploit, free to load any company they want down with debt, and basically lead (us) to a world of debt peonage."



Remember: Hudson has seriously good credentials for a guest. He is a distinguished economist and was one of the few who predicted the crash.

In my opinion this is the most brilliant idea and would raise lots of government dosh to pay us all back for bailing out the banks.

At the moment the same also happens with stamp duty on house purchases and it definitely makes you think twice about moving house when stamp duty is factored in so in the same way it would act as a brake on overexuberance in speculative financial transactions without hurting any other part of the real economy.

Then people could start to use their creative brains in other ways as not so many would find their way into the city.

I agree it would need to be enacted world-wide but an idea definitely worth pursuing. A much better idea than QE anyway.

Does anyone else remember Selective Employment Tax?

This was (if I recall correctly) a higher rate of National Insurance contributions for jobs in non-productive industries. This would seem to fit the bill nicely! An uncapped SET of say 100% of total global remuneration (as per the published audited accounts) on anyone and everyone in financial services to be paid by employers as an employers' contribution. (Any tax on transactions would be a lawyers paradise and yield very very little as it will be trivially, but expensively, easy to avoid.)

This SET should be accompanied by an appropriate reduction in National Insurance for everyone else!

But why has the gamekeeper turned poacher - what else is behind this? I simply do no believe that Adair Turner had an idea - it must have been cleared by The Treasury at least! So why is Neil Macpherson promoting, or allowing to be promoted, this idea - my only conclusion is panic! Surely it wasn't cleared by the office boy!(AD! etc..)

if it gets up the nose of the City, rock on Turner baby, you must have struck a nerve.....

Gillian Tett, (one of the panels participants) on the Tobin tax, that link contains an explanation of what it is.

Nice work Paul.

I think that on the face of it, it's a good idea, if the power that be can come up with some way of making bonuses performance dependant, (say over three years) which should go some way to remove the short term bias of many market participants, then it's a reasonable first shot at a regulatory response.

Single Global Trade Currency - the only logical solution for a globalised economy and banking system.

Amazing the kings housekeeper has told him he has no clothes on. It is a pity that Brown/Darling did not endorse the critique (of course I would not expect them to have actually produced the critique). The dominance of the city has lead to the decline of all other aspects of the economy apart from entertainment. We cannot expect anything from this government because they have a religious like worship of the financial sector and of its luminaries. Turner is gamekeeper turned spectacularly to poacher.

All that this would do is drive the financial services industry overseas. So it's a daft idea. Rather, the UK should co-operate with the ideas put forward by France.

The appeal of a Tobin tax seems to be that it would yield vast revenues without the need to raise front-line taxes (income tax, NI, VAT). But when are the British going to get away from this 'something for nothing' culture? Dotcom stocks, buy-to-let - "any gimmick, so long as we don't have to pay for it".

It's time to face reality. Government spends 49% of GDP but raises only 35% in taxes and expects foreigners to lend us the difference. Our nuclear power plants are nearing the end of their lives, so we expect France (EDF) to build new ones for us. One in six families has no wage-earner. A quarter of the workforce is employed directly by government.

Isn't it time that this country started working for a living?

Interesting,
Where is the hard man we need.
Brave try Adair, nevertheless.

But of course there is absolutely no appetite in Westminster to deal with this. They don't understand how any of it works, and would rather issue soundbites and headlines rather than sort out the mess.

We get a headline on how they will deal with the bonuses
We get a headline on how they will control the hedge funds
We get a headline on how the recovery is just around the corner
We get a headline on how the expenditure is all under control
We get a headline that we are in a better condition than our european neighbours
We get a headline that deep-down, savers and pensioners are being looked after
We get a headline that we are winning the war in EastAsia
But actually we get no-one at the wheel.

Regards,
(no sign of a recovery from where I'm standing,
second wave of trouble about to start)

It seems to me that the penny, sadly only a penny at the moment, is beginning to drop. I hope the clink begins to echo. We can't go on the way we have been going on and need to find a better way. This will mean that our political, financial and cultural elites are going to have to either change their behaviour or have their personnel and behaviour changed for them. Maybe we should use the term `cultural revolution' and all that those words imply if the falling penny proves inadequate.

I am overjoyed that the term value is returning to the conversation about the financial services industry. A bit longer and they might start to speak about value-added activity. You know the sort of activity that employs people to make things other people want, making a profit out of the process and reinvesting those profits in similar processes. It used to be called industry and was, if I might use the term, valued by all and sundry.

The trouble with what we might call speculative finance is that really and truthfully it is what we used to call gambling. It might be slightly more calculated that sticking a tenner on the 3.30 at Newmarket but it boils down to the same thing; a punt. It is interesting to note that it is now almost a century since my maternal grandfather was arrested at Hammersmith for passing betting slips in the street. He was an uneducated man but a competent mathematician: he was born before his time!

I think the City has yet to wake up to one simple reality: it is now a taxpayer subsidised activity. A bit like British Leyland was 35 years ago. The management there failed to change when they needed to and the same now applies in the City. The UK taxpayer is currently supporting the financial services industry to the tune of GBP 1.227 trillion. In numbers that is GBP 1,227,000,000,000. As a UK taxpayer enegaged in real value-added activity I have to advise the City that this is quiet unacceptable and the situation needs to change. So I expect them to change. If they don't then they will be changed. I hope they get the message.

This does mean that our society has to take another turn and it will be a painful turn. With unemployment at 6,000,000 and growing it is quite clear that there is room for investment in value added activity. There is no alternative. It has to happen or our future is too horrible to contemplate.

Let me know what you think, and if any of my figures and explanations are wrong.

>>>>>>>>>>>>>>>>>>

Paul

Excellent post - Lord Turner finally seems to be coming out of his shell at the risk of upsetting the powerful vested interests in the City of London and tax havens. I think the banking and finance crisis has focussed minds on bail outs etc. but the real problem with the City/ B of E is the powerful vested interests that surround it and the bad parliamentary politics.

A super tax on the bad banks is an obvious thing to do really - I mentioned this a few weeks ago on another ´óÏó´«Ã½ blog but is not the real question what is to be done with the proceeds of the tax? I read with dismay a that one proposal would be to spend the monies raised from this on international development - Why?

Surely any proceeds for the tax would be better spent on the UK taxpayer who is being clobbered for the next 30 years with long term debt owing to Goondog Trillionaire Brown - there is a major debt to be repaid here?

Perhaps a number of new ethical banks could be created with the tax so as to confine bank lending to parts of the UK that need the extra investment e.g. Cumrbria coast, NE/Tyneside, Welsh valleys - make the money work harder bearing in mind low UK productivity and under-sized tax base. Bad banks could be taxed out of the UK and boken up and smashed up until they conform to what is best for the UK?

Surely the UK also needs a written financial constitution written as UK law to make sure that rogue governments cannot ruin the UK economy with more than a trillion pounds of long term debt - unless that money is working hard and put to good use in the UK economy.

The concern is that a general election is looming and all of the main political parties need to set out their manifesto pledges and policies clearly and in sufficient detail so that we know what we are getting next time.

It may be too late for Lord Turner as the writing is on the wall for the FSA, as far as the Tories are concerned, but I think that is does show the frustration within the tri-partite regulatory goon show that the likes of Mervyn King and Lord Turner find it so difficult to speak out and be heard effectively - an crucially Darling has very little if nothing to add to the matter (Oh What a surprise!).

My view on this, for what it is worth, that this is not just the structure of the tri-partite system that is not efficient - the whole mess is over-shadowed by the bad political climate created by this rotten New Labour government.

The Tories may well have better ideas at the moment on regulatory reform but I can't see them putting a super tax on the City as, like most political parties, most of their political donations are connected with or administered by the City of London and they still seem genetically wired to oppose most new taxes - perhaps this should be an exception as something needs doing NOW!.

I think you have hit the nail on the head with your comments - the debate is almost at the point of addressing the over-powerful and unaccountable vested interests that control this country, behind the scenes.

As for any tax proceeds:

rebuild our own ships and navy,
re-open the mines,
make sure planning permissions are only given for affordable houses and properties in deprived areas
build our own nuclear replacement of trident
rebuild our roads and railways
do away with conventional prisons and get convicts to work on new secure agricultural farms and work very hard for the community until release,
build a green energy infrastructure,
encourage all houses/properties to have wind powered electricity supplement by say 2015,
tell the EU what parts of the EU constitution is acceptable and bin the rest,
plan for zero UK unemployment by, say, 2015.
make sure that whatever public money is spent that it passes preset criteria on reaching zero unemployment and sustainable population/tax base levels - if the proposed expenditure does not pass the test - do not spend the money. This should be written in a UK constitution.

I'm sure that other contributors could do a much better job of this list - we need our politicians to stop dithering, obfusticating and procrastinating and negative electioneering and do some proper population planning and put some real policies on the table and above all - DO IT!

there is a lot in state employment that is 'socially useless'. There is a lot of consumerism that is socially useless from designer hand bags to vanity publishing or broadcasting.

To have only socially useful things is to live in what is called in the Republic 'a pig state'. ie where 'luxuries' are seen as a 'vice'. While this idea might attract those who believe a maoist 'equality' is the highest idea of the mind the idea of walking around in uniform pyjamas might not be a vote winner?

all trade is gambling. you make or buy goods and hope to sell them [ideally at a profit]. unless you are in the state sector you job is a 'gamble' on a strategy.

No one has to buy the latest designer watch. No one has to buy that holiday or dvd. A minority of the population work within the real world. The rest are in one way or another on 'state benefits' including NN. Which probably explains why they don't understand how the real economy works and why it is a gamble. They don't feel that sword's edge.

all socially useful things have happened through someone gambling on something.

the alternative to the gambling economy is either imperialism where through force or corruption you just take what you want or poverty.

so gambling is not 'evil'. its just you become a hero or zero. something most can't take so prefer jobs where someone else does that bit and makes the 'gamble'.

who would not prefer some noddy state job with regular pay and holidays even though it might be dull or soul destroying to taking a 'gamble', be a hero or zero, with your life savings by opening a shop or whatnot?

so the credit crunch which came out of the chicago school fundamentalism of no regulation, even though that is not a philosophy one would adopt for the motorways or air traffic control without realising there would be a free for all that results in a crash or two, has now turned into some debate about creating a pig state based on a 'philosophy' of what is 'socially useful'.

here's some psychology of trading

the most socially useful person might be an executioner.

obviously there is no metric to decide what is socially useful and by what degree.

if a you need a tap fixed do you need someone who speaks latin?
do you really need someone of a tv sofa wittering on about whatever to live a happy life?

if a happy life is the measure of good and all things are measured by the degree of happiness they provide then a drug dealer might be in some people's top 10? is being a drug dealer socially useful?

@19 bookhimdano

I agree with you that the definition of "socially useful" is fraught with difficulties - to take a simple example, which part of the entertainment industry is socially useful is debatable and depends on your tastes. And the governmental vision of socially useful/harmful in China, Europe and Iran is unlikely to converge much; the social usefulness of the police isn't the same in a democracy as in a dictature.
The problem isn't as much in the betting as in the odds of losing out.

20

yes.

what he might of said is that the risks of an unregulated market that ultimately is backed by the tax payer outweigh the possible benefits.

after the bailouts the city is a net drain on the uk and will be for a generation.

lets see how many other ways the govt can talk without facing up to the necessity of using the word regulation.

the lack of policy maker focus on really how the crunch happened [ie no regulation and lack of enforcement of any regulation there was in place -the fsa admitted they were too afraid to regulate and tony gave that famous speech against regulation] is astounding.

tony still hasn't apologised. 2 unwinnable wars [one never ending] and destroying the wealth of the country for a generation must make him one of the worst decision makers the uk has ever had.

The more I think about the proposed Tobin tax the more I like it. It shifts the idea of taxation from people (income tax, NI etc) and business (corporation tax etc) to activities and how much we as a society want to encourage or dissuade certain behaviours. Seen in this light it is more akin to high taxes on alcohol and cigarettes etc. Many see investment banking as no more nor less than betting (although the risks may be calculated to a certain extent) but is it really any different in essence from a bet on the horses?

It also shifts away from the idea of "more market is always better" which has been the prevailing ethos.

I am surprised the Tories have apparently dismissed it out of hand as somehow or other we have to find a way of paying off the massive debts we have incurred and the quicker the better. This way would shift the burden from the already overburdened taxpayer back into the City. Of course there are a lot of vested interests which don't like the idea as it will hit them in the pocket as has been pointed out already and it would also need to be implemented in other countries too. Maybe initially it could be tried out in the countries with the biggest financial services sectors as arguably we have more knowledge and experience to get ourselves out of this mess. Although judging by what's happened so far I can hear a lot of hollow laughter!

#22 (Tony apolgising)

aah, nooo, but, ....
Tony said he 'could' apologise.

I always thought he felt he got away with that statement.

History will show him as the worst prime minister in a century;
for the political yes-machine he built, the 100% reliance on spin and marketing, the naive stumblings around the world, the fiddling of the books, setting up the expenses for MP corruption, a fat and bloated public sector/healthcare, blowing the inheritance, and finally letting GB in.

Time will tell,

Interesting take, I'm no expert. Forwards, options and swaps can reduce costs,enhance returns and allow investors to manage risks with more precision.I think the Bank of England use foreign exchange hedges, dont they? They use derivative markets as useful thermometers of the monetary system. These have been around for years. I agree if used speculatively they are highly risky.They are highly leveraged. If the price of the underlying asset moves there can be huge swings in derivative prices triggering huge profits / losses.

But shouldnt you distinguish OTC ( Over The Counter) from exchange-traded derivatives? Hasnt a lot of the difficulty come from OTC traded financial credit derivatives ( default swaps) where it was found that the underlying assets ( sub prime loans/syndicated) were spurious or disguised off-shore/off balance sheet? If there had been a properly organised clearing house with rules and counter-party guarantees with originators guaranteeing, couldnt this have helped to police and organise and stabilise. Isnt the trouble here that OTC markets in financial derivatives have sprung up without an organised and orderly market place. No harm in taxing transactions providing you can value them - share transactions attract stamp duty, as you say. Good idea for revenue-raising.The drawback, as with all tax initiatives, is that the traders will find a way of passing the tax cost back to us !

`History will show him as the worst prime minister in a century;'

Just a century? We will have to go back to Lord North losing the American colonies to find an administration as disastrous. Even Perceval's `Bloody Code' compares with the prevailing anti-terrorist legislation: sure, the Code hanged people but at least they weren't rendered to a third party for torture.

I used to consider Ted Heath's administration from 1970 to 74 the worst since the war. He took over an ailing economy and made it worse, picked a fight with everyone in sight, introduced internment in Northern Ireland which failed and then bottled it when Rolls Royce went bust.

Now Tony took on a recovering economy and between him and his Chancellor wrecked it more substantially than even the incompetent Heath. The most significant aspect of the New Labour era was the number of supposedly intelligent people taken in by the illusion. This element worries me even more than the broken economy as now we have an entire country thinking that something can be had for nothing when there is only nothing available. Life might get far too interesting in times to come.

The term 'Investment Banking' makes me laugh, the bank isn't investing anything, they are selling debt for profit.
How about limiting interest on all loans, for whatever purpose to 2% above BOE base rate, banks then might then consider investing in business ie. buying equity in a company either for dividend return or captial growth.
Playing around with the tax system won't work as large numbers of the banks, businesses and individuals manage to avoid paying their dues. (taxes are for the little people)

THE NUB (#26)

"The most significant aspect of the New Labour era was the number of supposedly intelligent people taken in by the illusion."

Perhaps this is because we measure intelligence from the wrong standpoint? Or, perhaps, intelligence is not what is required for people to be content in themselves, and with one another?

After all, intelligence leads to 'too clever by half' and destruction of planet and sanity. Might WISDOM be the root of sustainability? I suspect wisdom cannot be measured (no WQ) thus mankind's future would be reliant on an unscientific attribute - OH JOY.

28 barriesingleton

Perhaps I should have substituted `clever' for `intelligent', or perhaps qualified `intelligent' with `supposedly'.

I tend to measure people who are clever on a separate scale from the measurement of intelligence. One can be clever, that is able to manage personal improvement by emulating prevailing norms, without necessarily being intelligent. Could we call that the Pretty Polly syndrome?

On the other hand intelligence denotes a deeper sense of understanding which must include an assessment of potential alternative outcomes and a moral principality denoting a more thorough appreciation of the issues in play.

When I was at art school, over forty years ago, we were always challenged to show intellectual input in our creative work. The worst condemnation by our teachers was to have produced a `slick' article which was not deemed to be creative. Now it would seem culturally that slickness has become equal to creativity. It seems that the only measure these last dozen years or so is whether or not you can get away with whatever it is you are trying on. This is nothing more than behaving like a spiv. There's a lot of it about.....

ABSORBED WITH INTEREST - IF ONLY NEWSNIGHT WERE SIMILAR (#29)

Absolutely no negativity intended stanilic. I was effectively thinking out loud, triggered by your post. As you know, I term mankind: "The Ape Confused by Language". I have a feeling that IQ is language-dependent (self-damned)but my unquantifiable (paradoxical) 'WQ' is probably the key to sustainable existence?

A Tobin tax is all very well, but speculative finance capital is inherent in the capitalist system. Like all taxes, in the unlikely event that it was ever implemented, it would be avoided.

The real problem is capitalism. It is inherently undemocratic which is why a relatively tiny number of people are able to bleed everyone else dry. Was it not obvious that the pay of speculators and bankers, who actually produce nothing, was obscenely high before this? What possible reason is there for them having received billions of pounds in bonuses, pay etc?

And where does this money come from? Eventually when the parcel stops being passed around, i.e. when confidence goes, then someone makes a rather large loss and that has a domino effect. A society that produces for need, is controlled economically as well as politically in a democratic manner, i.e. socialism, is the only way that things like globa warming can be curbed. As George Soros said, capitalism is amoral. Unless it is overthrown humanity itself has a rather short existence ahead.

Paul,

As with many things in the modern world lord turner's solution is useless as it does not recognise the fundamental misrepresentation of value in the global financial system.

I am afraid many journalists are guilty of accepting a fundamental false premise in the first instance and are happy to engage in and comment on the debate on where to place the deck chairs on the Titanic rather than pointing out the 100ft long gash below the water line, the shortage of lifeboats and the survival times for human biengs in sea warter at 4 degrees celcius.

Unfortunately the convieneintly profitable illusory state of affairs (the global financial system) will only be seen to be the emperors new clothes when sufficient people slide off the tilting deck and start to flounder in the icy waters looking for a lifeboat.

Has anybody noticed oil prices on the rise again as this ''recovery'' (ha) gathers strength?

Has anybody noticed how the billions in China and india and ..well everywhere still want western style living standards?

Has anybody noticed that our planet has finite resources that can only support a finite number of human beings in a sustainably comfortable living standard with the help of modern technology?

Has anybody noticed human beings tendancy to try to fight (murder) and manipulate each other in order to secure a better standard of living for their immediate tribe (call them countries if you like). Often this seems to focus around securing food or fuel security ...what was the Iraq war about again someone remind me...ahh yes weapons of mass destruction....

So long as everybody is happy to be distracted by the process of shifting the deckchairs about rather than actively managing the real issues we risk increasing substantially the quantum of human suffering that will take place during the transition years which are bearing down upon us with the ever accumulating momentum. lord Turner, taxing financial speculation will not address the issue of more and more people trying to secure less and less primary resources.

At the most fundamental level the economic model you are tinkering with relies for its functioning for the trains of 'population' and available resources to continue to travel towards each other on the same track at an ever increasing speed (i.e. economic growth). Yet nobody mainstream is even looking at reducing thier speed or looking at how much track is left between those two locomotives before they crash into one another.

Here's one for all you end of the worlders.



If you have any questions on armageddon then Jason will address these in his blog. See you on the other side.

Or maybe not

#32 Jericoa

I totally agree with your post. The way I see it is there are broadly 3 levels to the crisis, each one stacked inside the other like Russian Dolls:

1) Financial banking sector - this is the hands-on "debt" problem for the West, in effect a pyramid scheme perpetuated by derivatives trading (e.g. Steve Keen, Max Keiser, Greg pytel and others)
2) Monetary system - the very basis of FRB is prone to Ponzi scheme abuse (hence my constant references to the likes of Soddy, or the contemporary views of Michael Hudson)
3) Industrialism at the socioeconomic level - the damage that humans do to our planet, converting life-enriching natural resources into lifeless trophies to our arrogance (see Eric Zencey - Is Industrial Civilisation a Pyramid scheme)

Three nested pyramid (Ponzi) schemes. We can't tackle the 2nd and 3rd points (Monetary Reform and Environmental respect) until we knock down the ediface of the first point. The mighty power of the banking sector, and the almost god-like reverence society and politicians give it.

This post of mine from a couple of weeks back sums up the contempt with which banking treats us all, and suggests 4 viable, proportionate and neccessary solutions:

/blogs/thereporters/robertpeston/2009/08/what_rbss_results_say_about_qe.html

The fourth one is very much like the Tobin Tax. By unpicking the fraudulent wealth generating activities in the financial sector we can at last start our journey to ending the collective Stockholm syndrome we are all under.

I am afraid many journalists are guilty of accepting a fundamental false premise in the first instance and are happy to engage in and comment on the debate on where to place the deck chairs on the Titanic rather than pointing out the 100ft long gash below the water line, the shortage of lifeboats and the survival times for human biengs in sea warter at 4 degrees celcius.