Sifting through the ashes in search of something, anything

england-eu

Shantih Shantih Shantih, wrote Eliot in the final lines of ‘The Waste Land’, a fragment pillaged from the Hindu Upanishads. It is bewitching, it is intensely mournful, almost inexplicable, and today in particular, it is the most poignant expression of ultimate resignation.

Along with David Dimbleby, JK Rowling and a good chunk of the country’s students, among a vast array of others from John o’ Groats to Land’s End, I stayed up all night to watch the results of the EU referendum come flooding in over the airwaves and through the slippery plumbing of the social media pipework. And, just before 5am, the BBC called game, set, match for the “Leave” campaign.

Newcastle was the signal fire that first spelled doom for those championing solidarity with Europe, bringing in a tiny “Remain” majority despite confident projections that it would be much higher. This was almost identical to the role of the Dundee result in the Scottish referendum, which in the same way brought in a much smaller win for the “Yes” campaign than predicted, crippling them for the rest of the count.

Screen Shot 2016-06-24 at 12.41.19But this was by no means the first speed bump of the night that was last night. Next came Sunderland, then Swansea, the latter with a huge “Leave” majority, a trend that was incidentally set for the rest of rural Wales in stark contrast with cosmopolitan Cardiff. And when Birmingham, with its 700,000 or so votes, came in with a “Leave” win, all hope was lost. Though it was a narrow margin the fact that “Leave” triumphed at all was unprecedented, the great swathe of votes in the region therefore serving to just about cancel each other out. The disappointing Euroscepticism of the outer London boroughs nailed the coffin shut despite soaring “Remain” majorities in the likes of Lambeth, Hackney, Camden, and the rest of the city. Scotland of course voted “Remain” pretty decisively (albeit with a 67% turnout versus the 85% of September 2014 and the 72% of yesterday’s national average), but so did Northern Ireland, prompting calls from Sinn Féin as well as NI’s Deputy First Minister to reignite the debate for a unified Ireland. One can hardly imagine a UK consisting of just England and Wales, the very prospect of which seems simply absurd, outlandish even. And yet here we are.

The steep “Leave” trend, however, in the xenophobic and pensioner-rich middle class enclaves of the North East and Midlands was expected, but the bitter truth is that it was Corbyn’s polarising leadership bid that splintered those red-rose strongholds and so compromised the voice of Labour’s “Remain” proponents. And now on the eve of chaos, he has been served a motion of no confidence.

But as Iain Martin of CapX put it in the wee hours, “Labour: it’s the fault of the Tories. Tories: it’s the fault of Labour”.

Undoubtedly, one of the first seismic political tremors following the result occurred when David Cameron emerged from 10 Downing Street at 08:18 just moments after rumours had swept along the rope line of the press that he would be resigning.

At the podium he began by championing democracy, thanking those who took part on “my side of the argument”, and congratulating the opposition, stating categorically that “the will of the British people is an instruction that must be respected.” He swiftly went on to reassure the markets, the armies of investors, and those Brits living abroad as well as those non-British EU citizens living here that there would be no immediate changes, stressing the need for preparations for negotiations to ensure the interests of “all parts of our United Kingdom” are heard. That rather cemented the trajectory of his speech, and sure enough, he was soon expressing how proud he was to have been Britain’s PM these past six years and listing his government’s achievements, before insisting we must “confront, not duck, big decisions”. This, he said, was that so quintessentially British spirit that saw the first coalition government in seventy years being forged in 2010, a “fair, legal and decisive” referendum in Scotland, and the EU negotiations he carried out with his “head, heart and soul”. That’s when he delivered the words that we were all expecting to hear, that he was not the “captain” to steer the country in this new direction, and while giving no precise timetable, that there must be a new prime minister in time for the Conservative conference in October. “Delivering stability” was the priority he emphasised, with a Cabinet meeting scheduled for Monday and the Bank of England taking steps to ensure this stability. He said he had already spoken to the Queen and will be attending the European Council next week to formally explain Britain’s decision. He finished on a note of solidarity, encouraging “those on the losing side” to help make it work, because ultimately, Britain is a “special” country, driven by its astonishing history of science, arts, engineering, creativity, and though certainly not perfect, it can be and will remain a model of a multi-racial, multi-faithed nation. “I am the first to praise our incredible strengths,” he concluded, voice breaking, “I love this country and I’ve been honoured to serve it.”

MP Anna Soubry hailed the PM moments later on the BBC for his “beautiful composure”, looking rather shell-shocked as she described how he “led from the front” and how sincerely she hopes “this won’t cloud our memory of him”, while across the Channel MEP Philippe Lamberts condemned him as “utterly irresponsible” on the doorstep of the HQ in Brussels.

Of course, Cameron really had no other option than to resign. As Salmond dryly remarked to the BBC earlier this morning, “I have some experience in this field”. And so, the three month leadership battle begins. Johnson, May, Davidson, Crabb… whoever emerges on top, it will be a sensationalist Tory pseudo-drama of Freudian proportions.

But much caution has already been expressed over the rapidity of implementing Article 50, with many prominent “Leave” politicians encouraging cool-headed patience and negotiations. And yet, Corbyn appeared on BBC1 at 07:30 saying it should be invoked “now”, a reminder of his reluctance at backing the EU at all given his long history of resistance against the establishment, the status quo, the bureacracy. He did, after all, express his support for the EU at only “7 and a 1/2”, whatever the hell that means. And now speculation is stirring that Corbyn will be ousted by the end of the week.

Speaking of speculation, Carney emerged after the night’s global turmoil in the wake of Cameron’s resignation to reassure the markets that the banks were fully backed with a £250 billion reserve ready to secure credit for both households and businesses. It was at the sight of the Newcastle signal fire that the pound, which had soared to around $1.50 against the dollar right before the vote, plummeted to its lowest level since 1985. The FTSE was down 500 points at its open, Barclays bank tanked 35%, with RBS and Lloyds quickly following, and shockwaves rippled though the Nikkei. Expressions of Britain’s bad judgement appeared in morning papers across the globe, from the New York Times to El Mundo, with Obama receiving a “briefing” on the result in the White House around 6am. Indeed, some have hailed this disturbing realisation of xenophobia, regression and isolationism as the harbinger of everything from the resurgence of Europe’s far-right groups to the wall-building, Muslim-banning madness that would be a Trump presidency. Sensationalism aside, the EU has been guaranteed at least two years of uncertainty.

As for Scotland, we now know that every council area across the nation voted to stand with the EU, and Nicola Sturgeon just made her assurance from Bute House that preparations for a second referendum will now begin. She was careful not to confirm it, but that is undoubtedly the trajectory we are now on. Indeed, the weight of the Glasgow result at 2am temporarily tipped the total national count into a “Remain” majority. The consensus in Scotland is beyond doubt, but the case for independence of course will now be made even more complex and polarising by the reality of a Britain outside the EU and an EU rocked by the messy exit of its second largest economy. Of course there is the possibility that “Brexit” will now trigger any number of copycat referendums in the most traditionally Eurosceptic countries from Greece and Spain to Latvia and Hungary, not to mention the looming spectre of potential bank runs.

It may just be that the EU was the crucial pressure point on the windowpane of the UK. Now it has been hit with such surgical precision, spidery cracks have bloomed across it, obscuring all beyond. A second independence referendum will be the tap that shatters it forever. But, there will be two Nationalist reactions. Sturgeon has made her position clear, while expressing respect for those No-voters who will want to rationally reevaluate their position. However, many senior figures within the SNP leadership, Humza Yousaf among them, will be reluctant to use Brexit as a vehicle for statehood. For one thing currency is now even more of a roadblock. It will have to be the Euro or a brand new currency, perhaps pegged to the pound. Also, there is the simple reality that Scotland receives £9 billion per year from Westminster while juggling a deficit three times the size of the rest of the UK, particularly problematic given the lack of oil revenue. And we must remember that over a million people voted to leave the EU and the SNP would certainly not want to initiate a referendum that would most likely take place in 2017-18 without being certain of victory. There would also need to be a border, a proper, real-life border between Scotland and England. But there is now a new independence case for previous No-voters to consider. There is not space here to elaborate just quite yet, particularly in the swirling Charybdis that is today, but yes… there is certainly a case.

The fact remains that 17 million is a lot of people, a hell of a lot, and yet it’s not even a third of the UK’s population. Nor is it actually a majority of the electorate, despite the record turnout. The result was so close that a 72% turnout didn’t give “Leave” over 50% of the votes when those other 10 million-ish people who couldn’t or wouldn’t fill out a ballot are taken into account. Just look at the demographics. 64% of 18-24 year olds nationwide voted “Remain”, while 58% of 65+ year olds voted “Leave”. If, as in the Scottish referendum, the 1.5 million 16-17 year olds in the UK had been granted the vote, the nation would have awoken to very different news this morning. Instead, our futures have been decided by the oldest generation to the detriment of all.

Marina Hyde of The Guardian took to Twitter this morning to muse over Farage’s comment that “this is a victory for ordinary people, decent people”, pointing out that all us Remainers are therefore extraordinarily indecent. Indeed, we are the “indecent minority”, as JK Rowling wryly replied.

From the terribly bitter and painful ashes of this referendum, several things will rise. The question and intense likelihood of a second Scottish referendum, the question of a possible Irish referendum, the question of fresh party leaders for both the Tories and Labour, the question of the timing and logistics of Article 50, the question of citizenship for Brits abroad and Europeans here at home, and the question of trade and foreign relations now we have cut ourselves loose from the continent.

Not all of these things will survive the battle to wing their way across the sun-splashed skies, but the ones that do will determine the future of this isle full of noises in every single possible sense of the word.

Shantih Shantih Shantih

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Why Do We Need Banks?

 

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What is a bank?

It’s an essential institution that provides people with a source of credit as well as providing a return on a person’s savings. Banks have always existed in some form which proves how vital they are in society as they naturally evolved with humanity. The Ancient Egyptians had such methods, as did the Romans, Medieval Europe, and they will always exist. But why are they so vital?

Firstly, they provide a safe place where people can store their money and their income, a much more reliable place than shoved in a cardboard box under their bed. What’s more, banks encourage people to give them their money i.e. investment, by offering a certain rate of interest on the savings so that in the long-term, the person can increase their wealth. And what do banks use all these savings for? They lend them back out to the people who need them most. Of course, to make it attractive to function, they must make a profit, and so they charge the borrowers interest rates.

They provide an absolutely vital service to the people. And by judging a person on their level of risk, their reliability to pay back what they borrow, they protect themselves. They also encourage social mobility in society because people can build up their wealth over generations. This promotes the values at the core of a free, democratic society. Without the ability to borrow a loan from a bank, people would be vastly limited in all areas of their lives. Especially with respect to buying a house, a car, without the service a bank offers of borrowing a certain amount of money, they would not be able to make this purchase. It’s simple. If banks did not exist, there would be far higher levels of poverty. Obviously the bank is entering into an agreement with the person, and entrusting them to pay back the money at the agreed time, and if they fail to do this, the bank has the right to repossess their homes, for example. This is the nature of the system.

However, the extreme risk that the banking system itself can pose to society must also be taken into account. As can be seen in the global crises of 1929, and 2008, banks can potentially lead to utter economic collapse in a country. If we look at the example of the 2008 world financial crisis.

financial-crisis

Basically, banks became bigger and bigger, taking greater and greater risks as they greatly decreased their loan to asset ratio and started giving out sub-prime loans. The amount of assets a bank holds, its liquidity, is essentially its buffer zone, the free cash it has access to if there is a sudden run on the banks. Whether this be cash itself, or easily sellable things like bonds, liquidity is essential to avert disaster.

However, they began to give out more and more loans until their assets fell from a relatively safe value of 20% to figures as low as 5% or less. Why did they do this? Their ‘Value at Risk’ risk assessment models told them that it was becoming safer and safer to lend out loans and that bankers were getting better and better at their jobs, essentially. But there was a fatal flaw. They failed to take into account that there was a major financial crisis every fifty years or so. Furthermore, in 2008, the majority of the business done by investment banks such as Morgan Stanley, billions of dollars of their revenue, were not made in bonds, but in collateralised debt obligations. They were literally dealing debt. CDOs are hashed together bits and pieces of bonds and so a fragile structure arose of debt, an inverted house of cards, with those at the top being worth even less than that which they had been derived from. So when investors lost confidence in the market and people rushed to get their money back, the banks simply imploded as they did not have enough liquid assets. This is the danger of banks. However, the country recovered each time. And these crises can be averted with the proper foresight.

The real issues would occur if there weren’t banks in the first place. People would have no means to safely store their income and this would likely lead to increased crime in society. But more importantly, there would be much higher levels of poverty because they would be unable to take out loans when they needed it most. Banks are a key aspect of a well-functioning civilisation that arise because of necessity. The consequences if they didn’t exist would be dire. They provide an invaluable service that supports all other areas of society.

Furthermore, they are a means for the government to influence demand, and therefore economic growth, and the wealth and happiness of their nation. Through monetary policy, the use of interest rates to encourage or discourage spending and saving, the MPC and the Bank of England influence all the other banks and are a vital means for the Chancellor of the Exchequer to control the economy, the other method being fiscal policy. This system of influencing borrowing in the economy is essential to, in turn, influence economic growth.

In conclusion, why do we need banks? Because they are essential.

The Passing Of A Legend: Thatcher And Her Legacy

maggie

On 8th April 2013, one of the greatest figures in Britain’s political history passed away. Margaret Hilda Thatcher’s life will forever shine as one of the brightest in the annals of our history with the extraordinary things she did for our country. No previous British Prime Minister has had an ism named after them. You cannot imagine Churchillism, Macmillanism, or Attleeism, and if such an ism had been conjured up, it would surely not have been about economics. There are those that profess to loathe her with, what can only be called, a naive ignorance, displaying an exceedingly shallow depth of understanding that is frankly embarrassing. Thatcher overcame astronomical obstacles and came to power in a time when women were still treated as an inferior species. Her sheer determination and hunger to fight for what she believed in and truly make a difference to the world is part of her vast legacy. No prime minister of modern times has sought to change Britain and its place in the world as radically as Margaret Thatcher did. As she wrote in her memoirs, “The Downing Street Years”, her government was about the application of a philosophy, not the implementation of an administrative program. Of her book, the Daily Express wrote, “Some things in life are priceless. So are Margaret Thatcher’s guts. They have left their mark on the world. So will The Downing Street Years.

Thatcher experienced extraordinary successes, such as the victory in the Falklands, the privatisation program, the rescue of the economy from a crippling recession, and she did more for workers than her Leftie critics ever did. She also faced extensive and extreme opposition, among which were the Miners’ strike, the Brighton bomb, the poll tax riots, and the Westland affair, all of which she fought through with commendable tenacity and bravery. Her more controversial policies, such as the community charge in 1989, all had perfectly logical motives. The poll tax was simply a way to fund a bloated local government, as she explained in an address to the Central Council in Cheltenham, “Let’s be clear: it’s not the way the money is raised, it’s the amount of money that local government is spending. That’s the real problem. No scheme, no matter how ingenious, could pay for high spending with low charges.”

brighton bombing

The Brighton Bombing

On 12th October 1984 at the Grand Hotel in Brighton, a time-bomb was planted by the IRA in an attempt to assassinate Margaret Thatcher. Although she narrowly escaped unharmed, five people were killed, including Sir Anthony Berry and Eric Taylor, and 31 were injured, some of whom were permanently disabled. The next day the IRA claimed responsibility in a chilling statement:

Mrs. Thatcher will now realise that Britain cannot occupy our country and torture our prisoners and shoot our people in their own streets and get away with it. Today we were unlucky, but remember we only have to be lucky once. You will have to be lucky always. Give Ireland peace and there will be no more war.

Thatcher responded in the Brighton conference:

This was an attempt to cripple Her Majesty’s democratically elected Government. That is the scale of the outrage in which we have all shared, and the fact that we are gathered here now—shocked, but composed and determined—is a sign not only that this attack has failed, but that all attempts to destroy democracy by terrorism will fail.

When Margaret Thatcher came to power in 1979, Britain was a dump, “the sick man of Europe” and on the brink of total economic collapse. When she left power in 1990, it was the one of the financial capitals of the world. She is associated with her political philosophy of Thatcherism, based on low taxation, low public spending, free markets and mass privatisation. During her tenure she had to deal with mass unemployment, out of control inflation, endless strikes, a war with the Falklands and an attempted assassination by the IRA. And in February 2007, she became the first British Prime Minister to be honoured with a statue in the House of Commons while still alive; a testament to her incredible legacy. In an interview by the BBC in 1973, she actually said, “I don’t think there will be a woman Prime Minister in my lifetime.”

Margaret Thatcher led a remarkable life and a great sadness has settled over the nation in recognition of the passing of a legend. But there can be no doubt that her legacy will endure for generations to come. At a specially convened session of Parliament yesterday, David Cameron paid tribute to “an extraordinary leader and an extraordinary woman.”

statueSo many of the principles that Lady Thatcher fought for are now part of the accepted political landscape of our country. As Winston Churchill once put it, ‘there are some politicians that make the weather’, and Margaret Thatcher was undoubtedly one of them. Mr. Speaker in the member’s lobby of the House of Commons there are rightly four principal statues: Lloyd George, who gave us the beginnings of the welfare state, Winston Churchill, who gave us victory in war, Clement Attlee who gave us the NHS, and Margaret Thatcher, who rescued our country from post-war decline. They say cometh the hour, cometh the man. Well, in 1979 came the hour, and came the lady. She made the political weather, she made history, and let this be her epitaph: she made our country great again.

Rest in peace Maggie, you are incredible.

Here are a collection of her most famous quotes:

Pennies don’t fall from heaven – they have to be earned here on earth.

No one would remember the Good Samaritan if he’d only had good intentions; he had money as well.

Economics are the method; the object is to change the heart and soul.

My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day’s work for an honest day’s pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police.

Defeat? I do not recognise the meaning of the word.

I, personally, have always voted for the death penalty because I believe that people who go out prepared to take the lives of other people forfeit their own right to live. I believe that the death penalty should be used only very rarely, but I believe that no-one should go out certain that no matter how cruel, how vicious, how hideous their murder, they themselves will not suffer the death penalty.

RIP Maggie

RIP Maggie

Socialists cry “Power to the people”, and raise the clenched fist as they say it. We all know what they really mean—power over people, power to the State.

There’s no such thing as society.

A man may climb Everest for himself, but at the summit he plants his country’s flag.

(To Conservative backbench MP John Whittingdale) The trouble with you, John, is that your spine does not reach your brain.

For every idealistic peacemaker willing to renounce his self-defence in favour of a weapons-free world, there is at least one warmaker anxious to exploit the other’s good intentions.

Constitutions have to be written on hearts, not just paper.

To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. So it is something in which no one believes and to which no one objects.

To wear your heart on your sleeve isn’t a very good plan; you should wear it inside, where it functions best.

If you want something said, ask a man. If you want something done, ask a woman.

Being powerful is like being a lady. If you have to tell people you are, you aren’t.

I am extraordinarily patient, provided I get my own way in the end.

If you want to cut your own throat, don’t come to me for a bandage.

There can be no liberty unless there is economic liberty.

I usually make up my mind about a man in ten seconds, and I very rarely change it.

It pays to know the enemy – not least because at some time you may have the opportunity to turn him into a friend.

It is not the creation of wealth that is wrong, but the love of money for its own sake.

I always cheer up immensely if an attack is particularly wounding because I think, well, if they attack one personally, it means they have not a single political argument left.

Popular capitalism is nothing less than a crusade to enfranchise the many in the economic life of the nation.

Imagine a Labour canvasser talking on the doorstep to those East German families when they settle in on freedom’s side of the wall. “You want to keep more of the money you earn? I’m afraid that’s very selfish. We shall want to tax that away. You want to own shares in your firm? We can’t have that. The state has to own your firm. You want to choose where to send your children to school? That’s very divisive. You’ll send your child where we tell you.

I highly recommend you watch it

I highly recommend you watch it

I highly recommend you read it

I highly recommend you read it

Did Gideon Cry When We Lost Our Triple A Rating?

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It’s a bit worrying. A couple of days ago the city of London was viewed as the financial hub of the world, the ultimate destination for investors and speculators, utterly confident in Britain’s bulletproof economic superiority. And then . . . oh dear. Mr Osborne had to rub his eyes and blink several times as he stared in abject horror at the poor soul who had to deliver the news. Or perhaps it was a phone call. Or maybe he saw it on the news itself? Or got a visit from Ed Balls who promptly laughed hysterically in his face and danced around Number 11 with his shirt over his head.

To be honest, will it mean a great deal economically? Probably not. The main upset will be over the political consequences.

But firstly so everyone knows, what is the credit rating? Well, they are determined and issued by agencies like Moody’s, private companies who sell their financial analysis to investors. They mark potential investments using a scorecard system, Moody’s ranges from Aaa to C. In the case of countries, agencies are assessing their creditworthiness, basically, their ability to pay back money lent to them. The less likely a country is to be able to pay back its debts, the lower the rating. So the UK has been downgraded from the coveted triple A, to the inferior Aa1 . . . cringe.

aaa

Why has this happened do you ask? Mainly because Moody’s decided our economic growth will be very “sluggish” over the next couple of years, and with the current ugly recession they deemed it time to dash Gideon’s dreams. What this means for him is that it will take longer to wrestle down the budget deficit because growth will flop, less will be brought in by tax, and more spent on benefits and the likes. Yes. Depressing. And because the debt problem will take longer to get under control, there will be a deterioration of the country’s “shock-absorption capacity”. Which means it will be harder for us to cope with any external problems, such as the wild, rampaging beast that is the Eurozone crisis. Or maybe it’s more like a bleeding, dying, weary creature with poisonous puss leaking out of its deep wounds and creeping across the Channel.

So in terms of economic repercussions? Well, there will be a slide in the value of sterling (and there are even rumours that the pound to euro exchange rate will drop to 1:1, so get your holiday money now). This helps exporters (as their goods become cheaper for those in other countries), but for us miserable importers, there are dark days ahead. The price of petrol has already climbed over the past month, and other cruel increases like this will put pressure on household incomes, company profits, and overall growth.

And politically? Poor Gideon, is all I can say. He’s hurriedly trying to backtrack and steam ahead with his austerity plans while Balls and the whole Labour clan are snapping at his heels and labelling him as a failure. Stay strong Gideon.

Let’s face it. It can’t get much worse.

(Well . . . it can, but let’s keep that on the DL).

os

Everyone Loves A Loan Shark!

That's a fat shark

That’s a fat shark

Well . . . maybe not. Shall I clarify? Yes, loan sharks are parasitical, life-sucking, soul-destroying, suicide-inducing, gut-twisting leeches that are the very spawn of Satan blah blah blah. But, payday loan companies are not. They are essential to the function of a free, democratic society.

Payday lenders such as Wonga.com are not only incredibly useful; they play a key role in the credit cycle. I will explain exactly why those who call for them to be banned (or for high interest rates to be banned) are completely deluded, and anyone who would claim otherwise merely displays a level of economic ignorance that should offend the sensibilities of anyone who purports to be intelligent. Do you want society to be dragged back to the Middle Ages?

So, on with the rant.

Look out he's got a weapon!!!

Look out he’s got a weapon!!!

Firstly, we must look at why they exist in the first place. Why did they arise? Why are their rates so high? Well, this is purely because of market demand and need, not some evil force of greed and malevolence. They have a purpose, they are performing a service. A service that is utterly essential to many people who desperately need that extra bit of money to tide them over to their next pay check (45% of the working population actually struggle to make it to payday). Let’s not get carried away here. Put it in perspective. We’re talking about relatively small amounts of money, not some vast sum that will multiply like sheep in spring into an astronomical lump of debt. We’re talking about real people with real problems. And the rates are high because of the short timeline of the loan. If they were banned, it would simply drive these short-term lenders out of business, as they would be stripped of all incentives and find themselves making unacceptable losses.

Think about it. What would getting rid of these companies actually solve? Can anyone genuinely think of a valid argument for this? Sure, immediately you may say, “well, of course . . . they, uh . . . well they like, stop debt”.

Eh . . . No.

What is debt? Debt is one of these woes experienced in times of economic hardship. Particularly in a recession, we have increasing unemployment, increasing costs of living, decreasing real wages, and a whole lot of other nasty things. Low-income households are primarily those that struggle the most and there is a consequent increase in the demand for credit. And like any market, where there is demand, supply will follow. And ta-dah! We get payday loan companies popping up like fat guys in MacDonald’s.

Bless you

Bless you

Therefore, high interest rates are peripheral; they are the symptoms of economic hardship, not the causes. Therefore, banning them would be like banning someone with a cold from sneezing . . .

Let’s take a look at the Roman Empire (as you do). They did eventually allow loans with carefully restricted interest rates, whereas in Medieval Europe, the Christian church banned the charging of interest at any rate and loaned money from savings, greatly increasing poverty as people accrued vast amounts of debt. The destructiveness of debt is the real crux of the issue here, you only have to look at examples such as the Eurozone to see what it can do, it’s not very pretty (unless you call €10 trillion of debt pretty). Interest rates are healthy, and payday loan companies are essential organs of a healthy economic system. They are not “exploitive”.

Check out the sponsor . . .

Check out the sponsor . . .

Because what really qualifies as exploitive? It’s all relative isn’t it? When banks sign thousands of borrowers up on 125% mortgage deals like the Northern Rock did, it effectively chained them to years of negative equity. Isn’t that a little more damaging than lending someone £100 and asking for £120 back a couple of weeks later?

Such a ban would just be another price control. You could ask what would happen to bread if the government lowered its price to 1p a loaf. It would cause massive shortages and black markets in bread (i.e. loan sharks). The standard result of excessive price controls are generally an increase in black markets. So you would just be making matters worse by increasing the number of loan sharks and the economy would end up drowning in debt. You aren’t curing anything. You aren’t solving anything.

Let’s not forget that loan sharks are always illegal. These are the dodgy people who come and smash up your homes if you don’t pay them back. If you enforce a ban on high interest rates, it will force the short-term lenders out of business, and therefore encourage black markets to arise, so there will be more loan sharks than before, putting even more people in danger. Loans sharks are illegal anyway, making high rates illegal won’t change anything. Let’s face it, no one wants more sharks in the sea.

Now, moving on to this idea of credit availability . . .

See! Another sponsor . . .

See! Another sponsor . . .

Interest rates are basically the rental price of capital, and they are all part of the credit cycle in an economy. A ban on high rates would create a shortage of credit as payday lenders would leave the market. Because with banks only lending to ‘prime’ customers, it’s very hard for many (and exceedingly expensive) to actually get an overdraft or an extension on their credit card. So what do we have ladies and gentlemen? A credit crunch. The demand would still exist, it wouldn’t just vanish. And once again we would be providing bait for the sharks which would come flooding in to fill the gap as if spurred on by all the fiendish devils of Hell. We would then see an increase in crime as that’s basically how loan sharks get their funds.

And that’s when the real trouble happens . . .

It is not enough to simply say this could be stopped by making bank credit more available because why do you think we got into this mess in the first place? Idiotic bank policy and easy credit.

And another . . .

And another . . .

So who is it that gets hurt the most? Low-income households. Basically, imposing more stringent loan terms reallocates credit toward those who are able to afford larger down payments or larger monthly payments, generally those with higher incomes, and this triggers more debt as there are no longer any incentives. Therefore, the ban would work to the consumers’ disadvantage by restricting credit flows and distorting financial markets. You have to think about the consequences. What would it actually do in economic terms? Firstly, it would leave those in the greatest need with no viable options forcing them to turn to loan sharks, and secondly it would push vulnerable people into even deeper debt. How does getting rid of Wonga.com solve the debt problem?

Anyway, the OFT (Office of Fair Trade) already regulates these companies, such as advertising requirements, like making it compulsory for the APR to be published. And if anything this actually does more harm than good as it triggers considerable confusion over what APR actually is and what it means in layman’s terms.

So what must be done? What are the productive measures the government could take rather than something so stupid as banning high interest rates which some people foolishly believe they should do?

Well, they should tackle the roots of the problem which resulted in the high rates in the first place, such as the increasing costs of living and inequality. Whether this is through more thorough and exhaustive financial education, or basic economic aims like wrestling down unemployment, it would be far more beneficial than setting some pointless, arbitrary cap on interest rates. Because frankly, without payday loan companies, one of three things would occur:

Society would be thrown unceremoniously into utter poverty, people would turn to loan sharks who would be waiting with open arms (or fins if you like) and malicious grins, or alternatively, they would rely on banks and would either be denied credit extensions or the low rates would pitch them into a debt spiral.

So in summary, the very idea of getting rid of loan companies is inherently flawed.

Do you agree? Or perhaps I should say, how could you possibly not agree?

Why A 100% Death Tax Would Be Utterly Stupid

Because there's nothing immoral about that is there?

Because there’s nothing immoral about that is there?

Immoral and nonsensical would be the words I would use. Apt words on this occasion. Perhaps wholly brainless or moronic as well. Basically, a 100% inheritance tax would not be viable or moral. So, let’s discuss this ludicrous concept.

First of all, every economy should focus on maximising social mobility. What do I mean by this? Social mobility is the freedom for individuals and families to improve their social position as their income changes. They can move from one socio-economic position to another, usually an inter-generational thing. And it is a known fact that a higher level of intergenerational mobility is considered the sign of greater fairness and equality of opportunity in a society. So why am I prattling on about this? Here’s why.

Inheritance is essential for social mobility. It allows people from the working class and the lower middle class to work up the social ladder as their wealth accumulates through the generations. Such is the barrier between lower middle class and upper middle class; it can only be crossed with inheritance. And this process fundamentally would not work with a 100% death tax.

It's that simple

It’s that simple

Secondly, due to easy avoidance schemes and law loopholes, it could simply be dodged all together by those who had the means to do so. Who would have the resources and influence to do this? Anyone? Ladies and gentleman, it would be the rich. Either through expert accountants and lawyers, or sheer deviousness. Therefore, it is not a tax on the wealthy at all is it? And that was surely the intention of the entire concept, no? It just fundamentally would not work as it would be low-income households who would suffer the most.

Thirdly, everyone has a right to a legacy. Why shouldn’t you have the right to bequeath your belongings, your property, your money to your children? Generally, a person’s aim in life is to create a stable lifestyle for their children. It is morally wrong to deprive them of their legacy. This is something they have worked for their entire lives, you are merely imposing a burden, in many cases crippling on the shoulders of their dependants. Many people rely on the inheritance left to them, for example, to pay off debts. They are the people who have the right to this money, not the state. Even modest levels of wealth have the ability to cushion families, particularly low-income families, from nasty economic shocks such as the sudden trials of unforeseen disasters like illness or redundancy.

Makes sense . . .

Makes sense . . .

Let’s look at the issue of meritocracy. For example, if a wife and a husband have a family, and the wife, in this case, makes 100% of the money while the husband looks after home affairs. Does the fact that the husband has not earned the money mean he does not have a right to use it? This can be applied to parents and children. The family earns money as a whole. If certain parents think that this is not how their family works they could simply write their children out of their will, couldn’t they?

The adage says that wealth corrupts; perhaps, but wealth has no monopoly in this regard. It’s pretty damn easy to lead a worthless, parasitical life without an inheritance. Why should having a bit more money increase this possibility? Indeed, sheer common sense suggests the opposite doesn’t it? Those who are not able to bequeath a material inheritance are usually equally unable to bequeath any degree of basic moral and educational inheritance.

This matter must be ethically rationalised by appealing directly to the principle of equality of opportunity ladies and gentleman. This must be guaranteed in the political philosophy of a free society. It is inherently essential.

1775 - 1783

1775 – 1783

Take the US for example. In America, the death tax has been a hot issue since the British first imposed it on the colonies way back before the war of independence. It was abolished when the Brits were sent packing back across the Atlantic and only appeared again when second president, John Adams, introduced it in 1797 (along with other taxes on housing, land, and slaves). It shocked Thomas Jefferson and the Republican Party, and was quickly axed after the 1800 revolution which swept Adams’ party out of power, and Jefferson abolished all internal taxes, cutting expenditure and reducing debt. From then on, inheritance taxes cropped up only in wartime. It was Theodore Roosevelt who called for a death tax on those fortunes “swollen beyond all healthy limits”. His justification was not to raise revenue but to appease the radicals and preserve “equality of opportunity”.

So let’s take a look at this principle, it appears just doesn’t it? At the very least, that can be agreed upon. Equality is a standard economic aim. We see an intelligent child in a poorer area unable to excel due to the shortage of a thorough education, opposite the “luckier” child of a wealthier family. Why should forces for which the child is not responsible and does not control be such a large factor in their life? This scenario is so compelling, because what it shows is lack of opportunity itself. Taxing the rich does not improve the lot of the poor. So long as birds fly in the sky, trees grow from the ground, and parents care for their children, inheritance will be the primary means of transferring money through the generations. It benefits the “bequestor” and the heir, strengthens family ties, and increases long-term savings. For inheritance is a key incentive for saving, which is itself an essential factor for capital accumulation.

Amateur . . .

Amateur . . .

Among the worst economic costs of the tax would be the loss in savings. The higher the tax, the more likely people would be to stop saving for the long term, and instead spend it all. It’s as simple as that. When wealth decreases, the desire to give bequests decreases. And in the end, typical family fortunes are themselves the accumulated savings of several generations. This allows for sustained growth and permanent investment. Besides, it’s not like inheritance tax is the only source of government revenue. The amount of money raised is so insignificant it’s pretty much negligible. If you were taxed all of your wealth after death then what would be the point in saving? People would no longer invest money into bank accounts to the same extent, and in turn, if nothing was passed on to their children they would lose work incentives and would only want to earn what they could reasonably spend. Especially in a recession, we need people to invest in banks. If everyone withdrew their savings to spend whilst they were alive, the credit crunch would be far more dramatic and disastrous. Inheritance tax, like income tax, reduces the incentive for people to work and save, and merely increases their incentive to spend as they approach old age, and a key instigator of economic growth is private capital.

So, would a 100% inheritance tax only target the wealthy? No. Would a 100% tax help the economy? No. Would it improve equality and social mobility? No.

A state has absolutely no democratic justification to deprive its people of such a fundamental right. Therefore, we can safely say the whole concept is stupid, can’t we?

The Heart-Wrenchingly Tragic Downfall Of The Mighty RBS

RBS tax payers

RBS tax payers

In the year 2000, the Royal Bank of Scotland was just a wee regional Scottish bank. Over the course of eight years, however, it rose to become the largest bank in the world. That’s quite an impressive title isn’t it? If you started up a wee bank, you’d be pretty damned chuffed to see it ascend to the giddying heights of “the largest bank in the world”. No?

But then, disaster. During a bid to purchase the bank ABN Amro, the credit crunch hit, sparking large RBS write-downs (reductions in their asset values). RBS then foolishly turned to its own cash reserves to offset some of the write-downs instead of the increasingly expensive wholesale credit markets. In August 2008, they revealed the banks first ever loss in forty years as a public company, and sparked international shock.

Then October 2008 saw a £20 billion taxpayer bailout of RBS. The total bailout package was £38 billion, including Lloyds TSB and HBOS, a staggering sum of money that to be honest, felt utterly wasted.

£38 billion could pay for 15 aircraft carriers.

It could pay for 4 London Olympic Games.

It could pay for 633 UK Apache helicopters.

It could pay for 1520 new schools or 70 new hospitals.

And instead we blow it on RBS? RBS? Really?

The Chief Executive, Fred Goodwin, resigned a month before it was announced that RBS had made a loss of £24.1 billion in 2008, the largest ever loss in UK corporate history, again increasing the list of woes becoming more and more prevalent in the wake of the huge sinking ship.

Goodwin had been knighted in 2004 for his services to banking, but, shockingly, on 1st February 2012, he was stripped of this knighthood. Was this really justified? Well, perhaps it was, for he was at the helm of the monster, wasn’t he?

All right there Fred?

All right there Fred?

When RBS published its loss for 2011, it became the fourth annual loss since the bailout. And the £2 billion loss was actually double that of 2010’s. George Osborne, (or “Gideon” as I prefer to call him), said RBS is ‘…cleaning up the mess after the biggest bank bailout in history’. Stephen Hester, new Chief Executive Officer of RBS said, ‘Rehabilitating the bank is a five year process, with two years to go.’

Why did RBS suffer an increase in its annual loss then? The answer lies in other global economic crises, particularly that wee one in Europe. A small matter really. Anyone heard of it? Anyone? Oh right, yes, that’s it . . . the Eurozone. No major bank can remain unscathed from such harrowing economic conditions. BBC News stated that, ‘RBS has taken a loss of over £1bn on its loans to the Greek government… no other British bank piled into Greek government debt to quite the same extent. Also RBS is still making colossal losses in Ireland, thanks to its ownership of Ulster Bank.’

The mighty Fred "the shred"

The mighty Fred “the shred”

By February 2009, Chancellor of the time, Alistair Darling, announced the government’s decision to reduce the bonuses of the RBS bankers. They were cut from £2.5 billion in 2008 to £340 million. Darling stated, (“Darling” . . . I can see why Blackadder got so many laughs from it), that there would be ‘no reward for people who have failed’. A decision was also made for bonuses now to be paid not in cash, but in shares.

At the end of January 2012, RBS’ chairman, Sir Philip Hampton, turned down his 2011 bonus to great public reaction. The bonus consisted of £1.4 million of shares and Hampton believed it would not be appropriate to accept it. At first, Chief Exec Stephen Hester showed no intentions of waiving his £1 million bonus, to much controversy (although perhaps this is understandable, who would so readily shake their heads at £1 million? Anyone? Really?) But then, several days after Hampton, he also declined. The Guardian wrote, ‘Politicians have been falling over themselves to have the toughest stance on Stephen Hester’s £1m bonus from RBS, which he has now turned down . . . By the standards of footballers’ pay and EuroMillions windfalls, Hester’s bonus looks almost modest. Wayne Rooney earns around £18m a year. Gareth Bull, one of EuroMillions’ latest beneficiaries, has just received over £40m for choosing the right balls.’ So put into perspective, the banker’s bonus doesn’t seem to be such a titanic sum after all if you can get forty times that amount playing some mind-numbing, stupid game with your balls . . .

Philosopher Mark Vernon stated, ‘It could well be argued that excessive incentives cloud good judgement, which the good investment bankers need. Rather, they breed greed, a fault that arguably contributed to the banking collapse of 2008. If you follow this logic, then bonuses should be cut.’ However, Vernon also later said, ‘The bankers secured their jobs in a free market, one that others are perfectly at liberty to enter too.’

The banker’s bonus remains a controversial topic, which can, like everything in life really, be stripped down to basic ethics and morals. Because frankly, if you were them, you would probably quite readily pocket that fat bonus, don’t live in denial! But then again, if they were you, they would no doubt be just as shocked and outraged (which really means, let’s face it, ridiculously jealous.)