(The Big Disrupt) Brexit: Mark Wallace breaks down the macroeconomic effects of Brexit and the single market

Check out and watch this insightful video by Mark Wallace as he breaks down the likely effects of the UK's historic vote to leave the EU.

(Business) Bank Of England QE program: B of E vote against increasing level of QE programme

The news that the Bank of England will not increase current Quantitive Easing levels of investment should be a cause for praise for members on the monetary policy committee who voted against expanding the £375 billion QE programme but what would have been much news would be the reduction or freezing of the programme all together.

Ever since the financial crisis of 2007-2009, banks across the globe have implemented similar programs of lending cheap money to banks in the hope that it will sink into the real economy but the results, in Britain at least have been less than successful to say the least.

The reason behind why the QE programme has not been a great success  is that what is considered success by its supporters is not really success at all. This is because, contrary to what most media outlet will tell the public,  QE is just a another word for publicly funded corporate welfare ensuring that the taxpayer funds banks that do not lend and are still making very large losses.

The news of RBS still making heavy losses despite the taxpayer being heavily invested in the bank coupled by the reasons behind those losses and the latest news of a computer crash to add to growing list similar instances has left many questions as to why the Bank of England chooses to pump money into banks that are so poorly run to the point that it would make the average observer think they were doing on purpose.

A recent computer malfunction (one in a long line of similar instances) inconveniencing its large base of customer goes to show that RBS are a state as same thing happened less than a year ago  leaving customers unable to   “withdraw cash from ATMs or check their accounts online, customers were also unable to use their card in electronic transactions”[1]The whole debacle has left the bank exposed to “compensation claims” running into millions and has provided another blow to a once proud bank[2].

If the stories do not convince readers of this article (meaning you whoever ‘you’ is) the number will leave no doubt as depressingly:

The bank posted an annual loss of more than £5bn and Stephen Hester, its chief executive, admitted 2012 had been a "chastening" year after its £390m Libor rigging fine. Its total losses since the 2008 bailout have now topped £34bn. However, the bank is still paying out £607m in bonuses in the coming weeks[3]

Seeing that RBS is faltering and looking for a private buyer,  the Bank of England seems to be coming to its senses as Governor Mervyn King in front of the Banking Commission supported  the idea of “full nationalization” of RBS in order  to split the bank “into two: into a “bad bank” of troublesome loans and “good bank” that can make fresh loans to cash-strapped businesses”[4]. While this idea not the worst idea and can actually work,  The Guardian’s Jill Treanor rightly pointed out that the idea of full nationalization is “five years too late”[5].

In sum, news of the Monetary Policy Committee voting against an increase of quantitive easing given to banks is encouraging but nowhere near how encouraging the actual end of pumping public money into private institution that are badly run and thanks to lax regulations and mickey-taking bonuses, are encouraged to continue the bad work.

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[1] J Thompson and E. Moore, 2013, Computer fault anger RBS customers, http://www.ft.com/cms/s/0/faf97d50-8718-11e2-bde6-00144feabdc0.html#axzz2MsSB2TXl

[2] S. Read and S. Anderson, 2013,  ‘#Naffwest’: Fresh compensation claims face RBS and Natwest as customers pledge to abandon bank after SECOND  computer glitch lock them out of their accounts, http://www.independent.co.uk/news/business/news/naffwest-fresh-compensation-claims-face-rbs-and-natwest-as-customers-pledge-to-abandon-bank-after-second-computer-glitch-locks-them-out-of-their-accounts-8523685.html

[3] J. Treanor, 2013, RBS boss admits ‘chastening’ year as losses breach £5bn, http://www.guardian.co.uk/business/2013/feb/28/rbs-losses-chastening-year-stephen-hester

[4] J. Treanor, 2013, Mervyn King backs RBSbreakup – five years too late,  http://www.guardian.co.uk/business/blog/2013/mar/06/mervyn-king-bank-nationalisation-too-late

[5] Ibid

(Politics) Coalition Economic Strategy: Time to consider a new growth strategy?

While it is a fair argument that the incessant pursuit of economic growth is one of the main reasons why the British and global economy in general has been in a malaise for the last five years, it has now become clear that new growth must be considered and drawn up fast. However with the conservatives and Liberals currently at the head of the table , don’t hold your breath for the serious risk of  falling into a state of unconsciousness. It would be a fair assessment to deem the coalition government led by the conservatives to have mastered the ‘day late and dollar short art of governing as the coalition have made poor policy decisions, even those of a political nature.

Prime Minister David Cameron Yesterday doubled down on the government favoured programme of austerity measures in an effort to reduce the deficit in spite of increasing calls for a plan for growth and the UK losing its triple A rating, which will make any borrowing the government makes expensive thus making the deficit even worse. The lack of a plan for growth and the dogged insistence for austerity indicates that the coalition has no idea how to stimulate growth while the answer seems remarkably simple.

The government has been pumping cheap capital into banks for last five years in the hope that it would at once keep banks solvent and provide capital for banks to make loans and invest in businesses but have received very little return on their investment the banks other than international scandal and merit-less ‘performance’ and retirement bonus payments that have left the public seething with anger.

A much better strategy would be to loosen the capital requirements that force banks to hold onto capital ironically derived from cheap money pumped into them and place conditions stipulating that it should go to new loans primarily aimed at new businesses. But this will never happen as the coalition’s aim to is not to improve the economy but to keep the markets happy and content.

This ‘keep the markets happy’ mentality that has become the official economic strategy for every British government since Margaret Thatcher and has not been contradicted even when it has become more than necessary to do so.  David Cameron unwillingness to break the irrational but enduring cycle of throwing money at the banks and getting burned for it down the road in the form of economic turmoil has not brought about progress but has seen one of the greatest transfers of wealth from the taxpayer into private hands.

However, there is signs of change as the Bank of England’s nine member Monetary Policy Committee, contrary to the wishes of its head Mervyn King, voted to freeze the bank’s Quantitive easing program, which triggered an adverse reaction in the global markets.  However this is normal as the markets are predicated on short term interests, a country however cannot and should not be held hostage to the whim of market speculators hungry for  quick profits at the government’s and indeed the country’s expense.

In sum , a plan for growth is needed and should be implemented soon but, I repeat, do not hold your breath. 

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(Opinion) EU 2012 Nobel Peace Prize: A Prize Deserved?

                                                            

There are many things you can say about Nobel peace prize and its awarding committee, among them would be that they sure know how to pick their winners. From awarding the peace prize to Henry Kissinger despite his well-documented involvement at the tail end of the Vietnam War to Barack Obama winning the award in the midst of two protracted wars, the noble peace prize has a history of awarding public figures with a lot of blood on their hands.

However one of its strangest awards to date was giving the Nobel Peace Prize to the European Union. While it’s not unusual for political organisations to win the prize such as Amnesty International and the UN, it is quite strange that a political project has won in what is probably its most trying period.

Recent years may have tested the EU as political and economic project, but what is not up for debate is the EU is the most successful political project in the history of international politics. For centuries Europe had been rife with “divisions, tensions and conflicts” borne out of competition and imperial ambition[1].

These two factors made sure Europe would remain a Hobbesian nightmare halfway through the 20^th century as the continent experienced two world wars and several failed attempts at diplomacy in-between, notably with the League of Nations. However, Influenced by the brutality and death that characterised the Second World War, leaders across Europe realised the need for a united Europe ensuring that war will never break out in Europe ever again.

The fact that the peace has held in Europe for so long after centuries of conflict and competition owes much to the process of integration between the economies of EU member states and laws strengthening human rights legislation. The success of the EU has been that it has meant greater cooperation between nations in Europe, particularly the big three, Britain, France and Germany, key players in both world wars. In recent years the EU has expanded eastward with the accession of former soviet states to full membership.

However, the process of integration and cooperation mediated by the EU has led to developments that have been met with less than other endeavours. The establishment of the single currency was seen by some as the most ambitious development in uniting Europe even further and seen as a major threat to national sovereignty by others.

The Euro was seen by supporters as the most audacious statement of intent by EU member states to unify Europe by tying their fates together by establishing the European Monetary Union (EMU). While the language of the EMU was economic, it was motivated purely by politics as the EMU remarkably took  many of the controls traditionally handled by member states and put them in the hands of technocrats in Brussels. This was accomplished through the rather strict monetary requirements aspiring EMU members had to meet to join the single currency[2].

While the idea of uniting Europe in the interest of peace and prosperity has been a success, the undemocratic nature of the political project has been the source of bickering among member states and the economic stagnation of many members of the EMU, Greece being the most prominent example

The EU’s response to the Eurozone crisis has been poor to say the least as the troika of the EU, IMF and ECB has forced upon Greece’s strict austerity measures and heavily conditioned bailouts in an attempt to keep Greece in the EMU despite default being a painful but viable option. The fact that the EU has partnered with the IMF leads to questions of it lack of accountability due to the IMF’s use of notorious structural adjustment programs recommended to countries of the global south.    

These polices that  have caused instability in many nations in the global south have now been imposed on Greece and has led to frequent, often violent protest by ordinary Greek citizens against strict austerity measures used by its government and the EU itself. 

The search for consensus by EU leaders from EU member states has led to creation of the fiscal pact, which will impose tough fiscal measures to make sure its members keep financially sound budgets, mostly through measures that have failed miserably in Greece.On this evidence it is quite strange that the Nobel peace prize has been awarded to the EU this year as its polices have caused instability in Greece and it ideological preference for an united Europe has weakened significantly it member states ability to react to economic and political crisis

In conclusion, the EU is the most successful political project in the history of international politics and should be recognised for playing a large role in why there has been no war in Europe from Second World War onwards. However, to award the EU the Nobel Peace Prize when its policies have caused instability in Greece and threatened the future of the Eurozone is bizarre to say the least

  

  

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[1] N. Nugent, 2006, The Government and Politics of the European Union, Hampshire, Palgrave Macmillan

[2] S. G. McGiffen, 2001, The European Union: A Critical Guide, London, Pluto Press (p.60)

(Opinion) Auto Loans: A crisis in waiting?

You would have thought the events of the last five years would have taught banks (Ok, not so much) rating agencies and insurance companies that dabbling in subprime loan debt is an unwise decision to say the least, but with the news of the boom in sub-prime auto loans, not much has been heeded. 

 Auto loan lenders, apparently not privy to the cause of the crisis five years ago are dropping barriers in the way of borrowers with bad credit reports taking on debt to buy cars to the chagrin of analysts and the joy of car dealers[1]. This may be a key factor in the current recovery and growth of the auto industry as there is, thanks to subprime auto loans, “more demand for new cars and more money available to finance them”[2] .

However these loans are toxic as dealers who sell them have an almost non-existent moral incentive to tell the truth about what they’re selling with lenders predicting that “auto loan delinquencies will go up”[3] . The current Boom in Subprime auto loans and the auto industry is largely down to the fundamental problems at the crux of why the crisis happened in the first have not really been addressed.  This is because these problems are more historic than they are financial or even economic.

Wages for ordinary people have been on the decline for the last 30 years which saw an explosion in credit as a response to their wages failing to cover expenses (rent, food, holiday etc). the bottom fell out of this process in 2007 when deals made by American banks went bad leaving the global economy has been reeling ever since as politicians have spent more time trying to shore up the financial system than solve the main problem, the lack of well-paying jobs and the less than honest business ethics of credit card and loan providers.  

The effects of defaulting on Auto loans are damaging as it can seriously affect credit history of borrowers, their ability to get loans in the future, and the car bought with the loan can be repossessed as the car is usually considered ‘collateral’[4]. Most people who have taken out auto loans are likely to be subject to the consequences of default as “more than half of… (Auto loans) default” due to astronomical interest rates[5]

However there appear to be some good news as Marketwatch reported a drop in May this year was the “lowest in its (the Auto loan default rate) 8+ year history” with another decrease a month later[6].

In sum, while the subprime auto loan market may be booming and the rate of default declining slightly, the systemic problems that underlined the 2007-2008 crisis still exists and can send the auto loan default into record figures of debt at any time as families still find it hard to cover expenses without credit and the job market offering jobs that are weak in wage and benefits. Lenders have not learned from the mistakes of 2007-2008 but , hopefully, for their sakes, they do not get a second lesson.

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[1] M C. White, 2012, Is Subprime Lending Fueling the Auto Surge?,

 http://moneyland.time.com/2012/07/12/is-subprime-lending-fueling-the-auto-surge/

[2] Ibid

[3] Ibid

[4] Carsdirect.com, 2009 Defaulting on a car loan: the effects of Car Loan Default, http://www.carsdirect.com/auto-loans/what-happens-if-you-default-on-a-car-loan

[5] L. Picker, 2012, Why subprime Auto loans default,

http://www.nber.org/digest/dec07/w13067.html

[6] Marketwatch, 2012, ConsumerCredit Default Rates Decreased for the Sixth Consecutive Month According to the S&P/Experian Credit Default Indices,

http://www.marketwatch.com/story/consumer-credit-default-rates-decreased-for-the-sixth-consecutive-month-according-to-the-spexperian-credit-default-indices-2012-07-17

(video) Jose Manuel Barroso interview: Barroso on the state of the union

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(Video) Joseph stiglitz on the eurozone

 The Nobel prize winning economist shares his view on the euro zone

(Video) Slavoj Zizek: Occupy Europe!!

Slavoj Zizek speaking on panel in Greece

(Opinion) Porn Industry: How you don’t protect your product

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(Video) Krugman on Newsnight

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(Opinion) government inefficiencies bad, Private sector inefficiencies wors

While there have been many failures to lie at the door of government, its failures are nothing compared to the failures of the private sector. For the last 30 year or so, we have been subject to a very successful campaign extolling the vices of government citing horror stories of government waste, failed policies and personal tragedy while at the same time deifying the marketplace.

However the arguments that would have ended pretty quickly any debate on the reform of the marketplace have fallen by the wayside as they have been disproved in the most dramatic fashion. The last five years have confirmed just about every argument made for reform or even the abolishment of the marketplace as the never ending drive for growth has led to the collapse and concentration of banks in a bid to survive the biggest crisis since the great depression.

We have been exposed to the folly and the outright deception of respected financial institutions as they risked their reputations to increase profits and ended up causing market failure on a grand scale. The recent LIBOR scandal involving Barclays is another example of what happens when profit motive is the only motive involved in the market sector, as banks actively shirk their responsibilities to their clients and customers in the pursuit to make money.

While the government cannot escape a large portion of blame for economic difficulties of the five years as it has failed in its task of regulating the activities of Banks as even  regulatory bodies have been subject to widespread logic that dictates that in order for markets to flourish, government intervention must be minimal or avoided altogether.

This logic, despite all the events in the last five years that have damaged its credibility beyond repair, still holds strong among those endowed with the power to craft a new financial regime based on sustainable polices as the world has just found out just how finite the possibilities of the marketplace really are.

This can explain why most of the regulatory reforms are mostly weak and allow banks to use the same practices that caused the collapse in the first place. Regulating the financial system is going even more difficult as banks, due to government forced mergers, have become an even bigger liability than before as if there should be another market failure, the ‘too big to fail’ arguments for government intervention will be untenable.

In sum, the arguments against government agency in the marketplace were part of an effort to glorify the market in the interest of those who sought to benefit from a weak government which has now collapsed under the weight of events of the last five years. Regulating the financial marketplace will be even more difficult as banks have become even more concentrated due to forced mergers. Government official must make reforming the financial system a top priority as due to the banks being concentrated, the taxpayers maybe be able never mind willing to fit the bill.

(Video) Stiglitz on Inequality

Nobel Prize Winning Economist Joseph Stiglitz gives his take in inequality