Make Your Money Work Twice as Hard

It was Treasury Management training day today and as chair of the Audit Committee I get to receive up-to-date financial analysis. Our excellent adviser explained how the Funding for Lending scheme is effectively a replacement for the failed quantitative easing programme. The banks were sucking up the QE money and using it to balance toxic assets they had written off, without increasing lending. The Funding for Lending scheme made £80bn available to them explicitly for lending. The data shows that again they have absorbed the money without much coming back to the real economy.

Treasury Management is really just a piece of jargon for how we invest the money that we need to hold in case of emergencies or to support monthly cash-flow. Of course my aim for our investments is that they should be removed from banks and sent in the direction of socially useful activity. We are a small council without the massive investments of our county, Gloucestershire, which invests in cigarettes while simultaneously being responsible for public health. Our money is mostly in financial investments, the final destination of which we know little about. I would rather follow the advice from Move Your Money and seek to use our money twice.

The problem with councils making such changes appears to stem from the phrase 'ethical investment' itself. Since national rules says that council investments must be based on the three criteria of yield, security and liquidity, many of the investments that we might like to see our councils placing their money in are bound to fail to pass the test of the council's financial officers, either because they do not have a sufficiently strong credit rating or because the yields are lower than those offered by banks and money market funds.

But a council is a political body and so can adopt a policy that designates that a certain proportion of its capital holdings should be placed with organisations that align with its political objectives, rather than being part of an investment portfolio. So if it seeks to support those who wish to purchase houses locally it can invest some money with a local building society, perhaps requesting that they establish a particular fund to be made available to first-time buyers within its postcode areas. Or it could choose to lend money to local social landlords to enable them to build more properties, which will be used as collateral for the loan. Security and yield and still important, but the do not dominate over the council's other objectives.

It is early days for our council to consider whether it can ensure that some of its money finds its way into local economic activity rather than the large international portfolios of the banks. Our next step is to prepare a motion for the Audit Committee to chew over the advantages and disadvantages of such a proposal. And we need to discuss these suggestions with finance officers. But it seems that at least part of the £20 million pounds that we have invested can be used for social good rather than all of it being invested in the same banks that created the financial crisis that has hit so many of our resident and deprived us of the money we need to deal with their problems.

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Taxpayer as Shareholder

A guest post from Gerald Hartley, local green activist in Stroud and south-west regional elections co-ordinator

The British tax payer is a ‘shareholder’ in the state enterprise in all its many forms.  Over the decades this ‘enterprise’ accumulated assets worth billions of pounds. Coal mines, railway stations lines and rolling stock, power stations, steel works, canals, bus companies, lorry fleets, a national grid of gas pipelines and electricity lines, telephone lines, water mains and sewage pipes, pumping stations and treatment plants, council houses, hospitals, health centres and clinics, town halls, fire and police stations, roads and bridges, libraries, schools and colleges, elderly persons and children’s homes.  Why did it do so?  Because the private sector failed to provide all the things needed for the common good.

The Thatcher era began and governments ever since have continued, to sell those assets cheaply to the private sector and use the cash to make their financial performance look better than it was.  But now it is also a cover for the lack of revenue caused by the financial crash brought about by the very people that fund and support the Tory party.

Where asset sales cannot be justified, such as schools, pseudo-private organisations are constructed to eliminate democratic input and maximise elite structures. This is the very serious underlying aim of the Tory party – an elite society with everything owned and run by their friends and supporters to protect their common interests, untroubled by the rest of us.  They can see that financial crisis may come and go, but privatisation only gets reversed in a revolution.

So we the tax-paying shareholders in the UK state, have lost most of our assets, suffer reduced services, but pay the same tax and receive no dividends.  When the Tories crow that they have kept the council tax at the same level for 3 years, do you laugh or cry?  But it’s the kind of propaganda that keeps them at the helm.

In the 18th Century, there was little that the peasants could do to oppose the Enclosures of common land.  This saying, from that time, seems strangely apt all this time later.

‘The law doth punish man or woman
Who steals the goose from off the common
But lets the greater felon loose
Who steals the common from the goose’ 

Geese are not very bright.  So maybe it’s time for the ‘have nots’ to demonstrate that they are brighter than that and stop blaming Europe, immigrants or anything else handy and take the trouble to understand just how the globalised financial system is designed to benefit a tiny minority at the expense of the planet and every species living on it.

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Rewilding our Economy?

I went to see the second part of the documentary Wild Carpathia at the Romanian Embassy last night. It was a delightful event, although the audience were rather like characters out of a Forster novel waiting for the monsoon. Our patience was rewarded, however, by a lovingly crafted portrayal of a life in an unspoiled environment for which many of us are nostalgic but which still exists in the areas of Romania in the Carpathian mountains and the Danube delta.

I am interested in this idea of wild. It seems to refer to something out there, a way of life others preserve and that you/we can visit before returning (flying back) to our modern, electronically connected lives in complex, energy-intensive cities. And how wild is too wild? There are lynx, wolves and bears roaming free in the Carpathians, a source of delight to the film-makers. But how would we feel about our children playing in forests there?

Don't get me wrong: I am a sucker for the simple peasant life, and I particularly enjoyed the city of Sighisoara, where the historic towers were once used by the guilds to defend the city against invading Turks. Attempts are being made to revive the guilds and to keep their skills alive. This is all music to the ears of an economist like me who writes about a 'bioregional economy'. It was also interesting to note that it was the capitalist era that saw the most serious destruction of Romania's patrimony and that the communist regime protected the country's heritage and its natural beauty.

But I have a sneaking feeling that there is a level of inconsistency here: are the film-makers suggesting that we should idealise this lifestyle from afar, or is there a proposal wrapped up in the soft focus and ethnic music that we should attempt to re-create a land-based, self-reliant and simple life in England's green and pleasant land? While we are being invited to admire the peasants it is also suggested that our 'slow tourism' visits are essential to support their continued existence, which feels akin to philanthropy for the globalisation age and leads me to question why some of the world's citizens are granted the bounty to be able to patronise others.

To propose a future based around provisioning based on your local land is to risk ridicule and derision. Yet simultaneously many idealise exactly this kind of society outside their own backyard. While technological advances mean that the bioregional vision will represent a backward step, or a backward existence, it will still require a great deal more physical work and considerably reduced mobility. I would argue - and do argue - that quality of life would be massively enhanced, but how many would choose this as their daily reality rather than their annual escape?
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Quantitative Easing for the Poor?

Creating money was once looked on as a dangerous game, destabilising the economy and potentially leading to rampant inflation. But this traditional wisdom was swept aside and now the financial junkies are protesting the advertised end of the policy in the US and creating market falls on the basis of those expectations. In the UK context, researchers at the Bank of England investigated the distributional effect of their QE policy, i.e. who were the winners and who were the losers. Their conclusion was that most of the benefits accursed to the wealthiest 5% while some of this living on pensions were losing out quite substantially.



On the radical side of economics we have been trying to argue for direct credit creation for social benefit. At the beginning of this month the New Economics Foundation issued a report formalising this demand. Strategic quantitative easing makes the case that new money should be directly created by government to fund the transition towards a sustainable economy, particularly paying for green infrastructure and the rapid policy of home insulation that will reduce carbon emissions and prevent deaths through cold this coming winter.

Now it seems that the US government has found a way of making credit creation work for the poor. I had not realised until I watched Faisal Islam's extraordinary report on the Rhode Island gold card the sheer extent of the federal food stamps programme. US commentators have noted that the food stamps programme is the modern equivalent of the Depression era soup kitchens. It seems sadly symbolic of our individualist and technocratic age that rather than sharing a bowl of soup, in no matter what dreary conditions, today's dispossessed are issued with a deceitful imitation of the gold credit card of the wealthy.  Nationally, the number is approach 50 million and as Islam's report showed, it is now remarkably easy to use your preloaded card to do your shopping.

Now I know that the money to pay for this programme, a huge $75bn., is not directly created, but since the quantitative easing programme buys back treasury bonds, thereby reducing the debt, it effectively creates the scope for this massive federal programme for the poor. It also makes clear that questions about how money is made and who has the right to decide how it is spent has been removed from democratic control through the increasing use of technical language for what is really simple. Governments can make money directly and it is a political choice that in the UK that money is sent to financial institutions rather than to help the poor.
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Drop the Debt, Dublin Style

Campaigners from the Anglo: Not Our Debt camapaign were busy in Dublin this week, investigating a crime scene. They cordoned off the Central Bank in Dame Street and subjected it to forensic analysis on the CSI model. The white-collar criminals were not in evidence, but in the case of Ireland the fury at politicians is at least as fierce as the fury at banksters themselves. The Irish campaign is part of an international network of groups campaigning to challenge the imposition of austerity in response to illegitimate debts that were not entered into by democratic agreement. Such debts should be labelled as 'odious' and should not be allowed to destroy social bonds or public services.

The anger of the Irish campaigners relates to the failure of the government to use the criminal law to bring to justice those who have destroyed the Irish economy. They are encouraging the Irish people  'to submit complaints of suspicion of financial crimes in Anglo to the Gardaí, for example under Section 6(1) of the Criminal Justice (Theft and Fraud Offences) Act 2001.' Hence the creation of a crime scene in central Dublin yesterday.

Although the Anglo-Irish Bank no longer exists the Irish people are still paying for its reckless lending: repayments will amount to more than €47.9 billion by 2031, a full 30% of Ireland’s GDP. The campaigners are calling for the debts to be frozen. Their fury has been increased by the release last month of the so-called 'Anglo tapes', in which John Bowe, ex-head of capital markets at Anglo, can be heard laughing about the bailout that the bank has managed to extort from Irish taxpayers.

In a tape that would shame anybody outside the financial 'community' Bowe discusses his negotiations with Ireland's financial regulator as 'fun and games'. He asked for €7bn. in return for which they offered only paper guarantees and which he refers to as a bridging loan 'until we can pay you back. . . which is never', this last joke being a cause of considerable mirth on both sides. The phone call took place in October 2008, two days after Ireland pushed through a €440bn (£373bn) bank guarantee scheme that has nearly bankrupted the state. What the tapes make entirely clear is who is holding the power: the politicians have clearly capitulated to the interests of the bank's boldholders, explicitly so according to Bowe.

But these tapes underline the illegitimate nature of the debts and increase the potential for arguing a legal basis for them to be declared odious.Vicky Donnelly, of the Not Our Debt campaign said, 'The Anglo tapes show that the Anglo debts originated on the basis of deliberately misleading information. We question the timing of the release of the tapes and request that the full content of the tapes be publicly disclosed. We want to know who knew of the content of the tapes which, had they been made public earlier, would have led to massive public pressure to write off the Anglo promissory notes last February. This debt is illegitimate and should be written off now, once and for all.'
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Graphic Co-operation for Children

The wonderful thing about the summer is remembering how lovely it is to lose yourself in a book. My own delight is somewhat reduced by the fact that I have a desk full of books I should have reviewed around a year ago, but leaving that aside I would like to share one with you today: The Co-operative Revolution, a graphic novel by Polyp.

This is an ideal book for children or grandchildren you may be having to entertain this summer. It is a story of the ongoing adventure of co-operation in three sections: past, present and future. The historical section packs in information about the Tolpuddle Matyrs, Peterloo and a host of other iconic working-class events, together with the bare bones of the story, and the promised graphic illustrations. The culmination, inevitably, is the Rochdale Pioneers and their decision to liberate themselves from capitalist shop-keeping. The final image is the grave of George Holyoake, appropriately next to George Eliot in Highgate Cemetery--another excellent outing for young people and those looking after them in London this summer.

The middle section tells the amazing story of the global co-operative movement today. This section is rather heavier on data and may be a little too worthy for some young people (or older people!) But the short interlude spent with the Brukman Street Gang (telling the story of Argentina's empresas recuperadas) helps to lighten the load, to coin a phrase. The sections on the inevitability of co-operative at the biological level is one in the eye for Richard Dawkins et al. and reinforced the need to join the co-operative evolution rather than revolution.

Finally, we have Polyp's vision of the future of co-operation, a futuristic fantasy where an entirely politically correct workers collective called Rochdale Aerotech successfully equip a future Mars exploration project with special 'atmosphere parachutes'. I must confess that this section strained my bioregionally honed senses to breaking point, but it might find more favour with those who still see Forward to Mars as a promise rather than a threat.

The book is a wonderful inspiration with all the key players and a concluding co-operative timeline that would be useful in the classroom as well as for reading on the beach.
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Knowledge, Power and the Research Excellence Framework

Far beyond the arcane reaches of the Basel capital requirements, touched on in my last post, lies the swampy territory of the Research Excellence Framework, its very name bringing a whiff of fascistic thought control and striking terror into the heart of the nation's academics. Measuring research excellence is the sort of activity that creates an appealing soundbite for politicians of the ilk of Michael Gove but rapidly evades the mind, escaping into a realm of subjectivity and confusion, once it becomes an actual policy.

Thus have we, who labour in the mines of knowledge with sweated brow, attempted to resist the suggestion that there is anything meaningful about assessing a certain research paper as be 'worth' 3.25 or 2.75 according to criteria such as rigour, originality and significance. Sadly, it is often the papers that are particularly heavy on meaningless theory, or that are of the politically unchallenging variety that should find their way into the Journal of Overnight Discoveries, that score highest in these exercises.

The fact that the research evaluation system works against radical work has been a longstanding prejudice held by those of us who believe that quality cannot be enumerated and is unlikely to be clearly apparent until 50 years after a paper has been published, but at last we have some evidence to support our case. In the field of economics Fred Lee, professor of economics at the University of Missouri, has analysed the way in which economics papers are ranked and reached some disturbing conclusions. He has unearthed a self-referential and self-reproducing elite of economists who review each others' work, publish each others' work, and largely agree in terms of their conclusions about how the economy works.

As Lee correctly points out, this sort of groupthink amongst economists is a prime explanation for the disastrous nature of the financial crisis in 2007/8 and the fact that it was 'not foreseen'. But these charmed circles also work to control research funding, since work that is published in the most highly ranked journals, those with a 4* rating (yes, really) will ensure that their authors receive three times more research funding than those that only receive a 3* rating. Since the Cambridge Journal of Economics, the highest ranking economics journal that includes heterodox work and the site of Lee's paper, only scores a 3, heterodox economists are limited terms of the time they can spend writing and publishing and are unlikely to obtain jobs in the highest ranked universities.

Lee and his co-authors reach some startling conclusions, arguing that the control of the economics discipline is no less than an attempt to eliminate alternative views: 'the going concern model of UKeconomics puts into focus what others have identified as cultural, political, language, or social genocide of the "other"'. When in this case that 'other' might be the suggestion that capitalism can never be sustainable or that a debt-based money system will inevitably lead to global injustice, it becomes evident that this is a debate that needs to find its way beyond the walls of the academy and into the public domain.
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One Rule for the Rich?

My suspicions were aroused when the credit-rating agencies started criticising the capital holdings of the Co-operative Bank. After all, any bank is effectively bankrupt at all times, so pointing the finger of accusation just becomes a self-fulfilling prophecy. I put my suspicions down to paranoia, but now that the BBC's Robert Peston is starting to make similar noises about the Nationwide I am beginning to wonder whether I wasn't suspicious enough.

As Peston notes, the response by many to the disasters and calumnies of the banking corporates has been to look in the direction of mutual ownership. I have called for the Royal Bank of Scotland, rather than being sold back to shareholders, to be broken up into a system of local community banks, owned by those in the local economy who would uses their services, and with boards made up of local businesspeople, councillors, and citizens. Green MP Caroline Lucas made a similar point during her intervention in the banking debate earlier this week.

The logic is clear: if we, the public, provide the guarantee that allows the banking system to have credibility while operating in a state of permanent insolvency then we should have control over how it directs credit and should also see the profits from banking invested for public benefit not private gain. The redistributive effects of such a shift would be massive, which may be why the commentators are now portraying mutual financial institutions as unreliable.

Yesterday's suggestion from credit-rating agency Moody's that the situation is improving for the commercial banks is the final piece in the puzzle. Since the problem for both the Co-operative Bank and the high street banks is that they are holding commercial property assets that have massively lost value since the crisis, it simply cannot be right to say that their credit ratings are moving in opposite directions, at least not if you take this as an independent indication of financial health, rather than a piece of political propaganda. The rules set by the Basel Committee as to what counts as a reliable form of capital are similarly prejudicial to the interests of building societies, whose assets really are safe as houses and far less subject to risk than the complex financial instruments counted as assets by the banks. Nationwide boss Graham Beale made a similar point in an interview with the FT recently.

The inconsistency with which mutual and shareholder-owned financial institutions are being treated by financial commentators leads to an unsavoury conclusion. Could it be that, having used austeria to attack public services and the working conditions of those employed throughout the economy, the defenders of capital are now using it to destroy the vestiges of the co-operative and mutual economy?
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Darwin and the Zombie Companies

The issue of the zombie economy is one feature of the new economic situation we are in as the crisis extends over time. In the short term, lenders and banks can wait for the good times to return but as the depression extends and more debts fall due they start to accumulate and undermine more companies. It appears to have been zombie companies that busted the Co-operative Bank, inherited from the Britannia Building Society.

Mark Thomas of PA Consulting invented the idea of the Zombie Economy, with companies refusing to die because of the devastating social consequences but failing to thrive because of carrying massive levels of debt. The zombie company can earn enough to service its debt but it cannot invest or grow. It can only struggle along but cannot innovate. It is a drag on the functioning of a capitalist economy. The data on corporate insolvency and personal bankruptcy clearly indicate the massive impact of the financial crisis but appear to show that the peak is past. The contrast between the high rate of personal bankruptcy and the relatively low comparative rate of corporate failure suggest that the thesis of a zombie economy may have some basis.

During a Radio 4 documentary on the issue last winter John Moulton used Darwin's phrase 'survival of the fittest' to describe the need for financial institutions to abandon these companies that cannot repay their debts and whose assets are not worth even a fraction of what they were before the crisis. Solving the crisis, he claimed, required the law of the jungle to be allowed to reign. The bankrupt companies should go to the wall, releasing economic energy.

here is a practical problem with this, because if the banks pulled the plug on the zombie companies that have borrowed their money the disastrous relationship between their liabilities and assets would become apparent and we might find ourselves in Financial Meltdown II: Revenge of the Zombies.

But what about the question of which business is the 'fittest'? Darwin would be more use to us if his phrase were interpreted as he intended: fit does not mean healthy but rather appropriate. In this sense the phrase might usefully guide us to question what sort of business is appropriate to the just and sustainable economy that we should be building in response to the disasters of recent years. It could guide us to the changes we need to make to corporate law to introduce appropriate and socially beneficial motivations to the heart of the enterprises that form part of our economy, rather than the short-term and selfish motivations that dominate within the existing corporate legal structure. Tweet