25 November 2013

Royal Bank of Scandal Reaches New Low

The Tomlinson Report into the practices at the Royal Bank of Scotland, compiled under instruction from Vince Cable's Business Department, has been passed to the Financial Conduct Authority we read this morning. It will apparently demonstrate that the bank that we saved and which we own, had gone beyond being parasitical on the businesses of this country to actively working to destroy them and profit from their demise. It has long been clear that the financial sector in this country is sucking the lifeblood out of our economy, but the fraudulent nature of RBS's business activity takes us to a new level of revulsion.

Since the crisis of 2008 banks have found it more difficult to generate huge profits that were possible at that time. They have looked for ever more ingenious ways to exploit their customers which has given rise to a continuing tale of scandalous mis-selling, first selling insurance against potential redundancy to employees who did not need it, then selling financial products known as swaps to small businesses who had no need for them or understanding of them.

But the latest scandal to be revealed in the Tomlinson report is another step down the ladder into the slough of public opprobrium. It relates to one part of the bank known as the Global Restructuring Group (GRG). RBS's customers who got into difficulties paying back their loans were sent to this part of the bank apparently to receive help with turning their businesses around. Instead they were deliberately charged high fees so that they would become bankrupt, enabling the bank which had inside information to be the first on the scene to pick up their assets cheap. This is a shocking allegation that will now be investigated by the Financial Conduct Authority that has received a detailed report on the activity from the Business Innovation and Skills Department.

It has been clear for years that the banking sector in the UK is pernicious and not serving the real economy, but to find that it is actively working to destroy the small businesses that we need for our economy to thrive is another shock. It undermines yet again the suggestion that what we need is a change of culture in banking. What we actually need is significant structural reform and a much stronger role to be played by politicians in controlling what is possible in this most important sector in a capitalist economy.

Here is a simple idea which I have suggested before but which seems particularly relevant today: the Royal Bank of Scotland should be broken up and turned into a system of local community banks on the model of the German banking system which has done so much to support their Mittelstand - the layer of small and medium-sized enterprises that is the engine of the German economy. Each local bank could include local business people and others with an understanding of local economic needs on its board. It could still lend at interest but do so in a way that served its local economy and built its resilience rather than actively destroying businesses.

That a bank would work to undermine its customers for its own advantage is shocking and probably fraudulent, but that this activity would be undertaken by a bank that owes its existence to public support and is 80% owned by the public is, quite frankly, unbelievable. Of all the politicians who have been in a position to act on the disasters of the British banking system, Vince Cable has been the most disappointing. He clearly has the knowledge about how to do the right thing so we can only assume that he does not have the power within the coalition. Let us hope that this latest and most shocking scandal gives him the authority to take the action our small businesses so desperately need.

15 November 2013

Living off Our Children

On Wednesday next week, 20th November, students across the country will unite under the banner of the Student Assembly Against Austerity to protest the planned privatisation of the Student Loan Company. The outrage of pushing young people into debt before they even understand the implications lay at the heart of the protests against the increase in student fees two years ago. But the sell-off of the Student Loan Company to fill a hole in the public finances pushes students not just into debt but into the clutches of private finance companies.

The students have a Facebook page to publicise events.It shows that across the country from Aberystwyth to Essex students will be demonstrating against their use as a cash cow for cash-strapped government. In Liverpool students will be running a ‘student debt obstacle course’ and collecting signatures on a petition to send to local MPs. In York they will be having a more traditional rally with speakers. We need to lend them our support wherever and whenever we can to resist what is a mechanism to allow us to feed off their future earnings.

The reason that the student loans are attractive to finance companies is that they are prime material for securitisation - the process of financial alchemy that turns an illiquid asset into something that can be bought and sold and used for speculation. It was exactly this process, with sub-prime mortgages, that lay behind the financial bubble and then bust back in 2007/8. The original asset, the loan to a student, generates a slow although dependable income as repayments are made. But once bundled together and turned into a security these debts can be bought and sold in secondary markets where much greater speculative earnings can be made. This explains the appeal of the Student Loan Company to financial sharks.

My report for the Green House identified the problems generated by a university financing model based on debt. It demonstrated that this is a political choice, in my view based as much on the desire to create docile citizens and willing workers as to save pressure on the public finances. I argued that the privatisation of student debt as part of the plan from the start:

'This determination to sell student debt was partially confirmed in the 2010 Budget in which the government said it would in the next 12 months 'announce its decision on selling part of the student loan portfolio, including looking at the options for early repayment for individuals, in light ofLord Browne’s review of higher education finance. (Budget 2010, pg 44)'

The report quotes data from a study by Grant Thornton that demonstrates how the debt system of finance will exacerbate inequality between students and work against social mobility. The research calculates that those who will lose most are those on high but not excessively high incomes. In their comparison of three representative workers, all of whom graduate with a debt of £40,000, the journalist who never achieves a high income has the vast majority of her interest written off because she does not earn enough to repay it. The barrister (a representative high earner) repays his loan together with £28,000 of interest. The loser is the civil servant who, although he makes rapid career progression, does not earn enough to pay off his loan rapidly, and so incurs interest of £58,000 as well as his loan of £40,000. These are staggering sums of money, and indicate that the students of the future will be funding those financial companies to whom the government will sell on student debt handsomely. 

I end the report by suggesting radical egalitarian models for funding higher education arising from an open debate about the ownership and division of the product of academic labour, which in other sectors i sometimes addressed by the creation of a mutual structure. Under the supervision of Professor Rebecca Boden we have a student exploring options for a co-operative university at Roehampton. The discussion will also be taken forward at a meeting called Time for a Co-operative University? at the Institute of Education, Thursday 12 December 2013, 5.30-7.30pm, Room 804

4 November 2013

A New Carbon Budgeting Tool

A guest post from Aubrey Meyer of the Global Commons Institute

In the light of the positive attention to 'Contraction and Convergence' shown by the Gaian Economics blog, please may I introduce you to CBAT, the 'Carbon Budget Analysis Tool'.

CBAT is the latest phase of C&C development: and is intended to be useful now that - following the IPCC's Fifth Progress Report (AR5) - 'carbon-budgeting' seems finally to be on the agenda.

For example, the analysis tool quickly shows the IPCC AR5 Contraction-to-Concentrations results as a result of the UK Climate Act (UKCA). This particular piece of analysis shows the emissions-budget-integral in the UK Climate Act is either: -
[a] twice too much (and that's without the feedbacks) or
[b] just a third too much or
[c] just right
This really gives one something to chew on over regarding IPCC's stated '1,000 Gt C' maximum for two degrees!

Its also interesting to see/play that combined that with contraction-convergence-rates CBAT Domain Two. 
CBAT Domain Two perhaps explains why the prescribed global convergence date of 2050 in the UKCA was so inflammatory at COP-15. The convergence to equality by 2050 in the UKCA was something of a fig-leaf and using CBAT D2 animation quickly shows that. Its quite an eye-opener i.e. convergence by the time 80% of the budget has been used up makes no real difference at all.

GCI has always modelled that convergence for any rate of global emissions contraction should be at a negotiated in the light of 'historic responsibilities'. Subject to the UNFCCC-compliance rates of Contraction and Concentrations in D1, the animation D2 clearly shows the maths sub-division of this.

The CBAT is open to consultation and amendment so please take some time to look at it and comment on it. So far some others have and said supportive things, which is encouraging which are available on our website.

1 November 2013

Tories Attack Green Levies to Defend their Carbon Interests

For a Green who came into the movement more because of social justice than environmental concerns it is heartening for me to see the opposition to equality and to environmental protection beginning to coalesce into one mass of odious opposition to a just and sustainable future. The specific example of this in recent days has been the active lobbying by Tory squires from the shires against the green levies on energy bills.

Nafeez Ahmed, who writes for the Guardian on matters of energy, has provided some excellent forensic analysis of the real interests that lie behind the faux concern for pensioner fuel poverty of parliamentarians like Jacob Rees-Mogg, MP for North Somerset. As well as being a prominent controversialist, Mogg is frequently to be heard issuing windy rhetoric about the dangers of environmentalism and the problems with renewables. In his world, coal is still king and the market should be allowed to reign supreme.
We might dismiss this as a lot of hot air were it not for the fact that the hot air is issued for a very specific purpose: to keep inflated the carbon bubble that many argue is more of a risk to our futures than the financial bubble that led to the 2007/8 financial crisis. The concern about the ‘carbon bubble’ is that the world has a vast overhang in terms of the value of fossil-fuel-related assets. As policies to tackle climate change are introduced this value will be suddenly undermined, leading to a collapse in energy commodity prices and the finance that is tied to them.

I have always found this a somewhat na├»ve argument: since it is the world’s richest and most powerful people who own the assets, fossil and financial, they are hardly likely to see the value of those assets eroded without a fight. Much more likely that they will launch a full-scale assault on the political consensus around pro-climate policies, which appears to be exactly what we are seeing in the antics of Mogg and his ilk. Their insidious attempts to undermine the scientifically evidence about the anthropogenic origin of climate change and the urgent need to address the issue flies in the face of the public interest but is very much in their own private interest.

As Ahmed writes:
‘Rees-Mogg is a founding partner at Somerset Capital Management (SCM), a global asset management fund where he currently works as a macro specialist while also being an MP. Among its many investments, SCM specialises in emerging markets, including in the energy industry. Its largest holdings include oil majors such as the China National Offshore Oil Corporation (CNOOC) - which for instance is spearheading multibillion dollar deals to access the North American shale gas market - and Russia's OJSC Rosneft Oil Company. ’

The wealthy who have unfortunately been elected to run our country hold their wealth in exactly the sort of assets whose value would be undermined if we were to introduce the sorts of policies that tackling climate change urgently demands. Even the small steps along the road to subsidising renewables, not to mention full-scale community ownership of generation on the Danish or German model, would seriously threaten their profitability. So while the Tories who attack green levies may speak of the poor pensioner in a cold house their real interests lie much closer to home.