Reverse Robin Hood Reversal

Traditionally, banks mediate between borrowers and lenders, transferring surplus cash from flush A to want some cash B. In the process they transmogrify time, turning short term deposits like the balance on a current account, into longer term lends e.g.  mortgages. The credit crunch revealed banks operated as time-machines in a different way transferring money from millions of taxpayers after 2007 into the pockets of millionaire property and private equity investors in the run up to the credit-crunch.

Well when I say investors, I mean speculators. And clearly, some people benefitted from this redefinition of financial intermediation more than others. Well, a few rather than some and they were typically already doing very well thank you very much.

More generally, anyone who owned things, if they weren’t too greedy or dumb enough to attribute capital gains to their financial acumen as opposed to an unsustainable bubble, did well.

At this point we set sail across the azure seas to Cyprus where another massively overblown banking sector has imploded. And as usual the EU cocked things up with its early negotiations; all that was certain about the initial proposal to impose a tax on all savings was that it set neon signs up across Europe saying “bank runs now”. Now though the details of what appear to be the final arrangements look like the first, fair response to the credit crunch.

Obviously, yer average Cyprus punter can expect the full Greek treatment in due course; public spending cuts here, pay freezes there, mass unemployment, emigration and privatisations left, right and centre etc.,. But, limiting the savings tax to the rich, the starting point for all this is that the people who benefitted from and contributed the most to what went wrong are getting the shaft. So at least, unlike here, there’s that small crumb of consolation.

Did I say fair? I meant to say the imposition of a more realistic risk-reward structure will serve to disincentivise moral hazard, encouraging markets to work more efficiently and capital to be more effectively allocated. See? Its not just "common sense", "good economics" spouting Tories that can come out with the econ-chat to tart up their prejudices.

P.S. Its noticeable that this is essentially about the Russians i.e. "our" oligarchs still get saved, each and every, fecking time.

Paul De Grauwe remix

I reckon Paul De Grauwe's Vox article on austerity is already a classic, by which  I mean 50+ years from now economic historians will approach it the same way they do Keynes's "Can Lloyd George Do it?".

As with Keynes's pamphlet, De Grauwe is also seeking to influence government policy rather than articulate any grand, new theory. He does so by setting out clearly, concisely and in a deliberately populist fashion, how the rationale for fiscal austerity is utter bollocks. By doing so he renders fiscal austerity and all it entails an exercise in bigoted, unthinking, hurtful, dogma.

And if that wasn't enough, heck, he even appeals to the great and the good's self-interest when he says "As it becomes obvious that the austerity programs produce unnecessary sufferings especially for the millions of people who have been thrown into unemployment and poverty, resistance against these programs is likely to increase. A resistance that may lead millions of people to wish to be liberated from what they perceive to be shackles imposed by the euro."

So in honour of Professor Groo at a time when the Cyprus bank deposit mess sees the EU plumbing whole new depths of dumb,  the attached "remix" of some of his data strikes me as an appropriate tribute.

Ta da!

The original being >>>

Bank of England Tourettes

Watching Mervyn King set out his views on RBS to MPs today I thought what an ignorant fucker. Here’s why.

His suggestion that RBS should be split into a good bank (to be sold off and become much lovlier as a result and willing and able to lend loads more to businesses etc., presumably) and a bad bank is already built into RBS's structure except they call it core and non-core. And the latest accounts make clear they’ve been shrinking the non-core “bank” like billy-o, cutting it from £285bn plus £85bn of undrawn commitments at the end of 2008 to £57bn (plus £6bn undrawn) by the end of last year.

Now this means a couple of things re: Mervyn’s chat. One is well what bad bank is he on about exactly, the way more than £300bn one that's already been got rid of or the rump that’s left, which continues to account for a disproportionate amount of RBS losses (these being cross-subsidised by its core businesses rather than directly by the taxpayer as might the case if Mervyn's proposals were implemented)?

Another is does this chat - and the resultant uncertainty - help or hinder anyone, like is Mervyn undermining the value of a public sector asset? And what about to what extent is RBS and other banks getting all the shite lending off their books complicating the lending data being touted as evidence of banks being unwilling to lend? *

Unfortunately, Mervyn doesn’t say. Instead, he cite Japan as an example of what not to do, which is interesting in the sense of it being "interesting" someone noted for assuming he’s always the smartest person in the room chooses to spout such bollocks. Here, quick difference – Japanese banks just didn’t ‘fess up to their problems for years ... and years ... and years, which simply hasn’t been the case here. Spain? Fo’sho, but here? Nope.

Plus, there’s cheeky wee fundamental differences about Japan and the structure and common sense of its economy and how that facilitated banks supporting “zombie” companies, which clogged up their balance sheets to an extent you just don’t and won't see here. Then there’s also how generous the Japanese government was when it finally started sorting out its banks. So yes, UK banks have received lots of aid, but they've also paid for it or to quote that banker’s friend the Guardian ”The taxpayer has now made £5bn of profit from the APS and an additional £1.5bn from fees paid by RBS for other liquidity schemes” – and that’s just RBS! By contrast Japan's banks got aid on terms that would have even made Wall Street blush.

So yeah there’s some fascinating degrees of ignorance on show with Mervyn joining Paul Tucker in making random bollocks outbursts. Given Mervyn’s vocal support for the government’s austerity policies I reckon he should ram his ego back up his jacksie, shut up and f'off early.

* Council of Mortgage Lender data on mortgage LTVs make clear we’re actually still in a credit crunch. So rather than behaving like a spoilt wee girl, Mervyn could have more usefully come out with some chat on what he thinks the mortgage market should look like given the Bank of England is in the process of acquiring levers for influencing lending into it i.e. talk about what the Bank of England can and will do and why, not headline grabbing tosh that's as ignorant as its irrelevant as its unlikely to happen.