Sunday 13 May 2012

STATE CAPTURE by the Financial Services Industry

State Capture is generally associated with Corrupt Countries where a small number of firms (or such entities as the military) are able to shape the rules of the game to their advantage through massive illicit, and non-transparent provision of private benefits to officials and politicians. Examples of such behaviour include the ability to control legislative votes, to obtain favourable executive decrees and court decisions. A new phynomena of "State Capture" where "Too Big to Fail Financial Institutions" dictate economic policy is now evolving since the onset of the Financial Crisis in 2008.

The UK economy has now been infiltrated and hijacked by a self serving group of Bankers and Financiers who have no regard in re-distributing wealth to the many for the overall good of the country, but seek to engross themselves at the expense of Civil Society. This cannot continue and the Financial Industry can no longer hold the UK to ransom. Go back in history and the Great Depression is eerily similar, but Banks were allowed to fail in the Great Depression. 100 years ago Bank Executives were held personally liable for a Bank's failure, now they walk away with Golden Handshakes. Many economists claim that Bank failures caused the Great Depression to be so prolonged and deep and the Federal Reserve allowed the money supply to contract so sharply. I disagree with this analysis and suggest as Hayek does that Banks should be allowed to fail. However I suggest to significantly reduce the impact of a falling money supply when Banks are placed into Insolvency and Depositors withdraw their savings that Bank Savings Deposits should only be protected in any form of Bank Insolvency and immediately  new "Good Banks" without the legacy of "Toxic Assets," be Incorporated with  local community people taking over the governance of these new entities. Financial Elites would loose in such a scenario given the fact that over recent years Share Bonuses have been given on top of monetary bonuses. The so called "Fire Wall" should only protect Bank Saving Deposits held by a Bank that at best now comprises in most cases less than 10% of a Banks Balance Sheet. In the current Financial Crisis if you had forgotten, goes back to 2007, now coming on 4-5 years and we do not seem any closer to solving the fundamental economic problems, so it needs a total re-think. Top Bank staff even now in 2012 are still rewarding themselves handsomely for Failure and the 99% have had enough. Yes Prime Minister we are not all in it together. Financial Institutions who have been bailed out by the State should be considered as "BENEFIT SCROUNGERS," and should not be considered as "Folk Heroes." Giving them now a third chance after 4 years since 2008 to pull the economy out of The Abyss when everyone else suffers is totally unacceptable. The economy simply will not recover when the wealth of a country is so highly concentrated in the hands of a few, who were bailed out in 2008 and continue to squander the countries wealth at the expense of everyone else.

The calls for Bailouts in 2008 were not from the very poor, but the very very elite Rich who would have lost everything had the Banks and Financial Institutions been allowed to have failed in 2008. The Balance sheet of a Bank is in most instances at best comprised of only 5%-10% of general savings deposits. The 90-95% of Banks Balance Sheet is typically Toxic Assets (ie assets that become a major liability for the Financial Institution if the claimed market value of the asset falls and has to be marked down to true value, such as has just happened with Greek Debt in March 2012.).

Capitalism is about efficient allocation of resources, traditionally Land Labour and Capital. Banks and Financial Institutions in the current Capitalist system decide which oragnizations are allocated capital, it is very questionable that market forces are allocating capital efficiently, given the sheer size of the "Too Big to Fail Banks." When these mega Financial Institutions now have Banlance Sheets far greater than a Countries GDP, market distortions could easily occur when large Financial Institutitions consider, "It in their self interest, rather than liquidating assets and accepting the market price, to leverage up and borrow even more in the HOPE that in the long term the toxic asset can be made whole."  In its simplest form, this is exactly what the  European Financial Stability Facility (EFSF) is designed to achieve. A short term fix in the hope that all will be merry in the long term. They talk about "Fire Walls" but these so called  "Fire Walls" are only designed to redistribute wealth from the 99% to cover up the losses of the 1% elite. Case in point ECB in March 2012 dispensed 1/2 Trillion Euros for 3 years at 1% to the Financial Elite and yet all these Financial Institutions in 2008 were on the verge of Bankruptcy. A poor person with a poor credit history would not have a hope of borrowing even £1000 at 1% and yet the financial elite through the way the current Reserve Bank Monetary Capitalist system operates are able to borrow infinitum  "Free Money" very soon after they were on the verge of Bankruptcy. These Mega Financial Instutitions also get to decide where the money from 1/2 Trillion Euro's goes into the economy. Market Forces can not possibly be allocating this money efficiently as a  few well connected elites decide where the money goes in the economy, that can only but be described as "STATE CAPTURE"

Governments including the UK government are now held hostage to "The So called Market" as any hint Government borrowing will increase will lead to money markets dumping UK sovereign debt. The irony is that "The So Called Market" is not you and me, but these major Financial Institutions and Hedge Funds supported by huge leverage from the Financial Institutions who were Bailed Out by Governments around the world in 2008. It is beyond belief that Governments can be held hostage under such a scenario, but this is where we are in 2012. Governments can't default on their Soveriegn Debt for Fear the Market will punish them and yet, Keynesian Economic Theory suggests that Governments should be borrowing and spending in times of economic uncertainty, but borrowing from "The Market" will lead to Credit Downgrades and as we have seen with Greece, "The Market" heavily punishes a country, forcing Austerity upon the Country.

Japan has been caught in economic stagnation for 20 years, largely because they have not accepted the Bank Balance Sheet losses since the Economic bust in the 1980's. UK is quickly following Japan with endless Printing of Money now Quantitative Easing is used as a euphemism to deflect attention from the fact that QE is the only policy tool now available since interest rates have been at rock bottom for several years. QE leads to massive inflation, simply look at the price we are all paying at the Forecourt. In yet another twist to "State Capture" the Financial Institutions can front run the purchase of Crude Oil contracts from QE before the real market, yes that is you and me filling up a few litres of fuel at the forecourt have a chance.

While harsh, the only Solution to restore economic equilibrium in the UK is to allow Banks to be placed into Insolvency, but with a caveat to build a "Fire Wall" to protect Depositor Savings only. Since 2008 there has been no attempt to establish mechanisms to place Banks into insolvency and isolate Depositor Savings with Deposit Savings transferred into a Good Bank owned by the people for the benefit of the people.


Have your say at E-Petitions Now

Stop the endless Bailouts
http://epetitions.direct.gov.uk/petitions/17979

Be part of a London Peoples Bank run by the People for the People

http://epetitions.direct.gov.uk/petitions/21878


Toby Chambers
Economist and Social Entrepreneur

Friday 11 May 2012

The Greek Crisis: Seven days that shook Europe

The Greek Crisis: Seven days that shook Europe

The Greek Crisis: Greece is falling out of Europe

The Greek Crisis: Greece is falling out of Europe

Guardian Competition Visualize Economic Recovery

COMPETITION: Help us visualise the world's economic recovery - and win $2,000

Guardian Datastore & Google competition: How will the world's economy recover from the deepest recession since the 1930s? Which countries are best placed to sustain economic growth in an information economy over the the next decade? And can you help visualise it?

http://www.guardian.co.uk/news/datablog/2012/mar/29/google-data-visualisation-competition-economy

This fits in well with setting up

World Economic Reconstruction Foundation

Be a great way of Kick Starting the Foundation

Wednesday 9 May 2012

The Greek Crisis: Greek Politics: A Step Towards the Exit

The Greek Crisis: Greek Politics: A Step Towards the Exit

Is this the End Commodity Super Cycle ?

End of the Commodity Super Cycle ?

Is the beginning of May 2012 the end of the Commodity Super Cycle ?

I possed this question to Mr Ruchir Sharma at his presentation "Breakout Nation" LSE on 30 April 2012 and following his presentation I suggested that we pencil in this date as the beginning of the end of the Commodity Super Cycle.

Listen to the presentation

http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=1449

The Key reasons for an end to Commodity Super Cycle as discussed in the presentation plus my own thoughts and analysis

1. High commodity prices have resulted in many new mines being developed and have taken many years to come on-stream.

2. China's rapid growth has come to an end. Lower overall demand will feed into commodity producers constantly accepting lower prices, rather than has been the case in recent years of producers dictating prices.

3. The Euro-zone is now clearly back in Recession, with little prospect for rapid growth.

4. High commodity prices have depressed overall disposable income and feed into lower overall consumption. In the coming years overall demand for commodities will be well below the levels we have recently seen as the growth of the developing nations slows considerably.

5. The Commodity producing countries, have seen large capital inflows with their currencies now far too strong, resulting in loss of productive competitiveness. Australia Brazil  case in point.

6. The Financialization of commodities is coming to an end. I suggest that we are now entering a phase similar to 2008, although this time the general public will not stomach the bailouts of Financial Firms and we will soon witness a financial crisis much worse than 2008. In 2008 several big named financial firms were able to use "Bailout Money" to stock-up on Commodities, but this time that luxury will not be possible as their own financial survival depends on liquidating everything.

7. Consumers in the Developed world have altered their behaviour and now are very concerned about purchasing fuel efficient vehicles, using public transport as an alternative, walking and cycling. This can clearly be evidenced with Western European oil demand now below consumption recorded in 1994.

8. Renewable Energy, while still in its infancy provides a glimmer of hope that the renewable energy industry will be a growth area, leading economies out of the Current Depression including Greece, resulting in lower overall demand for traditional coal and oil.

9. Recycling and reclaiming materials is growing as more efficient methods of processing recycled materials are developed, reducing the need for the extraction of raw commodities. Consumers are also playing their part with a Boom in mend and repair.

10. High Food Prices have been forcing city dwellers to either Grow Their  or Own, local community food growing or has recently been cited in Greece returning to farming as a way of earning a living.  Improved climatic factors will also improve crop yields in the coming years.

As of writing today 4 May 2012 WTI Crude  had a 5% fall before settling  below the $100 and I suggest that in the coming weeks with no stable government in Greece, just like we saw in 2008, there will be rapid unwinding of Commodity Contracts and it will be a race to the bottom.

Time will only tell if the analysis is Spot On.

You be Judge and Jury.

All I can offer is that the quicker the Commodity Bubble Unwinds, the quicker the world's economic engine will spring to life.

I will leave with one final thought

The Book "Breakout Nation" by Mr Sharma offered a set of principles in identifying countries with potential to be new growth Nations. I suggest Greece could be that New Economic Miracle and could easily take-over from China in being a production powerhouse for Europe, once Greece exits the Euro.

The Greek Crisis: Greek Elections Force Germany to Weigh Austerity Endgame

The Greek Crisis: Greek Elections Force Germany to Weigh Austerity Endgame

Tuesday 8 May 2012

How can we Re-Construct Greek Economy ?

Despite all the Gloom about Greece, there is a way forward.

The first planning Group scheduled for 12 May 2012 will discuss and share ideas.

There will not be a single answer to Greece's problems.

A Greek Exit from the Euro is inevitable and is a matter of timing.

Developing a Reconstruction Plan Now is important as the current Greek Authorities do not seem to have a plan.

The Enterprising Spirit of those who want to see a New Greece flourish, can now take a lead as the Politicians continue to argue and are unlikely to reach consensus in the coming weeks and probably months.

Substantial Capital has fled Greece in the past 2 years and is now in London.

Rather than single individuals profiteer from the eventual currency collapse, once Greece exits the Euro, buying up assets cheaply in the new currency, it is proposed that the planning group work towards a re-construction plan as a Social Enterprise Venture, (Community Interest Company) initially registered in the UK with payments controlled in Sterling.

Social Media and Crowd Funding (Crowd Funding is the new innovative way of funding enterprises where traditional Capital markets such as Banks and Venture Capital are not willing to lend) will be used to attract re-construction funds, that can be injected into the new Greek Economy via the proposed Social Enterprise. Recent examples of Crowd Funding demonstrate that it is a new way to attract Capital to projects.

There is a real opportunity to quickly turn around the Greek Economy once it Exits the Euro.

Iceland is a prime example of a country that has turned itself around since 2008. Iceland has used Social Media as an integral part of re-construction. http://mashable.com/2012/03/15/iceland-technology/

The model of Iceland actually proves that while a Currency devaluation is painful it quickly restores economic prosperity. The Politicians and Academics who claim that Greece would be worse if they Exited the Euro are completely mistaken. An Exit of the Euro would quickly restore prosperity to Greece, particularly if there were an Economic Re-Construction Plan.

It is suggested that this Economic Re-Construction Plan is best orchestrated from London using Sterling as the defacto currency.

I look forward to meeting all those who would like to form a Greece Re-Construction Planning Team on Saturday 12 May at 12 Noon outside New Academic Building, London School Economics

We will need loads of skills IT, WEB, Social Media Finance, Legal, Marketing, Sales, Administration etc,


If you can't come on Saturday 12 May but want to be involved just Post a message or Tweet #greecelondon

Toby Chambers
Social Entrepreneur

Planning Group for Greece Economic Reconstruction

BE PART OF NEW SOCIAL ENTERPRISE 
WORLD ECONOMIC RECONSTRUCTION FOUNDATION 
TO RE-CONSTRUCT GREEK ECONOMY
First Meeting
Saturday 12 May 12 Noon

Meet Outside New Academic Building
London School Economics
(opposite Lincoln's Inn Fields)



Why attend ?
Prepare for a Greek Exit Euro
Be Part Re-building Greek Economy