Australian Banks : The bit Anna Bligh does NOT talk about

Anna Bligh, in her new role in political retirement as spruiker in chief for the interests of the Australian private banks, gave a speech yesterday at the Australian Press club in Canberra. Watch it here.

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Macrobusiness.com.au

Macrobusiness.com.au reprinted, along with critical commentary and the cheeky graphic, a large chunk of the transcript of the speech here

However, amidst all the puffery and attempts to gild the Australian banker’s lily, Anna Bligh does get one thing right

“…In this context, there is an ever diminishing appetite for thoughtful and sensible public policy making. Any appetite there may once have been to explain the complexity and importance of banking to the Australian economy has been all but extinguished…”

Not that she tries to fix that herself as she does not a utter a single word in that speech that attempts to explain in clear and direct language

1. What a bank in our monetary system is and how they differ from non-banks.

2. What is the nature of their extraordinary ‘privilege’.

3. How that privilege is given by the public and is entirely contingent on it unmistakably being exercised in the public interest.

But that no doubt is why her history lesson only went back 70 years to the Bank nationalisation ‘mistake’by Chifley in 1947 and not 80 years to the Banking and Monetary Royal Commission in 1937 where the above issues were discussed explicitly.

If you would like to read the 1937 Royal Commission report including Chifley dissent see the link below.

https://theglass-pyramid.com/2017/07/24/bligh-and-baird-brazen-private-bank-spruikers/

For many other articles that try to explain the “complexity and importance of banking to the Australian economy” here are a few for your clicking pleasure!

As much as some people seem to think we can “fix up” our banking system including regulators like APRA, RBA, ASIC without looking at the fundamental issues avoided by Anna’s speech, by now it should be clear that there is NO option.

She ignores the issue of what makes a bank a bank for a very good reason.

The last thing the private bankers want is an Australian public educated about the nature of the ‘privilege’ enjoyed by banks in our monetary system.

No one should begrudge a former a politician trying to find a way to make some brass in their retirement but does Anna really have to choose one that is so repugnant to the history of the long struggle for a fair go for the general public.

Banking Royal Commission: Bowen says do the job right!

Mr Bowen, the Shadow Treasurer, has given a speech in which he is reported to have made clear that a Royal Commission into banking must be thorough and carefully look at the banking regulators (APRA, ASIC, RBA) as well.

This is welcome news as a worthwhile Royal Commission into Banking and the Monetary system must, by definition, include an examination of the regulatory framework.IMG_2336

But there are some who remain uncertain.

“…But what can a royal commission usefully deliver on these questions without diffusing the more precise focus on illegal and unethical bank behaviours?….”

The last thing we need is a Royal Commission that creates the impression that specific manifestations of the underlying rotting core are all we need to worry about.

Illegal and unethical behaviour are the expected result of the current banking and monetary model.

You don’t install drug dealers on every corner and then ignore them and instead just spend your time examining the problem of drug addiction and hope to achieve anything …..for long.

You don’t argue “We need to focus on the dreadful scourge of drug addiction without being distracted by the authorised network of drug dealers in every suburb”.

It is does not make sense.

The fundamental term of reference for a banking and monetary system Royal Commission is very simple.

“..What should be the role, if any, of private banks in the Australian banking and monetary system…”

Examine that and all the manifestations of the current failed model can be investigated.

At the last RC in 1937 they understood all of this and the conclusion of the ‘status quo’ conservative majority (Chifley in dissent considered the banks ‘credit creation as public money’ privileges should be completely removed) boiled down to the following.

If we are going to allow the private banks to keep their “credit creation as public money” privileges we must closely regulate the operation of those privileges to ensure they advance the public interest.

In other words that private bank credit creation as public money is MORE productive than if public money creation privileges were reserved exclusively to the public sector.

We are living in an economy distorted and mangled by a massive failure of private banking to deliver in that regard. The enormous levels of over investment in existing residential housing stock did not just happen by accident. It was nothing more than private banks doing what they always do when their use of the ‘privilege’ is not watched closely.

They spray bank credit at speculators taking a bet on asset prices.  A situation made much worse by Howard’s decision to give asset price speculators a discount on the capital gains tax they paid on their winning.

APRA is a failure and will remain a failure because it is not designed to regulate credit creation.  APRA is only concerned with banks going bust not whether they are lending for productive purposes.   Trying to retrofit it with something as inherently political as Macroprudential (regulating what banks can lend for and how much) is doomed and actually succeeding is the worst result as inherently political powers directing the allocation of private bank credit should not be invested in an ‘independent’ body.

Fixing APRA means rolling it back into government so that any direction of credit creation by private banks (to increase its productive application) is controlled by the government directly.  Of course if banks want complete freedom to make loans to whoever they want and for what purpose, they just need to surrender the “credit creation as public money” privilege as it is that privilege which generates the need for very close and careful regulation.

The ‘independent’ RBA is also a problem because it’s independence is premised on the idea that government runs a balanced budget over the cycle (i.e. Creating public money is a temporary thing) and the economy otherwise runs on private bank created and interest bearing credit.

That this model rapidly devolved into crime, unethical behaviour, greed, unproductive asset price speculation and economic stagnation kept alive with an immigration Ponzi scheme and massive real and financial asset sales off shore is no surprise.

It was inevitable.

We must stop fluffing around and arguing about band-aids and splashes of Dettol and commence preparations for major surgery.

A Royal Commission is essential and we should accept no substitutes.

Bligh and Baird: Brazen private bank spruikers.

Nothing like an industrial grade testing of the gag reflex first thing on a Monday morning!

A flock of recently retired senior politicians from the major parties are out and about, with juicy Banker paychecks in their pockets, spruiking the Banker’s line and demonstrating they have no idea of the difference between sectional private interests and the public interest.

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Shameless and brazen attempts to conflate their ‘paymasters’ interests with those of the public.  What more does it take to make out the case that we need a Royal Commission into banking with a single term of reference as soon as possible.

“…What, if any, should be the role of the private banks in the Australian monetary system…”

Even the majority ‘status quo’ opinion in the 1937 Royal Commission understood that the privileges extended to private banks were exactly that – privileges – and could ONLY be justified if they were productive and in the public interest.

https://theglass-pyramid.com/2017/06/10/bank-royal-commission-the-wisdom-of-ben-chifley-in-1937/

The majority also understood that the only way to ensure this, was careful and close regulation of private bank credit creation to ensure it was directed to productive purposes and not the kind of asset price pumping speculation they engaged in before the depression and Australia’s residential housing markets have been evidence of for the last 25 years.

APRA is a failure as it was never designed to do what is required.  Regulation of private bank ‘credit creation as public money’ is a job for government – aka the political process – and APRA is ‘independent’ of the political process.

APRA is  unfit for purpose because it assumes, pursuant to neoliberal deregulation theory, that the credit creation decisions of private banks do not require regulation.  APRA’s primary job, according to its mission objectives, is limited to trying to stop the banks blowing themselves (and the monetary system) when they abuse their privilege and run their loan books too hot in the pursuit of fat profits and executive bonuses.

This is why ‘macroprudential’ measures by APRA never seem to work effectively.

The conceptual underpinnings of APRA are fundamentally antagonistic to effective macroprudential policy.  Oh and the Reserve Bank of Australia is no better,  with senior staff having spent speech after speech in recent years arguing against credit creation regulation – let the free market work, in the form of bank lending officers allocating ‘credit’ to the ‘credit worthy’ is the core of their belief system.

APRA and the RBA are not ‘bad people’, they are simply an expression of the neoliberal model operating as intended.

The ALP, the Greens, the other smaller parties need to wake up, start to read a bit of history and abandon the horse poop they were sold about private bank deregulation.

There is nothing ‘natural’ about deregulated private banking it at all.   Banking is not like any other business.

But before people grab pitchforks and start to shout ‘nationalise’ the banks, they ought to keep in mind that there is no need to do that at all. The politics of doing so are a complete lemon – just ask Ben Chifley –  so be suspicious of bank apologists and hot heads recommending it.  Over reach will be as pointless as doing nothing at all.

All that is required is nationalisation of that which should never have been privatised in the first place ……the creation of public money and credit.

Plus most of the public already assume our monetary system works with public money already so promising to actually deliver what they think is already the status quo should not be difficult.

It is public money that should be nationalised not the banks.

Leave the private banks as closely regulated private intermediaries of 100% publicly created public money and nothing more.  If they want a bit more freedom we can let them create their own private bank notes or cyber currencies and let them try to find a market for them.

Shareholders who find the returns from boring mere public money  ‘intermediaries’ too small can shift their investments to organisations that run real risks without a taxpayer guarantee.

https://theglass-pyramid.com/2017/07/04/bankers-attack-south-australia-must-stand-firm-on-bank-levy/

The Greens: Can they avoid the fate of the Australian Democrats?

Are the Greens on a slide that ends in oblivion or just suffering a loss of direction?

Across the land many are wondering.

Everyday, the Greens become more and more like the old Australian Democrats.

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A bunch of middle class political science ‘professionals’ and self appointed do gooders who are mostly disinterested in and bored by the issues of concern to low and middle income earners.

When they do trundle out policies that they think might appeal to lower socioeconomic groups they are invariably nothing more than centrally administered ‘programs’ delivered by know-alls that mostly appeal to those who have lost any sense of self reliance and self determination.

If you are not a ‘virtue signaller’, live in a “heritage value gated” inner urban white zone or a welfare state recipient the Greens have little to offer.

Middle and lower income earners need ONE thing.

More money in their wallets at the end of the working week. Do that and they can work out perfectly well what is in the best interests of themselves and their families.

The single biggest determinant of what is left in your wallet is the cost of living.

Debt driven ponzinomics, inflated and cartel gouged and tax farmed prices for land, housing, food, education and transport are what the Greens SHOULD be concerned about.

Address those and they will quickly find they are winning seats across the country and can actually pursue environmentally sustainable objectives as well.

Ignore those issues and they are doomed to be nothing more than the ALP and LNP with a handful of goiji berries.

In other words irrelevant – two duds are enough to choose from – and the electorate will dispense with them.

Whether the ALP can pull their finger out fast enough is the only question.

If the ALP get their house in order and decide to represent middle and low income earners for a change, rather than their generous mates in the financial sector and foreign interests, the Greens are dust.

Usury – Always bad or only sometimes?

Over the weekend regular MB commenter “footsore” linked to an article regarding usury (charging of interest) and how and why it become ‘respectable’  (**cough cough**) after a long history of prohibition, restriction and generally bad press.

Of money and morals:   Moneylending has been taboo for most of human history. So how did usury stop being a sin and become respectable finance?

https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-respectable-finance

Below is a quick response from the Glass Pyramid to the general theme of the article. Some modifications to the original comment on Macrobusiness have been made.

One thing we should all be able to agree on, whether or not we agree that all usury or the charging of interest on loans is a problem, is that the charging of interest in at least some circumstances warrants very careful regulation if not complete eradication.

For example, payday lending, loan sharking and consumer credit generally are all areas considered to require copious regulation.

One area, often overlooked, where it should be beyond argument that the charging of interest is totally inappropriate is the creation of public money.  By public money I simply refer to money that is given specific or effective status at law as public money.  There is no need to bog down this article with the minutiae of bank credit v central bank reserves and whether or not there is a meaningful distinction.

Currently there are two primary sources of “public money”.

The public sector is the source most people understand, and the other source, and by far the larger of the two, are the private banks. Approximately 94% of what is ‘effectively’ public money is created by the private banks.

If you have ever wondered what really makes a bank a bank, it is the privileged status that is given to the IOUs or promises issued by them.  When a bank grants you a loan it is really only giving you a promise that it will honour payments made by you that draw upon that promise.

While it is no surprise that private banks charge interest / usury when they create credit (honour drawings on a loan) that is treated at law as if it were public money, it is simply bizarre that the government is forced (by nothing more than convention) to pay interest/usury when it creates genuine public money.

Why on earth do we force the government to pay interest on the creation of something that it is perfectly capable of creating without charge?  If the government wishes to ‘spend’ money it can do so simply by taxing or creating the money as required – or asking the RBA to make appropriate entries in its ES account.

When we talk about government ‘borrowing’ from banks and others to fund a fiscal deficit we are talking about a scam of the highest order.

100% Public Money

Governments executing the most basic and fundamental obligations of government are more than capable of producing 100% of the public money an economy might require and this process need not involve the imposition of interest/usury at all.

Governments  would simply spend what they need to spend and then tax back that which is necessary to avoid the inflation that might otherwise result from too much money created and now circulating in the economy.

If the economy is growing quickly and a lack of money to support that growing level of economic activity is producing deflationary pressures the government will simply tax less or spend more and thereby introduce more money into circulation.   If inflationary pressures are building the government will simply reduce the size of the deficit or perhaps run a surplus.

This is not “magic money tree” economics as avoiding inflation (or deflation) remains as a very real constraint on government policy and action.

The RBA “interest rate” fiddling model is a failure

Government management of inflation primarily via fiscal policy is a much simpler task than the task that is currently attempted by the RBA, where it tries to manage inflation/deflation via the complex mechanism of fiddling with the interbank overnight interest rate and hoping that these changes transmit to the broader economy in a way that is productive, equitable and fair to all citizens.

How much more evidence do we need that the current RBA model of monetary management by fiddling with the overnight rate is a dismal failure?

  • Inflated and bloated housing asset prices
  • Growing levels of inequality and distortions in the distribution of wealth
  • Record levels of household debt
  • Record levels of foreign debt
  • Record sales of Australian assets, businesses and industries offshore
  • Rapidly rising levels of public sector debt
  • A decline in productive economic activity
  • A rapid increase in unproductive economic activity centred around leveraged speculation.

Forcing governments to ‘borrow’ from the private sector.

The one thing we do not need is to continue the current farce whereby the government is forced to “borrow” from the banks or other individuals by selling bonds and paying interest on those “borrowings”.

If for no other reason than that these transactions do not really involve borrowing at all as the purchase of the bonds by banks often requires offsetting action by the RBA. The Reserve Bank usually has little choice but to ‘buy’ bonds from the banks in order to ensure that the target rate is not distorted by the impact of government ‘borrowing’ reducing the ES account balances of the private banks when the banks pay for the ‘bonds’.

When the RBA “buys” bonds from the banks it creates the money required to do so in the form of accounting entries to the selling banks ES account.  These entries increase the ES balances and remove the downward pressure resulting from the government bond sales.

As the government spends the proceeds of the bond sales and these flow back into the Bank ES accounts, the RBA then reverses the process by selling bonds to the banks to reduce their ES account balances.  All of these transactions involve the payment of interest that would not otherwise be necessary.

The simple alternative is that the government simply directs the RBA to credit the governments ES accounts as required by the fiscal policy that has been determined necessary to avoid inflation or deflation.   The corresponding debt would be made to a RBA account called something like “100% Public Money in circulation” account.

Note:   There may be some benefit in the government continuing to conduct some bond sales and purchases on a limited scale, if the government wishes to inject or remove public money from the economy at short notice, but this is very different to essentially requiring ALL government deficit spending to be financed with bond sales.

Private individuals borrowing and lending 100% public money

So if we eradicate usury from the creation of 100% public money what about other transactions?

If private individuals wish to borrow or lend quantities of 100% public money created as above and charge interest when doing so, this is unlikely to present a major problem as the government can take into account changes in the tendency to save or spend public money when making decisions on future government expenditure and taxation.  In other words the government can readily create additional 100% public money and stymie those who might seek to “hoard”.

If people want to hoard or save more in their deposit accounts and/or mattresses and effectively remove it from active circulation the government will be free to run a larger deficit. Likewise if those mattresses start give up their savings or savers become spenders, the government can take that into account as well as reduce the rate of creation of 100% public money.

This does not mean that individuals or organisations charging interest on 100% public money will not present potential problems that will require regulation but regulating these transactions to limit their harm is unlikely to be a major difficulty when the government has a monopoly on the creation and removal of public money from circulation.

In practice the rate of interest that anyone can charge to lend 100% Public Money will be limited because the government will be always able to counteract a shortage.

First step to a more equitable and fair economic model

If we want to make some progress towards a more equitable and fair economic model a very good first step is ending the farce that is requiring a government to ‘borrow’ – often from offshore parties – to finance a deficit.

Government deficit financing by bond sales does nothing more than bake usury into the monetary model from the foundations up.

Fixing this fundamentally defective model of public money is the key project.

Regulating private transactions that charge interest / usury is likely to still be required (pay day lending, loan sharking etc) but without usury baked into Public Money creation the issue of usury in private transactions (that may involve private money) is less likely to be an issue simply because there will now be a genuine usury free public money option.

But who will be the losers if such a reform was undertaken?

And yes you can expert the FIRE sector and its many varied minions, apologists and trolls to unleash hordes of flying monkeys the moment anyone suggests such a simple and obvious reform.

Oh and yes this does mean that the privilege enjoyed by the banks with regard to the status of the credit they extend would cease. No harm in that – there is no good argument why one particular class of private credit by one class of private organisation or individuals should be given the protection of the state.

Let the bankers go free to create their own credit, IOUs, promises to pay and let them try and find a market for them.

At least they will no longer have to whine about the government (APRA) regulating how they exercise their credit creation “privilege” or taxing it in the form of Bank Levies and other taxes.

If our Big 5 Banks really were as brilliant and helpful to Australia as they try to claim they would happily surrender their credit creation privileges and seek the introduction of a model where public money is a monopoly of the public sectors and the banks are nothing more than intermediaries of that public money.

If they wish to create their own genuine private money and issue private banknotes or private cyber currencies like bitcoin they should have every freedom to do so.

Competition between 100% public money and private money will be good for both.

A bit of choice for the public in something as important as money is just what this century needs.

Bankers Attack: South Australia must stand firm on Bank Levy

This morning on Macrobusiness there was a call for the state governments across Australia to work together to support a Bank Levy that is distributed to the states and not Canberra.

“..The states should get band together urgently and apply a pro-rata levy right across the nation…”

This is the key.

This is really an issue of state self determination and fiscal independence.

We have a federal system of government and the constitution provides an important role for state governments and clear powers in relation to banking. Why shouldn’t the proceeds of a Bank Levy on the top 5 private banks be distributed between the states?

A Bank Levy on the big banks is good

Everyone (except the banks) agrees that a Bank Levy is appropriate so that the 5 large private banks are not getting the support of the full faith and credit of the Australian public for free (they get to borrower cheaper than the smaller banks because it is assumed that they will never be allowed to fail) so it is not a large leap to the idea that the proceeds of the levy should be distributed to the people who are effectively providing the guarantee.

Yep – the average wage earner is the one who will be asked to bail out the big banks so they should benefit from the fee paid for that guarantee.

Some of those supporting the general concept of a Bank Levy include:

  • Chris Joye from the Australian Financial Review.  Though Mr Joye does not agree a single state should go it ‘alone’ and charge a Bank Levy.
  • Scott Morrison, the Liberal Party Treasurer in Malcolm Turnbull’s LNP government, who imposed the first Bank Levy in the 2017 budget.
  • The Federal ALP and Greens who support a Bank Levy
  • Macrobusiness.com.au

Federal Treasurer Mr Scott Morrison’s comments in support of imposing a Bank Levy included:

“..Importantly, it will also support competition in the financial system by providing a more level playing field for smaller banks and other providers of financial services who compete with the larger banks who enjoy cheaper costs of funding…”

“…The levy is also designed to support competition.

The House of Representatives Economics Committee’s ‘Review of the Four Major Banks’, commissioned by the Government last year, concluded that Australia’s banking sector is an oligopoly and that Australia’s largest banks have significant pricing power which they have used to the detriment of everyday Australians.
This is not a situation that the Government is willing to accept….”

Why should the states and not Canberra receive the proceeds of the Bank Levy?

Rather than create yet another source of revenue that is centralised and hogged by that soap opera in Canberra it makes much more sense that the proceeds, of charging the major banks for a privilege that relies on the support of ALL Australians, are distributed to state governments.   Perhaps a fraction of the proceeds (an administration charge perhaps) might remain with the Federal Government for collecting the Bank Levy on the states behalf.

The imbalance between between tax (Canberra) and spend (states) in Australia is bad enough without making the situation worse with yet another source of revenue being directed to Canberra and left in their hot little paws to pump into pork projects of their choosing.

Better than the GST

While the states governments continue to squabble over GST they should be able to reach a quick agreement to support a larger Bank Levy that is distributed to the states and is in proportion to each states share of national economic activity or some other measure that is appropriate.

No tricky formulas that favour some states or are hard to explain.

Revitalising the states and reducing the Canberra ‘elites’ control obsession

If the South Australians frame their Bank Levy as an exercise in revitalising federalism, poking Canberra’s clowns and state self determination, and seek support from other state governments they will have an effective counter to the outrageous propaganda campaign being waged across South Australia by the Australian Bankers Association and the individual banks who are trying to thump South Australia into submission with barely disguised threats.

That the South Australian Liberal Party were stupid enough to fall for opinion polls run by the Australian Bankers Association and oppose a higher Bank Levy was breathtaking but then we cannot expect the ‘vision thing’ from everyone, especially those rattling their corporate donation begging bowls.

So why should South Australia go it alone?

The only way to get such a scheme up and running is for South Australia to impose its own Bank Levy now and encourage the other states to do so as well. That will make it clear that this is a serious issue for the state and not just hot air.

More than a few of the other state treasurers will jump aboard once they understand that this is for real and is happening.

Once imposed by South Australia and a fact of life there can be discussions about the most efficient way of administering the levy.   It is likely to make sense to have Mr Morrison collect the Bank Levy on behalf of the states and pass it on directly to each state government.

If the states feel generous they might throw a few coins towards Mr Morrison for his services in that regard.

Stand firm South Australia.