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Sunday, 24 May 2020

BANKS ‘Too Big to Fail, Too Big to Jail’ 
The Politics of BANKING and LVT:
During the Great Financial Crash of 2008, caused by the reckless behaviour of the bankers, our government rushed in with our money to rescue them. In the aftermath very little was done to change the way banks operate, and not a single banker went to jail for their crimes. (Big Short ref). A more stunning example of power over the political system is impossible to imagine (unless you include a virus like CV19!).

LVT would threaten to wipe out 75% of the banks favourite retail business – mortgage lending. To break another side of the Iron Triangle that is clamping the Housing Market, namely Banks and Finance, we are up against a formidably well-connected political force. Money power sometimes seems greater than political power, so can the banks be persuaded or compelled to go along with LVT?

Just to remind you, there are TWO other realistic means of Fixing the Housing market besides LVT:--
              There’s the ‘Nationalise the Land’ fix, which is the secret of success for Singapore and Hong Kong, and quasi-nationalisation of land is a favourite of many commentators, even Liam. It’s communism, so it is a difficult idea to sell
              Then there’s the ‘Squeeze the Banks and Financial Institutions’ fix, or ‘Corset’ as it was once quaintly called. This was the prudent regulation imposed by the Bank of England until the 1960s. In the main only Building Societies could lend on mortgages; Banks were discouraged from doing this kind of business. That was then (1960s) and it worked. But thanks to several rounds of liberalisation which let finance run amok, reining in their power directly is a huge undertaking.
              So the introduction of LVT poses a direct threat to the finance sector. Their retail business model is heavily dependent on mortgage lending – up to 80% of all loans. They will spot the danger straight away, and move to block it.
Banks are eager profit-seekers and have been seeking alternatives to their dominant mortgage business. Student loans are ideal, because they catch ‘em young (and naive) and the prospects of higher lifetime earnings is the lure. No surprise to learn that the ‘graduate premium’ is being systematically wiped out by the cost of student loans! (see for example

Of course banks should always have good lending/investment opportunities, helping new productive businesses off the ground. Among these new businesses in the post-LVT world there will be many associated with the thriving house-building industry. House-building however efficient takes weeks if not months to build the product and sell it. Finance for this slow cash-flow should provide some business to replace the lazy banker’s preferred option of collateralised mortgage lending.
              But there is no other way around this but to say quite bluntly: Due to LVT the Finance sector is going to get smaller, perhaps shrinking to half or even one-quarter of its present size. Most of the £80 billion plus annual ‘rent’ (my estimate of the banks profit on mortgage lending) that is currently being skimmed by the bankers will be diverted via LVT into government revenue. The banks are bound to be squeezed and to shrink
Full frontal attack is the only answer! Unlike the builders, finance has only limited alternatives to its current business model. Politicians in government should be told what needs to be done. In the next crisis these bankrupt parasites should be nationalised, downsized and perhaps eventually allowed back as respectable businesses. They should pay for their raw materials as Seigniorage [link], and be useful in support of productive enterprise.
If it’s a war to put banks and finance back in its (much smaller) box, then it is useful to have allies. Money reformers Positive Money have been very effective in spreading the good news – money is a human creation, it requires government to sustain a money system. Better by far if we the people decide how much money to issue to whom, and when it is right to do so. Many academics – they usually are called MMT-ers – Modern Money Theorists – have explained this. And remember, every time the Bank of England (which is state-owned) engages in a round of QE – printing money – it is concrete proof that there really is a magic money tree.
LVT is a significant step in wresting back control of the Magic Money Tree from the banks. Unable to lend on the inflated values of plot prices of houses, the banks business shrinks. Waiting in wings it will be our Central Bank which produces our money and hopefully distributing new money to its rightful owners, We The People. (Basic Income is the means of doing this; QE is a source of funds to do it).
LVT is not just a tax change; it is a people’s revolution! Be brave!

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