Regulating the Banks


During the 1980s and after the banks were successively deregulated. According to David Korten who saw the same thing happening in the US: "This deregulation shifted the focus of the money/banking/finance system from investment in real wealth creation to a focus on using money to make money through unproductive speculation, arbitrage, usury, deception and market manipulation."  Financial institutions which were not subject to banking rules, such as hedge funds and private equity funds started to make huge returns.

Roger Douglas deregulated our banks as one of the first acts of the Lange Douglas Labour Government in 1984. The system's priorities shifted from funding productive investment to financing speculation.

According to a 1996 speech by the Governor of the Reserve Bank: "All controls on  credit, foreign exchange and out-bound overseas investment were lifted in 1984, and the New Zealand dollar was floated early in 1985. Banks were freed from any quantitative limits on their lending growth. The requirement for banks to hold deposits with the central bank, or to hold specified investments in government securities, was abolished. Banking, previously the exclusive preserve of one government-owned institution and three foreign-owned banks, was opened up to full competition. The licensing of those authorised to deal in foreign exchange was discontinued. Competition between currencies was given some scope in that contracts could be denominated in any currency (though taxes must still be paid in New Zealand dollars, and the Customs Act prohibits the importation of other currencies intended for circulation).

In January 1996, the banking system was further liberalised when the Reserve Bank commenced a rather different way of conducting prudential supervision. Instead of reporting on a confidential basis to the central bank, banks were required to issue detailed quarterly public disclosure statements, which must be audited twice-yearly by external auditors. Instead of limiting their exposure to individual counter-parties to some central-bank-specified percentage of capital, banks must simply disclose how much risk concentration they have in their portfolio at end of quarter, and at peak intra-quarter. Instead of complying with detailed guidelines on internal controls, directors must simply attest, in the quarterly disclosure statements, that the internal controls are appropriate to the nature of the banking business being undertaken."

Interest-rate and other controls have been removed and regulatory and legislative distinctions between different institutional groups have been reduced.

Deregulation contributed to rapid growth in money market activity, the development of a sizeable secondary market in government securities, the introduction of a wider range of financial instruments, including forward contracts, options and interest and exchange-rate futures, and the growing use of such devices to hedge interest-rate and exchange-rate risk.

And what certainly added very considerable risk to the financial system was the widespread practice of securitising residential and other loans. What was seen by some observers as a powerful innovation enabling credit risk to be diffused across a multitude of financial institutions turned out to be the source of enormous danger. Loan originators had little incentive to ensure borrowers were creditworthy because they had no intention of holding onto the risk. They passed that risk on "down the chain", with successive financial institutions clipping the ticket as the risk was passed from hand to hand but holding no exposure to the potential default. There was no transparency or accountability in the credit chain, and significant parts of the process were largely unregulated.

So banks are now involved in managed funds, insurance of all types and brokerage functions.

With the global financial crisis it is clear that this whole process must be reversed.We must:

  • Prohibit trading in securities with borrowed money
  • Prohibit financial institutions from trading for their own accounts in securities they sell to the public.

Summary of policies

SUMMARY OF POLICIES

An isolated economy can still thrive after global peak oil production

  •      A National Plan for a 4-6%  annual decrease in oil use to be publicly discussed, together with a plan to implement if an oil tanker doesn’t arrive.
  •     The privatised and damaging money creation system we live with must stop. We would reclaim the public’s right to create and control their means of exchange (currencies) and would distribute this power through many levels.
  •       We advocate an integrated multicurrency system, with prudential supervision at every level.
  • ·       Iwi, local government, communities all to be encouraged to create their own currencies.
  •      Banks would be prohibited from creating new national money. This function would be performed instead by a special committee within the Reserve Bank. Banks would then be intermediaries between saver and borrower as they should be.
  •      Because we address the money supply issue, we can deliver on full employment.
  •    We are green business friendly with no income tax, no company tax, no GST.
  •      Because we address two basic underlying causes, we can deliver on lowering the gap between rich and poor without penalising anyone for working.
  •       The only taxes we have are Resource Taxes including Land Value Tax, a Financial Transaction Tax, Excise Taxes and some Tariffs.
  •      Land values for Maori will take into account Maori values; the imposition of Maori land taxes and rates will be reviewed historically.
  •       We advocate a Basic Universal Income or Kiwi Dividend, and would also investigate decentralising social welfare to local authority level as the dividend may have to be in more than one currency.
  •      We advocate an international currency for international trade created without interest.
  •     Climate change policy dealt with by petrol tax, coal tax and gas tax and a carbon tariff instead of ETS. A plan to phase out oil use would be a priority.
  •       In education, health and social welfare there would be a major decentralisation of the majority of power, so that local communities can influence social wellbeing.
  •     Aotearoa/New Zealand will become a republic.
  •     Rewrite the rules of global commerce to secure the right of each nation to regulate cross-border financial and trade flows.

Business encouragement and investment

Business encouragement
With a transformation of the tax system and banking system entrepreneurialism would flourish
The New Economics Party believes that we must be an enterprising nation and that pragmatic and creative business thinking must be encouraged at every level of our society. Our policies are the most business friendly possible. Little will stand in the way of entrepreneurship for those who create a labour intensive business with fair employment policies, good environmental practices and a low carbon footprint. Clean tech innovation can finally occur at full speed. Cooperatives will be encouraged, both workers and consumers cooperatives. The NZ Cooperatives Association would be funded adequately for the purpose.
Farming would  thrive
Farming and other export businesses will thrive because the NZ dollar will drop when the interest rates drop. EECA's (Energy Efficiency and Conservation Authority) funding will be dramatically increased to assist all businesses to be future proofed against energy shocks. Because we will be decentralising banks, it will be possible for them to invest in local businesses, just as the Bank of North Dakota has been able to over many years. Nurturing and mentoring of small and medium sized businesses will be encouraged. Thus local investors will be able with confidence to invest in local enterprises just as in the 1940s and 1950s when Christchurch people invested in firms like Lane Walker Rudkin.

New Zealand as a Republic

Why we need a republic

New Zealand should be a republic

All of these proposals for change would of course be squashed by the Crown under the current system. A republic is a country where the supreme power of the state is dependent on the consent of the citizens it governs. In a republic it is commonly said that political power operates only with the ongoing consent of the people. This is usually expressed through elections. The citizens elect representatives who are in turn responsible to the citizens who have elected them. The majority of the world's nations are republics. Not all of them are fully democratic, although two-thirds of fully democratic countries are republics. In a republic the head of state is not a hereditary leader. The head of state is either directly elected or is appointed by an elected assembly. They are most often called the president. The arguments for a republic fall into three categories:  

An elected New Zealander should be head of state

New Zealand will not be fully independent until we have a New Zealander as head of state. New Zealand likes to think of itself as an independent country. However, it cannot objectively be argued New Zealand's current head of state represents this.   Democracy. New Zealand’s Head of state is our Governor General. This person has considerable powers and should be elected rather than appointed by a monarch on the recommendation of a Prime Minister. This is in line with the principle that all systems with integrity must have semi-permeable borders.

Education, Health and Social Welfare

Education and Health and Social Welfare

Decentralise education, health and social welfare

These three categories account for the vast majority of government spending.

The best way to redistribute power from central government to local government is to allow health, education and possibly social welfare to devolve to local government. The health, education and welfare function at national level would be for servicing, research, and coordination.
1. People should receive benefits in their own right. When a woman is the secondary breadwinner in the household, she disappears in all of this.
New Zealand welfare entitlements are not based on individual but joint assessments. This system is having a negative impact on many families. It can undermine marriage or partnerships – separation in order to get a benefit. The system should be changed so that welfare entitlements are based on individual needs rather than household income.

2. The second idea is for a form of universal basic income in which all citizens over a certain age are entitled to receive from the state a certain fixed amount of income (financed out of general taxation) regardless of their employment status.
The Social Security Act 1964 should be repealed and a new system devised which provides an untaxed universal basic income sufficient for people with families to live on.
Implement, as Gareth Morgan has suggested, a state paid income for all adult New Zealanders.
This is called a Guaranteed Minimum Income, Basic Wage, Universal Income, National Dividend, etc, etc. Our version should be called a “Kiwi Dividend”. … The name “Kiwi Dividend” more correctly labels it as a payment made to all citizens as of right rather than as an act of charity.

(This section to be reviewed in the light of our policies on timebanking and the reciprocity principle in Nature).

Savings, Loans and Insurance entities

Savings, loans and insurance

Old style Savings Banks work very well

With the disappearance of the privilege of seignorage as a source of income, there will be diversion to investment in green business. The reinvention for the 21st century of safe regional savings and loans banks, savings pools, building societies, mutual insurance societies would be encouraged so that people could borrow money from others at a local level. Without the privilege of being able to create the nation's money supply at a profit,  banks would then have 100% reserve, thus reverting to Savings and Loans Banks which lend out depositors' money. David Korten in his New Economy Working Group Report, How to Liberate American from Wall Street Rule, has  suggested that the system of community banks, mutual savings and loans and credit unions is one with proven capacity to perform the desired functions. It worked throughout the 1940s to the 1960s. It was well regulated and decentralised banking system and provides a model to restore financial and economic integrity.