Author Archives: Deirdre

Neil Barofsky’s Bailout shows why banks have become bigger, now too big to jail

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Happy festive season to all! I have had the privilege of reading Bailout by Neil Barofsky over the holiday and of course didn’t we all hang on to the news over the New Year period when the fiscal cliff was the big topic?  The next one will be the big one, the debt ceiling. Surely this will be when the IMF intervenes and brings in the Chicago Plan Revisited? These policies would stop banks creating money, avoid public and private debt and solve the debt problem forever. What a major leap forward that would be! The next few months will be huge.

Back to Neil Barofsky. The subtitle of his book tells heaps – An Inside Account of how Washington Abandoned Main Street while rescuing Wall Street. Barofsky was a young lawyer from New York appointed to be Special Inspector General of TARP, the fund that bailed out troubled banks, AIG (“We found the placement of the interests of the too-big-to-fail financial institution and their executives above those of the taxpayers funding their bailouts”) and auto manufacturing companies. It was supposed to help troubled home owners with underwater loans too. His job was to prevent fraud and protect the taxpayer.

This man is a very brave individual. Constantly warned by Washington insiders that he must be always thinking about his next job (with the implication he must go easy on the big banks), Barofsky goes right ahead and does his job without fear. Secretary of Treasury under Bush is headed by Hank Paulson, former CEO of Goldman Sachs was obstructive and difficult, but when Obama appointed Tim Geithner, former President of the Reserve Bank of New York, he found himself ignored and was bundled out the door quickly on many occasions. Treasury was obstructive and he found he had to communicate with legislators and use the mediator before they took any notice of him. He said there was little change between the Paulson and Geithner regimes.

At the end of it all the banks are now bigger and more dangerous. Ultimately only a small fraction ($1.4 billion at the time he stepped down) of the $50 billion allocated to help homeowners was spent, while the fund expended to prop up the financial system – as Barofsky discloses – totalled $4.7 trillion.

After his two year grind in Washington Barofsky was offered a post at a university and is now using twitter to teach others online. I am delighted to say I have now made contact this way.

And of course we have had the HBSC being fined $1.9 billion for money laundering but they were too big to jail. As the New York Times editorialised on Dec 11

“It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.

Clearly, the government has bought into the notion that too big to fail is too big to jail”

Petrol tax will backfire on Government

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19 December 2012

Petrol tax hike for roads will backfire on government, says party

The announcement that an extra 9 cents excise tax on petrol will be to pay for the government’s Roads of National Significance will badly backfire on them, according to the New Economics Party.

Spokesperson Phil Stevens said that if an excise tax is tagged then it should be tagged for rail rather than roads, because road transport is not the future. He said ‘While it is important to put a correct price on fossil fuels to discourage their use, the public will know in their bones that the future isn’t expressways for more trucks. The future is rail and alternative transport fuels.’

‘When the Minister justified this hike by saying the CPI figure was the lowest for 13 years, noone is going to believe him. In fact our inflation figure is a not valid. It is artificially low because since 1999 the cost of land has been taken out of the CPI. Everyone knows that as land goes up, property prices rise and that means households pay more for their rents and mortgages. They know the real figure for inflation is much higher. Ask anyone with a mortgage where their household money goes,” he said.

For further comment phone Phil Stevens 06 326 9717 or 021 784 718

We write to the Minister of Finance about the IMF paper The Chicago Plan Revisited

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This week we wrote a letter to the Minister of Finance and look forward to the response

Dear Mr English

Re The IMF Paper ‘The Chicago Plan Revisited’

Our attention has been drawn to a working paper published on the website of the International Monetary Fund entitled The Chicago Plan Revisited by Jaromir Benes and Michael Kumhof and dated August 2012.

Its abstract reads as follows:-

At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve banking for deposits. Irving Fisher (1936) claimed the following advantages for this plan:

(1)           Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.

(2)           Complete elimination of bank runs.

(3)           Dramatic reduction of the (net) public debt.

(4)           Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

(There has also been a recent paper from the Bank of International Settlements site by the economist Borio http://www.bis.org/publ/work395.pdf, which calls for a rethink of the business cycle model and for significant adjustments to macroeconomic policies, and to an article in the Economist Dec 14, 2012, discussing that paper at http://www.economist.com/blogs/freeexchange/2012/12/reforming-macroeconomics)

We therefore ask you, as Minister of Finance:-

a) Are you aware of the existence of the IMF paper, the Chicago Plan Revisited?

b) Does your government agree that the four results outlined in this paper are desirable?

c) Does your government support the method used to achieve these four goals?

d) If you differ from the method outlined in the paper to achieve these four goals or argue with it in any way, could you outline your disagreement and how would you achieve these goals differently?

Yours sincerely

Deirdre Kent and Phil Stevens

New Economics Party

 

If you have term deposits in a NZ bank watch out!

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Yes the “levers are in place” as Minister of Finance announced earlier. In the event of a banking crisis, part of your term deposit could help bail out the bank .

Listen to Radio New Zealand interview by Kathryn Ryan today at http://podcast.radionz.co.nz/ntn/ntn-20121112-0908-banks_making_record_profits-048.mp3. Bernard Hickey says banks ought now to give you a higher interest rate in your term deposit because the Reserve Bank now has in place what is called the Open Bank Resolution. This means that those who hold assets with a bank will be called on to help bail out the bank in a bank crisis. What is so disturbing in this interview is that the size of a banking crisis can be 35% if GDP and an expert being interviewed told us that this figure is common.

Nicole Foss reminded us that Government bonds are much safer. Personally I have moved my term deposits to Government bonds and I know others who have taken Nicole’s advice.

If you don’t want to do this then take Bernard Hickey’s advice. He says that because your term deposit is now at more risk due to the Open Bank Resolution being in place, you should go to your bank and demand a higher interest rate.

All of which reminds me of what Bernard Lietaer has been saying for decades. If banking crises happen that often there must be something systemically wrong with the system itself. Read his website or any of his books, including the Club of Rome book Money and Sustainability, available from Triarchy books.  He lists the number of banking crises, sovereign debt crises and currency crises which have happened round the world in the last ten years. It is horrifying.

He says the on-going financial crisis results not from a cyclical or managerial failure, but from a structural one: more than 96 other major banking crises occurred over the past 20 years, and these crashes have happened under very different regulatory systems and at different stages of economic development.

Do you know how the Trans-Pacific Partnership Agreement (TPPA) will affect business in New Zealand?

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The TPPA, a so-called ‘free trade agreement’, is being negotiated secretly by 11 countries round the Pacific rim and is likely to lead to:

  • Loss of sovereignty and ability for the NZ Government to legislate for the well-being of its people. Corporations will be able to overturn our decisions.
  • Decreased ability for New Zealand to protect itself from a collapsing global economy. With capital controls it would be impossible to impose a financial transaction tax, demand a minimum stay of capital etc. New Zealand is very vulnerable because the NZD is the 10th most traded currency and our current account deficit is large.
  • Loss of New Zealand SME’s ability to genuinely compete for central and local Government tenders. Greater competition for local businesses.
  • Increased sale of land and assets to overseas owners
  • Further deregulation of the already weakly regulated and increasingly powerful financial industry. Lessened ability to regulate against toxic financial products.
  • Possibility for Government being sued if legislation reduces corporate profits e.g. climate change, environmental protection, public health (tobacco, alcohol, food, gambling), financial re-regulation.
  • Restricting or requiring payment for access to internet information, thus reducing the ability of SMEs to compete.
  • More overseas ownership of banks, telecommunications, insurance companies, media, supermarkets, elderly care facilities and transport firms.
  • More unemployment and a lower tax take
  • Fewer opportunities for democratic participation by citizens

The 15th (and final?) round of negotiations takes place in Auckland from 3-12 December.  Time is really short.

Please

  1. Go to www.itsourfuture.org.nz or www.fairdeal.net.nz to learn more.
  2. Write to the Minister of Trade, the Prime Minister and ask the negotiators to insert an opt-out clause for future governments.
  3. Organise your sector to oppose the secrecy and the trend to give increasing rights to Trans National Corporations.

This brochure prepared by the New Economics Party https://neweconomics.net.nz Contact: deirdre.kent@gmail.com

Trade, trade agreements like the TPPA and the role of trade

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Trade has played a major part in our country’s economy for centuries. What we can’t grow or make in this country can be imported and what we can produce here can be exported.

The growth of international trade has been enabled by cheap oil, cheap transport, including shipping and air freight costs. Last year New Zealand spent over $7 billion importing oil, up 22% on the previous year. Our balance of payments or the difference between what we earn from our exports and what we pay for our imports is a matter of great concern.

If we could replace at least some of our imports with goods manufactured in New Zealand it would greatly improve our balance of payments situation. Facing the reality that we have reached the end of cheap easy to extract oil and that life after peak oil is actually going to be more localised, we must plan policies to match.

The Trans Pacific Partership Agreement (TPPA) The best description of this deal being secretly negotiated is at http://itsourfuture.org.nz. Do read this carefully. Jane Kelsey, editor of No Ordinary Deal – unmasking the Trans-Pacific Partnership Free Trade Agreement is a leading world authority on it. Watch for her talking in your town. Round 15 is to be negotiated in Auckland New Zealand in early December. Who knows, this may be the last round and it may be signed. So let’s get working to oppose it in whatever way we can. The New Economics Party will be working over the next few weeks, that is for sure. Will you join us?

Party decides to campaign against Transpacific Partnership Agreement (TPPA)

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At our meeting yesterday the party decided to focus for the next few weeks on fighting the TPPA. This is a secret agreement being negotiated by 11 Pacific rim nations. Our negotiators are in Foreign Affairs and Trade and our Minister of Trade Tim Groser has stated that the negotiations will remain secret and he has not seen the text of the agreement. Pharmac is under threat, genetic modification may come in, you won’t be able to harm banks or they will sue our government for millions.

There now appears to be just one main website informing us about this secret agreement, http://itsourfuture.org.nz. It has a wealth of materials  on their sites.

The reason we decided to focus on TPPA was that if this agreement was signed, almost all the measures we want to take to protect New Zealand from financial contagion would be illegal. Our government would be sued by multinationals for millions.

We urge our members to inform themselves through this site. Our first action will be to attend the panel to be held in Wellington at Downstage Theatre 1-4.30pm. Seems it is booked out when I booked! Hope they get a bigger venue. Why not join the Facebook group fighting TPPA and help? I found this excellent little video there.