B is for Banks

Intro

Banks are the villains of our societies at the moment aren't they?  I actually wonder whether that first sentence even DESERVES a question mark...

In the last few years they have plunged the world into recession through excessive lending, lack of foresight and just plain criminal activity.  More recently, western governments have actually bailed out these banks - effectively paying them for their stupidity - and in the last couple of months, the UK's prime minister, David Cameron, has refused to sign the EU treaty on the Eurozone debt crisis, arguing that it doesn't properly defend financial services competition or the UK banking industry.  Where he gets the gall to stick up for the very institutions that have ruined this country is beyond me.

B is for Banks

The attitude of banks lately has been so ridiculous that US membership of credit union organisations (banks and/or groups similar to the UK's Co-Operative group) rose by 650,000 members last year - following the Bank of America's proposal to slap a $5 account fee on its customers.  Whether their reversal of this decision has ballasted their sinking ship sufficiently is hard to say.

But it's not just their fellow citizens that banks are stealing from.  By carefully registering as offshore corporations (hence the presence of Barclays, HSBC and others in places like Jersey and the Isle of Man), they can loophole their way round tax laws in any country from which they operate, stealing millions - if not billions - from the country's infrastructure.

And it's not just the banks either.  Amazon and HMV are both registered in Jersey (where Amazon has the curious name Indigo Starfish) in order to avoid UK taxes - although in these examples, one might argue that the UK public makes back in savings what it loses on national taxes; the problem there, of course, is that accessible consumerism is a poor swap for decent public services that are already under threat from the ubiquitous Tory tax reforms.

One of my near future reading efforts is likely to be "Treasure Islands", which covers the topic of offshore finance centres.  Coming from the Isle of Man myself one might say that I've turned traitor because the finance industry provides literally thousands of jobs and millions of pounds of investment on the Isle of Man.  But there is a simple truth that seems to hold true regardless of the context: if something seems too good to be true, it probably is.

I wonder how many foreign national debts could be paid off if one country started the domino effect of legislating against companies operating in their countries being able to avoid paying local taxes.

David Cameron's abandonment of the negotiations around the Eurozone crisis treaty is made all the more alarming considering that as recently as September 2011, Josef Ackermann (CEO of Deutsche Bank - the second largest banking group in the world after BNP Paribas) stated that most European financial institutions had ratings of "below the book value at best".

Considering that banks thrive on lending rates, the natural liquidity ratio of 10:1 (see the film Zeitgeist Addendum) and asset to liability ratios, this is a terrifying prospect.  In essence, Ackermann was saying that Europe is primed for a crash similar to Wall Street in 1929: below the book value at best, basically means that if people panic and start asking for their money in cash because they don't trust the banks, the average bank doesn't have enough cash to cover its liabilities.

It is interesting to note, then, that Ackermann was the target of a letter bomb sent to Deutsche Bank just 3 months later (December 2011).

B is for Bullshit

The other side of the coin with banking is the double standards applied.  On the one hand, banks are trying to bolster themselves by continuing to lend fictional money.  According to Zeitgeist Addendum, in 1950s America, a man successfully won the right to keep his house, after the bank foreclosed on his mortgage, because he proved to the court's satisfaction that the money lent to him DID NOT EXIST, until he asked for it.

In a more modern context, the World Bank looks set to create and then loan $6.2 trillion to Obama's administration, while telling the entire Developing World, that they should be ready for global belt tightening.

More simply put: banks thrive by lending money to those who can pay it back while telling those who NEED it, that they don't have it.

Let's say that YOU (my dear reader) are someone who needs money.  You have a small but steady account with your bank.  They make money by loaning your deposit to someone else and charging them more interest than they pay to you.  The large borrower has assets to back up their request so the money is loaned.  What happened over the last few years with a number of banks and other financial institutions is that their massive nets of borrowers couldn't repay because they over-borrowed (something for which their was no industry set protocol) so the bank began seizing assets.  This action created the recession because suddenly YOU didn't have your money, the bank had a load of assets and was faced with a devalued market where these seized assets didn't have sufficient value to cover their liabilities.

In other words: the rich man had so many debts that he couldn't pay everything back so the bank took his house; because this happened on a massive scale, the house wasn't worth as much and the poor man lost his money.  The government picked up the tab, something the poor man will be forced to pay for till kingdom come, while the rich man continues to profit from his untaxable offshore holdings.


I'll be returning to B as soon as possible - bullets, bombs...

But for now, I think banks is enough to be going on with.  Regardless of any other factor, I should think the generic and recent history specific behaviour of banks should encourage everyone to opt out and head for Co-Op or another credit union in terms of looking after their money.

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