Why the Left Protests and Shouts So Much

Invincible Ignorance and Shouting

The studied ignorance of some folk, whom one would expect to know better, leads to much head shaking at times.  The latest disappointment is Bryan Gould who is a former UK Labour MP and former vice-chancellor of Waikato University.  Sadly, Mr Gould has offered an unintended explanation of why the Left is held in such disrepute these days.  

Mr Gould has ventured into print to expose his ignorance of the banking system and how it works.  For these schoolboy errors he has been taken to task by Dr Don Brash, who has had a long career in the banking system.

But Mr Gould went further . . .  He said banks like to pretend they provide a useful service to the community by channelling resources from those who have no immediate need for them (savers) to those who do need them (borrowers), charging a modest spread for rendering that service.

But, said Mr Gould, this "benign view of [bank] operations is inaccurate and misleading. The banks do not lend you mortgage money deposited with them by someone else. They lend you money they themselves create out of nothing through the stroke of a pen or, today, a computer entry. The banks make their money, in other words, by charging interest on money that they themselves create". [NZ Herald]

One suspects that Mr Gould is reflexively drawing upon old-fashioned Marxist dogmas, commonly believed in the nineteen sixties.

The Calibre of the Modern Politician

Behold the Wonders

The calibre of politicians leaves much to be desired.  We suppose in democracies a society tends to get the politicians it deserves, but nevertheless we tire of our representative pontificating with sonorous solemnity about things they know very little.

In New Zealand the independent Reserve Bank (made independent to prevent politicians meddling with the money supply in a self-interested attempt to garner public support) is charged with the integrity and solvency of the banking system.  To that end it has recently stipulated that mortgage lending banks require house buyers to put down equity of 20 percent of the purchase price or more, for 80 percent of their mortgage books. This effectively stops reckless lending by banks in its tracks.

Integrity in the Bank

Populist Hogwash

The Reserve Bank of New Zealand has moved to restrict speculative lending by banks.  The predictable backlash has seen high dudgeon from the Commentariat which has been speaking up for those poor erstwhile "first home buyers" who are going to be shut out of the market because they cannot marshal the (now) requisite 20 percent deposit.  Populist rubbish.  But it sells newspapers and stirs the pot.

Spare a thought for the Reserve Bank.  It is charged with maintaining the solvency and stability of the New Zealand banking system.  It can only do this if the banks continue to maintain prudent practices with respect to lending.  And therein lies the rub. 

During the global financial crisis--largely precipitated by reckless housing lending in the United States, the UK, and Europe--the New Zealand government was moved to guarantee bank deposits for a time.  Without such a guarantee, it was argued, international creditors would no longer be willing to stump up capital to pay for the country's foreign borrowing.  A precedent was set and a moral hazard was unleashed.  We all learned that in a systemic credit crisis the government would bail out the banks. 

The government is now trying to back off that implicit state guarantee of bank liabilities.

The Second Global Financial Crisis, Part III

Nursing our Malice

When the Global Financial Crisis hit many pundits argued that Western capitalism had failed.  They had a point.  Half a point.  Capitalism is essentially the private ( as opposed to government) manufacture and trading of goods and services.  But such a non-government, free trade system cannot survive unless it is built upon a foundation of integrity, honesty, and the prevention and punishment of theft. Capitalism only prospers and benefits the majority if it cares deeply about the sovereignty of other people's property, believing that what God has given, let not man take away.

The Second Global Financial Crisis, Part II

Meeting Obligations, Or Not

In a previous post we argued that little of any significance has been accomplished effectively to regulate investment banking.  There is no doubt whatsoever that global investment banking, which had been dominated by US companies, had been responsible for the Global Financial Crisis.  As a result of government actions, risk is now concentrated in that sector more than ever before.  If institutions then were too big to fail, there are bigger now investment banks.  Moreover there are less of them.  Risk is therefore exacerbated and arguably more acute than 2008.

Why do size and number of investment banks matter?

The Second Global Financial Crisis, Part I

Defalcation on a Unimaginable Scale 

We are nearly four years on from the Global Financial Crisis.  It has achieved the status of its own acronym (GFC)--a sure sign in modern parlance that it "means something".  Its effects are still with us and some assert they will ripple out for a further decade. Has the problem been solved?  Far from it.

In short the regulatory changes made, particularly in the United States, have been both inadequate and even those passed, ineffectually policed.  The causes of the original crisis were manifold; the solutions, however, appear straightforward.  They have largely been ignored.

Letter From the UK (About Spain)

The European Disease Virulent in Spain

The systemic corruption now coming to light within the Spanish banking system is breathtaking.  But, as is always the case, such large scale, systemic graft and corruption can only exist and (temporarily) flourish if the state and politicians run interference and cover. 

Doubtless the ignorant critics will decry the evils of capitalism.  They will call for more social controls and political direction, declaiming capitalism (or the economic system based upon the rights of private property) as hopeless flawed due its spawning greed and exploitation.  The reality is that the "capitalism" of Spain (and the West in general these days) is not free market or private property based.  It is crony capitalism, where the political authorities and the government act as patrons of favoured businesses and certain monied barons who pay. 

The Guardian exposes just how corrupt the Spanish banking system has become.

Delicious Irony

Life Outside the Beltway

The folly of Kiwibank, along with its parent NZ Post, is becoming more and more obvious by the month.  Both alike face a long, lingering death.  Neither can overcome the commercial challenges facing them.

Let's consider NZ Post first.  It has long been part of received wisdom that the government must ensure a functioning reliable, inexpensive postal service.  Consequently, most postal services around the world have been government owned and operated.  New Zealand took a gigantic step forward some years ago when it was decided that NZ Post needed to run along commercial lines.  It was made a State Owned Enterprise, which meant that it had to function as an independent commercial entity and make a profit for its owner, the government.

It did.  So far so good.

Too Important to Fail

Dumb-Ox Taxpayers on the Hook Again

New Zealand has a state-owned bank.  It was set up by socialists and greens as a populist and nationalistic move to counter the dominance of all our major high-street banks, all of whom just happened to be owned by Australian high street banks.  The current centre-right government has continued the policy. 

Kiwibank has proved very popular with what we call the "cardigan brigade"--the elderly, the welfare dependant, the average bureaucrat and state employees.  But commercial reality is biting.  Once it had hoovered up all those high-transaction, low balance, loss-making accounts from its competitor high-street banks--by offering higher deposit rates and lower fees--Kiwibank hit a commercial rut.  To grow further, Kiwibank needed more capital.  Its shareholder, the gummint refused to pony up--being itself severely cash strapped and deeply in the red. 

Faced with competitive marginalisation--no growth, eroding margins, weakening profits, bad debts to be written off--Kiwibank had few places to go.  The configuration of the tea-leaves in the latest mandatory General Disclosure Statement for Kiwibank portends trouble ahead.

KiwiBank Must be Sold Off

Terms of Sale Are Critical

Well it looks as if the New Zealand Government is serious about seeking a mandate at the next election to sell off non-core government owned businesses. The opposition socialists are salivating at the prospect of campaigning on this because they believe the public is viscerally opposed to selling state owned companies.

They may be right. Kiwis tend to be neither intelligent nor rational when it comes to economics and the legitimate role of civil government. We are all socialists now--at least 99.99% of us. But it is possible that if the National-led Government identifies the assets to be sold in advance of the election and commits to restricting its sales activity to those identified, then a more rational discussion can be had come election campaign time. The Government has already built up credibility of keeping its word on at least this issue. The socialist opposition will be forced to argue why company X ought not to be sold, and why it is essential for the government to own it. Forcing them to argue thus binds them into the principle of selling state assets when appropriate.

And it continues to baffle us why we-the-people need a state-owned airline, state-owned dairy farms, and a state-owned vehicle testing business.

At the head of the list for sale is likely to be KiwiBank. This is a strange malformed child. It is the spawn of arch-chardonnay-socialist Jim Anderton. Its raison d'etre is a malformed mix of economic populism and nationalistic romanticism. KiwiBank has positioned itself as the only New Zealand owned bank. The rest of our high-street banks are all Australian owned. Anderton prattles on about profits from KiwiBank staying in New Zealand, whereas (those rapacious) profits from every other high-street bank go offshore to the dirty Aussies.

When the register of assets owned by MPs was published the other day it was a bit embarrassing for Anderton to have to disclose that he continues to be a shareholder in the Commonwealth Bank of Australia. He is aiding and abetting one of those nasty foreign owned banks--he owns it in part. All of which highlights the economic ignorance parleyed by Anderton, disguised through a heavy cloak of simplistic populism. If he really is concerned about "all those bank profits" being repatriated to Australia, then surely he ought to be out front cajoling New Zealanders to buy shares in Commonwealth, Westpac, ANZ, NAB, etc. Then those profits are going to circulate right back to New Zealand shareholders. Jolly good, right?

But, no, Anderton's infantile populism requires that the government own a bank. Somehow that fits with the New Zealand psyche--and, on this, we have to admit he is right. The evidence for this is the large number of New Zealanders who have voted with their chequebooks and opened bank accounts at KiwiBank. Anderton has clearly tapped into a deep vein of nationalistic romanticism cocooned in a profound ignorance of economics. Now we should hasten to add that the other (Aussie) high-street banks have quietly celebrated the emergence of KiwiBank. A significant proportion of bank customers are actually unprofitable: KiwiBank has resulted in a large number of those unprofitable customers to move and become KiwiBank clients, to the benefit of "those Aussie banks", making their business in New Zealand stronger as a result. The smart Aussie banks have cried crocodile tears as customers closed accounts and headed over to open them at KiwiBank, all the while rushing to show them the door. Ah, the law of unintended consequences!

Right from the start, KiwiBank has been protected from competitive market realities. Owned by NZ Post, its earnings have been subsidised through piggy backing on NZ Post. Without shovelling some revenue which used to be in NZ Post's Profit and Loss account across to KiwiBank, it would have been a persistent loss making business. So the "profitability" of KiwiBank has been a sleight-of-hand. But now NZ Post is facing economic constraints of its own now, under the onslaught from electronic communication and fierce competition in the courier industry. Snail mail is fading away, going the way of the horse and the cart.

If KiwiBank is to grow it needs more capital--which its ultimate owner, the NZ Government, does not have. It is here that Anderton economics unravel. Like all socialists, Anderton's "bright business idea" using other peoples' money is going eventually to run out of money.

So, it needs to be sold off. Anderton froths at the mouth at the mere mention of the "crime". He predicts that his beloved KiwiBank will be bought up by those dirty Aussie banks (which he must secretly be hoping for since he will likely benefit personally through his CBA shareholding). No doubt thousands upon thousands of KiwiBank depositors and customers will feel the same.

This is why how Kiwibank is to be sold is really important. The process will either spike Anderton's populist guns or it will provide him with blustering high-explosive ordnance. We advise the Government to state its strong preference that KiwiBank remain in New Zealand ownership. Then, it should announce a process of up to four sale tranches, with shares-on-offer being spread across all four.

The first tranche should be to existing KiwiBank customers. This would help ensure that KiwiBank's ownership would remain in the hands of mom and pop Kiwis. KiwiBank customers could subscribe for as many of the shares as they wished. The second tranche, say a month later, would be made available to all employees on the government payroll (including teachers, public health employees, and so forth), and all current and former MP's. Once again, there would be no limit upon subscription, whilst unsold shares-on-offer remained.

The first two tranches would spike the populist anti-sale, knee-jerk reaction. If it really is a genuine concern amongst New Zealanders that KiwiBank be kept in Kiwi hands, then the cardigan brigade would have had the opportunity to put their money where their mouth is. We expect that Anderton would become a big shareholder--but then again, maybe not. Socialists as a rule are full of "do as I say, not as I do" bluster. And we note that when Anderton has been asked about shares being sold to mums and dads he has dismissed it, arguing that eventually these Kiwis would become turncoats and would sell their shares off to the Aussie banks. Ah--how ante-diluvian socialists despise and mistrust the people whom they profess to care so much about.

The third tranche, again about a month later, should be offered for sale exclusively to KiwiSaver funds. Then, finally, the fourth tranche of any shares left unsold would be offered to all remaining New Zealand residents and NZ registered financial institutions.

If, after this sale process, the required stipulated minimum number of shares had not been subscribed, the Government should wind KiwiBank down, and eventually liquidate it. Clearly, New Zealanders would have demonstrated that they do not want to own a local bank. But if the minimum number of shares had been bought, then we would wish the new shareholders well.

There is no justification whatsoever for the New Zealand government to own a bank.