Throughout history lending against interest has been associated with misery, inequality and injustice. It still is. Credit arrangements have a place enabling the acquisition of large assets and productive investments. Inevitably such arrangements have a risk element. However herd euphorias, using borrowed money to acquire assets whose prices are appreciating, pushing their prices up even more and leading to yet more borrowing, have a long history. So too have the crashes that follow. At this time a series of complicating financial innovations which were supposed to reduce risk and did the reverse; a break down in financial ethics; the incentivisation of predatory lending together with the globalisation of finance have brought the system to the point of collapse. The banks have quite literally dis-credited themselves and tax payers will be expected to bail them out and/or a write down of debts through an inflation is likely to occur. This will be incredibly unjust. Rich people are already parking their wealth in real assets like food and oil, driving commodity prices up just when the poor can least afford to pay. It appears that most politicians will support their banking friends while calling for more regulation which has already been shown to be ineffectual. Ordinary citizens will need to support each other developing local and complementary currencies and preparing the mass understanding and support for a different kind of money system. Money creation trusts should be responsible in law to ensure that if additional money is issued then the distribution of money, when it is first put into circulation, goes to everyone equally. If there is an inflation then everyone should equally share in the money creation process.
Lending and Borrowing in Historical Perspective
Throughout the history of humanity religious leaders, rulers and politicians have either banned lending against interest altogether or put strict limitations on the interest that can be paid on loans. This was hardly surprising - usury was either regarded as immoral or unjust because it typically arose in conditions of distress in which, instead of helping the people in difficulties,those who were vulnerable had that vulnerability exploited and fell under the power of the lenders, often enough into debt slavery. Or people were forced to borrow money to pay taxes from rulers who used tax revenues for wars. Or the rulers themselves got in hock to pay for their vanity and their violent adventures. In these pre-industrial times it was obvious to all that production and wealth was dependent on natural processes, in particular the weather, that determined how good the harvest would be. The modern idea of an economy on a perpetual growth path was completely alien. So if lending increased in a society then it was self evident that the interest repayments would only be possible through an increasing transfer of money and purchasing power away from the borrowers and its concentration in the hands of the money lenders. Just a knowledge and observation of the exponential maths of an accumulating interest rate made it obvious that this was unsustainable - for example "one penny invested at the birth of Jesus Christ at 4% would have bought in 1750 a ball of gold of the weight of the earth." (Quoted in "Interest and Inflation Free Money" by Margrit Kennedy, Permakultur Publications, Steyerberg 1990 p13 ).
Processes which involved money concentrating in the hands of the money lenders had inevitable limits and 'adjustments' were made from time to time - either in explosions of rage against usurers and possibly their expulsion from cities or countries, or in a more organised way, by institutions like the Jubilee Year. In the Biblical book of Leviticus, a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven and the mercies of God would be particularly manifest.
Without arrangements like the Jubilee debt undermines societies where incomes are not growing but debt is and there is growing misery and a danger of social upheaval. That is also the case today where whole social groups are not sharing in the growing income of a society but try to keep up with the rest of society by borrowing more. The wealth and power of a society may grow overall but in a very unequal way, forcing those whose income are not growing to borrow if they want to try to keep up with the lifestyle that the society proclaims as the good life to which "successful" people should aspire. This is why problem debt is socially patterned and disproportionately affects those on
low incomes. UK Government research published in 2005 indicates that although only 4% of all UK respondents have problem debts, this rises to 64% among those on annual incomes less than
£9500. Particularly affected are people with mental health issues or with an addiction - whose mental health problems are likely to be at least partly caused or exacerbated by their debt worries (C. Fitch, A Simpson, S. Collard and M. Teasdale "Mental health and debt: challenges for knowledge, practice and identity" in Journal of Psychiatric and Mental Health Nursing, 2007, 14, 128–133)
Debt, Misery and Mental Health
That these processes still lead to a great deal of unhappiness and distress, as they have through all of history, is very evident in recent times from psychiatric research. Among other things it is now well documented in academic studies that self reported anxiety increases with the ratio of credit card debt to personal income; that the onset of mortgage debt has a negative impact on mental health on males; that, of people receiving debt advice, a high proportion (62% in a UK study) reported that their debt led to stress, anxiety and depression - which they are likely to go to their doctor about; that there is a relationship between debt and post natal depression; that debt is the strongest predictor of depression; that difficulties in repaying debts are strongly connected with suicidal ideation and self harm; that debt is associated with feelings of shame, social embarrassment, a sense of personal failure, negative self identities and is implicated in isolation, social exclusion and strained relationships. (Chris Fitch, Robert Chaplin, Colin Trend, Sharon Collard, " Debt and mental health: the role of psychiatrists" Advances in Psychiatric Treatment (2007), vol. 13, 194–202 See also)
Because people with money tend to dominate social discourse and have a great deal of influence over the media the discourses about debt and finance are typically written in positive language. Most of what we read and hear about borrowing and lending celebrates the benefits. Indeed the word "debt" is not used very much - the preference is for the word "credit" because it has more positive connotations. This paper has not started like this because we are in a crisis where borrowing and lending are revealing their negative sides. However, we cannot understand credit/debt without understanding the positives too.
Borrowing and lending as a temporal adjustment in resource allocation
Looking at lending and borrowing in a neutral way we can see that it is essentially a relationship between people or institutions entered into in order to be able to adjust the allocation of resources in a temporal fashion. If you or the organisation that you represent do not have the money to buy something, perhaps something that is very expensive when compared to your existing cash resources and your income flow, then you have two options in order to buy it. Either you can save up to buy it, putting aside a part of current income over a period of time and waiting until you have enough purchasing power - or you can borrow. Borrowing is therefore a way to bring forward what would otherwise be a deferred expenditure. This is possible where you or your organisation is able to convince a lender that future income flows will be sufficiently large and sufficiently certain to be able to repay the loan plus make an interest payment.
To give the lender added security they are likely to require that you put up a proportion of the money for the purchase and make a collateral arrangement. If the loan arrangement breaks down, they can require you to sell the asset to raise the money to pay them back. If you are forced to make this sale there is, however, the possibility that you will raise less money than you originally paid for it. That's why the prudent lender will not usually give a 100% loan. If the price that is raised by selling the collateral is lower than original purchase price the lender will be calculating that the loss is born by you out of the bit of the purchase price that you paid for with your own money.
In an era of rising asset prices the risks of this happening may appear to be low and both lenders and borrowers lulled into a false sense of security. Lending standards, like the proportion of a payment covered by a loan, may slip. This has happened in recent times and partly accounts for the current crisis.
In a growth economy where incomes are rising borrowing to buy assets often makes sense. It may allow you to buy productive and income earning assets that you would not otherwise have been able to access and perhaps these assets can be used to repay the loan, the interest and still leave you better off. The inhibition and resistance to usury broke down, first of all, in those areas of commerce where the people who borrowed the money were able to use it to expand trade and production leaving both them and the money lenders better off. As industrialisation took off the application of fossil fuels to the production process, and the use of more effective energy transformation technologies like electricity, made for 200 years growth of output in which the banks, traders and industrialists could all grow and share the income from growth - at least in the developed economies.
The meaning and significance of Leverage
Using loans to acquire capital assets to enhance your income and wealth is called leverage and it is the oldest of the financial strategies. An extreme example to make clear how leverage works in a booming economy is given here. (There is a description of how leverage works in a collapsing economy later).
Say a Hedge Fund buys a financial assets for £100 million and does this with £1million of their own money and £99 million in loans from an investment bank. Now say the value of the financial assets rises just 1% to be worth £101 million. The Hedge Fund can sell the assets at that price, pay the bank back and end up with £2 million. Although the price of the assets rose by just 1% the Hedge Fund will have seen their own money rise from £1million to £2million. If assets values are rising there is a powerful temptation to borrow money to buy them and ride on the backs of this leverage process. It is what the Hedge Funds, managing money for rich people and many other financial institutions have been doing. And this process, of buying up financial assets on leveraged credit has been bidding up the price of assets even more. It has created a self fulfilling spiral of rising confidence, more borrowing, more asset purchases, more inflation of asset values and even greater (over)confidence......until recently.
Over the last few years it has not just been the rich and beautiful that have been playing the leverage game. So too have many middle class people and, in the sub prime mortgage and housing market, even poor people were drawn into the game without being required to have any income or capital at all. With incomes in the form of wages stagnating, and with house prices rising, the only way to get on the property ladder was to do this. In this process not only has the credit structure been inflated so too was the money supply. In order to understand this here is another example.
Lending and the creation of bank money
Let's say a middle class person goes to my bank to arrange a loan to cover 90% on a £100,000 house
secured against the building itself. They put up the missing 10% (£10,000) personally.
After the sale has gone through, the vendor lodges my £90,000 cheque in her bank.
This gives that bank funds to lend out and, since its business is lending money, it lends out 90% of its customer's deposit, keeping back 10% as a reserve.
Thus the £90,000 loan creates another deposit in another bank, and 90% of that will be lent out too.
From bank to bank the deposits can go, each creating the basis for another, smaller loan, so by the time the effects of my initial £100,000 purchase have worked themselves through the system, loans totalling £1m will have been generated.
Most of the money generated by this lending cycle, which the original house purchaser and borrower started off with just £10,000, their 10% deposit, will have been spent on buying property or some other asset. With lots of other people doing the same thing, borrowing to buy assets, the price of assets will go up, thus creating the collateral values against which the banks can lend even more money. When they lend this will push the price of assets even higher and more and more people will rush to borrow from banks and mortgage companies to get on the property ladder.
This is what economists call a "bubble". The process would and should be self limiting if lenders acted with a certain amount of restraint and kept an eye on lending standards. After all, people have to be able to re-pay their loans with interest. The ability to make repayments on loans - the most common lending standard is to set a limit as a multiple of your income - say 3 to 3.5 times your income if you are buying a house on your own.
However, and this is the crucial point, the lenders have not acted with restraint and the financial regulators have let them get away with it.
In recent years there has been a clear trend towards higher multiples, in some cases as much as 7.5 times annual salary (although 4 to 5 times salary is more common).
This is mainly because interest rates, since the late nineties, have been consistently low, much less volatile and there was an assumption that they would stay low. Lenders were lulled into a belief that the threat of borrowers being overstretched by sudden interest rate rises had gone down. They were happy, therefore, to lend more and more. Because mortgages were cheaper to repay it was assumed that there was less chance of borrowers defaulting, even on bigger loans. Further reductions in lending standards occurred when 100% mortgages were offered. Then lenders started offering 40 or even 50 year mortgages as compared to 25 year ones.
In each case the lending standards went down and the financial regulators did nothing about it. They let it happen because there was a conviction that a wave of "financial innovations" in the finance industry was making the management of the risks of lending much more effective.
The Minsky Cycle - Financial Euphorias
During a boom a collective mentality usually develops that "this time is different" . This collective euphoria, somewhat akin to the manic phase of manic depression, leads to misjudgements, to an overshoot and then to a market collapse. To a large extent each of these euphoric "bull run" repeats mistakes already made by other lenders and borrowers somewhere else and some time else. In fact there have been so many that various academic economists have studied the process and the cycle in the credit markets is named after an economist called Minsky
For those interested in the history here is a list Holy Roman Empire currency 1622; Tulips 1636; South Sea Scheme 1720; Northern Europe 1763; East India Company 1772; Emerging markets 1809-1838; Railways 1847-1873; Commodities 1890-1920; Great Crash of 1929; Bretton Woods collapse of 1973; Savings and Loan Collapse 1980; Third World Debt 1982; Black Monday 1987; Junk Bonds 1988; Japanese bubble 1990s; US Bond Crash 1994; Mexican Debt Crisis 1995; Asian Crisis 1997; Russian Crisis 1998; Long Term Capital Management Crisis 1998; Dotcom crash 2000; Sept 11 2001 Disruption; Argentine Crisis 2002and the credit crunch beginning from August 2007....
Because each crisis is different is difficult to assess in the early stages of the crash to what extent it is going to be worse, or not as bad, as comparable crises that have come before. Naturally when the slide starts to happen a lot of people are very preoccupied by how bad it will get - while at the same time being anxiously aware that, to a degree, market sentiment has something of the character of a self fulfilling prophecy and that if everyone thinks it will be bad then, indeed, it will get very bad.
Leverage on the way down - accelerating collapse
What is particularly frightening at such a time as this is how leverage works on the way down. In the earlier example of a Hedge Fund it will be remembered that the Fund had purchased financial assets for £100 million using £1 million of its own money and £99 million loans. (Leaving aside the interest payment). If the value of the financial assets rises 1% so that the asset is worth £101million it doubles its £1million investment. But what if the value of the asset goes down 1%? Clearly it has lost all of its own money. And if the market value goes down even more? It is dynamics like this that explain why highly prestigious and lucrative Hedge Funds like the Carlyle Group suddenly collapse.
There is nothing new about collapses caused by over-leveraged financial institutions so is the 2007/2008 crisis any worse than all the others? There are reasons to believe that it might be - because of waves of financial innovations that have happened over the last few years. This wave of innovations was made possible by the deepening of computer telecommunications and by globalisation - but these innovations are now revealing fatal flaws.
Financial "innovation" securitisation and the decline of relationship banking
One of these innovations was the so called 'originate and distribute' approach to creating loans. In the 'good old days' if you borrowed money from the bank then the bank remained the institution to which you owed the money. Your debts were managed by a bank manager that knew something about your financial affairs. This kind of 'relationship banking' is the sort of model for Captain Mainwaring in the BBC comedy series "Dad's Army" - pompous perhaps, but having an intimate knowledge of local bank customers and borrowers like the butcher, the undertaker and so on.
Now, however the banks and mortgage institutions lent money and then, so to speak, consolidated the IOUs from their customers, and sold them on as bonds to other financial institutions for a fee. This was the process of "securitisation" and the securities thus created - for example mortgage backed securities - were sold all over the world. Replacing the bank manager that knew his customers is a kind of banking based on making calculations about the known probability
that one can turn the debt owed by strangers on another continent into a specific quantity of cash in a liquid market at specific point in time provided by calculations on a computer screen.
Under this new 'originate and distribute' regime, the more the banks lent the greater the fees - but it no longer mattered to them whether the people who they were lending to were credit worthy or not credit worthy as it was other institutions that ended up holding the debt, not them. They had sold it on and picked up a nice sale fee. It became in the interest of financial institutions to sign up anyone to a credit deal and then pass the parcel to another investor. The so called sub prime debacle ended up lending so called NINA loans - loans in which people with No Income and No Assets were enticed into buying their houses by deals which seemed highly advantageous but which they really could not sustain - for example starting with very low interest rates which were to be re-set later.
Home is where the heart is and a source of security - or collateral for a debt fuelled shopping spree
One of the most basic of all arrangements in life is having somewhere to live. Home is the place where one is supposed to feel secure and where one's intimate relationships and the care of dependents takes place. A home also used to be where long run wealth accumulation could be stored by families as they got older. The shopping economy and the finance industry, working together, succeeded into turning the home, where the heart is supposed to be, into "an investment" for the home owners and a debt delivery mechanism for themselves. As author James D. Spurlock explained, just before the boom turned to bust:
"......an entire, increasingly unregulated industry exists to ensure that the house is not a vehicle for saving but for spending and even for speculating. Armed with euphemisms like 'Release the hidden value of your home" and fuelled by American's gratitude for credit and our short memories, this industry has become hugely profitable and almost unfathomable in size. The total amount of debt in the United States is now greater than the value of all the stock markets combined. It's a similar story in the UK, where consumer debt recently passed the £1 trillion mark for the first time." (James D Spurlock, "Maxed Out", Harper Collins 2007, p33)
It is this that is now crashing down on the heads of all involved - which, because we all use the banking system, is everyone.
Banks not trusting each other - how the banks dis-credited themselves
It is said frequently that the cause of the current banking difficulties is that banks do not trust each other and will not lend to each other. This is not surprising as the bankers are well aware that they have been selling each other worthless junk. What they now fear if, they lend to one of these institutions that has been sold rubbish, that is covering up its losses, is that they might be lending to an organisation, like their own, that will go bust.
There is a rich irony here. In its original meaning "credit" is derived from the Latin and means to
believe or to trust and arose in relationships in which lender and borrower knew each other. The banks manager took a direct interest in the management of the finances of debtors.
The wave of financial innovations put paid to all of that. At the end of decades of computerised telecommunications it apparently became possible to do finance in a completely depersonalised way through securitisation and the securities, bundles of financial obligations, could be 'sliced and diced' and traded anywhere in the world so all possibility of a knowledge link between borrowers and lenders has become impossible.
This should perhaps be spelled out as clearly as possible - globalisation of finance has destroyed the personal knowledge base for the credit relationship. It has therefore dissolved the trust basis of the banking system. The banking and finance system has, in a quite literal sense "dis-credited" itself.
In this kind of financial environment safety came, apparently, in yet more clever innovation - a whole series of arrangements whereby one group would sell reassurance through the credit ratings that they gave to products or through insurance against default - i.e. but the fancy word "insurance" here was really accepting payment in a bet that things would not go wrong.
Credit insurance, risk management and the credit system as a global casino
Thus you couldn't possibly lose out if you brought the NINA loans because they had been given an AAA rating by a credit ratings agency. Never mind that the credit rating agency was actually paid to give an AAA rating. It sounded good. Additionally there were lots of other clever wheezes invented to make it feel just right. For example, you could insure the debt that you held against default. When lots of money is being lent and times appear good getting paid money to insure against the possible default of AAA rated bonds seems like a pretty safe gamble. However, it was a gamble and, in retrospect it doesn't appear that it was a good one.
There were lots of these kind of operations which appeared to reduce the risk of business. Let's say you were investing in another country then there was always a risk that changes in foreign exchange rates would move against you. If that happened then, when you tried to move your money back into your own currency, you would lose out. So another kind of trade started to carry that risk for you, again for a fee.
Taking a risk for money is not very different from gambling - this is not on a horse or a card game of course but nonetheless the taking of fee against the risk that another company might default or against the risk of an unfavourable movement in an exchange rates is a gamble just the same. To win it to keep the fee when nothing goes wrong. To lose is that a default does in fact occur or an exchange rate does move unfavourably. So one company's risk reduction was another company's risk increase.
The financial markets started to boast that these new "financial innovations" as they called them were super sophisticated ways of managing risk. As risk was now "better managed" the aggregate amount of risk went up and up. In the financial markets the view took hold that they couldn't lose - the easiest way to make money was to help other companies "manage their risk" and the "appetite for risk", to use the finance jargon, got larger and larger.
This is a typical feature of the euphoria at the end of a boom phase. It must be acknowledged that some level of risk is intrinsic to any large allocation of resources because the future cannot be known with certainty. Losses are inevitable from time to time. Without taking risks no economic activity is possible. However when most of a market share the same sentiment that believes that risks are low at the end of a "bull run" the speculative fervour can get out of hand . This point was made 70 years ago by the economist John Maynard Keynes:
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is more serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes the by product of the activities of a casino, the job is likely to be ill-done." ( John Maynard Keynes, The General Theory of Employment, Interest and Money, 1936)
The growing complexity of financial instruments
In the last few years many of these complicated casino style activities were actually ways of getting round the financial regulations supposedly set up to make the whole system safer. For example let's say that your country's financial regulations are such that you are not allowed to speculate with other people's money in other countries financial systems. The regulations say that all your assets must be denominated in your own currency. No problem, Credit Suisse First Boston invented a financial derivative just for you. It was called the Quanto - this was a financial security issued by a bank in which the interest payments are based on interest rates in another country but paid to you in your own currency.
To make accurate assessments of the risks of holding financial instruments like this is actually a very complicated. And if you don't understand the risks you are not managing risks better, on the contrary, you are making them worse. As this tangle of complicated "risk management arrangements" is now tumbling down it has been repeatedly admitted that the financial "products" are often so complicated that no one understands them.
This was illustrated recently when the UK Parliament's Treasury Select Committee had hearings on the Northern Rock debacle and the Committee criticised investors for buying into complex financial products that “they did not always fully understand” in the hope of obtaining high returns.
Some such products are described in the report as “ludicrously complex” a point illustrated by the occasion upon which Lord Aldington, chairman of Deutsche Bank UK, could not explain to the committee what a CDO-squared was, despite the fact that Deutsche Bank is involved in the CDO market.
Complexity cycles - the ideas of Joseph Tainter
Behind the "Minsky cycle" of alternating financial euphoria and market panic there is a bigger cycle, let us call it a complexity cycle, in which, at the present time, decreasing returns to increased complexity has reached a point that can only lead to collapse of the financial system. (And then, we must hope, a simpler but functioning system). The marginal productivity of further financial complexity is now negative. “Marginal productivity” here means additional benefit with a
further step of a process - like financial innovation.
In 1988 an archaeologist called Joseph Tainter wrote a book called 'The Collapse of Complex Societies' which is still in print, the fourteenth printing being in 2005, because it appears to have lost none of its relevance. The central thesis of the book is that societies collapse because, as they try to solve their problems, they do so by investing more and more in complex socio-political organisation. However as societies become more complex the benefits of additional complexity decline and the costs of the complexity go up. In the jargon of economics - the marginal productivity of investing in complexity declines and, at some point, yet further additions of complexity makes things worse - there is a "negative return".
Those who are aware of the collapse of the Western Roman Empire probably immediately think of the barbarian invasions as its 'cause'. However, Tainter would describe these invasions as "stress surges". Apart from wars and invasions, other 'stress surges' would be things like disease pandemics (the plague), and climatic change producing crop failure. In the financial world a stress surge happens, for example, when it is discovered that too much finance has been lent out and a chain or domino effect of bankruptcies is threatened.
Tainter is at pains to argue that 'stress surges' do not in and of themselves provide the reasons why complex societies collapse - one typically finds that in the decades or centuries before the collapse 'stress surges' of equal, or even greater magnitude, have occurred and the society has withstood
them. What is important is to understand why the final stress surge, the one that brings down a society, does not produce the necessary robust coping response which the society had displayed in earlier crises. In his analysis it is because the society is managed in too complex a way.
This provides a useful way of looking at the current financial crisis. Clearly there have been here lots of financial "stress surges" in economic history. The crucial question here is whether this situation is different. The banks do not trust each other with good reason. The financial sector has become so complex that it is quite impossible for the bankers to look at the balance sheets of those they might do business with (their counterparties) and know whether they are reliable as partners or not. Participants in this immensely complex globalised financial network has no way of knowing how valuable the assets of many of the other parties are - and so are not able to tell how valuable are the assets on their own balance sheets. This is because they have lost personally mediated contact with their debtors in dense tangle of long distance opaque relationships. This poses the most fundamental question of all. Can they any longer survive?
Banking culture, the ethical crisis and informational asymmetry
What makes this systemic problem of confusion even worse is that the financiers know each other well enough to know that they cannot trust each other to tell the simple truth even when they know it. The growing complexity has been paralleled by the development of a culture of finance which is marked by a complete ethical collapse. Not long ago a Professor of Organisational Ethics at the Cass Business School, Roger Steare, undertook integrity tests on more than 700 financial services executives in several major firms and came to the conclusion that "There is a systemic deficit in ethical values within the banking industry. This will not change by hanging a few people out to dry," says Professor Steare.
The results of these tests indicate that as a group, they score lower than average in honesty, loyalty and self-discipline, he said. He compared traders to "mercenary hired guns", who regularly switch firms to maximise earnings. http://news.bbc.co.uk/1/hi/business/7207563.stm
This ethical collapse is poisonous in the context of what economists called "informational asymmetry". The growing complexity that no one can understand is a wonderful jungle in which all sorts of bandits can hide. The more complex the system the more it is open to fraud and abuse. A "sophistication gap" opens up between lenders and borrowers and becomes highly exploitable so
that, instead of financial risks being carried by the institutions with the greatest ability to bear the risks, others, who were out of their depth were enticed into taking on risks and ultimately making losses which they should never have been ventured into. As we have seen it is this sophistication gap which has been used to ensnare people who should never have borrowed at all. These people were bamboozled by sophisticated strategies of financial ensnarement - which for years have bombarded people with pieces of plastic and offers of credit - this in turn has been made possible by the absolutely huge data bases on every conceivable detail of the finances of individuals which the credit companies are able to get access to.
In these circumstances one must ask if regulation would or could make things any better. There are already regulations against predatory lending in the USA and if these had been used it would have largely prevented the sub prime debacle happening. The main significance of the fall of Elliot Spitzer was that he was leading a campaign to protect homeowners against the predatory lending attack upon them - in this he had the backing of the attorney generals in 50 US states and 50 state
level banking superintendents but was up against the Bush backed Office of the Comptroller of the Currency. Spitzer fell because of sexual indiscretions that would in other circumstances get overlooked - as journalist Greg Palast commmented.
These asymmetries and ethical deficits have made possible a host of predatory lending and financial practices. For example even big name companies like Proctor and Gamble came unstuck as they gambled in derivatives - retrospectively admitting that they did not know what they were doing. This was when they were seduced into making business arrangements by bank traders whose own motivations were to make multi-million pay bonuses rather than focusing on customer care. (Frank Partnoy "Infectious Greed" Profile Books 2004). Likewise there is currently a large number of companies that have been caught out holding securities that were given ratings which did not reflect their true values that are considering taking legal proceedings against investment banks that left them in the lurch.
Mental Health Problems in the Finance Industry
Earlier in this text there is a description of the misery and mental health problems associated with debt. It should be added at this point that in the trading rooms and executive suites that have been creating this crisis there are mental health problems too. Just as the euphoria of a bull run has
similarities to the loss of judgement in a mania, so the period at the end of the boom has been seen plenty of mental health problems according to reports coming out of the newspapers and the consulting rooms of the therapists for this group of people.
"mental health problems can be severe in the heat of financial competition. Drugs and alcohol are commonplace on Wall Street. A 2001 study of brokers by Florida's Nova Southeastern University found that 23% were clinically depressed, compared with 7% overall among American men.....
New York newspapers have revelled in stories over the past year of stressed-out traders reaching breaking point. One broker, Christopher Carter, has been charged with assault for throwing a hedge fund manager, complete with an exercise bike, at a wall in an upper east side gym. The hedgie's
offence? He grunted and shouted, "you go, girl!" too loudly during a spin class.
In London, a hedge fund manager, Bertrand des Pallières, made news last summer because he was so busy shorting stocks that he didn't notice for three months that his £80,000 Maserati had been towed away.
Jim Cramer, a hedge fund manager turned television stockpicker, told the New York Times that drugs tended to reinforce traders' inability to spot a looming downturn: "Prozac and all those other drugs banish the 'this is the end of the world' thoughts. Which means you are not as anxious as you should be about an obvious downside."
While therapists report that there is currently an epidemic of psychological illnesses in the finance sector, some of the managers find the oldest of psychological strategies for coping - avoidance, denial, switching off mentally in the heat of the crisis. An example is James Cayne, chief executive office of the Bear Stearns bank. The German news magazine Der Spiegel describes Cayne's work style thus " Even in times of the greatest crisis the boss of investment bank Bear Stearns did not let himself be distracted from his hobbies. Last July, as one of his Hedge Funds broke down the head of the board travelled undisturbed to a several day long bridge tournament in Nashville, Tennessee. While his troops fought for survival Cayne was not contactable. He had turned his mobile phone off. Its ring could have disturbed the many times American bridge champion. " (Der Spiegel,
22.03.08 article titled "Die Bank-Raeuber" - translator BD )
This is the same market economy that mainstream economists, the theologians of money power, sincerely believe is the best set of arrangements for allocating resources to maximise human welfare.
Information asymmetry between regulators and bankers - the incompetent state
The sophistication gap and information asymmetry also applies to the would be banking regulators - as has been shown when the Northern Rock crisis developed in the UK and the Financial Services Agency, the watchdog that should have seen it coming was caught totally unawares. In the context of the current crisis the idea that more regulation will make things better is a nonsense as a large element of the current crisis was caused as sharp legal minds sought to find a way around the existing regulations - as in the example of the Quanto, already given.
In the fairy tale for the children the central banks and the financial regulatory authorities control the banks so that they act responsibly. What happens in practice is that the financial regulators and central bankers are bankers themselves and are usually out of their depth. The truer picture of financial regulation is told by someone like Nick Leeson, a trader whose illegal operations broke the Barings Bank.
According to Leeson alongside the "best brains" in the trading rooms, competing fiercely and taking risks, there are also " the grey men of the back office.... They do the paperwork behind the traders' deals and run the regulatory systems. It is their job to monitor the markets and ensure checks and balances are properly applied. These bankers are invariably not up to it. The front end of the business is far more profitable. The brightest and best are seduced by the lure of big bonuses, leaving the third-raters and burn-outs to take safe desk jobs in staid institutions such as the Bank of England."
This is immensely important in regard to what can be done about the current financial crisis (end of March 2008). Current discussions about the banking and financial crisis are circling round and round the dilemma of what is called "moral hazard" - the dilemmas for the government and the central banks that arise if they bail out the banks versus the problems that will arise if they don't.
In an article on the Financial Times web site Martin Wolf, their economics correspondent, and a visiting professor of economics at Nottingham University argues that:
"The world has witnessed well over 100 significant banking crises over the past three decades.....No industry has a comparable talent for privatising gains and socialising losses. Participants in no other industry get as self-righteously angry when public officials – particularly, central bankers – fail to come at once to their rescue when they get into (well-deserved) trouble. Yet they are right to expect rescue. They know that as long as they make the same mistakes together – as “sound bankers” do – the official sector must ride to the rescue. Bankers are able to take the economy and so the voting public hostage. Governments have no choice but to respond.....It is the nature of limited liability businesses to create conflicts of interest – between management and shareholders, between management and other employees, between the business and customers and between the business and regulators. Yet the conflicts of interest created by large financial institutions are far
harder to manage than in any other industry."Regulators should intervene in bankers’ pay
http://www.ft.com/cms/s/0/73a891b4-c38d-11dc-b083-0000779fd2ac.html by Martin
Just a few weeks after Martin Wolf was writing this the US Federal Reserve was helping to organise a bail out operation to save the investment bank Bear Stearns with the help of the JP Morgan bank. The rescue broke with previous precedents because Bear Stearns is not a bank that takes deposits. Hitherto, only deposit taking banks were entitled to Fed rescues. However times have changed because Bear Stearns is part of the swamp of credit default swaps and other "risk management arrangements". Many other banks and financial institutions depended on Bear Stearns so that if it collapsed the crisis would be take on a "systemic" character. (Not a crisis of one bank but of the entire banking and financial system)
But the question of "moral hazard" looms large. Where will these rescues, dependent on public money, end? If the banks are bailed out every time then will governments and central bankers be conveying the idea that the bankers can never lose? If they do this will not the bankers take irresponsible risks all over again?
The future and futility of further regulation
In order to counter the problem of "moral hazard" the talk is now of more regulation. But what if, as the evidence seems to suggest that the regulators are not up to the job? What if more regulation will make the finance sector even more complex and complicate things even further? The fact that the regulators might not be up to the job was shown when the UK Financial Services Authority it effectual role in the downfall of the Northern Rock banks confessing to a lack of supervision and dedicated resources. The man responsible for supervising Northern Rock has now left.
Various participants in this discussion either accept or reject the idea that banks and a wider network of financial institutions should be bailed out and either accept or reject the apparently necessary complement to that idea - that these banks and other financial institutions will need to be regulated more tightly - or at least have accept more state intervention in their operation. Unfortunately, what this entire discourse fails to acknowledge is that the complexity of the financial markets arose to a large degree as a way of financial institutions finding their way around regulations. Thus, if it is the complexity of the market that has made it opaque and unmanageable, then a proposal to do more of the same - pump in more liquidity to bail the financial institutions out and have more regulation - is more of the same and will make the situation worse, not better.
What the discourse also fails to acknowledge is that in the tangled web of banking interrelationships there comes a point in a banking crisis when ANY AND EVERY major failure has systemic consequences - as was discovered by the Bank of England when it rescued Northern Rock the rescue had consequences for the entire banking system.
Various proposals have been put forward, for example, by Professor Martin Wolf who opines in the Financial Times that bankers' income should be tied to their long term achievements and not to short run gains. Proposals like this would suffer the same difficulties. It seems doubtful that Professor Wolf could draw up the terms of such a scheme without financiers experiencing it at some future point as a bureaucratic constraint that smart city lawyers would be hired to "innovate" their way round and get paid a high sum to do so. Would it note merely add a further level of complexity on the Jenga Tower of world finance.
It is in this context that one can see the proposals to regulate the US banking system differently that were made at the end of March 2008. These proposals were in fact dead on arrival. Here's how the New York Times describes the proposals on 29th March - it doesn't look like greater regulation to me:
"Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
"According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
"While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
"The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings."
From this it appears that the banking system and government are so tightly intertwined that it is incapable of effective regulation. This follows from an analysis which goes beyond looking at the economics and acknowledges the realpolitik of the situation. The banks are too powerful and
the crash that is coming is one of hubris - this financial crisis is a moment of Nemesis.
The credit crisis as a slow motion pile up - liquidity crises and solvency crises
The banks are not just any businesses. In our current economic system the banks not only look after our money they actually create our money. If the banking system goes belly-up then the money with
which to conduct all our economic transactions simply dries up.
To watch the financial markets since last August has been like viewing a multiple car pile up on a motorway, in slow motion. Each month that passes a new link in a chain reaction of spreading chaos and fear has emerged as a new bank, a new market, and a new institution has reluctantly admitted that it is in deep trouble. Each time journalists and commentators from the big financial companies and the regulatory authorities comment on what this means for the future. Each time their prophecies get gloomier and more panicky. Comparisons are made with economic and financial crises of the past and gradually the comparison with the Great Depression of the 1930s is creeping
in to the financial columns.
Some commentators saw this coming a very long time ago while others have been more slow to adjust greed driven euphoric optimism - but increasingly the hard data supports the pessimists. Nowadays one hears a view that the pessimists were saying a long time ago, repeated over and again - in the jargon of economics: this is not a liquidity crisis this is a solvency crisis.
What's the difference? A liquidity crisis is a temporary shortage of cash that short term borrowing arrangements can get you through because your business is basically sound. A solvency crisis cannot be solved by borrowing because anyone looking at your business can tell you are broke and no one with any sense lends to a business that is broke - it is throwing good money after bad.
Transmission of the credit crunch into the real economy
Increasingly the financial sector crisis is being transmitted into the real economy. The hard edge of this process has been felt in the housing market - as house prices fall and interest rates rise the level of economic activity has fallen in housing building because there is build up of unsold houses and people are reluctant to spend on DIY and other house related goods. The next stage is that other consumption expenditure falls as people cut back on discretionary consumer expenditures like new cars, alarmed at the increased interest payment and the negative equity that they face. This in turn means lay-offs and falling income elsewhere in the economy. Non banking corporations find that borrowing is becoming more expensive for them and the market for what they are wanting to sell is declining so they cut back investment expenditure. There is thus a decline in orders for new buildings, new machinery and machine tools. This decline in the real economy, in turn, transmits back to the banks undermining their profitability even more.
Quite how much money the banks will eventually lose is a matter for important debate among economists and financial market watchers. As the months have gone the estimates of the potential losses have got bigger and then bigger again. The economist who first saw this problem coming, a Professor Nouriel Roubini of New York University’s Stern School of Business, believes as of March 2008 that total financial sector losses could be as much as $2,700 billion. On the Financial Times web site Martin Wolf comments:
"Suppose, then, that Prof Roubini were right. Losses of $2,000bn-$3,000bn would decapitalise the financial system. The government would have to mount a rescue. The most plausible means of doing so would be via nationalisation of all losses. While the US government could afford to raise its debt by up to 20 per cent of GDP, in order to do this, that decision would have huge ramifications. We would have more than the biggest US financial crisis since the 1930s. It would be an epochal political event."
Professor Wolf then concludes by saying
" I suspect Prof Roubini’s latest estimates are excessively pessimistic. But I am not certain this is so, given his record: just look at the vicious interaction between falling asset prices, financial stress and spending. We must pray that the Fed can clean it all up, without excessive collateral damage. Unfortunately, such prayers often go unanswered."
In an earlier discussion Professor Wolf had suggested that $1,000 billion losses by the banks would compel a reduction in bank lending of $22,000billion - presumably £3 trillion would involve three times that amount. That would be the death of all our existing economic arrangements......
A short time later the Investment Bank, Bear Stearns, has collapsed and the rescue was being organised by the Federal Reserve Bank in the US in order to stop a domino effect of banking and financial sector collapses.
The scary scenarios - debt deflation leading to liquidity black holes and banking runs
What might lead to a complete melt would be a debt deflationary spiral whereby people with debts find that the value of their assets is falling while the money valuation of their debts remain the same - so their situation would be getting worse. In response they would try to save more and be forced to sell their assets - but this would mean that economic activity would sink even lower and the distress sales of assets would push the price of assets like houses down even further. The negative equity problem - debts in excess of the sale value of collateral assets would get worse. As income declined too so the debt to income ration would get worse and worse. Japan get caught in a crisis like this through most of the 1990s and has still not emerged from it.
Japan is a country with a large trade surplus and is very competitive in the world economy. The USA (and Britain) are the reverse. As a result it is not inconceivable that the financial crisis might slip into what Professor Avi Persaud calls a graphically a "liquidity black hole" . Usually if the price of something falls there are less sellers and more buyers appear so that the market comes back into equilibrium. However, if we are talking about financial assets then, in a "liquidity black hole" the very opposite happens. As the price of financial assets fall their holders get in a panic and sell them lest the price falls even further - so there are more sellers - and, correspondingly, buyers become more and more reluctant to enter the market. The losers in a liquidity black hole are the people who sell last.
In circumstances like his depositors would try to take their money from the banks and chaos would ensue. Of course it is true that banking regulations insure that depositors have a guarantee for so much of their money - but if they have money above that level many people would lose out - and below that level the administrative tangle and delay of sorting out the mess would be considerable. If it involved millions of people it might take months or years before people got access to their money again to spend - during which time people would still need cash to be making transactions. So even a deposit guarantee scheme is not the complete safety net that it seems at first sight.
Storing value when the financial system is wobbling and the economy hits the limits to growth
A sure sign that the financial system is wobbling is that the price of gold is high - and rising. This demonstrates that rich people are looking for somewhere safe to park their wealth until the crisis has passed. In this crisis other commodities appear to be the subject of speculation for the same purpose - for example, to a degree metals and foodstuffs like grains that are not rapidly perishable. Above all oil is turning into a commodity into which speculators have been putting their assets. When the banking system is unstable and most of the money in our economy takes the form of bank deposits there is doubt that holding ones assets as bank deposits is the best strategy to protect one's wealth.
What appears to be happening is that many institutions and rich people are acquiring commodities whose values are increasing. They are doing so not for speculative reasons but because the global economy appears, in many respects to be approaching its ecological capacity limits. This has meant that the natural resources needed the by the global economy cannot any longer be found and produced in the magnitudes needed. When this happens the price of these materials are being bid up on global markets.
The crisis of the global financial system is interacting with the crisis of the global economy as it hits the physical limits to growth. Since the year 2000 the metal prices have increased nearly 4 to 6 times, the price of foodstuffs and grains have rocketed and the price of oil, gas and coal has risen too.
The businesses that are still booming even in the middle of all the other difficulties are in the mining and energy sectors - partly because prices are holding up so well. This is counter-intuitive as one would think, with a recession coming on, that the price of oil and other materials would have fallen. These falls may yet happen but the other reason that commodity prices may have held up is that an increasing number of investors have picked up the message about peak oil, have taken it in and are finding it credible. In the recent past the International Energy Agency is saying much the same thing about the future availability of oil as the peak oil prophets are saying - even if the narrative about the causes of future shortages is slightly different. (Geo-politics rather than geology).
While it is true that high energy and materials costs acts as a burden on companies and countries that must pay more it is also true that those that receive the higher prices will see their income swell and may spend more of it. A re-distribution of incomes like this may, in the aggregate, even inflate world incomes as the gainers spend more.
However, there will come a point, past the oil peak, where the aggregate amount of energy available to the global economy will start to shrink and, at that point, the global economy will also start to shrink due to running out of its fuel source. At this point the financial system will be in even worse trouble than it is at the moment. It will be akin to the days, described at the beginning of this paper, where the economy as a whole was not growing, so that an expansion of the debt system cannot continue as there is not an expanding amount of wealth to be shared with the bankers and the bankers gain could only be someone else's loss. At this point the limiting factor on production will be the energy system rather than money. The banking system, to the extent to which it has not already collapsed, again be in difficulties - and their will be a renewed tendency for moneyed interests to rush to put their wealth into energy, oil, land, metals, water and other real assets . The possession of these scarcer natural resources will allow them to charge rents (scarcity prices on non reproduceable assets) from all those desperately in need of vital but naturally scarce resources.
Market traders are starting to see the writing on the wall - a sure sign of this is that oil prices for future deliveries for as far ahead as 2016 are now $100 a barrel. So those investors who are wanting to hold their wealth in a reasonably inflation-proof form have started to think about holding their wealth in oil. To use the jargon oil is not only being purchased speculatively it is being purchased as a "hedge against inflation". One thing moneyed people and company treasurers can be sure of - oil is always going to be in demand and it is becoming an alternative bolt hole for the magnates and companies to hold their wealth in difficult times. This demand for oil, some of it funded by the money being sloshed out by the central banks as they try to hold up asset prices, is holding up the price of oil.
This is particularly the case now that many moneyed interests must be very worried about the threat, not only that the banks will go bust, but that there will be an inflation, cutting back the value of those who hold their wealth in a money form.
Cutting debt down to size with an inflation
To understand this imagine that a desperate government decided that it had to do something about a collapsing economy and it tried to bail out some of the people in desperate financial straits (or the banks that lent to them) by cutting taxes as well as by finding other means of letting them have more money. Let's say that the government pays for this not by taxes or by borrowing money from the financial markets - which don't have any more to lend - but by simply printing money. If that happened the value of money (measured as its purchasing power) would go down as prices rose and nominal money incomes would chase up prices in a wage price spiral - but in the process financial debts would also be cut down to size.
If someone over-borrows and owes, say, £10,000 and then finds both the prices that they normally pay as their cost of living AND their income doubles - then they are no better or worse off in regard to their income compared to prices. However their debts will have been cut down to half the size that they were in real terms.
It is a sort of solution - but not one that financiers like. Financiers absolutely hate inflation - but the truth is that, when there has been so much lending that people cannot pay then one way of dealing with that over-lending is through an inflation - because it means that the value of debts shrivel. Debtors gain - lenders lose. Such an inflation is not, in other respects a very happy thing and may be most unfair to people on a fixed income like pensioners. Those who can drive their income up can stay above water in their day to day financial management - but those who can't go under.
As people liquidate their loans and turn them into cash the last thing they will want to do is to continue to hold their money as cash or on deposit when prices are rising at a higher and higher rate.
The two are radically incompatible. A day of reckoning is therefore coming with the financial and credit system. This is a situation in which there is a real danger that huge injustices will be done and a lot of very vulnerable people will get hurt. There is lots of evidence that debt is a major source
of anxiety, stress and distress, depression and suicide and these will only get worse as economic conditions deteriorate. If the debt problem is solved at the expense of vulnerable, poor elderly people on fixed incomes then that will not be a just solution either unless they also get a fair share of any increased money sloshing around. That's the reason that the money system must
be managed in the future in the interests of all.
If the banking and financial system does collapse in this way - and it is not impossible - it does not mean that nothing can be done. But it does mean that we will have to start again with a radically different and much simpler approach to finance.
Managing money as a commons
In this simple approach to finance we need to recognise that the money system is a social institution that we all depend upon for exchange transactions and so it should be managed in the interests of everyone. When one wants to manage things for the common good, rather than for private gain, one
establishes trusts to manage them. In the case of a money system trust the trustees would be given a legal duty to manage the money system in the interest of all equally. If they failed to work within those legal rules they could be challenged in the courts.
That would mean that if there is money to be created that it should be distributed to everyone equally. This is an important principle. A key aspect of money creation is seigniorage - someone gets the benefits of the initial creation of money and do not have to sell anything or work to receive the purchasing power. Banks get the seigniorage when they create debt money and they create too much for everyone's interests and then have to be rescued. They should lose this right. We should all share the seigniorage. A money creation trust responsible to us all would distribute any more money
directly to us all equally. This, I may say, would be more socially just than dropping money from helicopters over the financial districts. ('Dropping money from helicopters' is the metaphor used frequently by economists to describe getting money to people to spend in order to prevent an economy falling into a depression or recession).
State abuse of its influence in the money system
Some people may think that money should be created by the state and spent into circulation. However we have seen in recent years that the state is in the hands of the financiers, the energy barons and the military-security and armaments apparatus and have dis-credited themselves too. While the increased complexity is key to explaining the current banking crisis it is not the whole
story. Another part of the story is the abuse of debt finance by the governments to fund their military and other adventures.
A winner of the Nobel prize for economics, Joseph Stiglitz working with Linda Bilmes has been working out the maths on the cost of US (and UK) military adventures and comes to the conclusion that these could be as much as $3trillion in the long term - $25,000 for every household in the US. In a $13 trillion economy this is a huge sum. The huge military expenditures of the US have only been possible because the US government has been able to abuse the financial power of the US government. This has inflated the government deficit which has been borrowed by flooding the world with dollars. In the UK our own government is looking to spend over £3 billion this year which does not help the already strained finances here either. Stiglitz and Bilmes see a direct connection between the credit crisis and the enormous bill for the Iraq war.
The idea of giving back to the state and away from banks the ability to create money therefore lacks credi(t)ability. Governments have told us for years that monetary policy is too important to be controlled directly by the government itself and handed this over to bankers. Now the bankers have shown they cannot be trusted and are dis-credited too. So does this mean it should be handed back to the state? Hardly - the principle of independence of the monetary authorities from the state is a good one - but to prevent money creation being a lawless and chaotic process a social organisation must be created with responsibility to somewhere to manage the money system in the interests of all. There is no other alternative then but to make this a trustee system whose terms of reference - can be defended in the courts.
The crisis of the money system is a crisis of trust of the banks. We are told continually in the newspapers that the banks do not trust each other having sold each other financial junk. So why should citizen's trust the banks? And if we cannot trust them then how much more appropriate can you get than to re-establish the money system than by running it by a Trust with a duty to manage money in the interests of everyone?
How will we get there? We cannot expect the existing powers-that-be to bring such a system into existence, at least not at the moment. At some point there will be a need for a comprehensive reform package of the type described here but it will take time and effort to build a political movement for it. In the meantime the gradual breakdown of the financial system, as its nears the edge of the liquidity black hole, will mean that responsible citizens are likely to have but to try to improvise their own currency and exchange systems to bridge a period of turbulence and chaos - if possible with the support of local authorities. The precedent for doing this can be found elsewhere - e.g.
the provincial currencies of Argentina in the banking crisis there of a few years ago. At one time these created nearly 16% of Argentina's money supply.
Thus a popular movement to help people re-create vital local exchange relationships in desperate times will help to create the expertise, the networks and the mass understanding for the re-establishment of a new simpler national financial system to be run in the interests of all.
Heading off the flight of capital into rent seeking take-overs of scarce natural assets
The reform of the banking and monetary system that will, in all probability, have to start through the improvised arrangements of people at a local level into a movement for political change will also need to be combined with a movement to head off the flight of capital into the rent seeking take- over of scarce natural assets and a general economic programme to move as quickly as possible away from dependence on fossil fuels. The drama and immediacy of the banking crisis threatens to divert attention to what will, in the not too distant future, appear as even bigger threats - peak oil and gas and then an accelerating climate catastrophe. Paradoxically a banking induced economic recession will take the pressure off global greenhouse gas emissions. It has hitherto only been in recessions that greenhouse gas emissions have actually fallen. A banking crisis which pushes people out of the routine lifestyles focused on debt fuelled consumption might create the circumstances in which people will be prepared to consider less energy intensive ways of living working with the resources closer to home of the type currently promoted by movements like Transition Towns.
That is not all. With the key source of economic power being ownership of fossil energy resources and raw materials being increasingly where the rich and powerful will sink their resources it is important that the right of the powerful to bring these resources to market is itself put under political control, in the interests of the mass of the people. Thus while energy resources are likely to be concentrated into ever fewer hands globally and nationally it is important that these few hands have to buy the right to bring their resources to market from the people. That is why policies like cap and share are so important. Cap and Share is an upstream carbon permit system that requires energy suppliers to first have permits before they can sell their energy into the economy based on the greenhouse gas content of the fuels. These permits should be first purchased from the people or from a Sky Trust who will rebate the revenues raised to the people on a per capita basis.
Policies like these not only makes it possible to capture the rent from scarcer fossil fuels and distribute it to protect the people, particularly vulnerable people, it also speeds the process of mitigating climate change and forces the pace at which economies make an adjustment away from fossil fuels. This is important because fossil fuels will get progressively scarcer and, while they are cheap, these energy resources need to be prioritised for use in a transition in the economic structure towards energy efficiency, renewables and energy lite lifestyles. Since Cap and Share or a Sky Trust would direct the resources to the base of the economy they would make possible an economic and ecological transition as the Green New Deal to bring the economy and society back up after the economic crash that is coming.
Brian Davey 2nd April 2008