Here is another excellent posting from Michael Roberts in which he demolishes some of the arguments put forward by the banks since the outbreak of the world crisis of 2008-9.
Doing God?s work again
Back in April 2010, I wrote a post about Lloyd Blankfein, the chief executive officer of Goldman Sachs, the world?s most powerful investment bank (and also voted the most hated institution in the US in a recent poll ? http://www.bloomberg.com/news/articles/2015-02-05/america-s-most-loved-and-most-hated-companies).
Blankfein had been interviewed by the UK?s Sunday Times. It went something like this: ?So it?s business as usual then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe, will go on raking it in, getting richer than God? An impish grin spread across Blankfein?s face. Call him a fat cat. Call him wicked. Call him what you will. He is, he says, just a banker ?doing God?s work?. (https://thenextrecession.wordpress.com/2010/04/19/doing-gods-work/).
God?s work. Well, as we now know, Stephen Green, former chairman of that other notorious money launderette for the rich, HSBC bank, (see my post https://thenextrecession.wordpress.com/2014/08/27/getting-off-scot-free/), has also been doing God?s work. Reverend Green, an ordained vicar, published Good Value in 2009, an extended essay on how to promote corporate responsibility and high ethical standards in the age of globalisation!
The good Reverend was in charge of HSBC?s private banking division based in Switzerland, before he became chief executive and chairman of the whole bank. And it is this Swiss division that was engaged in hiding the ill-gotten gains of thousands of rich people in many countries who did not want to pay tax for income made out of people in their home bases. And HSBC went further in arranging ways and tricks to enable these rich people to recycle their cash back to the UK and other countries without tax payments.
All this was going on when the previous Labour government in the UK was in office. At the time, UK prime ministers Blair and Brown and City minister Ed Balls (now the finance spokesman for the Labour party) adopted what was ?light touch regulation? of banking activities. After all, the banks and the City of London were vital to Britain?s prosperity apparently. As Peter Mandelson, then Labour?s business secretary, put it at the height of the neo-liberal boom back in 1998: ?greed? was a force for good and he was ?intensely relaxed about people getting filthy rich as long they paid their taxes?.
The trouble with that argument is that the rich did not pay their taxes anyway, thanks to help from God and Stephen Green. Of course, Rev Green?s defence, provided by his supporters (Green won?t say anything), is that HSBC?s federated corporate structure prevented group management getting to grips with tricky local details, such as spotting those customers who were running multi billion-dollar drug cartels and arms deals (see my previous post https://thenextrecession.wordpress.com/2013/02/01/the-never-ending-banking-story/). But as Margaret Hodge, chair of the UK parliament?s public accounts committee, put it: ?Stephen Green was either asleep at the wheel or involved in dodgy tax practices?.
It?s a sickly irony that the bank started off in Scotland in 1865 based on ?Scottish banking principles? and was run thereafter with a strong ?flavour? of Scottish Presbyterianism. The corporate logo was a stylised adaption of the cross of Saint Andrew. Religious moral principles were supposed to rule in the original Midland Bank. The takeover of Midland by the Asian Hong Bank to form HSBC soon led to taking over the Swiss banking division and the beginning, like everywhere else, of ?universal banking? and a move to investment and trading in financial markets as the main objective of the bank, rather than basic deposits and loans for customers. And, of course, money laundering and tax avoidance schemes for rich customers, including Mexican drug lords.
The rich tax avoiders themselves have been trying to justify their greed. Lord Fink, the former Conservative treasurer, attacked by UK labour leader, Ed Miliband, argued that everybody wants to avoid tax so there is nothing wrong with what he did in Switzerland. Fink said: ?The expression tax avoidance is so wide that everyone does tax avoidance at some level.? It was done so that ?my children were under 18 and I wanted them to have something to help them make their way in the wider world.?
Don?t we all? What could be more reasonable? But the point is that tax avoidance, let alone criminal tax evasion, is not the same as, say, buying a bond that the government has decided can be tax free or not paying capital gains tax on your only home if you sell it. Tax avoidance means schemes invented by accountants for rich people to avoid tax where government intend you to pay. And the Swiss bank accounts reveal we are talking about billions of ?avoided tax?, all helped by HSBC and other banks.
?Light touch regulation? and the neoliberal aim of reducing tax for the rich and ?creative? has been the norm in all the major capitalist economies, with corporate tax being cut back sharply to boost company profits and huge exemptions on tax allowed for the very rich to swan round the world avoiding their share of burden of providing public services, infrastructure and communications paid for in taxes by the rest of us.
In the UK, there is the ludicrous ?non-dom? concession that allows the very rich to claim that they live elsewhere, pay a nominal tax to the UK government and then live in the UK, buy properties and pay no more for public services. The government says this concession (dropped in many other countries) is allowed because encourages wealthy foreign investors to spend time in Britain.
Exactly ? but do we need these people? Amazingly, there is a rule that if you become a non-dom, you can hand on this status to your children! An inherited tax concession! The tax authorities recognise descent from the father so that rich children get this tax advantage even if they have been born, educated or lived most of their lives in the UK. Often they hold British passports.
Under the Blair and Brown Labour governments and of course under the current UK government, non-dom number shave exploded from 67,600 to 137,000 between 1997 and 2007. So many non-doms living in Britain were among those placing funds in Switzerland that in 2010, the pursuit of back tax from the HSBC leaks only brought in ?135m for HMRC in London, much less than for other countries. One great advantage for Britain?s non-doms is that, when ticking the box on their tax form, they are not required to disclose the existence of any Swiss accounts, though any income brought into Britain does become liable to domestic tax.
We now know that the Labour government and the coalition government knew all about the activities of HSBC and its tax avoider customers but did nothing about it. It turned a blind eye. Why? First, because the rich and powerful are always to be supported by governments that believe they are necessary to make capitalism work. And second, because, in the case of Britain and the US, big banks like Goldman Sachs or HSBC are seen as necessary wealth creators through financial markets that are so important in decaying modern capitalist economies. Despite recent attacks on tax avoiders by Labour leader Ed Miliband, his finance spokesman, Ed Balls, seems less combative: at a recent meeting with City financiers he was reported as saying ?You might hear anti-City sentiment from Ed Miliband but you?ll never hear it from me.?
But the financial sector is not a wealth creator: at best, it is a wealth distributor or facilitator, and at worst and increasingly so, it is a parasite on the productive sectors of the capitalist economy. Is the financial sector useful and productive? Even mainstream economics doubts it.
Andy Haldane, now chief economist at the Bank of England, has shown that banking is not productive and even positively damaging to the ?real economy? (see my post, https://thenextrecession.wordpress.com/2013/10/31/the-value-of-banking-according-to-mark-carney-and-alan-greenspan/). And a new paper by the Bank for International Settlements (BIS) finds that, as the financial sector grew its share of GDP in the major economies, overall economic growth slowed. The BIS reckons there was a causal connection (http://www.bis.org/publ/work490.pdf).
First, the high salaries commanded in the financial sector made it harder for genuinely innovative firms to hire researchers and invest in new technologies. Second, the growth of the financial sector has been concentrated in mortgage lending rather than in loans for investment in new technology. Credit has gone into a property boom not in boosting investment.
The BIS found that manufacturing sectors that are either R&D-intensive or dependent on external finance suffer disproportionate reductions in productivity growth when finance booms. By draining resources from the real economy, financial sector growth becomes a drag on real growth.
For roughly 40 years, the financial sector stayed roughly the same size relative to the rest of the economy. Then a phase shift occurred, starting in the late 1980s and it has since commanded a share twice as large.
The growth rate in productivity was systematically faster when the finance sector was relatively smaller and then when the finance sector got bigger, productivity growth got smaller. The BIS found that a sector with high R&D intensity located in a country whose financial system is growing rapidly grows between 1.9 and 2.9% a year slower than a sector with low R&D intensity located in a country whose financial system is growing slowly. Financial booms are not, in general, growth-enhancing.
All this confirms the obvious to anybody that does not have a vested interest in maintaining the status quo. The major banks in all the major countries should be in public ownership. They should then engage in providing credit to households and small businesses and looking after people?s deposits, not in financial speculation that triggers credit crises and/or in tax avoidance, evasion and money laundering for the rich. The big banks dispose of ?6tn in funds. This is equivalent to the amount that more than 60 million British people produce in four years. Yet they earmark just ?200bn of this to investment in industry in the UK, a measly 3% of the total.
And bank executives would be stopped from earning grotesque salaries, bonuses and pensions that create huge inequalities of income and wealth and suck up human capital into unproductive activity. There could be democratic control of these banks, exercised by government and bank workers, and banks could be incorporated into a national plan for investment and growth.
That would be proper work, if not by God.
See ?Take over the banks? pamphlet by the UK Fire Brigades? Union.
This article can be found at: https://thenextrecession.wordpress.com/2015/02/16/doing-gods-work-again/. Readers are strongly recommended to subscribe to Michael Roberts? blog if they haven’t already done so.