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Now they’re aiming to go back to non-prime mortgage securities which caused crash

house price collapseIf you want evidence of how reckless and desperate bankers and investors have now become in search of higher yields, look no further than the widespread decision to return to a variant of the mortgage-backed securities which precipitated the 2008-9 crash.

Then it was sub-prime securities which were knowingly sold to households handicapped by low pay and insecure employment who predictably could not maintain their mortgage payments in a volatile labour market. Now it’s simularly financially disadvantaged individuals who are lured to take on non-prime mortgage-backed securities, those that do not meet even the minimum legislative standard. But of course they do offer high yields, and if the bankers can dispose of enough of these financial vehicles laced together with other dodgy securities, the risk has been passed on to some other half-witted investor.

Quite apart from the very real risk of paving the way for another crash, this latest trend reported in today’s FT is very revealing in where we are in bank and hedge fund regulation -hardly anywhere at all. It is almost incredible that the very financial instruments which triggered the colossal 2008-9 crash, from which the world has still not recovered and for which the innocent victims are still paying the heaviest price, have not been either banned or so tightly regulated as to prevent any further damage. It reveals how puny and superficial has been such reform as there is – mainly an increase in capital ratios, but not till 2019! The dark heart of the City of London remains intact, namely the exchange-traded funds, the ‘dark pools’, the rise of shadow banking outside regulation, and now a return to the exotic derivatives which triggered the global crash 7 years ago.

That’s why the Labour leadership election should have been about the fundamentals, the real factors that are causing the dire condition of our economy and society at the present time. The whole finance sector needs to be tightly regulated. There needs to be a major industrial/manufacturing revival over the next decade or more as the only means to pay our way in the world and to achieve real genuine sustainable full employment. There needs to be a determined attack on corporate pay excesses and industrial-scale tax evasion/avoidance as not only obscene, but holding back growth as even the IMF has now admitted. And the private market failures in housing, rail, water, pensions, energy, banking, to name but some, must be addressed, including a public sector role in reform.

Image copyright: rf123.com image ID : 43947813 by Vladimir Ochakovsky

6 Comments

  1. Mervyn Hyde says:

    For years now Ivy League economist professor Mark Blyth has explained that long before the crash the crooked financial sector were not complaining there was too much credit, but the there was NOT enough. He even went on to support his claim by pointing to the actual Banks own advertising at the time, he said they didn’t say please save the economy by putting your money into savings, but the adverts proclaimed “LIVE RICHLY” meaning please borrow more.

    What the left really need to get their heads round is the quite easy to understand way in which money is created.

    When Yvette Cooper stated that Jeremy was printing money and that would cause inflation, she was actually lying or in fact does not know how money is created.

    As some of us have been saying on these threads for some time now:

    The private banks print money into the economy every day of the week. they do it willy nilly day in day out, so why did Yvette say printing money into the economy is inflationary.

    The simple truth is, she is like all the others; a Neo-Liberal that thinks public expenditure is in itself inflationary, when in reality it is the reverse.

    But that aside, money is created out of thin air every time the banks make a loan, that is why for every £1 in your pocket 97p was created out of debt, that means someone or company somewhere, borrowed that money for some reason, that is how it ended up in your pocket.

    This is a Bank of England quote paraphrased:

    97% of all money in circulation was issued (printed) by the private banks.

    The next question people should ask themselves is well if we print money into existence how do we control inflation?

    The obvious answer is, how do we do it now? By taxation and interest rates of course.

    Money is printed into existence and destroyed by taxation and interest rates, or if that is not clear enough, money is taken out of your pocket be increased taxation and interest rates.

    So we should all be asking Yvette Cooper if the Banks can print money out of thin air without causing inflation, why can’t we do it for public expenditure?

    The truth is, it all depends who you are representing, the Banker’s interests or peoples?

    If people sit down and think about how money comes into being, and it is not how people naturally think, lots of little beavers working in the community producing for example nuts and bolts, it is the private bankers. Although the real issuer of the currency came from the Bank of England, who allows the bankers to get free money which they then charge interest for.

    What Jeremy wants to do and is well accepted by real economists as opposed to the Neo-Liberal monetarists, (Yvette Cooper style) is that instead of the government borrowing it’s own money and paying interest on it, he would use debt free money for public expenditure, putting it where it is needed and when it is needed.

    This of course appears revolutionary, but has all been done before, In particular when Abraham Lincoln was fighting the Civil War he created the ‘Green Back Dollar’, which was then used as the united states currency which payed for his war effort and continued even to this day, some speculate that he was in fact murdered at the behest of Bankers who eventually took the Green back, back into private hands.

    Where it has remained ever since.

    None of this is rocket science, but the politics surrounding it brings about confusion, There is more individuals can find out about money creation, MMT (modern monetary theory), ‘Positive Money’ the British version, individual economists such as professors Mark Blyth, Ha-Joon Chang, Chomsky, Steve Keen, Bill Mitchell, Michael Hudson, and more but you need to spend time finding out what they have been saying for years.

  2. Susan O'Neill says:

    Not sure if I have understood your argument in favour of sub prime and non prime securities, but would that not create the same “personal debt” that ruined so many lives previously? I understand QE, I don’t understand why Private Banks should be allowed to trade as they did before without the regulations being brought back in to protect the borrowers from the banks stupidity and recklessness. JC’s plan of the government borrowing from the BoE at a time when interest rates are low and assigning it to a “green bank” would, if done responsibly, make available to people the needed cash to invest in property without the risk you seem to be suggesting does not exist. I certainly would not advise anyone to even consider borrowing on a home in the current economic climate when the EU and the UK has made so little ground since 2010. Perhaps I have not understood the point of your comment.

  3. David Edwick says:

    Valued the article and the further, well… article by Mervyn Hyde, but would have liked a better reference – who is the ‘they’ of the title? Which article in the FT of which date? In voting for Corbyn I believed that the election was about just those fundamentals of the final paragraph, and his economic policy document confirms that. http://www.jeremyforlabour.com/investment_growth_and_tax_justice

    1. Mervyn Hyde says:

      David:

      Here are some links that you can store and read or view at your discretion:

      Money Creation in a modern economy, Bank of England document:

      http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf

      This brilliant little video created by MMT (modern monetary theory) is valuable because it is over five years old and shows graphically why we are still facing the same problems as at the beginning of the crash. In other words they predicted where we are at present if we continued as we are.

      This Next video needs time as it is over an hour long, but is invaluable for the information it provides; Mark Blyth Austerity-the history of a dangerous idea:
      https://www.youtube.com/watch?v=JQuHSQXxsjM

      This link is from Bill Mitchell (mmt) and he casually explains the politics surrounding the economics in language we can all understand:
      https://www.youtube.com/watch?v=YnyDRwSqp2E

      Finally I feel this is vital that everyone possible sees this document, as it’s Margaret Thatcher’s secret 1982 cabinet papers- the longer term options; which she denied ever existed and was released in 2012 after the 30 year rule:

      http://discovery.nationalarchives.gov.uk/details/r/C13318082

      Just click on SHOW IMAGE to view the document, it explains from the beginning of the document how governments would dismantle the state, although they don’t use that terminology, but when we look back it becomes self evident just where the Neo-Liberal agenda in this country came from.

  4. Peter Rowlands says:

    Michael is quite right, as usual.Yes, the topic was largely avoided in the leadership debates, even, dare I say it, by JC himself. But surely the greatest need, which Michael doesn’t mention, although amazingly it featured in an earlier version of the manifesto, is to break up the big banks so that they are no longer ‘too big to fail’.

    1. Mervyn Hyde says:

      Peter:

      The simple facts are that the banking system is irrelevant, a government like ours doesn’t need banks or the casino called the City of London.

      Positive money talk in terms of the Bank of England forming a sort of commission that decides how much money government needs for it’s projects and public services and spend into the economy as required.

      The Banks could then be regulated to deny them from printing money, they could only lend according to the levels of profit they make and money invested as savings.

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