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Showing posts with label gambling. Show all posts
Showing posts with label gambling. Show all posts

Wednesday 9 January 2013

Chav-bashing – a bad joke turning into bilious policy

It started as snobbery, but this week the idea that the poor are to blame for their plight may well become law
Homeless man
'In almost everything we now hear about economic disadvantage, to be one of the economy's losers isn't about being a vicitm of forces beyond your control, but character failings'. Photograph: ALIKI SAPOUNTZI / aliki image li/Alamy


Six years ago, I wrote a piece for the Guardian about a phenomenon that had been bubbling away for a few years, and had started to become inescapable. It all seems rather quaint now: Prince William allegedly taking part in a "chav-themed fancy dress party" at Sandhurst; Oxford colleges hosting "chav bops"; the privately educated creators of Little Britain entertaining their devotees with comedic representations of the so-called underclass. But there it was: to be living on an estate, and in receipt of benefits, and possibly out of work, was to not just to be fair game for Oxford undergraduates, the future king and a certain kind of TV comedian, but the butt of a huge national joke. Some of us wondered where exactly what was briefly known as "The New Snobbery" was headed.

We now know. Its cultural aspects were merely the tip of the iceberg – as the Labour party engaged in the rebranding of social security as "welfare" and its ministers raged against "benefit cheats", something poisonous was being embedded at the core of our national life. While the Conservative party grimaced through a fleeting modernisation, it sat there, ready to be picked up by a Tory-led administration and taken to its logical conclusion.

Tuesday sees the Commons vote on the welfare uprating bill, via which the government wants to cap increases in working-age benefits at 1% and in the process portray Labour as – to quote the Observer's Andrew Rawnsleythe party of "skiving fat slobs". Throughout the coming year, the grim provisions of the Welfare Reform Act will be upon us, snatching away money from hundreds of thousands of people, and commencing the uncertain era of universal credit. It is a token of the government's agenda that in moving in on just about anyone who receives state help (apart from those electorally vital pensioners), they are simultaneously lionising hard-working families while snatching money off them – which is the basis of Labour's creditable opposition to the bill, though that does not quite let them off the hook. Most of the opposition seem incapable of challenging the "strivers v skivers" dichotomy, and are therefore leaving one modern shibboleth unchallenged: that even with swaths of the country economically dead, to be on out-of-work benefits is to be degenerate, and unable to grasp the soul-cleansing wonders of toil, however low paid.

Meanwhile, the same people who rage against the nanny state have become its loudest advocates. Last week, in partnership with a thinktank called the Local Government Information Unit, Westminster council came up with a report that was seemingly based on a neo-Hogarthian caricature of people on limited incomes – again, many of them actually in work. The text said this: "The increasing use of smart cards for access to leisure facilities, for instance, provides councils with a significant amount of data on usage patterns. Where an exercise package is prescribed to a resident, housing and council tax benefit payments could be varied to reward or incentivise residents." To translate: they should be able to pack anyone who is obese and on benefits off to the gym, on pain of having their money cut.

Just before Christmas, the Tory backbench MP Alec Shelbrooke issued a private member's bill proposing that all benefits aside from pensions and those covering disability be delivered via a "welfare cash card" that would only cover "priority purchases" and outlaw "luxury goods such as cigarettes, alcohol, Sky television and gambling". He was echoing noises made by people at the top of government: in June 2012, in a speech on future welfare reform, David Cameron floated the idea of paying benefits "in kind". Iain Duncan Smith is working on the same idea for "problem families". This is nothing to do with practical policy: it is about grandstanding on the basis of crass stereotypes, and the Victorian idea that only the affluent should be allowed pleasure – not to mention a weird definition of "luxury".

Last week came my favourite outburst so far. Free-market oracle John Redwood said in response to news that bookmakers are situating the majority of their addictive fixed-odds gambling machines in areas where most people don't have much money: "I put it down to the fact that poor people believe there's one shot to get rich. They put getting rich down to luck and think they can take a gamble. They also have time on their hands. My voters" – he's the MP for Wokingham, in Berkshire – "are too busy working hard to make a reasonable income." Note that distinction between people who are poor, and those who are "too busy working hard", as if he has not bothered to think about who it is who empties his office bin.

In almost everything we now hear about economic disadvantage, there is the same belief, embodied in such government schemes as the Work Programme, that 40-plus years of deindustrialisation matters not, and to be one of the economy's losers isn't about being a victim of forces beyond your control, but character failings.

This, it's often said, is what the majority of the public believe, but perhaps things are more complicated. Last week, the TUC put out the results of a survey by YouGov. On average, people apparently think 41% of the social security budget goes to those who are unemployed, and 27% is spent on fraudulent claims, whereas the true figures are 3% and 0.7% respectively. However, while 48% of people support the welfare uprating bill, 63% think benefits should go up in line with wages, prices or both. In other words, many people are confused, and their answers depend on how you phrase the questions. Funny, that.

You will not turn this unprecedented tide of nastiness and bigotry by using statistics. If it can be stopped, that will happen via arguments built on emotion, and a conversation about exactly what kind of country we ought to be. A shame, perhaps, that Rowan Williams has left Lambeth Palace: he did a pretty good job of opposing a lot of what the government was doing to the benefits system, and apparently brought most of his church with him. A pity, too, that whereas past attacks on the welfare state sparked revolts that were expressed culturally just as much as politically, people who write TV dramas, plays, songs and novels seem to have little interest in what's happening.

Over the next 12 months, some of the fundamentals of Britain's future will become clear. In the meantime, consider the words of writer and artist John Berger, written 20 or so years ago, but pertinent today: "The poverty of our century is unlike that of any other. It is not, as poverty was before, the result of natural scarcity, but of a set of priorities imposed upon the rest of the world by the rich. Consequently, the modern poor are not pitied but written off as trash."

Sunday 4 November 2012

Unlimited Liability for Speculative Bankers

Bankers must be made to bear the cost of their reckless risk-taking

Separating retail and investment banking is not enough. Speculative banking needs to have unlimited liability
Lehman Brothers London
Lehman Brothers employees leaving the Canary Wharf building in London, carrying their possessions in boxes, aftert the bank collapsed in 2008. Photograph: Graeme Robertson
 
Hot on the heels of the Libor scandal and money-laundering at HSBC and Standard Chartered Bank comes the allegation that Barclays Bank attempted to manipulate the US energy markets to make profits. Of course, Barclays has no direct interest in buying or selling oil, gas or electricity. Its aim is to make profits by betting on the price changes, a process that often drives up the price of the underlying commodity and forces ordinary people to pay sky-high prices.

This speculative activity is facilitated by complex financial instruments known as derivatives, described by investment guru Warren Buffett as "financial weapons of mass destruction". Behind the technical jargon lies a giant gambling machine, which bets on anything that can be priced. The hard cash needed to settle the outcome of the bets is always highly uncertain until the contracts mature, which could be 10 to 15 years in the future. And, like other bets, derivatives don't always pay off – as the cases of Nick Leeson at Barings and more recently Jérôme Kerviel at Société Générale exemplify.
The UK government claims that speculation will be curbed by a separation of investment banking from the retail side. This, it is claimed, will protect savers and taxpayers from the toxic effects of risky positions adopted by bankers. This policy will not work. Even after separation, investment banks will continue to use funds from retail banks, pension funds and insurance companies for their speculative activities. The speculators will continue to shelter behind limited liability and dump losses on to innocent bystanders. Unless the benefit of limited liability is removed from investment banks, their losses and reckless risks will inevitably be transferred to other sectors. The separation between retail and speculative operations needs to be accompanied by unlimited liability for investment banking, ensuring that those who take excessive risks are 100% liable for their mistakes.

Derivatives are central to the current economic crisis. In 2008, Lehman Brothers collapsed with 1.2 million derivatives contracts, which had a face value of nearly $39 trillion, though the economic exposure was considerably less. For nearly six years before its demise, almost all of the pre-tax profits at Bear Stearns came from speculative activities. It could not continue to pick winners indefinitely, and collapsed in 2008. It had shareholder funds of $11.8bn, debts of $384bn and a derivatives portfolio with a face value of $13.4 trillion. The derivatives gambles also brought down American International Group (AIG) – the world's largest insurer – and Washington Mutual. Then in October 2011, MF Global, a US brokerage firm that specialised in delivering trading and hedging solutions, filed for bankruptcy. It had nearly 3 million derivatives contracts with a notional value of more than $100bn.

Despite these high-profile casualties, risk-hungry investment bankers remain undeterred. The face value of the global derivatives trade is about $1,200 trillion (£749 trillion). With a global GDP of $65-70 trillion, the world economy is not in a position to absorb even 0.1% ($1.2 trillion) of losses.
The UK's GDP is about £1.5 trillion. Just three UK banks – Barclays, HSBC and Royal Bank of Scotland (RBS) – alone have a derivatives portfolio, with a face value totalling nearly £100 trillion. Barclays leads the way with £43 trillion. It has recently reported a third-quarter loss of £47 million, but its balance sheet points to a more serious position. Barclays' last full-year accounts show assets of £1.56 trillion and capital of only £65bn, meaning that its gross leverage is nearly 24 times its capital base. A decline of just 4% in asset values would wipe out its entire capital. Barclays' balance sheet shows gross exposure to derivatives of £539bn, though the bank could argue that this is offset by hedges of £528bn, leaving a net exposure of £11bn. The difficulty is that the hedges, as Lehman Brothers, Bear Stearns and Northern Rock have learnt, do not necessarily work in the desired way and always depend on the position of the counter parties in a highly unpredictable environment.

Merely separating retail and investment banking will neither choke off nor contain the effects of toxic gambles, because speculative activities will affect other sectors of the economy. For any possibility of containing the crisis, speculative banking needs to have unlimited liability. Thus, if the bets go bad, bankers will personally need to bear the negative consequences. One of the tasks of the banking regulator should be to ensure that the size of the bets bears a reasonable relationship to the assets of the gamblers, so that cavalier bankers are not able to gamble more than they can lose. No retail bank, pension fund, insurance company or pension fund should be able to provide money to any investment bank without specific approval from its stakeholders.

The above reforms will help to reduce speculative activity and quarantine the negative effects of reckless gambling. They will also remind neoliberals that the freedom to speculate needs to be accompanied by responsibilities.