Time to nationalise the big banks

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Brian Blessed is thrilled with the idea of taking the banks back for NZers.

The strongest argument I’ve seen recently for the nationalisation of the big four Australian-owned banks is the government’s plan to facilitate the banks’ taking a “levy” from New Zealand depositors’ funds – a la Cyprus – if one of them gets into trouble and needs a bailout.

The people of Cyprus have for now beaten back such a levy – 6.7% from bank deposits of up to €100,000 and 9.9% on amounts over that – demanded by the European Union as part of a bailout package for Cyprus’s beleaguered economy.

But then on Tuesday this week Green Party leader Russell Norman lifted the lid on secret plans to allow our banks to do the same thing – without the percentage limits – if any of them get into trouble. The plan is called Open Bank Resolution and its clear the proposal has been in the pipeline for many months as Finance Minister Bill English and the Reserve Bank have worked surreptitiously to give the banks what they want.

It’s an outrageous plan on many levels and, like the Cyprus levy, must be defeated.

The Reserve Bank says the scheme will save taxpayers up to a billion dollars. Their reasoning is unclear but it seems that if we don’t let the banks take money from depositors when they get into trouble then taxpayers will have to bail them out instead.

If our banks are too big to fail and use their corporate muscle to shift the financial risk to the rest of us while they take billions in profit each year for their private shareholders then we should take them back into public ownership.

Why should we allow these corporates to take over $2 billion in profit each year (and a whole lot more most years) to reward their riskless shareholders while we – depositors and taxpayers – are expected to pick up the tab for a bailout?

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We are taking all the risk but getting none of the rewards. What is it about Capitalism 101 the banks don’t understand?

The truth is they know only too well how weak-kneed our politicians become in the face of corporate power and greed. It’s just another version of Warner Brothers as the big banks deal with our spineless politicians.

Russell Norman has suggested that the banks take out insurance against collapse rather than apply a levy and this is a sensible proposal. If a bank is low-risk it will pay a smaller premium and will have a discipline imposed on its operation unlike the moral hazard of the OBR proposal.
Labour’s response has been awful with Finance Spokesperson David Carter apparently suggesting support for the scheme provided an exemption is made for the first $30,000 held by a depositor.

The Green Party position is much more principled – the banks’ shareholders should pay – not their depositors.

People my age will remember when these big four banks – ANZ, BNZ, ASB and Westpac –were owned by depositors rather than shareholders. They were trustee banks back then and effectively owned by people who had bank accounts with them. One could understand a “levy” in a case like this because their accountholders, effectively their owners, could expect to lose some money if the bank went belly-up.

But we were told this was old thinking and banks would run more efficiently if they had the freedom to act as private companies. So in a similar way to the demutualisation of AMP our trustee banks were privatised and their management focus shifted from working for bank customers to maximising profits for shareholders.

New Zealand accountholders have been fleeced for over two decades now as the banks act like a cartel of greedy parasites. And now the banks’ shareholders don’t want to wear any risk or even pay to insure against the collapse.

Fair enough. We should take them back in to public ownership – after an appropriate levy is deducted to match the amount they have pillaged from New Zealanders’ pockets for the last 25 years.

There might be some small change left for the shareholders but I doubt it.

40 COMMENTS

  1. Ooh New Zealand is going to fall into the hands of the corptocrasy like the US, Uk and EU. Its amazing how the banks are private businesses but they expect to be given a hand, via our taxes, should they fail… what a load of nonsense.. We should all take our money out of the banks and open our own collective banking systems in our communities or with friends etc..The whole banking system is rife with flaws it’s time to try a new system or go back to the old. As for me… I’m buying gold…

  2. Russel Norman has done a great service to New Zealanders by publicising the Open Bank Resolution scheme.
    But while his call for banks to take out insurance to protect depositors is more principled, it is not realistic.
    It’s recognised that the “Big Four” Australian-owned banks are among the safest in the world. If another Global Financial Crisis hits which is big enough to cause them to collapse, who really believes an insurance company will be solvent enough to pay out?
    John Minto’s proposal to nationalise the banks now, while they’re profitable, is the best I’ve seen.

  3. The “either/or” between Russel Norman’s approach and the direction proposed here has been explored in greater depth (in the case of Cyprus) on the Australian Left Flank blog (http://left-flank.org/2013/03/19/the-great-cypriot-bank-heist-a-moment-in-the-crisis/)

    A key section is this:

    “There are two broad lines of argument the radical Left can articulate — and two general directions of travel it can take.

    First, we can say that the problem is Germany; that Angela Merkel has put bank deposits at risk; that it is the Left, not the partisans of neoliberalism, which can ensure the basic inviolability of the private financial transaction…

    There is certainly propaganda merit in showing that it is the defenders of neoliberalism and not the Left that have inflicted the nightmare on anyone who has a bit of money in the bank.

    But what would it mean to say that the Left can defend the little person in Cyprus and elsewhere? It would mean taking control of the banks. The Cypriot state — with overnight bans on electronic transfers and other withdrawals — has just shown that this is not only possible but (and for its own purposes) is actually how this free market system operates. Bank nationalisation and capital controls would entail directly standing up to the blackmail issued by big capitalists and the banks, and enforced by their consiglieri in institutions such those making up the Troika.

    It would mean nationalising the currency — a direct break or rupture with the Eurozone and EU. In other words, if it were to mean anything to the people who are suffering now in Cyprus, it would entail a radical anti-institutional break. It would mean the second direction of travel that is open to what the Left can try to do and argue for.

    That is to say that if the agencies of capitalism, in the interests of capitalism, can take over the banks and seize deposits, then so can the Left for entirely different interests and with different effect. It’s tempting to say that where the liberal capitalists fail in their solemn undertaking to preserve the holiness of the private contract, the Left can succeed and in so doing can even attract as part of a “hegemonic bloc” sections of the population that lose out in the “bailout” well beyond the ranks of the working class and poor.

    But if the liberal capitalists cannot succeed in protecting rights of private property, there is no reason to imagine that we can. Rather, there is every reason to base our arguments and agitation on an anti-capitalist position… For us, nationalising the banks means protecting working people and the middle class at the expense of big business and finance. That means further measures that impinge on capitalism.

    The Cypriot heist poses the question of whether there needs to be a renegotiation of austerity or a radical rupture with it — not as a policy dilemma of government, but as a political argument around which masses of people may be mobilised to have political effect.”

  4. The Green Party position is much more principled – the banks’ shareholders should pay – not their depositors.

    Russell’s hypocrisy truly knows no bounds. Here is a man, who thinks that blatantly stealing peoples savings is bad form (which it obviously is), but in the same breath will proudly claim that QE is a solution to all our monetary problems! Tell me Russell, how is printing money which mathematically MUST decrease the value of ALL money in NZ (including that in bank savings accounts) by the same percentage that was printed in anyway whatsoever different to just stealing it directly from their accounts? I am patiently awaiting your answer.

    • The private banks print huge amounts of money daily. It doesn’t seem to be devaluing the currency much, if at all.

      • You are wrong about this. ALL credit thusly created must, by definition, decrease the purchasing power of the outstanding currency by exactly the same amount of which it is created. The only things countering it are the deflation that increasing productivity brings, a higher NZ dollar, and credit destruction (e.g. through defaults/bankruptcy). Clearly if what you say is true, either not as much NEW credit is being created as you think, or one of the items I just mentioned is effectively countering it.
        However, having said all that imo prices ARE rising, and rising fast. I guess you aren’t interested in buying a house. Or renting. Or need petrol. Or electricity. Or food and vegetables. That is what DESTRUCTION of your currency looks like BTW. It’s not just how many $$$ you have it’s what you can BUY with it.
        Letting Russell loose on NZs currency printing press is a recipe for disaster.

        • ALL credit thusly created must, by definition, decrease the purchasing power of the outstanding currency by exactly the same amount of which it is created.

          Nope and the reason why not is because all of the money being created is going to a few people and not everyone. If it was going to everyone then you would see general inflation.

          However, having said all that imo prices ARE rising, and rising fast.

          True but the prices aren’t going up due to increases in the amount of money but through demand destruction.

          I guess you aren’t interested in buying a house. Or renting. Or need petrol. Or electricity. Or food and vegetables. That is what DESTRUCTION of your currency looks like BTW.

          None of that makes any sense.

          • “Nope and the reason why not is because all of the money being created is going to a few people and not everyone. If it was going to everyone then you would see general inflation.”

            But there has been inflation in lots of things. Specifically in the items I listed that you said “makes no sense”! When credit is created you can’t “steer” it: it finds a home somewhere, usually dictated by market forces – do you SERIOUSLY not understand that!!???. In NZs case it is primarily in house prices, but also in commodity prices generally (e.g. food and energy). If you claim that house, food and energy prices have NOT increased appreciably in NZ over the last few years, you’ve been living in a cave.

          • I didn’t say that prices hadn’t increased – I just don’t think it’s as simple as you make out and is actually forced by other factors.

            A rich person having more money isn’t going to actually spend any more money and it’s to the rich that most of the money that the banks create goes to.

            And what you said doesn’t make any sense because the government printing money won’t destroy the currency same as the banks printing money isn’t destroying the currency.

        • Private debt, created by banks, has increased dramatically over the last 15 years. There hasn’t been rampant inflation. Inflation is at historic lows!

          Banks lend when they think the risk is low enough. Their lending over the last few years has reduced as businesses and people deleverage. QE by giving money to banks won’t change this.

          And while the government pretends its a household and tries to get into surplus, and while unemployment stays high, there is little risk of inflation moving much at all. The exception might be housing where the banks and the government are talking up shortages and capital gains (esp in Auckland)

          • Do you people seriously believe Government inflation figures? You really need a HUGE leap of faith, because everything you actually NEED has gotten MORE EXPENSIVE. How’s that electricity bill looking? What about your weekly grocery bill? How about them home prices?
            If I were to believe you people, we would only need to monitor just a SINGLE price for measuring inflation.
            The total scam (that is apparently extremely successful based on postings on this site) that we have near zero inflation while the things we actually NEED to live, i.e. food, energy and a roof over our heads, have soared… but somehow don’t count as inflation, because TV’s and computers are cheap as.

  5. What is it about Capitalism 101 the banks don’t understand?

    Oh, the banks understand capitalism just fine. The problem is that everybody else doesn’t. Everybody else actually believes that the capitalists take risks. They don’t as they’re protected by the government of the world and that means that the taxpayers are the ones taking the risk – they just don’t have any say in those risks and they don’t get any of the rewards for them either.

    Russell Norman has suggested that the banks take out insurance against collapse rather than apply a levy and this is a sensible proposal.

    Well, it’s better than the OBR proposal that’s for sure but it needs a little bit of refinement. The government needs to say that putting your money into a bank account comes with the risk that you will lose it. That is, after all, why you get interest on it – to cover that risk of loss.

    Then have Kiwibank open an account that doesn’t have that risk, is government guaranteed and pays 0% interest.

    As for nationalisation of the banks – couldn’t agree more.

    • Um, I currently earn 0% interest on my Kiwibank account without the guaruntee.

      There is actually already a govt. guarunteed investment: The term deposits offered by Public Trust. The interest rates aren’t always the best but the certainty is there.

      • Governments, being sovereign, should not be borrowing money – ever. They should be printing it and spending it into the economy. This would be the sole source of money for the economy. Taxes would then be used to draw the money back out so as to prevent excess accumulation.

        The problem with government bonds is that they force the need for growth due to the interest component. Throw in the fact that the same applies to the money created by the private banks and what we have is an economy that cannot possibly be sustained.

        We have a financial system that has our societies destruction written into its very structure.

  6. If profits were just extra costs arbitrarily added on to the costs of production, then non-profit institutions or whole countries that operated without profit, such as the Soviet Union, would have had lower costs!
    Almost invariably, however, enterprises that operate without the incentive of profit have had higher costs, not lower costs.

    It was not a free-market think tank, but Soviet economists, who pointed out that Soviet industry used far more inputs to produce a given output than did market economies like Germany, Japan or the United States.
    Economically illiterate people — which, unfortunately includes much of the intelligentsia — have never understood the role of profit as an incentive to keep costs down.

    To the economically illiterate, if some bank makes a billion dollars in profit, this means that their products cost a billion dollars more than they would have cost without profits. It never occurs to such people that these products might cost several billion dollars more to produce than if they were produced by enterprises operating without the incentives to be efficient created by the prospect of profits.

    If “obscene profits” are what cause mortages to cost so much, why haven’t socialist countries set up their own government-owned banking enterprises to produce mortgages more cheaply? Why don’t non-profit organizations here do that?

    It is because rhetoric is cheap but acessing risk in worldwide socialist minded countries is not. 😎

    • Almost invariably, however, enterprises that operate without the incentive of profit have had higher costs, not lower costs.

      [citation needed]

      Economically illiterate people — which, unfortunately includes much of the intelligentsia — have never understood the role of profit as an incentive to keep costs down.

      Except it doesn’t do that. In fact, profit is a dead weight loss as the the fact that we’re now having to pay taxpayer money to get FttH proves.

      If “obscene profits” are what cause mortages to cost so much, why haven’t socialist countries set up their own government-owned banking enterprises to produce mortgages more cheaply?

      I suspect it’s because they, just like you, Marx, Smith and modern economists, all misunderstood economics and confused money for resources.

  7. How is nationalising the banks any different from stealing from the shareholders? You seem to want to stop a hypothetic theft like the cyprus senerio with a real theft of assets from shareholders, which include real new zealanders. Not to mention the fact that such a move would have dire consequences to whole sectors of the financal markets. On top of that you would be making the government the owners of the bank making a grand theft like the cyprus senerio much easier. If the government owned the banks, then who could stop them??? They could just shut the banks and take it all if they wished.

    • would those “whole sectors of the financial markets” be the same ones that caused the current stress to the world economy with all their dodgy schemes?

      • No, it would be people with mortgages, businesses who need loans to stay in business, pension funds invested in the banks as shareholders, etc etc…

        • All of which can be provided without the present banking system and thus without the corruption that is inherent within it.

  8. You only need nationalise one and let the others compete. If people want to risk being fleeced for an extra interest point, that’s their privilege.

    Or you could start one of your own with properly secured, guaranteed deposits and see where people want to put their money. You could call it – Oh I don’t know. How about KiwiBank?

    • The problem with Kiwibank is that it’s run on the same ideas as the other banks. That means that it has the same problems.

    • I agree with this, everyone should be a kiwi bank account holder, this is not owned by the Australian banks, the profits in their billions do not leave the country. Just imagine if all that dosh stayed here. The gutlessness of the previous Labour government in not shifting the government accounts to Kiwibank says a great deal about Labour. There were various comments at time, well Kiwibank doesn’t have expertise etc. well get it, if the accounts moved the staff who know this stuff would move to Kiwibank. I am all for guaranteeing our banks and I do recognise that there are a few others TSB etc.

  9. Any social or political concept gets itself into trouble the fewer and fewer people it benefits.

    Market capitalism worked for as long as it could, by fair means or foul, appear to benefit enough people to enable its survival. For several generations the rise of a ‘middle class’ endorsed and entrenched market capitalism in its variety of guises in many places around the world.

    While at no point were the majority of people ever ‘middle class’, from the late 18th century onwards they very quickly became the group, in the West at least, with the loudest voice. One of the defining features of ‘middle-classness’ (aside from liking cute animals more than poor people) was having a ‘stake’ in the economy. A home, a buisiness, stuff that accumulated value and if you were lucky, savings.

    When those who save are disadvantaged by capitalism, capitalism has truly failed the people who had an actual stake in it. When you consider the fact that capitalism failed the poor, and, lets face it, those with an investment in feudal agriculture many eons ago, its time to ask the question as to whether or not it actually benefits anyone anymore in its current form?

  10. Some rather complicated thinking going on here. Why pick on Russel Norman for exposing something every New Zealander needs to know. He should be thanked! Odd

    Other than that, basically bank customers are being asked to pay for a privately owned business if it goes under. It is the equivalent of every shopper at Pak n Save being liable for it, if it looks like it is going to go bankrupt.

  11. You seem to think Banks have to provide banking services to customers. There is no legal obligation to do this. If people wish to keep money outside the banking system then they are free to do so.

    You also don’t realise that banking is undergoing a huge change at the moment which means traditional banking is going to under go a huge amount of change that nationalisation would be ineffective.

    • If people wish to keep money outside the banking system then they are free to do so.

      They can do, yes, they just wouldn’t be able to operate in society all that well.

      You also don’t realise that banking is undergoing a huge change at the moment…

      No it’s not. It’s being kept just the way it has been for the last 500 years – corrupt.

  12. If we weren’t living under the banker driven growth at all costs paradigm, we might not be going extinct.
    We have murdered all future generations in the worship of money and growth.
    But then the maternity wards keep pumping them out?

  13. Russel Norman says, apparently, that the banks have to take out insurance to protect depositers in the event of their failure.
    Just where, and how do you expect this insurance to be arranged?
    I suggest you look at the financial crisis that hit the United States in 2007-2008. Lots and lots of companies took out such insurance. They were called CDS. For those of you who don’t know the jargon that stands for Credit Default Swaps. Many of them were offered by AIG, which was probably the biggest Insurance group in the world. Well AIG couldn’t pay out on them, basically went bust and the obligations and the company had to be taken over by the US Government. Exactly the same thing would end up happening here and the NZ Government would end up having to pay out on such spurious insurance. I am afraid that Norman is either ignorant of the financial system or is wilfully lying to the New Zealand public.

  14. Just let the banks die.

    Live by the sword, die by the sword, or in this case, the free market.

    • Agreed but the problem is that everyone expects their money in the bank to be safe which it actually isn’t. To promote the illusion of that safety the government takes steps to ensure that the banks don’t fail – totally against the risk/reward system that capitalism is supposed to be.

      • The lesson learned in the Great Depression was that bank runs and wipe-outs were bad for everybody. Government-backed guarantees on deposits stopped bank runs and hence help the economy stabilse and recover.

        The price the banks paid at the time for the stability those guarantees provided were some very strict rules – basically the Government said that if it was going to guarantee those deposits banks could do very little with them that might risk them. Banks were forced to split into so-called High Street Banks, which took deposits and could only lend the money on under very safe and restricted conditions, and Trading Banks which took in depositor’s money under different conditions and were allowed to gamble with it.

        The problem now is that the strict 1930’s split was allowed to wither away, High Street Banks were allowed to become trading banks and gamble with despositor’s money again (often while still pretending to be ‘High Street Banks’) and 1929 repeated itself.

  15. John I cannot agree enough with this Comment .

    If the big banks are that damn big they are too big to fail then they need to be chopped off at the knee’s.

    “If our banks are too big to fail and use their corporate muscle to shift the financial risk to the rest of us while they take billions in profit each year for their private shareholders then we should take them back into public ownership.

    Why should we allow these corporates to take over $2 billion in profit each year (and a whole lot more most years) to reward their riskless shareholders while we – depositors and taxpayers – are expected to pick up the tab for a bailout?

    We are taking all the risk but getting none of the rewards. What is it about Capitalism 101 the banks don’t understand?

    The truth is they know only too well how weak-kneed our politicians become in the face of corporate power and greed. It’s just another version of Warner Brothers as the big banks deal with our spineless politicians. “

  16. And what magical pixie-dust does nationalisation bring to banking?

    “The Cypriot saga has thrown the spotlight on Slovenia, which is also a small euro zone country struggling with an over-burdened banking sector.

    Slovenia’s mostly state-owned banks are nursing some 7 billion euros of bad loans, equal to about 20 percent of GDP, underpinning persistent speculation that the country might have to follow other vulnerable euro zone countries in seeking a bailout.”

    http://blogs.reuters.com/macroscope/2013/03/21/is-slovenia-the-next-shoe-to-drop/

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