Debt’s Double Standards

By   /   July 17, 2015  /   9 Comments

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The international stage has recently highlighted the uneven playing field of debt. Different folks get different strokes. Moral indignation is hurled at only a select group, yet other reckless behaviour merely gets forgiven and forgotten.

economic-collapse

The international stage has recently highlighted the uneven playing field of debt. Different folks get different strokes. Moral indignation is hurled at only a select group, yet other reckless behaviour merely gets forgiven and forgotten.

Business as usual, depending on the stripe of your suit.

But, as we watch the European project implode from within, it got me thinking about whether the same hypocrisy exists in New Zealand.

It does.

Debt means different things to different people, and moral indignation is no less embraced in our society. Indeed, it is a drug to many, justifying their own excess in order to blame others without any acknowledgement of the clear hypocrisy inherent in this differential treatment.

Back in Europe, the culpability with Greece lies in many quarters. There is absolutely no doubt that a significant part of that culpability falls to successive Greek governments. The practice of relying on significant borrowings to make up for a shortfall in tax revenue was only destined for failure. It’s a zero sum game.

Of course, other governments also borrow to cover for a shortfall in tax revenues. Some even offer tax cuts and then pay for those tax cuts through borrowing.

The clear difference with Greece, though, was the spectacular failure to collect tax. Greece has the highest percentage of potential value-added tax that is not collected in the EU – 32.7% according to the European Commission via Steven Rattner in the New York Times.

But, this staggering shortfall was clear to everyone and anyone who bothered to look. The evidence was always there. Despite this massive failure, the banks were willing to lend to Greece which seems to me as another zero-sum game. As I’ve argued before, the banks were willing to do this knowing that ultimately they would be bailed out. There is no better debtor than a sovereign state, especially when the IMF is ready and willing to be the knight in shining armour.

Yet, there is nothing that we are seeing in Europe to dis-incentivise a repeat of this behaviour. The banks need not moderate their recklessness in making these lending decisions. Their bonuses aren’t going anywhere. The bankers win again.

Indeed, since the global financial crisis we have seen trillions of dollars in bank bailouts. Greece, meanwhile, owes US$370 billion, a mere fraction of what has been handed over to some banks. But, it is to the people of Greece that the political and financial elite reserve their moral disapproval and outrage.

This new arrangement reached with the EU ties Greeks down to years of continued economic hardship without the debt relief previously provided to the people of Germany, including from the then Greek government. Greece’s recently resigned Minister of Finance, Yanis Varoufakis, has called this arrangement “fiscal waterboarding”. It is hard not to see the “virtues” of austerity as anything but torture and the people of Greece clearly agree.

The hypocrisy is evident on many levels, yet the financial elite remain immune from any genuine critique of their own actions. Fortune favours the well-connected, or at least the well-inherited.

Meanwhile, it seems to me that similar elements of this hypocrisy exist in Aotearoa.

Late in 2014 the Child Poverty Action Group released a report: The complexities of ‘relationship’ in the welfare system and the consequences for children. There are a number of matters worth writing about arising from the report and I encourage you to read it.

A clear theme running through the report is how we treat individuals accused of relationship fraud, and particularly women. Based on an outdated concept of “relationship”, these women are labeled with the term “benefit cheat”, incur a debt that must be repaid with no tangible way to repay it (where are the jobs?), then become incarcerated often due to the fact that they cannot repay the debt, and then return to society post-incarceration where the debt remains.

A fundamental issue here is the lack of any tangible gender analysis in the operation of our criminal law coupled with the impact on children while incarcerated. How is this in the best interests in the child? This enforced separation is plainly contrary to our obligations to act in the child’s best interests under the UN Convention on the Rights of the Child.

How strong is the moral and societal condemnation of these women?

In contrast, Hanover Finance loses over $500 million. Our enforcement agency, the Financial Markets Authority, swoops in to ensure accountability. The result? A deal of $18 million done behind closed doors with virtually zero transparency.

But, somehow, after such a spectacular failure, the financial whizkids aren’t the ones paying the price. We are certainly looking after their best interests.

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About the author

Michael Timmins

Michael Timmins is an expert in international human rights law. Specialising in refugee rights, Michael has worked in Egypt, the United States, Australia, Thailand, Pakistan and his home country of New Zealand across roles in advocacy, academia, and government. He is also a member of the Child Poverty Action Group's Management Committee. Michael’s writing covers international human rights, counter-terrorism, international environmental law, rule of law and accountability issues, as well as anything interesting happening in international relations.

9 Comments

  1. ThinkAboutIt says:

    Greece is a minor example of the gigantic fraud put over the mass of the wests citizens.
    The GFC was a primarily function of greed and abysmal lending standards practiced to satisfy that greed.
    In the US, Europe and, thanks to APRA, a lesser extend the ongoing effects of a financial collapse were used as a justification to bailout the lenders – i.e. the incompetent and greedy.
    The debt burden was then transferred to the small people – we have been totally suckered!

  2. Thanks Michael
    It would be good to think that increasing numbers of judges are questioning the laws they find themselves adjudicating on. Hanover Finance duped a large number of modestly well-off people and caused enormous pain but no one goes to jail or has impoissible debts hanging over their heads for a lifetime.
    When a beneficary is forced below the poverty line and denied ability to work becasue of runinous sentences society pays the price. Thanks for speaking up for them. It is time we all did

  3. GettingOn says:

    I’ve often thought it a bit odd that benefit payouts and super varies depending on whether the state decides you are having sex or not.

  4. Of course, other governments also borrow to cover for a shortfall in tax revenues. Some even offer tax cuts and then pay for those tax cuts through borrowing.

    Gee, I wonder who that might be…? http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10524905 (Warning: contains heavy dose of hypocrisy, mendacity, and f**k-witry within NZ Herald article.)

  5. Hmmmm, talk about weird coincidences, I just found this on Youtube: https://www.youtube.com/watch?v=LhXMl_DRnXY

    This is Jon Stewart at his best. (Warning – contains high levels of humour and satire, and a decent *thwack* to corporate back-sides)

  6. CLEANGREEN says:

    GOOD RANT MICHAEL,

    WE LIVE IN A failing CORRUPTED ECONOMY THAT WILL IMPLODE because the MECHANISMS that caused the 2008 GFC were never corrected.

    Just take the high frequency trading and Leveraged “Derivatives” market propped up by false imaginary asset values that do not exist outside of paper form.

    We are living a great lie about to burst.
    Just as you say chronic debt has become endemic everywhere you look now.

  7. Helena says:

    I suggest you tune in to Ritchie Allen TV Show Episode No. 8 published 17 July. Unbelievable but true.

  8. Helena says:

    It appears the banking Elite have cause for worry as the BRICS have increased in membership bringing in countries sitting under the umbrella known as the Shanghai Cooperation Organisation (Summit 10 July).

    This is speeding up the collapse of the Banking Cartel as identified by the model of the Swiss Fed. Institute of Technology.

    That’s the good news. On the opposite side, will this speed up the bombing of Syria by the military arm of the Bilderberg?