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The good folk at The Cobden Centre have put together a very good documentary to explain how the fiat money system works, and has some suggestions as to what to do about it. At the instigation of the Sage of Kettering, (full disclosure, his cousin made it), here it is.
I have watched it and it is very good. Ex Nihilo: The Truth about Money. My only quibble is that it repeatedly refers to banks creating money out of thin air, but there is some substance to ‘thin air’, which, after all, can sustain respiration and hold up aircraft.
Anyone who gloated about the “de-banking” of Nigel Farage over his account will now realise, or they should have anyway, that the sword is double-edged:
Monzo initially refused to tell Ms Miller why her “True and Fair” party account would be closed in September. After the BBC contacted the bank about the case, it said it did not allow political party accounts and had made a mistake in allowing it to be opened. Monzo said it recognised the experience would have been “frustrating for the customer and we’re sorry for that”.
It is too easy to roll the eyes, and say “karma is a bitch”. What appears to be the case is that, as discussed in my post here, and in the comments, we just don’t have a fully free market banking system in the UK and much of the world today. The next time you read some idiot going on about “unbridled capitalism” or “neoliberalism”, point this out to them.
(Updates with correction about the dossier. Thanks to eagle-eyed readers for the pointer!)
A few days ago, Patrick Crozier of this parish wrote about the decision by Coutts, a UK bank that is part of NatWest Group, to end an account of former UKIP leader Nigel Farage. At the time, Farage speculated he may have been targeted for cancellation of this account (he was offered a retail, mass-market NatWest account instead) because he was what is called a Politically Exposed Person (PEP), or that someone had flagged him following allegations (which he denies) of receiving lots of money from Russian-backed state media, and he also wondered whether his role in driving Brexit, and his scepticism about a climate crisis, etc, were factors. (Here are some of my comments on the case.)
In the following days, the former CEO of NatWest told a BBC journalist that a reason for the debanking of Farage was that he lacked the funds to justify a particular Coutts account. The BBC journalist ran a story; this was a clear breach of client confidentiality – also possibly a serious regulatory/criminal offence – and Alison Rose, the CEO, resigned this week. Peter Flavel, the Coutts CEO, has also resigned.
It also turned out that NatWest had compiled a dossier about Farage, which was sent to him after he requested it and he later shared this with the Daily Telegraph newspaper, showing that his political views and associations – including friendship with tennis ace Novak Djokovic – were reasons to suspect that Farage was a bad egg, and his “values” did not “align” with those of NatWest. NatWest has championed ESG investing, diversity, equity and inclusion, to a degree that puts it out front of other banks. NatWest is 38.6 per cent owned by the UK government. In the furore about its treatment of Farage – now a presenter on GB News – Prime Minister Rishi Sunak, and other ministers, and yes, even columnists in the Guardian, have argued that the treatment of Farage was beyond the pale.
The reputation of Coutts and NatWest has been damaged. Coutts is a “posh” bank, supposedly used by the UK Royal Family – for whatever that’s worth – and in days of yore, having a Coutts account was a bit of a brag point. Well, no longer.
Meanwhile, in the US, the banking group Chase has shut an account of a businessman and those of his relations because, as far as I can tell, he has been a prominent critic of US vaccine policy and the policy response to the pandemic. There is the disgraceful Canadian case of the government freezing accounts of people donating to truckers protesting about vaccine mandates. The PayPal account of the Free Speech Union was closed (PayPal eventually overturned that decision.)
The “debanking” of people for the offence of holding the “wrong” views appears to be a general trend. At HSBC, in what I consider the most shocking act so far, earlier this year it was reported that the UK-headquartered bank, which does most of its business in Asia, had blocked pension payments to Hong Kong dissidents who fled the jurisdiction following Beijing’s national security crackdown. In 2020, when China imposed its law on Hong Kong, HSBC and Standard Chartered, another UK-listed bank, issued public statements supporting this law. So much for their concerns about “sustainability”, “inclusion” or all the other cant expressions of modern finance.
Even so, the optimist in me hopes that these cases, especially the NatWest/Farage one, might signal a high watermark for this sort of nonsense. The mask is well and truly off. People, not just those on the Right side of politics, can see what is going on.
People don’t have a “right” to a bank account, any more than they do to “free” healthcare, but they have the freedom to go about their lawful business unmolested. Now, in conditions of laissez faire capitalism, competition would weed out the idiots and ensure people could have a choice of bank services, with even the most eccentric or troublesome individuals being able to conduct financial affairs, even if with just cash. But we don’t have such a situation. We have a banking system umbilically linked to the State, fed on cheap central bank funny money, resting on a set of monopoly fiat currencies, and hedged by regulations, and as a result, stuffed with people whose main function is compliance with this or that rule, not focusing on building value. The upper reaches of these banks are filled with mediocrities who shuffle between private and public sectors with alarming ease, and who know all the right words.
Farage is an excellent campaigner and he knows how to get a message across. He does not respond well to slights. NatWest chose the wrong man to antagonise and be rude about. Maybe, as investors contemplate the falling share price of NatWest, and the tarnished image of Coutts, they’ll realise that indulging political prejudices instead of doing an honest job is not survivable. Maybe, just maybe, this may be the beginning of the end of the idiocy sweeping through the commercial world. As interest rates go up, and the zombification of corporate life ends after over a decade of QE, the harsh realities of making a profit return to the fore. As Allister Heath argues in the Daily Telegraph today, Milton Friedman’s attacks on the foolishness of corporate “social responsibility” become more relevant by the day.
An acquaintance of mine on Facebook, a hardline capitalist (so he says) made a comment that no-one has a “right” to a bank account, as they don’t have “rights” (those inverted commas are doing a lot of work here) to healthcare, education, paid-for holidays, etc. He was, of course, writing about the Nigel Farage/Coutts saga that has seen the CEO of NatWest, Coutts’ parent firm (39% owned by the taxpayer) issue a sort-of apology to the former UKIP leader.
I wrote in reply to this issue about “rights” to banking, because I think it is too easy to just throw down the ideologist purist card on the table and assume that ends the matter. No so fast, Batman:
In a world of laissez faire capitalism, absent the distortions of bailouts, the central bank drug of easy credit, endless compliance regulations and so on, barriers to entry to create banks are far lower and there would be hundreds more banks. They’d be relatively small in some cases, and be fiercely competitive. With some operating not with full statutory limited liability protection (but only under the Common Law), people running these banks would be a lot less careless and more focused on building value. There’d also be fewer hiding places for a culture war phenomena to flourish in. Instead, banks would be about capitalism, period.
It is notable, however, that many of these desirable features don’t exist in the Western banking system today, although a few “challenger” banks and digital offerings are quite good, and may win business as a result of a backlash against some of the things going on. But in general, banking in the UK, and US, is intertwined with the State. Many firms have been rescued with billions of pounds, dollars and euros of taxpayers’ money. To open an account, you have to go through an increasingly severe KYC [know your client] and anti-money laundering regime, and banks that fail to comply can be fined and in extremis, lose their licences. Fines worth tens of billions have been imposed on banks over the past 20 years, for example.
Ideally, any commercial entity ought to be able to refuse to do business with people, however rational or irrational that decision should be, and we should let the brute force of free enterprise weed out bigots. Bigotry and stupidity are costs. That’s actually what tends to happen over time. A problem is that in a mixed economy, some of those competitive forces are attenuated.
When a person is “debanked” today, they can have a problem opening an account anywhere else if the bank asks them why they left a bank in the past. As a result, we have almost a sort of “cartel” system operating.
In time, hopefully, competition will swing back, and some of the nonsense going on will disappear. In the meantime, while I agree with you that the idea of having a “right” to a bank account is as bogus as many of the other “rights” that people talk about today, the fact that banking is such an embedded form of life in a modern economy means this issue hits hard in a way that, say, isn’t the case if you are banned from a pizza restaurant or candy store for holding the “wrong” views. Of course, it may be that the Farage case might encourage a firm to go out of its way to court business from those who have been targeted. Let’s hope so. For example, a bank could, without incurring wrath from the “woke” or regulators, say something like “Banking is all we do. No politics. No agendas. Just finance.”
And as I have said before, the outrageous Nigel Farage case, and that of others, surely demonstrates that a central bank digital currency idea must be resisted. This would be the end of any financial autonomy at all.
In case you are not aware of this – and there is no way you would if you got all your news from the Sky website – yesterday we learnt that political entrepreneur, Mr Brexit, and all-round inconvenience to the Establishment, Nigel Farage, has had his bank account closed. No explanation has been offered. When he attempted to open an account at other banks (6 or 7 according to him) he was turned down in every case.
Wow! just wow.
It’s nothing new of course. Similar things have happened to Toby Young of the Free Speech Union and to the guys at Triggernometry. It comes at a time when any number of people have been kicked off social media or lost their jobs as a result of expressing the wrong opinion. I believe even The Boss once fell into the former category.
But, Patrick, you are a libertarian. Surely, you believe in producer sovereignty? Surely, you believe that a bank or any other private institution has every right to decide who it trades with and more pertinently who it doesn’t trade with?
I do indeed. But cherchez l’état. Once upon a time there was such a thing as the Ecology Building Society. It took in deposits and lent it out to – as it would see it – eco-friendly projects. It wasn’t very big and was eventually closed down by regulation. More recently, some of you will be aware of the travails of Dave Fishwick. He didn’t think banks in Burnley were much cop so he tried to set up his own. Not an easy thing to do as it turned out. So difficult in fact that – IIRC – only one new bank had been established in the UK in the last 50 years. The bank in question was Metro Bank which I believe has also been involved in a bit of cancellation recently. Fishwick eventually got his way but only by a bit of creative loophole exploitation.
So, essentially, a bank is very much a creature of the state. It is subject to the arbitrary whims of a capricious master. All very medieval. What are the chances that all these banks have been lent on? High, I would say. This wasn’t always the case. A hundred years ago – where I spend a lot of my time – there were any number of banks. Some of them were not particularly well run but it would appear that if you were dissatisfied with the banks on offer you could set up your own.
But hang about, if Farage’s de-banking is all to do with state regulation how come all those people got cancelled on social media which has almost no regulation at all? Er…
Update 1/7/23 It would appear that the Ecology Building Society is very much still with us.
“Neoliberalism needs to be reconceived in the light of what we have learned about the fragility of finance and the ambitions of Xi Jinping. It needs to be enriched by being brought back into contact with rival liberal traditions that emphasize other liberal virtues beyond consumer satisfaction. But the current out-of-control demonization of neoliberalism runs the risk of turning a positive adjustment to the excesses of recent years into an excuse for returning to the disastrous policies of the 1970s.”
– Adrian Wooldridge, Bloomberg columnist($)
“Labour willing to force pension plans to invest in £50bn ‘growth fund’”, reports the Financial Times.
Labour is prepared to force pension funds to invest in a proposed £50bn “future growth fund”, as the party aims to boost the amount of capital available for fast-growing UK companies.
Rachel Reeves, shadow chancellor, said she did not believe Labour would need to mandate retirement schemes to invest in the new fund because of the goodwill in the sector, but added: “Nothing is off the table.”
Speaking to the Financial Times on a three-day visit to the US, she said she also wanted to accelerate the merger of smaller UK pension funds so as to consolidate a fragmented market.
Reeves, who visited the New York Stock Exchange on Monday, said she wanted to change the culture of Britain’s savings industry, unleashing homegrown funds that could persuade UK companies to list in London.
She also wants pension funds to work alongside the state-owned British Business Bank to improve the UK’s “start up, scale up” landscape, with Labour warning that the country is trying to do “capitalism without capital”.
Reeves said: “A lack of confidence in Britain’s economy has led to too many businesses leaving our shores.”
Confidence in the British economy is not likely to be improved by the woman who will probably be the next Chancellor of the Exchequer announcing that she has so little confidence that pension funds will invest in it voluntarily that she thinking about making them do it by force. It would be unfair to call this the Walter Ulbricht strategy. Unlike Comrade Ulbricht, who said “No one has the intention of erecting a wall!”, Ms Reeves has sportingly given pension funds warning of her intentions so they can get out before the wall goes up.
Investments can go down as well as up. The record of the state in “picking winners” is particularly poor. British workers are not going to be happy bunnies if their pensions lose value because a Labour government forced them to put some of their pot into risky start-ups that venture capitalists wouldn’t touch.
“‘In a lot of the world, the clock has hit midnight’: China is calling in loans to dozens of countries from Pakistan to Kenya”
– Bernard Condon and the Associated Press in a major article for Fortune magazine.
Here are some excerpts from the article that struck me:
In the past under such circumstances [debtor countries being unable to make interest payments], big government lenders such as the U.S., Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.
But China didn’t play by those rules. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans and whether China had devised a way of muscling to the front of the repayment line.
And
Along with the usual mix of government mismanagement and corruption are two unexpected and devastating events: the war in Ukraine, which has sent prices of grain and oil soaring, and the U.S. Federal Reserve’s decision to raise interest rates 10 times in a row, the latest this month. That has made variable rate loans to countries suddenly much more expensive.
All of it is roiling domestic politics and upending strategic alliances.
In March, heavily indebted Honduras cited “financial pressures” in its decision to establish formal diplomatic ties to China and sever those with Taiwan.
Last month, Pakistan was so desperate to prevent more blackouts that it struck a deal to buy discounted oil from Russia, breaking ranks with the U.S.-led effort to shut off Vladimir Putin’s funds.
And, which I did not expect, → Continue reading: China calls in the loans
“Making it harder to evict residents is only likely to make it harder to rent. Landlords will inevitably be more selective about who they offer properties to and charge higher rents when they cannot quickly evict bad tenants. That is likely to disproportionately hurt those who are poorer, younger, and from minority communities.”
– Matthew Lesh, of the Institute of Economic Affairs, commenting on measures by the current “Conservative” government, to make it more difficult for landlords to evict tenants in certain cases (there appears to be some issue about the details). The impact is the same as making it harder to fire workers. Other things being equal, fewer people get hired. (Look at Italy, where firing people is hard and produces bizarre effects.)
The inverted quotes around “Conservative” are, as you might guess, there for a reason.
Those who would change every aspect of our economic lives are using environmental collapse as the excuse.
– Tim Worstall
“It might be exhausting just trying to keep up with Musk and he will get plenty wrong. And yet, all the criticism is hopelessly wide of the mark. Our political and economic culture sneers at and neglects men and women like him. But if Musk and his ilk ever chose to go on strike, like a seemingly endless number of workers in both the public and private sectors, the system could grind to a complete halt.”
– Matthew Lynn, Daily Telegraph. Lynn’s article (£) is spot on. Yes, Musk received public subsidies for Tesla and the SpaceX business gets deals from NASA, but the point is also that he has made, particularly in the spacefaring area, a tremendous go of massively reducing launch costs via the recoverability of the rockets. He did it when far more expensive ways of space flight failed to deliver. If he did nothing else, that puts him on my list of heroes.
The line about him ever going on strike makes me wonder if Lynn thinks of Musk as a sort of Ayn Rand hero. It’s almost uncanny. Of course, some people, including Musk himself, tend to think of him more as a bit of a Tony Stark.
Musk can be maddening to some, and vexatious even to his admirers. But overall, I am glad he is around.
Saturday, the German government closed its last four nuclear power plants, finally fulfilling Angela Merkel’s Fukushima-era promise to destroy her nation’s most abundant source of safe, clean, cheap power — in the middle of an energy crisis. To fill the giant hole in the nation’s energy portfolio, the famously “environmentally conscious” Germans will be burning more coal, a degree of stupidity almost impossible to fathom. In America, this specific genre of Clown World policy was last observed at the Diablo Canyon power plant, which the state attempted to shut down in the middle of its own series of energy-related crises. At the last possible moment, following a tremendous groundswell of counter activism, that decision was reversed. But today, with the activist group “Friends of Earth” trying to override this rare California flirtation with logic, and with activists around the world celebrating the end of German nuclear power, rational policy is once again on the wrong side of political momentum. So let’s just break it down: poverty and global warming are both real, and they exist because of “environmentalism.” If you stand opposed to nuclear, you are either 1) too dumb to comprehend the risks inherent of the technology, 2) dedicated to some nefarious ulterior motive, or 3) pseudo-religiously obsessed with the belief mass murder is not only inevitable, but necessary to keep the human population “in check.” There is no steelman for these positions. The debate is over. Nuclear is the way.
– Mike Solana
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