No Minister

Posts Tagged ‘Banking

K… K… K… Karl Marx and his never-ending story

with 4 comments

Way back on October 8 I wrote a post about Biden’s nominee for the position of Office of Comptroller of the Currency, Saule Omarova:

The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. The OCC is an independent bureau of the U.S. Department of the Treasury.

I titled that post, Karl Marx’s Economic Analysis and the Theory of Revolution in The Capital, since that was the title of her Masters Thesis at Moscow State University in the late 1980’s. I left it at that. The comments section closes automatically after two weeks to avoid spam.

Probably a good thing, because since then the bloody post has shown up every single day in the stats. I can only assume that around the world people are tapping the title of her thesis into their search engines in the hope of finding the original document, and ending up here at No Minister.

Sorry folks. I looked for it too at the MSU archives but no luck, and Ms Omarova is keeping her copy under lock and key. I don’t know why though as it couldn’t be any more damaging than what is already known about the Commie fanatic.

Written by Tom Hunter

November 19, 2021 at 11:02 am

Bitcoin Monday: more CO2 than New Zealand

Labour Day?

HA!

Everyday is Labour Day, which increasingly might mean a day on which to do nothing except think about what our current Labour government is doing to this nation.

No, today shall be bitcoin day, at least here on No Minister.

By now you should all have heard of bitcoin. If you haven’t you can read the detail at that link, but the following summary is good enough:

Bitcoin () is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.[8] Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

It was invented in 2008, is based on mathematics, cryptology (public and private keys), computing technology and has gone from being worth $ 0.30 to $US 44,000 at one point. In between it’s jumped around a lot in price.

The math behind it means that only 21 million bitcoins can ever be created, which goes to the heart of the original White Paper:

“The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”[173]

Is it real money? Yes.

Of course it relies on people being willing to buy and sell stuff using it, but that can be an issue with normal currency because ordinary currency ultimately relies on trust as well. Nobody wants to use Venezuelan currency because it’s been destroyed by their communist government creating huge amounts of it. The nation now runs on US dollars. In the same way there are perfectly solid companies and nations or parts of nations that have accepted bitcoin, including the Canton of Zug, Switzerland, which started accepting tax payments in bitcoin earlier this year.

Bitcoins have three qualities useful in a currency, according to The Economist in January 2015: they are “hard to earn, limited in supply and easy to verify.”

But, just as with US dollars vs Zimbabwean currency, the ultimate success of bitcoin as a means of exchange will depend on how far such acceptance spreads.

Is it a scam? Yes.

At least in the sense of the 1637 Tulip Mania. I see that Bob Jones was hot on this the other day, although it should be noted that he’s attacking the speculation on the currency, rather than the thing itself. The cryptology and inbuilt limits on creating bitcoins means that it’s not “fake” currency.

But that creation is something else. The first bitcoins could be created using ordinary computers. But as the theoretical limit of 21 million is approached it gets harder and harder. Ever more computer power must be applied, resulting in huge banks of computers grinding away 24/7. That takes a lot of electrical power and that’s where this chart comes in:

Incredible is it not? There are other digital currencies currently being promoted, using the same, basic concepts of mathematical cryptology and computing.

Written by Tom Hunter

October 25, 2021 at 10:49 am

Karl Marx’s Economic Analysis and the Theory of Revolution in The Capital.

That’s the title of an economic thesis written decades ago at Moscow State University by an American student, attending courtesy of something called the Lenin Personal Academic Scholarship.

The person is one Saule Omarova, who is now a law professor at Cornell Law School. After graduating from Moscow in 1989 she returned to the USA where she got a PhD from the University of Wisconsin. She’s also still in love with the USSR:

“Until I came to the US, I couldn’t imagine that things like gender pay gap still existed in today’s world. Say what you will about old USSR, there was no gender pay gap there. Market doesn’t always ‘know best,’” she tweeted in 2019.

Ms. Omarova thinks asset prices, pay scales, capital and credit should be dictated by the federal government. In two papers, she has advocated expanding the Federal Reserve’s mandate to include the price levels of “systemically important financial assets” as well as worker wages. …

In a recent paper “The People’s Ledger,” she proposed that the Federal Reserve take over consumer bank deposits, “effectively ‘end banking,’ as we know it,” and become “the ultimate public platform for generating, modulating, and allocating financial resources in a modern economy.”

Perhaps she’s not aware that the USSR lost the Cold War and fell apart, revealing to the world what a complete sham its communist economy had always been.

By escaping the USSR she’s managed to live the typical wealthy lifestyle of a professor at one of America’s premier universities and is now ready to move on to other things.

Like running America’s banking regulatory system.

Joe Biden has nominated Saule Omarova to be Comptroller of the Currency. It is an important position. According to the Comptroller’s web site:

The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. The OCC is an independent bureau of the U.S. Department of the Treasury.

Because of course this is what moderate, slighty left-of-centre Democrat Presidents do.

This is insane. Her nomination should be rejected with prejudice.

Is there anybody out there who still thinks it was a great idea to swap President Trump for Joe Biden?

Written by Tom Hunter

October 8, 2021 at 12:03 pm

Angelo Codevilla on our Ruling Class

He was killed by a drunk driver a few days ago while walking along a footpath. He was 78 and had just recovered from Covid-19.

Life eh?

You’ve probably never heard of the man. I had not until 2010 when he wrote a seminal article, America’s Ruling Class. But he had quite a background, outlined here, as a keen critic of the Pentagon and a progenitor of the Strategic Defense Initiative that Reagan pushed.

Among his many fine books are a translation of Machiavelli’s Prince, and several books on war, strategy, and intelligence that hold up very well even at a remove of 30 years in some cases. Especially recommended is his book The Character of Nations, which holds up very well because it draws upon vast historical learning that never goes out of style. His co-authored book with Paul Seabury, War: Ends and Means, is also a fantastic primer on how to take warfare seriously. And his book on intelligence, Informing Statecraft, is also a classic that can be read to great use today, because it was less about transient facts such as the Soviet Union and more about the defective culture of our “intelligence” community.

A learned but practical man then, not ignorant of politics and bureaucracy.

But back to that 2010 article, which I strongly urge you to read in light of all that has happened since. For me these are the key excerpts:

As over-leveraged investment houses began to fail in September 2008, the leaders of the Republican and Democratic parties, of major corporations, and opinion leaders stretching from the National Review magazine (and the Wall Street Journal) on the right to the Nation magazine on the left, agreed that spending some $700 billion to buy the investors’ “toxic assets” was the only alternative to the U.S. economy’s “systemic collapse.” In this, President George W. Bush and his would-be Republican successor John McCain agreed with the Democratic candidate, Barack Obama. Many, if not most, people around them also agreed upon the eventual commitment of some 10 trillion nonexistent dollars in ways unprecedented in America. They explained neither the difference between the assets’ nominal and real values, nor precisely why letting the market find the latter would collapse America. 

Fear! The strange thing is that it was the MSM, with their usual addiction to fear pornography, plus many other political and “thought” leaders who seemed to be more frightened than the public. Moreover, when the time came to shove money at the banks, a number of the largest objected, for the simple and sound reason that they weren’t the ones who had indulged in the CDO insanity and were not in trouble. But the collective won out.

The public objected immediately, by margins of three or four to one. When this majority discovered that virtually no one in a position of power in either party or with a national voice would take their objections seriously, that decisions about their money were being made in bipartisan backroom deals with interested parties, and that the laws on these matters were being voted by people who had not read them, the term “political class” came into use. 

Then, after those in power changed their plans from buying toxic assets to buying up equity in banks and major industries but refused to explain why, when they reasserted their right to decide ad hoc on these and so many other matters, supposing them to be beyond the general public’s understanding, the American people started referring to those in and around government as the “ruling class.”

And in fact Republican and Democratic office holders and their retinues show a similar presumption to dominate and fewer differences in tastes, habits, opinions, and sources of income among one another than between both and the rest of the country. They think, look, and act as a class.

He makes it clear that the Republican’s “pivot” on some of these things was meaningless partisanship:

Although after the election of 2008 most Republican office holders argued against the Troubled Asset Relief Program, against the subsequent bailouts of the auto industry, against the several “stimulus” bills and further summary expansions of government power to benefit clients of government at the expense of ordinary citizens, the American people had every reason to believe that many Republican politicians were doing so simply by the logic of partisan opposition. After all, Republicans had been happy enough to approve of similar things under Republican administrations. Differences between Bushes, Clintons, and Obamas are of degree, not kind.

No prominent Republican challenged the ruling class’s continued claim of superior insight, nor its denigration of the American people as irritable children who must learn their place. The Republican Party did not disparage the ruling class, because most of its officials are or would like to be part of it.

But it is the following passages that are the key point about this new class, which increasingly apply across the Western democracies, and which lead to things like this, and this from our “leaders”. Codevilla contrasts the past American rulers with those of today:

Never has there been so little diversity within America’s upper crust. Always, in America as elsewhere, some people have been wealthier and more powerful than others. But until our own time America’s upper crust was a mixture of people who had gained prominence in a variety of ways, who drew their money and status from different sources and were not predictably of one mind on any given matter. The Boston Brahmins, the New York financiers, the land barons of California, Texas, and Florida, the industrialists of Pittsburgh, the Southern aristocracy, and the hardscrabble politicians who made it big in Chicago or Memphis had little contact with one another. Few had much contact with government, and “bureaucrat” was a dirty word for all. So was “social engineering.” Nor had the schools and universities that formed yesterday’s upper crust imposed a single orthodoxy about the origins of man, about American history, and about how America should be governed.

Actual diversity then, even within the ranks of the wealthy and powerful.

All that has changed. Today’s ruling class, from Boston to San Diego, was formed by an educational system that exposed them to the same ideas and gave them remarkably uniform guidance, as well as tastes and habits. These amount to a social canon of judgments about good and evil, complete with secular sacred history, sins (against minorities and the environment), and saints. Using the right words and avoiding the wrong ones when referring to such matters — speaking the “in” language — serves as a badge of identity. Regardless of what business or profession they are in, their road up included government channels and government money because, as government has grown, its boundary with the rest of American life has become indistinct. Many began their careers in government and leveraged their way into the private sector. Some, e.g., Secretary of the Treasury Timothy Geithner, never held a non-government job. Hence whether formally in government, out of it, or halfway, America’s ruling class speaks the language and has the tastes, habits, and tools of bureaucrats. It rules uneasily over the majority of Americans not oriented to government.

He then contrasts this ruling class with the rest of America:

The two classes have less in common culturally, dislike each other more, and embody ways of life more different from one another than did the 19th century’s Northerners and Southerners — nearly all of whom, as Lincoln reminded them, “prayed to the same God.” By contrast, while most Americans pray to the God “who created and doth sustain us,” our ruling class prays to itself as “saviors of the planet” and improvers of humanity. Our classes’ clash is over “whose country” America is, over what way of life will prevail, over who is to defer to whom about what. The gravity of such divisions points us, as it did Lincoln, to Mark’s Gospel: “if a house be divided against itself, that house cannot stand.”

See also:

The Hunger Masks
Do as I say, not as I do
Generational Toxicity
A second American Civil War

Written by Tom Hunter

September 23, 2021 at 12:35 pm

Well that’s an interesting take!

On what would otherwise be dry-as-dust news of changes to bank capital ratios by the Reserve Bank.

It’s Chris Trotter of course, speculating that the real reason behind these changes might be that Adrian Orr is a revolutionary in disguise:

What the new communist government of China did, in the early 1950s, was to pass a law requiring all existing capitalist businesses above a certain size to make the Chinese state a 25 percent shareholder in the enterprise. Naturally, such a large shareholding would also entitle the state to be represented on the enterprise’s board of directors. As the years passed and the new regime consolidated itself, the legislation was amended constantly. Year by year, the state’s shareholding in the enterprise was increased – along with the number of its directors.

And as Chris explains the wonderful result of all this was that the value of the shares fell until the capitalists saw the writing on the wall and got completely out, with the final kick in the nuts being that they were paid “a handful of cents on the dollar“. One can almost hear Chris chuckling, “Heh, heh, heh“.

It seems he wonders if something similar is in the offing here:

Like the ruthless, clear-eyed hero of the television series McMafia, the state’s representative will patiently explain to the people who used to be in charge, the new rules of the game: 

“From now on” he’ll quietly inform the Chairman and his CEO, “your bank will be obliged to meet a capital requirement of 18 percent. In two years’ time that will rise to 25 percent. Three years after that the Reserve Bank’s CR will be 33 percent.” 

“But that will ruin us!”, the Chairman and the CEO of the Aussie bank will wail. “We will have nothing to offer our shareholders.” 

“With respect to that”, the young, clear-eyed lawyer will respond, with just the flicker of a smile, “the Minister of Finance has authorised me to make you the following offer …”

The more time that passes since 1984 the more Chris pines for Old Zealand. What a sad fantasy of a democratic-socialist government that is. And while I’ve not dug into the historic details of China’s expropriation of business in the early 1950’s it doesn’t sound like any Communists I ever read about anywhere. The sheer thrill of sending in “the revolutionary guards” to seize such businesses, as well as the Judge Holden murder-kick of putting business owners up against the wall with a bullet, was too irresistible.

There’s also a huge dollop of historical ignorance in such thinking, uttered seemingly as a stream-of-unconscious desires:

As an added bonus, most of the by-now-former capitalists took what was left of their money and ran – to Taiwan, Singapore and the United States.

And what good did that do Communist China? All those nations did immensely better economically in the decades that followed. So much so that around 1980 even the Chinese Communist leaders decided to allow free enterprise, property rights and trading markets to appear again. The effects, first seen in rural areas, of increased food production, falling prices and increased incomes and wealth, led to such freedoms being extended into the rest of the economy, which is why China started doing better.

And without starving millions to death too. Bonus!

Mind you, I’m happy to indulge Chris’s fantasy in debate since the real reasons for Orr’s actions still seem unexplainable by any standard economic viewpoint, as I summarised here a few months ago with The Impact of Regulations:

Aside from many other problems with the NZ Reserve Bank analysis, Reddell points out that it would see NZ subsidiary banks with higher requirements than exist in Australia for many of the parent banks, which makes no sense, since any banking crisis that took them down would take the NZ ones with them.

So basically there will be a whole lot of extra cost caused by regulation with no measurable increase in safety. Sounds typical.
 

In fact it might even reduce that safety factor across the whole economy because any extra money paid in interest is money not being used to reduce private exposure to debt, which means borrowers are more exposed in the next recession.

You can also read Riddell’s latest analysis of the policy. You could summarise his latest take on it that it’s a pricey insurance policy that doesn’t really insure against the risk it claims exists – and even that assumes the the RB has calculated those GDP costs and benefits accurately, which is doubtful given the inadequacy of the analysis seen from them in earlier cycles of this policy debate.

Written by Tom Hunter

December 7, 2019 at 2:20 am

The impact of regulations

The Reserve Bank has finally made official what had been discussed over the last few months. They’re proposing to increase the amount of capital a private bank in NZ must hold compared to what it has loaned out (the so-called risk-weighted assets of the bank). The capital ratio is to be increased from the current 8.5% to 16%. There are other detailed requirements, but they all effectively drive towards the same objective of increased capital and hence, “safety” for the banks.

This will almost certainly result in increased mortgage payments, not to mention increased interest costs on private sector businesses, which are regarded as riskier than houses.

Former Treasury economist Michael Reddell has been studying these proposals for some time now on his Croaking Cassandra blog. He has his own list of reasons why this change is unneccessary, listed in the first of those articles.

Aside from many other problems with the NZ Reserve Bank analysis, Reddell points out that it would see NZ subsidiary banks with higher requirements than exist in Australia for many of the parent banks, which makes no sense, since any banking crisis that took them down would take the NZ ones with them.

There’s also a paper he quotes, The 30 billion dollar whim, which summarises the problems with the Reserve Bank’s regulatory proposals for private NZ banks increasing their capital requirements and has the following conclusions:

1. Capital increases are unnecessary. 
The banks are already sound. The costs to private borrowers could be very large. Estimates of the net present value costs in the tens of billions would not be alarmist.

2. Risk tolerance approach is actually a backward step.
Trying to quantify the risk on the basis of a metric like capital ratios is not a good way of actually dealing with risk, it just looks like it because “numbers”.

3. Modelling analysis is embarrassingly bad.
They not only did very little themselves, but largely ignored the vastly greater analytical capabilities of their Aussie counterparts, APRA, who are far more experienced in these matters given the much larger market they have to regulate. APRA must be wondering what it will be like working with Orr and company if a crisis does hit.

4. Bank missed a double counting in the capital requirement.
Incredible: the Bank’s analysis either missed or ignored the fact that they have already increased bank capital demands by 20 per cent by requiring advanced bank capital to be 90 percent of that required under the standardised approach.

5. Impact of foreign ownership continues to be ignored.
There is little point in a subsidiary having a higher capital ratio than its parent; and the cost to New Zealand of increased profits going to foreign owners.

6. Economic cost of a banking crisis is substantially overstated.
The Bank’s estimate is that it would whack about 63 percent of GDP. A more realistic assessment of the marginal cost of a banking crisis, for New Zealand as opposed to the underlying economic shock, would be no more than 10 percent of GDP.

7. Misrepresentation of the social costs of crises.
The Bank has grossly misrepresented the literature it extensively quoted from, on the social costs and longevity of banking crises. The World Bank and the UN did not say that financial crisis have long lasting effects as the Bank claimed. The relevant message from the papers the Bank quoted from is that the social costs in any economic downturn are substantially mitigated in countries, which, like New Zealand, have robust social safety nets. We found no evidence of long lasting ‘wider social costs’ in some relevant New Zealand data. Suicide rates, divorce rates and crime rates did not deteriorate during the GFC recession.

8. Fiscal risks benefits overstated.
Higher capital may not reduce governments’ gross fiscal costs at all if a government feels obliged to top up a banks’ capital to the new higher level after a crisis. Anything less could mean the banking system would continue to be ‘unsound’.

So basically there will be a whole lot of extra cost caused by regulation with no measurable increase in safety. Sounds typical.

In fact it might even reduce that safety factor across the whole economy because any extra money paid in interest is money not being used to reduce private exposure to debt, which means borrowers are more exposed in the next recession.

I don’t think the existing government has the intellectual grunt to deal with this and may simply take the word of Orr and company as gospel. However, extra interest payments will also reduce the amount of tax paid to the government, so that may get their attention.

Written by Tom Hunter

May 26, 2019 at 10:40 pm

Four Days To Clear

The other day, Adolf had to send a tidy sum from his bank account to the trust account of a conveyancer.   (Here, lawyers don’t do conveyancing – I’m not sure why.)

I tried to do the transaction using internet banking but there was a $20k daily limit and I was informed I’d have to go into a branch, be identified and an inter-bank transfer could be arranged.

So, off I trotted to the local branch.  The ladies were very helpful but I was astonished to learn that the funds could not be cleared for four working days.  I had thought the Commonwealth Bank was good enough for instant clearance on a paltry couple of hundred thousand or so.

Forty years ago, when there was no internet, no fax and no electronic banking I can understand why it might take a few days to clear funds from a private account.  But here we had the bank itself making the transfer, electronically.

I hope some knowledgeable reader can provide an answer to this question because I can’t imagine what it might be.

Written by adolffinkensen

April 22, 2019 at 1:00 am

Posted in New Zealand

Tagged with

A Massive Rate Hike

It must be massive, otherwise it would just a simple old ordinary rate ‘increase.’

Oh, and to make matters worse, it was ‘out of cycle.’   Shit eh?  I can think of absolutely nothing worse than an out of cycle whacking great increase in mortgage rates.  (Cepting of course, I no longer have a mortgage!)

Anyway, here’s how the once reliable Australian newspaper reported this latest Aussie financial disaster.

Westpac fires gun on rate hikes

The opening salvo:-

Westpac, the nation’s second largest lender, has broken with the other Big Four banks by hitting borrowers with the first out-of-cycle rate hike in years, risking the wrath of new Treasurer Josh Frydenberg.



Later

Blaming rising funding costs, Westpac today said it would be hike interest rates on its standard variable mortgage by 14 basis points to 5.38 per cent for owner-occupiers with principal and interest loans.

Of course they carefully omit any information about how many borrowers currently are on variable rates.   It is my guess that the number would be less than three in one hundred.

Oh yeah.

It took two economics reporters to write this junk.

Written by adolffinkensen

August 29, 2018 at 7:45 am

Posted in New Zealand

Tagged with , ,