Though I think the banks should pay more tax, calling money saved beacause the goverment gaursntees the loan is not a subsidy. Its,misleading terminology

This is quite interesting because one of the main structural problems with our current “Anglo-Saxon” economic world-view is that it treats a total reliance on arbitrage for growth as a good thing.

The basic problem with arbitrage is that by comparison with making something (shoes, to use Douglas Adams’ example), or providing a useful service (like a pub), each of which create wealth by adding value to something customers have actually received, arbitrage (the stock market) creates wealth but adds no value. It is too self-referential; and as communications speeds have allowed arbitrage to happen ever-faster, that effect has been massively amplified.

Sub-prime lending crash? Everyone was making money for selling hot potatoes, things no-one actually wants, but which everyone knows you can make money selling. You only win if you pass them on as fast as possible, so the crash happens while someone else is holding them. That’s the problem with arbitrage as a structural economic principle. Turned out, everyone was holding them, all at once. When the music stopped, they all fell down.

So, we have the recognition that by left-wing (or, I would argue, reality-based) thinking arbitrage adds no value, which is the problem with it.

And there’s more. Incredibly, financial sector goods and services are VAT exempt. Certain exemptions are understandable: healthcare, education and charities – fine. But the richest sector in the world, obliged to pay 0% VAT?

So, to some extent, it’s actually rational that they pay no VAT. They add no damn value!

Of course, that’s an over-simplification. Other banking services, like actually lending money to small businesses which need it, or being a mutualised co-operative building society which invests in ethical and future-minded projects, actually do create wealth by adding value. Shame those sectors have been relegated to third-class status for so long.

HM Treasury: The Asset Protection Scheme – Public Accounts Committee Contents

Two of the UK’s major banks could not provide basic information on their assets and sufficient assurance that their assets were not linked to fraud or other criminal activity.

Whose all in it together?

I don’t have time just now to go through this but at the risk of being accused of an ad hom; this is the NEF, time and time again they have presented less than reliable figures.

Bit of a give away here “We at the Robin Hood Tax have been campaigning for a Financial Transaction Tax, which would take a tiny levy of 0.05% every time banks carry out their casino trading.”

Yes I’m sure the incidence of the tax will hit “casino trading” and not for instance everyday transactions. Very poor show.

‘Incredibly, financial sector goods and services are VAT exempt. ‘

This means the sector does not charge YOU any VAT on services, which it would pass direct to HMRC. The sector pays VAT for its’ goods & services which are taxable like anyone else.

To say ‘But the richest sector in the world, obliged to pay 0% VAT?’ shows a misunderstanding of the exemption and is wrong.

See now, we’ve been here before haven’t we, and then as I suspect now, this will fall on deaf ears.

These “subsidies” are the estimated reduction in costs resulting from implicit state guarantee. They do not represent annual flows of money from tax payer to banks. They do not offset taxes paid by banks, as suggested by OP.

Imagine a householder borrows against their house, but that house is in an earthquake zone. The government provides earthquake insurance, so the householder is able to borrow more cheaply. How much more cheaply corresponds to the “subisdy” . What is cost to taxpayer? How much does it spend when earthquakes hit. A completely different number. In case of bank bailouts, when earthquake hits, we do things like providing loans that are repaid with interest, guarantees for which we charge fees, and equity investment which we can resell. Normally insurance involves giving the claimant money, when it comes to banks that is not the case.

The net cost is unknown and bank shares have fallen since this was written

Banks bills and bailouts
http://www.ft.com/cms/s/2/8f9f53e2-9172-11e0-b1ea-00144feab49a.html#axzz1XT28b2rK

But there’s no way the annualised cost approaches £46bn. Where on earth is this claim that bailout money is in large part unrecoverable coming from?

If you want a number like that, best you can do is estimate forgone insurance premium, i.e. What we could charge for insurance if we did so explicitly. But that would a different scenario, bank creditors do not presently know for sure the extent to which they are protected. I think we can be sure UK banking industry would not pay £46bn per year for this insurance.

This implicit insurance is cannot be completely taken for granted. Bank creditors are not necessarily going to be 100% protected next time shit hits fan, that’s what all this orderly resolution, ring fencing, and bonds that convert to equity is about.

If you want to charge banks for this subsidy, do something like apply a tax to the total quantity of creditors they have, because that’s the sum insured, more or less. FTT is completely unrelated to this exposure. It does make sense to try to charge for the implicit state guarantee, via some form of balance sheet tax. It makes more sense to try to remove the guarantee by fixing too big to fail.

FTT will fall on some combination of bank customers, bank employees and bank shareholders. Thats a perfectly fine place to go looking for more tax revenue. All this other shit just gives its opponents things to knock down. If you want to tax bankers, FTT ain’t going to do it either, you need special rate on their salaries and bonuses for that.

Better to work out how to stop the vampire squid sucking our faces than try to tax the squid, but that’s another story.

Here’s an explanation of why finance vat exempt and what might be done about it
http://www.ifs.org.uk/mirrleesreview/design/ch8.pdf

Do you not think it rather delusional that anyone in the City feels uneasiness about anything that comes out of NEF?

“… they enjoy subsidised deposit insurance…”

It is depositors who receive deposit insurance. You do realise that it was Europe who imposed this insurance on UK bank accounts. We managed fine for centuries without it so cancel it and tell people that they lose their savings if the bank goes bust. It would be hypocritical to be in favour of a deposit compensation scheme and also complain that it is a subsidy for banks when it is actually a subsidy for depositors.

” …they have access to the Bank of England as lender-of-last-resort. ”

Someone ought to tell Governor King. You do realise that the Bank charges a penalty rate? Are you saying that Bagehot was wrong when he said that the LOLR should ” lend freely, at penalty interest rates, on appropriate collateral.”

” Since the risks posed by these banks are now carried on the UK’s own books, it increases borrowing costs for the Government…”

Not sure what you mean by risks carried on the UK’s own books? Well if they increase borrowing costs the gilt yields over the last couple of years must be exploding into the stratosphere, right? Umm, gilt yields and as a consequence borrowing costs for the government are at record low levels. Liquidity preference determines government borrowing costs and no one gives a shit about risks the banks pose to the ‘ UK own books. ‘ The government have the capacity for infinite sterling and bank foreign currency liabilities would be at the discretion of the government.

Robin Hood Tax have been campaigning for a Financial Transaction Tax, which would take a tiny levy of 0.05% every time banks carry out their casino trading.

Of course, Chancellor Merkel and President Sarkozy should go right ahead and introduce a Robin Hood Tax. In fact, they should make the RHT a large one. We of course should politely decline the kind offer of joining them and reap the benefit.

@ John Q. Publican

I assume you have imported foreign drinks in your pub? Those are only made possible through the current account surplus that the City generates for this country each year. The UK has only generated a goods trade surplus with the rest of the world on 5 years since 1900. So when people look around their homes at all the cool foreign made goods and drive their foreign cars. Those goods are only possible for the UK because the City generates a huge services surplus to offset our goods deficit on our national current account. The goods would not exist for UK consumers without the City adding value in its trade with the rest of the world.

@6: “It is depositors who receive deposit insurance. You do realise that it was Europe who imposed this insurance on UK bank accounts. ”

Deposit insurance was first introduced by the Roosevelt administration in America in 1933 to stabilise the banking system there during the depression by stopping the domino collapse of banks as depositors rushed to withdraw deposits for fear they would otherwise lose their money. The result was that even solvent banks failed because of their inability to meet immediate demands for cash by depositors before they could liquidate their longer term assets to repay deposits and because other banks, anticipating interbank banks were at greater risk, refused to lend to stricken competitors.

Nevertheless, deposit insurance has its downside in that banks and other deposit taking institutions are apt to accept greater risk with making investment decisions in pursuit of profits knowing that their depositors are insulated against defaults. But interbank loans are not so protected and therefore depend on the quality of the collateral used to support interbank loans. When the quality of the collateral becomes suspect – as it did in the financial crisis – interbank lending dries up.

The downside risk of deposit insurance has long been recognised in the mainstream economics literature – Donald E Campbell: Incentives (Cambridge UP, 1995) – and represents the moral hazard which concerned Mervyn King at the onset of the financial crisis in Britain in the autumn of 2007. This moral hazard was blamed for the huge defaults in the Savings and Loan Association in America in the 1980s and early 1990s, which were duly bailed out by the federal administration thereby contributing to the budget deficits of the Reagan and Bush (senior) administrations. Curiously, little was learned from that experience.

@6 -

So, screw the poor people when banks fail? Yup, Same one-line Tory policy then.

And we should go right back to depending on a financial services bubble. Right. Flatline growth really isn’t hurting the poor enough for your sadism, is it.

I think we need to note that the NEF’s language is dishonest (as usual).

This is not a ‘subsidy’, any more than the loans made to the Banks during the 2008 crisis were ‘gifts’, or Government spending is ‘investment;, as Gordon Brown redefined it in his budget speeches.

No money has been paid from the Govt to the banks, rather banks have been placed in a better position to trade.If there is any action on the basis of that benefit, then it should be to ensure that finance is made more available to help the economy.

Leaving aside the NEF’s synthetic outrage, many of us with mortages pay lower rates of interest because of the way our economy is managed.

If such benefits are ‘subsidies’, perhaps everyone with mortgages at below world-average rates should be taxed on that basis too.

Among several downsides of withdrawing deposit insurance is that would almost certainly enhance market pressures to further concentrate the retail banking sector in Britain – because depositors would likely feel safer with putting their money in bigger banks.

This would reduce competition on high streets still further when Britain is already recognised in the recent report of the HoC Treasury Select Committee as having one of the least competitive retail banking systems among peer-group countries:
http://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/612/612i.pdf

8. Leon Wolfeson

” So, screw the poor people when banks fail? ”

Err, the poor do not have savings, Leon. Kinda comes with the definition of being poor. The deposit compensation scheme is a middle class subsidy. I never said I was against the scheme. We have no choice of opting out as it is an EU requirement. However, it is inconsistent of NEF to complain and call it a bank subsidy and also be in favour of it.

” Yup, Same one-line Tory policy then. ”

I’ve never been a Tory. Although, I have noticed some social conservatism in your posts, Leon.

@11 – Of course they do. As much as a thousand…for emergencies, savings for Christmass and the like. I know that little money is quite meaningless to you and you don’t care about it or them, thanks for once more highlighting that.

There’s no place for the poor in your world.

(If you don’t want to be called a Tory, stop acting like one. And there’s a difference between Conservatism and defendings things which are working fine along left-wing principles)

@9 “This is not a ‘subsidy’, any more than the loans made to the Banks during the 2008 crisis were ‘gifts’”

Yes it is a subsidy. Just because gilt yields are low today due to Eurozone crisis does not mean the markets have forgotten that UK bank risk is actually UK sovereign risk. When UK fiscal position worsens – as it will – our safe haven status could vanish quickly. Then you will see what this subsidy really costs

Well make it a couple of thousand. The current £85,000 would be quite a large Christmas party. The idea that the £85,000 compensation scheme is there to help the poor does not pass the laugh test.

” There’s no place for the poor in your world. ”

A silly overly emotional statement, Leon. You have no idea what I do to assist others so you are in no position to make such a claim. Moreover, I can’t recall ever supporting a policy that I thought would harm the poor.

” And there’s a difference between Conservatism and defendings things which are working fine along left-wing principles) ”

Left wing conservatism and right wing conservatism makes no difference to me. As someone once said, ” you can put lipstick on a pig, but it’s still a pig. “

We’re not talking about depositor insurance are we? Banks are charged for that, that’s not a subsidy. We’re talking about the implicit guarantee that creditors of other sorts will be protected, not by letting bank go bust then having govt repay, but by preventing bank from going bust.

@14 – So, let’s hear what you think my mutualist ass has supported in terms of Conservatism. (*Gradualism*, certainly…)

And again, your belittling of what the poor can save, at much greater sacrifice than the rich, is NOT being their friend. It’s very, very Tory.

@Luis: “We’re talking about the implicit guarantee that creditors of other sorts will be protected, not by letting bank go bust then having govt repay, but by preventing bank from going bust.”

Right – but deposit insurance has consequences because it creates a moral hazard for banks from the prospect of making potentially profitable but increasingly risky investment decisions more attractive for banks – as also does the implict guarantee that the government won’t allow banks to fail.

Because of deposit insurance banks can borrow more cheaply from depositors who would otherwise want a bigger risk premium to persuade them to lend their money to a high street bank. With lower borrowing costs, the banks make bigger profits and those profits aren’t competed away by interbank rivalry – and banks can ignor customer complaints – because the ownership structure of Britain’s retail banking market is too concentrated compared with other peer-group countries.

Greg Ford, what are you talking about? What bank risk is government risk? The risk it might not be able to sell its equity stakes for as much as it paid for it is neither here nor there, so you must be talking about the risk of having to bail the banks out again. But what risk is that? They’ve just written down bad assets and recapitalized, and exposure to EU sovereign debt isn’t a worry. I don’t think bond investors give two hoots about this. I’d be intersted to see any evidence bond investors are paying any attention to the governments exposure to what you call bank risk. If the UK fiscal position worsens, as you believe it will, that will completely dominate everything else, nobody will give a shit about some theoretical risk if the UK gets dragged into an Italy/Spain style sovereign debt problem.

Bob, I’m not convinced deposit insurance has much of an influence on bank behaviour, after all it kicks in after bankruptcy, I don’t know whether its existence makes managers more willing to risk bankruptcy. Why do they care whether depositors get their money back, in that event? In any case, it’s not what the OP is about because there is a charge for it.

Simon ,mentions deposit insurance not implicit guarantee.

“…they enjoy subsidised deposit insurance. ”

@14 Defending religion is conservatism.

” And again, your belittling of what the poor can save, at much greater sacrifice than the rich, is NOT being their friend. It’s very, very Tory. ”

Only a willful misrepresentation of what I said could lead you to such a conclusion. Of course, the poor can’t save much in bank accounts because they are poor. Let me explain it to you. The poor have low incomes and because their incomes are low, they consume their incomes. They do save much because they have nothing left to save. If they had substantial savings they would not by definition be poor. Why that should be presented as belittling is a willful misrepresentation.

@20 – As I was actually defending tolerance, the right to hold beliefs contrary to the supermajority and a free society, thanks for showing how biased you are on that particular issue.

Now, any *real* ones?

And you’re the one willfully dodging around the point. Someone rich, should he lose his savings account (and ONLY his savings account, to be clear about what I’m talking about), can “cut back” (i.e. 4 holidays a year, not 5, and not buy the caviar) and rebuild to a level where we won’t be in trouble at the least thing. Someone poor may need several years simply to save five hundred pounds again, and go short on food to do it.

@Luis

IMO deposit insurance certainly gives reassurance to bank depositors so we need to consider how depositors – and banks – would react if there were no deposit insurance protection.

Depositors would likely move their deposits to banks which – rightly or wrongly – they believed were safer and that would tend to push up the interest terms that banks offer to attract depositors. The cost of funds to banks would rise. But banks would then seek to invest in more profitable but higher risk assets to earn more income in order to pay the higher interest to depositors. I think we can reasonably predict – other things equal – that removing deposit insurance would benefit the larger banks at the expense of the smaller banks because depositors would believe larger banks to be safer – perhaps partly because depositors would privately believe that governments would have to bail them out, if there were a crunch, regardless of whether there was a deposit insurance scheme.

@Greg Ford

I think you need to refer yourself to a dictionary.

Example:
http://dictionary.reference.com/browse/subsidy
“a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like.”

Where is the direct payment to £46bn to the banks?

Bob, good point. I’d forgot the change may be on the side of depositors.

Given the many factual errors pointed out in the comments above, it is hard to understand why Sunny keeps putting this sort of stuff up for demolition.

Is he trying to prove that lefties can’t do money?

The NEF has the same relationship with economics as Scientology has with science…..

@ 22. Leon Wolfeson

” As I was actually defending tolerance, the right to hold beliefs contrary to the supermajority and a free society, thanks for showing how biased you are on that particular issue. ”

I’ve no desire to divert the thread. However, just some clarification about tolerance for you, Leon. I certainly believe that people are entitled to hold beliefs contrary to the majority. However, one can’t argue for tolerance from a religious perspective when the nature of organised religion is intolerant. Organised religion is a tool of tyrants and oppressors, which is hostile to the development of reason and the progress of science and incapable of verification. Therefore, by definition religion is intolerant and as an enemy of reason religion should be resisted by those who favour reason. One can be tolerant to the religious without extending tolerance to their inherent intolerance. As Karl Popper pointed out the paradox of tolerance must mean that extending unlimited tolerance to the intolerant would lead to the disappearance of tolerance.

” Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them. “

I see, just another intolerant bigot who wants to disenfranchise the religious and supress freedom of worship. Thatks for “clarrifying” that.

Never mind that my religion isn’t “organised” in the sense of the Christians, and we chose own our teachers. No, religion is evil and so…

Thanks also for reinforcing my point that you’re on a crusade against the poor. Intolerance breeds intolerance, as you prove.

Another tiresome misrepresentation, Leon.

More tiresome misrepresentation, Leon.

Richard W @7:

No, that’s wealth. They generate vast quantities of wealth (for themselves). My actual money, which has been made by adding value, through quality of experience and atmosphere and entertainment, to the beer in question is what pays for my imported beer. Not some mystic function of Square Mile. I’ve worked in it; I’ve personally been told “The best thing about the City is we can legally gamble with other people’s money”, to my face.

Creating wealth != adding value. That’s kind of the point I was making.

@27:

Organised religion is a tool of tyrants and oppressors, which is hostile to the development of reason and the progress of science and incapable of verification. Therefore, by definition religion is intolerant and as an enemy of reason religion should be resisted by those who favour reason.

I can certainly see what Leon has a problem with in this. Assuming you are in fact a reasonable person making a valid point, then what you actually meant was that organised religion can be a tool of tyrants, and that therefore some religions are intolerant and irrational.

If, on the other hand, you really meant what you said then you’re just flat wrong. The JCI triad, and I mostly mean the CI bit, are the ‘organised religions’ that you’re thinking of. Both have fundamental dogmae which require One True Wayism of their adherents. This is not only unusual among religions, it is (afaik) entirely unique.

Sikhs don’t care what you do if you’re not a Sikh. Zen Buddhists really don’t care what you do. Theravada Buddhism you might have a point, but only up to about 1960. And I have never noticed the BDO being particularly a tool of rampant oppression. For Druids, they’re relatively organised.

The neoPagan paths in particular evade your ‘anti-reason’ idea, because they are sufficiently post-modern as theological entities. I accept the idea that all we’re doing in our religious practice is manipulating Jungian thought-forms, combined with neuro-linguistic programing and an application of the placebo/nocebo effect. Nothing hand-wavey is necessary to explain why my religion works for me. That’s what took me out of the church and into the grove.

Please don’t try and tar us all with the brush you’ve dipped in the Christo-Islamic hate-bucket. We’re not all like that. To be honest, not even all of them are like that. I’ve got three vicars in the family and not one of them is an enemy of reason.

@ 30. John Q. Publican

The point I was making about imported drinks relates to how international trade works on our nations current account. If you sell imported drinks in your pub that creates a goods deficit. You purchasing foreign made goods might just seem to you personally unrelated to anything else. However, it really does have to be offset on the current account with someone else creating a surplus. We in the UK have had a goods deficit every year for nearly the last thirty years in that we buy more goods from the world than we sell. As I said, we have only had five years of having a goods surplus since 1900 so there is nothing new about the UK goods deficit. The current account must sum to zero in that what we buy from overseas must be offset with selling to overseas or importing capital to make up the difference. The City every year generates a huge services surplus with the rest of the world that offsets and allows us to run a large goods deficit.

The City is really not just about shuffling UK savings around. It is a global financial centre that imports capital from every corner of the globe and intermediates the capital. The Middle East, China, Mongolia etc would not be sending huge flows of capital through the City if they were not obtaining some value for themselves. They go to where they consider they get best value and when they want the best cars they go to Germany for cars. There really is no difference, one creates a goods surplus for Germany and the City creates a services surplus for the UK.

Leon ludicrously called me a Tory so I had to respond by pointing out that he had previously defended the implicit conservatism of religion.

” I’ve got three vicars in the family and not one of them is an enemy of reason. ”

I’ve got some missionaries to Africa in my ancestry. As they say we all have our cross to bear.

@29 – So it’s acceptable for you to use a broad brush, but not me?

Mm-hum.

We in the UK have had a goods deficit every year for nearly the last thirty years in that we buy more goods from the world than we sell.

Yes, I’m well aware of that. The City, however, does not do anything at all involving goods. The City indulges in arbitrage. They exist because it is possible, by being very informed, to see (very quickly) that there is a difference in current market value from over there to over here, which allows them to skim the marginal profit while trading.

Both ends of every deal are trading the same, theoretical, ‘value’ (shares, valued based on the most hand-wavey thing of all, ‘market confidence) round and round and round in a circle.

Of course balance of trade is important. That’s why it sucks to be post-industrial. We no longer make stuff here. Capitalists who live here pay to have things made somewhere cheaper instead. We import 75% of our food. Of course we have a fecking trade imbalance.

The point about the City is that arbitrage is non-producing. To have a properly working economy you need to get more of your wealt from producing industries.

Leon ludicrously called me a Tory so I had to respond by pointing out that he had previously defended the implicit conservatism of religion.

And that’s between you and Leon. What you most certainly are, based on your Duffy-like willingness to cling to a ridiculous generalisation in preference to joined-up thinking, is a religious bigot.
Otherwise, you might have made some response to me pointing out in turn that only some parts of certain specific religions are implicitly conservative. Specifically, the so-called ‘pre-Rational’ religions, the Fundamentalist wigs of the Religions of the Book. Those created in the mid-20th Century are (typically) explicitly progressive and in two cases were explicitly created to work in society against the de-rationalising influence of Christianity and Islam as embedded state religions.Again, please don’t throw your prejudices around without thinking first.

I’ve got some missionaries to Africa in my ancestry. As they say we all have our cross to bear.

You don’t actually remember me, do you? I thought you were new since I stopped writing here.

The point about the City is that arbitrage is non-producing. To have a properly working economy you need to get more of your wealt from producing industries.

Wealth… hmmm. Need my tea.

While I’m here though, I should expand on that.

Some bits of the financial system produce. Mortgage lenders. Lenders to small business. Mutualised building societies. Organisations whose money is put to work, by people who are producing things of real, as well as market, value.

Other bits, the famous bits, the really fucking rich bits, do not produce. They
indulge only in arbitrage, which is a game of rigged musical chairs with a government-guaranteed gold-plated chesterfield waiting for any player who gets caught out when the music stops. This is even true if, by a spectacular feat of incompetence, two-thirds of the players all get caught short at once: e.g. 2008-10.

@5

and further to your correction about VAT – not only are financial institutions unable to charge VAT, they can’t recover it either. So VAT they pay on, for example, office furniture is an actual cost and is recognised as such in their accounts. VAT exemption is therefore anything but a subsidy.

@ nearly everyone else

Expectation of government support increases the credit worthiness of banks and therefore reduces their borrowing cost. I don’t think it’s strictly correct to call this a subsidy, as there is no direct payment from the government involved. However, the expectation of government support has far wider implications than just lower funding costs. The moral hazard arising from “too big to fail” is seriously damaging, as it results in banks taking stupid risks in the expectation that if it all goes wrong governments will stump up – and so far that is exactly what they have done.

I, for one, want to see banks bearing the true commercial cost of the risks they take – but getting them to the point where they can do that without endangering their smaller customers takes time and is (sadly) contentious. And bank customers must appreciate that if banks are less credit worthy because governments explicitly demonstrate that they will NOT be bailed out, their funding costs will rise and they will pass that on in the form of higher borrowing costs. The days of cheap loans (including mortgages) will be over for good. What this will do to our “property-owning society” could be interesting.

@ 34. John Q. Publican

” The City, however, does not do anything at all involving goods. ”

John, I suspect you are suffering from ‘ manufacturing fetish ‘. The idea that only selling a tangible good to the rest of the world creates wealth is a variation of Mercantilism. It was a rubbish idea then and it is rubbish now. What creates wealth is producing something that is tradable and others wish to buy. There is no magical difference about bashing pieces of metal in Birmingham and selling the finished good abroad that balances our trade. As opposed to the City selling currency hedging to a Brazilian firm who want to hedge their euro currency exposure. Both transactions balance the UK trade and one appears as a goods export and the other a services export. John Kay at the FT said it best when he said that a manufactured good is only a ‘ packaged service ‘. There really is no difference between someone who creates invisible software and someone who pieces together a piece of tangible hardware. Apart the former is probably better paid that the latter.

http://www.economist.com/blogs/freeexchange/2011/04/growth

http://seekingalpha.com/instablog/443506-chip-krakoff/104123-curing-the-manufacturing-fetish

I am not sue what point you think you are making in regards to arbitrage. By definition if arbitrage opportunities exist then prices are inefficient. So someone removing the arbitrage removes the inefficiency. That is good, right?

” We no longer make stuff here. ”

An often repeated fallacy. We produce more in terms of output than we ever did in the past. The difference is it takes less people to produce that output. More from less is good, right?

” We import 75% of our food. ”

The UK has never been self-sufficient in food for over two centuries. The 75% sounds like a made up number. We import a lot of food and export a lot of food. The overall balance is we are around 60% self-sufficient. !.5% of the working population in agriculture produces more food that we produced with 80% of the population in agriculture. Absolutely nothing unique about our current food imports. We were importing huge amounts of grain from Canada, U.S. and Argentina in the 19th century. Moreover, New Zealand lamb flowed into the UK in the 19th century when we had considerably more sheep than now in the UK. It is called trade, and autarky is a sure route to poverty.

” To have a properly working economy you need to get more of your wealt from producing industries. ”

‘ Wealth producing industries’ is just a meaningless slogan. I certainly want a balanced economy with employment opportunities for all levels of skills. There is nothing unique about the structure of the UK economy. Near neigbours like The Netherlands, France, Sweden etc have similar splits between services and industry. Sweden and The Netherlands are amongst the richest and most successful societies on the planet. What matters is what you do with the wealth that you create and not how you create the wealth.

” religious bigot ”

Well if you mean I am biased against all religions that is a badge of honour. I think all religion is a malign influence on individuals and society. It is not bigoted to say that religious belief should get no special rights in society. However, religion does demand and get special rights and that is institutional bigotry.

We have a property-owning (in the sense, home-owning) society??? News to me. We have a home-owning generation, or more accurately two and a half generations.

the chances of anyone younger than me owning their own home, even if they currently do, by the time they’re thirty-five are very small unless said person comes from the inherited-wealth class.

Property was only a reasonable expectation for those born between 1948 and 1970. Born earlier and you probably died before buying your council house, born later and there were no council houses left worth buying.

35. John Q. Publican

” Mutualised building societies. Organisations whose money is put to work, by people who are producing things of real, as well as market, value. ”

I totally agree with you about the mutual model. I would like to see the mutual model that served us well in the past grow in importance. The de-mutalising of building societies into plc banks was an abject failure.

However, you are making a mistake of thinking that the City is all just about banks and share trading. The best way of thinking about the global financial centres is that they are like reservoirs where capital pools before being intermediated to where the capital is required. The UK hardly has any mining industry. Yet, London is the global capital of mining. When a firm wants to develop a mine in Chile or Kazakhstan, they do phone up their local credit union. It is to the City that they turn to for the capital who themselves draw in the capital from all parts of the globe. The capital may have originated from Middle East oil exports or the savings of Indian peasant farmers. The City’s role is to intermediate the capital from those who do not want to bear risk to those who do. Likewise, when the Peoples Bank of China are buying all those US Treasury bills, they do not phone up the US Treasury and ask for $50 billion treasuries. They channel much of their buying through third party intermediates in London to buy on their behalf at the best possible price.

Take a firm like NBNK who are looking to buy UK bank assets. The politicians bank with Lord Levene, Lord McFall and Lord Forsyth on the board. They are currently only worth £45 million and looking to buy assets worth £3.5 billion. However, they will easily raise the £3.5 billion in the City by selling bonds etc because that is the role of the City raising capital for those who need capital. None of those things are your caricatured trading arbitrage, it s providing a service to make the system work.

Global centres accumulating reservoirs of capital are going to happen whether it is here or elsewhere. The GFC are necessary because the international trading system just would not function without them. So, the functions of the City is as well being here as elsewhere. There are arguments that can be validly advanced that the City does us harm. For example, each year they tend to harvest the brightest graduates because the salaries paid are much higher than industry. Therefore, that harms our industrial firms. I think the way to deal with that is to raise the status of all the other things, rather than seek to damage the sector where we are very good. There are valid arguments about the banks. Frances made some arguments last week. However, most lefty arguments over the last two years have been terrible. What they have usually come down to is they do not like the people involved and have a medieval dislike of making money from money.

In many respects the distaste for making money from money has a religious origin. Pretty much why the European Jews in the medieval period took on much of the banking role because of church dogmas against usury.

@37 John Q. Publican

I put “property owing society” in quotation marks for precisely the reason you have raised. We do not actually have a property-owning society – but we like to believe we do, or at least are working towards one. Encouraging home ownership has been an explicit policy of every government since Margaret Thatcher. And governments have been very happy to support mortgage lenders so they can keep rates down and take higher risks, because it means that more people can buy houses. If that support for lenders is withdrawn and they are forced to bear the true cost and risk of their lending, rates will rise and fewer people will qualify for mortgages. Are people ready to give up the dream of owning their own homes? Are politicians ready to stop promoting it?

The actual nef report is, amazingly, not all that bad. This OP seems to have ignored all of the caveats that the report makes though.

“arbitrage (the stock market) creates wealth but adds no value.”

John Q: the stock market is not arbitrage.

Arbitrage is buying something in one market and selling it in another at a different price. Buy wheat in New York, sell it in London. Tin in Penang and sell it in Chicago. It is, essentially, the thing we call “trade”.

Now, you can have arbitrage in a stock market: buy BP shares at 4.15 and sell them at 4.16 at the same time. But that’s not what stock markets generally do. You buy at 4,15 and hope that it will go up to 4.16 which is arbitrage over time or not actually arbitrage at all, that’s speculation.

@40 – Are the politicians willing to give renters proper security and to do something about out-of-control rents? (I mean except social cleansing)