NEWS,05. AND 06.03.2013

Prince to boycott Forbes billionaires list

Saudi Arabia's Prince Alwaleed Bin Talal, the richest man in the Arab world, is to boycott Forbes magazine's global billionaires list claiming that it underestimates his wealth, his Kingdom Holding Company announced Tuesday.Forbes' recently issued billionaires list puts Alwaleed at 26th place, with a net worth of $20bn.A statement posted on the company's website said that "Prince Alwaleed has taken this step as he felt he could no longer participate in a process which resulted in the use of incorrect data and seemed designed to disadvantage Middle Eastern investors and institutions."It said Forbes was using "differing standards of proof for different individuals and organizations resulting in an arbitrary and confusing set of standards that seems demonstrably biased against the Middle East".The Kingdom Holding Company statement included a recommendation for the rival Bloomberg Billionaires List which puts Alwaleed in 16th place worldwide and pegs his wealth at $28bn.An article posted on Forbes' website hit back at Alwaleed, saying that "Of the 1 426 billionaires on our list, not one ... goes to greater measures to try to affect his or her ranking".Forbes writer Kerry Dolan added that "former Alwaleed executives have been telling me that the prince, while indeed one of the richest men in the world, systematically exaggerates his net worth by several billion dollars".

EU delays bank bonus ban

European Union governments on Tuesday delayed a decision on controversial bank bonus caps after Britain offered hope of an overall deal if given more time to negotiate.EU finance ministers meeting in Brussels agreed to take another look at plans to cap bonuses at the same amount as is paid in a fixed annual salary, or twice that sum if shareholders approved the payment.British Finance Minister George Osborne told his peers during a public debate on Tuesday that "we can’t support the proposal currently on the table".However, he added, that "if we make progress in the next couple of weeks ... I would hope that the finance minister of the largest financial centre in Europe can support (an amended legislative text) wholeheartedly". The European Parliament is planning to vote in April on the accord drawn up with the Irish EU presidency which introduces new internationally agreed legislation to strengthen banks and make them better able to withstand any future crisis.Parliament insisted that a cap on bank bonuses be included at the same time so as to satisfy public anger over the issue.After last week's accord was worked out, Switzerland voted on Sunday strongly in favour of sharp curbs on executive pay, widely blamed for the excessive risk-taking which contributed to the 2008 global financial crisis.The new regulations called Basel III primarily tighten up bank capital requirements. They were due to take effect this January but next year now seems the most likely.Britain is home to some three quarters of the EU's finance industry and London has long maintained that bonus and salary caps would make Europe's banking sector uncompetitive.Osborne said, however, that he accepted and understood public anger at exorbitant remuneration that brought banks and then governments to their knees in the last five years.He told his counterparts that Britain was "absolutely clear that more and more of the pay paid to bankers should be tied to long-term performance".He pleaded that banking excesses had already been curbed, arguing that "bonuses in London are today 80% less than at the height of the irresponsibility in the banking system".And he warned that the plans agreed by the EU's Irish chair and the Parliament would leave taxpayers exposed once more."It will push salaries up, it will actually make it more difficult to claw back bonuses when things go wrong," Osborne said.An official said negotiations would now centre on how to steer permissible incentives more towards the long-term, with extra safeguards enabling "clawbacks" when things go wrong.Osborne won crucial backing during the meeting from Germany's Wolfgang Schaeuble, who said the "broad concensus" of support around the table was adequate but not sufficient."I think if we could achieve (an agreement) in the final decision, not only a qualified majority, it would be better" than isolating London in another backs-to-the-wall vote, he reasoned.Ireland's Michael Noonan, summing up, said officials and the European Parliament would work further on the proposed caps and timescales for banks to apply them."We will try to iron these out in the coming weeks," said Noonan.

BoE boss urges government to break up RBS

Bank of England governor Mervyn King said on Wednesday that the British government should split the Royal Bank of Scotland into "good" and "bad" bank divisions to return it more quickly to the private sector.King argued that state-rescued RBS needed a "decisive restructuring" in comments before the Parliamentary commission on banking standards, which was set up to report on professional standards and culture in Britain's banks.The BoE chief told lawmakers that RBS was holding the wider economy back, and added that it was "not beyond the wit of man" to split RBS into a "good" and "bad" bank to ensure it would aid recovery and boost lending."The lessons of history is that we should face up to it - it's worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the UK economy," said King, who will be replaced as the central bank's head by Canadian Mark Carney in July.RBS, which remains 81% state-owned after a vast state bailout, had last week posted a net loss of almost £6.0bn (€6.9bn, $9.0bn) for 2012. That was the bank's fifth successive annual loss.The lender was rescued at the height of the global financial crisis in 2008 with £45.5bn of taxpayers' cash.RBS chief executive Stephen Hester had insisted on Thursday last week that its return to the private sector was on track and could be completed within two years.However, King said on Wednesday that it was "nonsense" to think the government could run the bank at arm's length, adding that he had discussed the matter with Finance Minister George Osborne."Time has passed and aside from reducing the balance sheet, nothing has been achieved - we haven't managed to get it into the private sector," noted the BoE chief."It would be much better to accept that it should have been a temporary period only, and the longer this goes on, the more difficult it becomes."RBS was plagued last year by compensation payouts for mis-selling, Libor rate-rigging fines and a vast accounting charge.Losses after taxation widened to £5.97bn last year, compared with a shortfall of £1.997bn in 2011.RBS was sunk by its badly-timed consortium takeover of Dutch bank ABN Amro at the top of the market in 2007, just before the financial crisis struck.

US wasted billions in Iraq

After invading Iraq ten years ago, the United States spent $60bn on a vast reconstruction effort that left behind few successes and a litany of failures, an auditor's report said on Wednesday. The ambitious plan to transform the country after the fall of Saddam Hussein has been marked by half-finished projects and crushed expectations, according to the final report of the Special Inspector General for Iraq Reconstruction, Stuart Bowen.The aid effort was plagued by in-fighting among US agencies and an improvised "adhocracy" approach, with no one clearly in charge of a massive investment that was supposed to put Iraq on a stable footing, said the report to Congress."Management and funding gaps caused hundreds of projects to fall short of promised results, leaving a legacy of bitter dissatisfaction among many Iraqis," it said.Some of the reconstruction money was stolen, with a number of US military officers and contractors now imprisoned for fraud, while other funds remain unaccounted for to this day, it said.Of $2.8bn in Iraqi oil revenues handled by the US Defence Department, officials could not produce documents accounting for the use of about $1.7bn, including $1.3bn in fuel purchases, it said.The lengthy report highlighted some of the worst examples of mismanagement and graft and included interviews with senior Iraqi and US officials who mostly regretted the outcome of the reconstruction programme."The level of fraud, waste, and abuse in Iraq was appalling," Senator Susan Collins, a Republican from Maine, was quoted as saying.She was "especially angry when she learned that some reconstruction money found its way into the hands of insurgent groups," the report said.Both Iraqi and US officials agreed that the Americans ignored the advice of Iraqis or never bothered to consult them before launching costly projects, with sometimes disastrous results.The litany of failures included a new police academy with raw sewage leaking through ceilings, a subcontractor charging $900 for a control switch valued at seven dollars and a project to build large prison in Diyala province that was eventually abandoned, despite an investment of $40m.

Memorable Chavez quotes

Venezuelan President Hugo Chavez, who died on Tuesday at the age of 58, was a garrulous public speaker whose words enchanted followers and angered foes. Here are some memorable phrases:

- "Comrades, regrettably, for now the goals we set were not achieved."

On 4 February 1992 when the then paratrooper lieutenant colonel took responsibility for the failure of a coup against Venezuelan president Carlos Andres Perez.

- "Marisabel, tonight I will give you what is yours."

On 14 February 2000 to his wife Marisabel Rodriguez, whom he later divorced.

- "Cuba is the sea of happiness. That's where Venezuela is going."

On 8 March 2000 as he received Cuban volunteer workers. Cuba's retired leader Fidel Castro was a key political ally of Chavez, who regarded him as "a father".

- "ALCA, ALCA... al carajo [Go to hell]!"

On 4 November 2005 on the sidelines of the Summit of the Americas in the Argentina as he opposed the creation of the US-backed Free Trade Area of the Americas, known by the Spanish acronym ALCA.

- "You are a donkey, Mr Danger."

On 19 March 2006 in his weekly television show Hello President, referring to then US president George W Bush, whom he also described as "a coward", "a killer", "a [perpetrator of] genocide" and "a drunk".

- "Yesterday, the devil was here. Right here, and it still smells of sulfur."

On 20 September 2006 in a speech to the UN General Assembly again referring to Bush, who had addressed the assembly a day earlier.

- "Don't mess with me, Condoleezza. Don't mess with me, girl."

On 19 February 2006, responding to then US secretary of state Condoleezza Rice, who days earlier had slammed Venezuela as a threat to regional democracy and a "sidekick" of Iran.

- "Go to hell, shitty Yankees!"

On 11 September 2008, during a fiery speech as he expelled the US ambassador in Caracas in solidarity with Bolivia, which had taken a similar action days earlier.

- "I want to be your friend."

On 18 April 2009 to US President Barack Obama during the Summit of the Americas in Trinidad and Tobago.

- "We will live and will win!"

On 30 June 2011 after he was diagnosed with cancer, dropping his gloomier slogan: "Socialist fatherland or death."

- "You have a pig's tail, a pig's ears, and you snort like a pig. You are a pig."

On 16 February 2012 to opposition rival Henrique Capriles ahead of the October presidential election.

- "Give me your crown of thorns, Christ, give it to me, so that I bleed; Give me your cross, 100 crosses, and I will carry them for you. But give me life, because I still have things to do for my people and my country. Don't take me yet."

On 5 April 2012 during a mass for his health during cancer treatment.

- "Choose Maduro as president of the republic. I am asking you this from all my heart."

On 8 December 2012 urging countrymen to vote for Vice President Nicolas Maduro in the next election should he become incapacitated as he revealed that he needed more cancer surgery.

- "We have arrived again to the Venezuelan motherland... Thank you, God. Thank you, my beloved people... I am holding on to Jesus Christ and trust my doctors and nurses... As always, see you in victory. We will live and we will win."

On 18 February breaking a weeks-long period of silence to announce his return to Venezuela after a final trip to Cuba for treatment.

Venezuela says goodbye to Chavez

Throngs of Venezuelans crowded the streets of Caracas on Wednesday, many clad in red, waving flags and weeping in a final goodbye to late president Hugo Chavez as he was taken through the capital. Some watched from apartment windows, others climbed fences to get a better view and many held up smartphones to take pictures of the flag-draped coffin adorned with flowers. Many shouted "I love you Chavez!""Viva my comandante! We love you Chavez," exclaimed Hector Carrasquel, 40, who came from Tejeria, west of Caracas, for the procession."I'm here to say my final goodbye to my president. There will never be another Chavez. He is the greatest man that this fatherland gave us," said Jose Gregorio Conde, 34, an education worker."I couldn't sleep all night thinking about what happened," he said outside the Caracas military hospital where Chavez lost his battle to cancer on Tuesday at the age of 58.A guard in red uniform led the procession, holding a sword, as Vice President Nicolas Maduro and other officials marched toward the military academy where Chavez will lie in state until Friday. "What can I say, I am very sad," said Isabel Febres, who cried as she stared at a photo of Chavez with his presidential sash.Many had spent the night outside the hospital while others arrived early under the Caribbean sun. Some read the official daily Ciudad Caracas, whose headline read "Onward to victory, always, Comandante Chavez!""I love him," said Iris Dicuro, 62, who came from the north-eastern city of Puerto La Cruz and wore a shirt with the words "Forward Comandante”. "I want to bid farewell because he was a good man who gave everything to the poor.""He did well for me. I am healthy thanks to him, for the Cuban doctors that he brought here," she said, referring to one of the many oil-funded social programs he brought to impoverished neighbourhoods.Amid the grief, many were sure that Chavez's 14-year legacy would continue and that they would vote for Maduro, his chosen successor, in elections expected to take place within 30 days."God willing, we will continue the last wishes of my president and we will vote for Maduro. We can't allow everything to be lost. What he did, giving us education, new homes, food, he did so much," said Mairis Briceno, 21, wearing a red shirt with an image of Chavez hugging and elderly woman and the words "love with love pays off”.Aldemar Castro, a 29-year-old bricklayer, said that if Chavez hand-picked Maduro, "it is because he knows that he can do something good for Venezuela.”

UN holds minute's silence for Chavez

The United Nations' main human rights forum observed a minute's silence on Wednesday for the late Venezuelan President Hugo Chavez whose record it has often criticised over the years.The UN Human Rights Council has voiced repeated concerns about freedom of expression, lack of independence of the judiciary, restrictions on activists, and arbitrary detentions in Venezuela under Chavez who died on Tuesday.The ambassador of Cuba which has declared three days of mourning for its ally Chavez - led diplomats in Geneva in observing the minute's silence."On behalf of the Latin American and Caribbean states, we wish to express our deep solidarity with the people and government of Venezuela, particularly the family members and friends of Commandante Chavez," Ambassador Anayansi Rodriguez Camejo said."Chavez was key in Latin America's advance towards its second independence. He worked tirelessly not only for his people, but for the betterment of the nations of Latin America and the Caribbean," she said.Under Chavez, Venezuela achieved most of the ambitious UN targets for improving health and education, known as the Millennium Development Goals, Cuba's envoy said."Chavez has not died, he didn't enter history yesterday, he entered history a decade ago when he began the Bolivarian Revolution and the struggle for real Latin American integration," she said.Poland's Remigiusz Achilles Henczel, who holds the Council's rotating presidency, said: "We reiterate on behalf of the Council our condolences to the people and government of Venezuela at the death of Hugo Chavez."Venezuela became one of the council's 47 members this year, under a system where member countries are selected by the UN General Assembly. Western states expect it to vote along similar lines of Cuba on issues such as Syria and North Korea, now that its Caribbean ally is no longer a member.The Council, which is holding its main annual four-week session, on Tuesday discussed cases of arbitrary detention, including that of Venezuelan judge Maria Lourdes Afiuni Mora.Afiuni has been held since December 2009 and was raped in detention, independent UN experts said last month. She was jailed after allowing the release of a businessman charged with subverting currency controls, saying his pre-trial detention was longer than generally allowed under Venezuelan law."Judge Afiuni's situation is an emblematic case of reprisal for having co-operated with one of the UN's human rights organs," Margaret Sekaggya, UN special rapporteur on human rights defenders, said in a 14 February statement.Venezuela's delegation on Tuesday denounced her "fraudulent activities and refusal to appear before the court".

NEWS,29.01.2013

RBS faces £500m fine over Libor scandal

Britain's Royal Bank of Scotland could face a £500m ($786m, €585m) fine from British and US authorities for its role in the Libor rate-rigging affair, media said Tuesday.The Wall Street Journal, citing people briefed on negotiations, added that US authorities were pushing for a settlement of allegations that would result also in an RBS division pleading guilty to criminal charges.The newspaper said that the deal could be completed within the next fortnight and added that RBS was resisting any guilty plea amid fears it would lose clients and spark costly litigation.A spokesperson for the state-rescued bank would not be drawn on the article, simply saying: "Discussions with various authorities in relation to Libor setting are ongoing."We continue to co-operate fully with their investigations," he added in a statement.Investors meanwhile took flight at Tuesday's development. RBS shares sank 5.98% to finish at 345.80 pence on London's FTSE 100 index of leading shares, which ended 0.71% higher at 6 339.19 points.The Edinburgh-based lender is 82% owned by the British government after a vast bailout during the global financial crisis.The Libor affair erupted in June 2012 when Barclays bank was fined 290m by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.In December, Swiss banking giant UBS was slapped with fines totalling $1.5bn after a major probe by Swiss, British and US regulators revealed evidence of massive misconduct."It cannot be said that this comes as a surprise given that it was well flagged that authorities will chase RBS following the successful takedowns of Barclays and UBS," said analyst Ishaq Siddiqi at trading group ETX Capital."However, it does serve to remind us just how careless and brazen traders at these banks were, taking excessive risk to manipulate rates."The response in markets may be somewhat muted in the sessions ahead as over the months we have learnt just how deep this corruption ran through the Libor market and instead, investors are likely to breathe a sigh of relief as these charges will remove an overhang in the stock price."The Libor rate is used as a benchmark for global financial contracts worth about $300 trillion. However, the system was found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.The London Interbank Offered Rate, or Libor, is a flagship instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money. Euribor is the eurozone equivalent.

Global tourism peaked in 2012 - UN

International tourist arrivals exceeded one billion for the first time last year, with the Asia-Pacific region posting the biggest increase in foreign visitors, and numbers will rise further in 2013, a UN body said on Tuesday. The number of international tourist arrivals grew by 4.0% to 1.035 billion in 2012, up from 996 million in 2011, the Madrid-based United Nations World Tourism Organisation said in an annual survey."2012 was a year of constant economic instability in the entire world, especially in the euro zone. Despite this international tourism managed to maintain its course," the body's Secretary General Taleb Rifai told a news conference.The organisation forecasts international tourist numbers will grow in 2013 although at a slightly lower rate of 3.0%  4.0%.Global tourism figures were hit hard by the 2008 global financial crisis, with the rise in international arrivals that year slowing to 2.1% after jumping 6.6% in the previous year.Arrivals plunged by 3.9% in 2009, its worst performance in 60 years, as the outbreak of the swine flu virus contributed to cash-strapped consumers' decision to stay home.But international tourism arrivals bounced back the following year, rising 6.6% in 2010 and by 5.0% in 2011 even though global economic crisis had not yet ended. The Asia-Pacific region posted the largest growth in visitor arrivals last year with the number of foreign tourists up by 14 million or 6.5% to 233 million.Growth in the number of foreign visitors was highest in Southeast Asia, with the number of arrivals up by 8.7% over 2011.Tourist numbers climbed 4.1% in emerging economies compared with a 3.6% rise in advanced economies.The only region to report a decline in tourist numbers compared with 2011 was the Middle East with 2.0% fewer arrivals because of political instability in popular tourist spots such as Egypt and Syria.But the drop in the number of visitors to the region was smaller than the decline of 7.0 posted in 2011, the UN body said.Asia and Africa are expected to post the greatest growth in tourist numbers this year.The agency predicts tourist arrivals will increase by 5.0%-6.0% in the Asia-Pacific region this year and by 4.0%-6.0% in Africa.The Middle East will see the number of foreign visitors to the region rise by 0 and 5.0% this year while Europe will post growth of 2.0%-3.0%.The forecast of continued growth in international tourist arrivals next year comes a week after the International Monetary Fund (IMF) predicted the global economy will grow slightly less in 2013 than expected.The IMF projects global gross domestic product annual growth of 3.5% this year, a dip of 0.1 point from its October forecast owing largely to weakness in the eurozone, and 4.1% in 2014.The UN World Tourism Organisation predicts international tourist arrivals will rise by an average of 3.8% each year between 2010 and 2020 and will reach 1.8 billion in 2030.

Japan to approve $1.02 trillion budget

Japan's cabinet was Tuesday set to approve a $1.02 trillion annual budget with boosts in defence and public works spending amid a festering territorial row with China and a renewed assault on deflation.The cabinet is expected to approve a ¥92.61 trillion budget for fiscal 2013, with revenue estimated at ¥43.10 trillion and new bond issuance at ¥42.85 trillion - the first time in four years revenue will have been greater than new bond issuance, local reports have said.The budget is down from the ¥92.9 trillion allocated in the fiscal 2012 initial budget, the first decrease in seven years, they said.But the defence budget is up by ¥40bn or about 0.8% from the previous year to ¥4.75 trillion, the first rise in 11 years, at a time Japan is embroiled in a row with China over a chain of islands in the East China Sea.Beijing has repeatedly sent vessels to the disputed waters, prompting calls in Japan for more measures to defend the Tokyo-controlled islands, called the Senkakus in Japan but known as the Diaoyus in China.Defence Minister Itsunori Onodera has said the military will add nearly 300 personnel to help defend the disputed islands.Meanwhile, public works spending rises for the first time in four years, growing by ¥710bn to ¥5.29 trillion, reports said.Prime Minister Shinzo Abe, who took office in December, has pledged to pull Japan out of years of deflation by active government spending coupled with aggressive monetary easing by the Bank of Japan.Abe's government announced a $226.5bn stimulus package earlier this month.In the fiscal 2013 budget, the issuance of new government bonds decreases by ¥1.4 trillion from the preceding year to ¥42.85 trillion, Jiji Press said.The government is planning an $86bn bond sale to pay for the stimulus, stoking fears about spending by Tokyo, which already owes creditors cash equal to twice the size of its economy.

 

Japan, China set to boost economic ties

Japanese Prime Minister Shinzo Abe said on Tuesday he was open to a meeting with Chinese leaders to rebuild ties damaged by a territorial dispute but said there was no room for negotiations on their row over a group of small islands.The remarks came after China's Communist Party chief, Xi Jinping, told a Japanese envoy sent to Beijing last week that he was committed to developing bilateral ties and would consider holding a summit meeting.Relations between the world's second- and third-largest economies plunged after the Japanese government bought three disputed islands from a private owner last September, sparking anti-Japan protests across China.Some Japanese businesses were looted and Japanese citizens attacked."It is precisely because we have a problem that we should hold the summit between leaders and have high-level talks," Abe said on a television programme, "I would like to consider a top-level summit if circumstances allow."The conservative prime minister has just increased the defence budget for the first time in 11 years and swept back to power in a December election calling for the protection of Japan's "beautiful seas".He reiterated Japan's stance on the islands, which it controls. Japan calls them the Senkaku while China calls them the Diaoyu."The Senkaku Islands are our land and China has taken provocative steps against them ... we have been clear that there is no room for negotiation on this matter," he said."But on top of that, there's an economic relationship. Japan invests in China and reaps benefits from exporting its goods there while China creates job places thanks to Japanese investment," said Abe, adding that maintaining strong economic ties were vital for both countries."If top-level meeting was necessary to achieve that, we should do it and from that point on rebuild our relationship."

NEWS,07.12.2012

Ensuring Scotish Sovereignty: Exploring the Public Bank Option

 

The Royal Bank of Scotland (RBS) and the Bank of Scotland have been pillars of Scotland's economy and culture for over three centuries. So when the RBS was nationalized by the London-based UK government following the 2008 banking crisis, and the Bank of Scotland was acquired by the London-based Lloyds Bank, it came as a shock to the Scots. They no longer owned their oldest and most venerable banks.Another surprise turn of events was the triumph of the Scottish National Party (SNP) in the 2011 Scottish parliamentary election. Scotland is still part of the United Kingdom, but it has had its own parliament since 1999, similar to U.S. states. The SNP has rallied around the call for independence from the UK since its founding in 1934, but it was a minority party until the 2011 victory, which gave it an overall majority in the Scottish Parliament. Scottish independence is now on the table. A bill has been introduced to the Scottish Parliament with the intention of holding a referendum on the issue in 2014.Arguments in favor of independence include that it will allow the Scottish people to make decisions for Scotland themselves, on such contentious issues as having nuclear weapons in their seas and being part of NATO. They can also directly access the profits from the North Sea oil off Scotland's coast.Arguments against independence include that Scotland's levels of public spending (which are higher than in the rest of the UK) would be difficult to sustain without raising taxes. North Sea oil revenues will eventually decline.One way budgetary problems might be relieved would be for Scotland to have its own publicly-owned bank, one that served the interests of the Scottish people.  True economic sovereignty means having control over the national currency, credit and debt.It was in that context that I was asked to give a presentation on public banking at RSA Scotland (the Royal Society of Arts) in Edinburgh on Nov. 22.  Among other attendees were a special adviser and a civil servant from the Scottish government.  The presentation was followed by one by public sector consultant Ralph Leishman, director of 4-consulting, who made the public bank option concrete with specific proposals fitting the Scottish context.  He suggested that the Scottish Investment Bank (SIB) be licensed as a depository bank, on the model of the state-owned Bank of North Dakota. Lively debate followed. The SIB is a division of Scottish Enterprise (SE), a government economic development body. SE encourages economic development, enterprise, innovation and investment in business, which is achieved by the SIB through the Scottish Loan Fund. As noted in a September 2011 government report titled "Government Economic Strategy": Securing affordable finance remains a considerable challenge... Evidence shows that while many large companies have significant cash holdings or can access capital markets directly, for most Small and Medium-sized companies bank lending remains the key source of finance. Unblocking this is key to helping the recovery gain traction." The limitation of a public loan fund is that the money can be lent only to one borrower at a time.  Invested as capital in a bank, on the other hand, public funds can be leveraged into nearly ten times that sum in loans. Liquidity to cover the loans is provided by deposits, which remain in the bank available to the depositors. Any shortage in liquidity can be covered by borrowing at low interest from other banks or the money market.  As observed by Kurt von Mettenheim, et al., in a 2008 report  titled "Government Banking: New Perspectives on Sustainable Development and Social Inclusion from Europe and South America" (at page 196): "In terms of public policy, government banks can do more for less: Almost ten times more if one compares cash used as capital reserves by banks to other policies that require budgetary outflows."Leishman stated that the SIB now has investment funds of 23.2 million pounds from the Scottish government. Rounding this to 25 million pounds, a public depository bank could have sufficient capital to back 250 million pounds in loans.  For deposits to cover the loans, the Scottish Government has 125 million pounds on deposit with private banks, currently earning little or no interest. Adding just 14 percent of the General Fund cash and cash equivalent reserves held by Scotland's local governments would provide another 125 million pounds, reaching the needed 250 million pounds, with six times that sum in local government revenues to spare.My assignment was to show what the government could do with its own bank, following the model of the Bank of North Dakota (BND).  n the Saturday following the RSA event, The Scotsman published and article Alf Young that summarized the issues and possibilities so well that I'm taking the liberty of abstracting from it here.North Dakota is currently the only U.S. state to own its own depository bank. The BND was founded in 1919 by Norwegian and other immigrants, determined, through their Non-Partisan League, to stop rapacious Wall Street money men foreclosing on their farms.All state revenues must be deposited with the BND by law. The bank pays no bonuses, fees or commissions; does no advertising; and maintains no branches beyond the main office in Bismarck. The bank offers cheap credit lines to state and local government agencies. There are low-interest loans for designated project finance. The BND underwrites municipal bonds, funds disaster relief and supports student loans. It partners with local commercial banks to increase lending across the state and pays competitive interest rates on state deposits. For the past ten years, it has been paying a dividend to the state, with a quite small population of about 680,000, of some $30 million (18.7 million pounds) a year.Young writes:"Intriguingly, North Dakota has not suffered the way much of the rest of the U.S. -indeed much of the western industrialized world -- has, from the banking crash and credit crunch of 2008; the subsequent economic slump; and the sovereign debt crisis that has afflicted so many. With an economy based on farming and oil, it has one of the lowest unemployment rates in the U.S., a rising population and a state budget surplus that is expected to hit $1.6 billion by next July. By then North Dakota's legacy fund is forecast to have swollen to around $1.2 billion. With that kind of resilience, it's little wonder that twenty American states, some of them close to bankruptcy, are at various stages of legislating to form their own state-owned banks on the North Dakota model. There's a long-standing tradition of such institutions elsewhere too. Australia had a publicly-owned bank offering credit for infrastructure as early as 1912. New Zealand had one operating in the housing field in the 1930s. Up until 1974, the federal government in Canada borrowed from the Bank of Canada, effectively interest-free.From our western perspective, we tend to forget that, globally, around 40 per cent of banks are already publicly owned, many of them concentrated in the BRIC economies, Brazil, Russia, India and China. "Banking is not just a market good or service.  It is a vital part of societal infrastructure, which properly belongs in the public sector. By taking banking back, local governments could regain control of that very large slice (up to 40 percent) of every public budget that currently goes to interest charged to finance investment programs through the private sector. Recent academic studies by von Mettenheim et al., and Andrianova et al show that countries with high degrees of government ownership of banking have grown much faster in the last decade than countries where banking is historically concentrated in the private sector.  Government banks are also less corrupt and, surprisingly, have been more profitable in recent years than private banks.Young concluded his article: "As we left Thursday's seminar, I asked another member of the audience, someone with more than thirty years' experience as a corporate financier, whether the concept of a publicly-owned bank has any chance of getting off the ground here.'I've no doubt it will happen,' came the surprise response. 'When I look at the way our collective addiction to debt has ballooned in my lifetime, I'd even say it's inevitable.'"The Scots are full of surprises, and independence is in their blood. Recall the heroic battles of William Wallace and Robert the Bruce memorialized by Hollywood in the Academy Award-winning movie Braveheart.  Perhaps the Scots will blaze a trail for economic sovereignty in the EU, just as the North Dakotans did in the U.S.  A publicly-owned bank could help Scotland take control of its own economic destiny, by avoiding unnecessary debt to a private banking system that has become a burden to the economy rather than a pillar in its support.

American economy and the Rationalization of Inequality

 

Republicans love touting the benefits of trickle-down economics and are still doing it in the big debate over tax cuts for the wealthy. The idea is simple: The more money the people on top make, the more the people below will benefit from the dripping down of that prosperity. The hidden agenda here, of course, is the rationalization of inequality. By linking the welfare of working-class Americans directly to the prosperity of the rich, the Republicans can protect the insulated interests of corporations and the wealthy without the fear of backlash. In reality, however, the only thing that trickles down in the Republican universe is you-know-what. Our economy is actually a trickle "up" economy instead, based on a lopsided pyramid scheme that ensures the rising up of prosperity rather than the dripping down. Consider the example of investment banking, a white-collar profession that raises money for companies and provides advice for mergers, divestitures, and other strategic alternatives. I chose this example because the pyramid structure illustrated by it is magnified a thousand times in blue-collar environments, the retail industry, and other sectors where wage inequality between rank-and-file workers and senior management is even higher, and so it is telling that even in a relatively upscale business like investment banking, the contrasts are so extreme. The investment banking hierarchy is essentially a large bureaucracy. At the bottom (ignoring maintenance staff like janitors and security guards) are the administrative assistants, who support several bankers at one time and make about $35,000 a year. Above them are the analysts, a cadre of college graduates whose life consists of 120-hour work weeks and an endless stream of menial tasks for $65,000 to $90,000 a year. Next up, and supported by the analysts, are the associates freshly minted MBAs with more than a $100,000 in school loans hanging over them who can look forward to taking home between $100,000 and $175,000 a year. If these young men and women, who work 90-hour weeks while trying to juggle a family, survive long enough to become vice presidents, their compensation can rise to $200,000-$300,000 per year. So far so good, but here is where the gravy train takes a sharp turn towards the absurd. Above the vice presidents are the directors, which is a training zone for the next pay grade (or a graveyard for those who don't have what it takes). Directors rely on the workers below them to do all the grunt work, including research, financial analysis, and client presentations, while they mainly babysit clients and occasionally come up with ideas to pitch to them. Their pay for these relatively cushy tasks ranges from $350,000 to $500,000 per year; but even this is meager compared to what their superiors make. Managing directors, who work even less and spend more time golfing instead, can make anywhere from a million to several million dollars a year. Finally you have the really big fish the CEOs, presidents, executive vice presidents, and others who manage the entire circus, think deep thoughts, and schmooze with politicians to get regulations loosened. What makes these gigs so coveted is not just the fact that few ever manage to leapfrog into that echelon but that the pay scale can jump to tens of millions of dollars (and for celebrity executives, even hundreds) per year for work that is only moderately more challenging than that of the managing directors. It may be lonely at the top, but it's pretty lucrative too.It should be clear from the above that the wealth generated in these organizations gathers mainly at the top of the pyramid, while the people at the bottom, who do a lot of the heavy lifting and are instrumental in building that wealth, receive only a fraction of those riches. Sure, the pay scales in investment banking are pretty good by the standards of other industries, but it is the proportional difference between the compensation at the top and the bottom that makes a difference. This large income gap leads to an exponentially faster accumulation of wealth in a few hands, which in turn widens the prosperity gap even more. In other words, prosperity is not really trickling down but trickling up.The problem with this is obvious. The more wealth trickles up in our system, the more it frustrates those at the bottom without whose efforts that wealth could not be created in the first place. Moreover, since money is a finite resource, disproportionately large compensation for senior executives is ultimately paid for not just by other employees, but by customers (whose pockets that money comes from) and shareholders (who receive less benefit from their investment) as well. In a true trickle-down economy, the benefits of productivity and innovation would be shared fairly by all stakeholders, not just the select few with authority to dictate compensation and how the profits of a company are distributed. So while the idea of such a system might be appealing conceptually, it is not the way our economy really works, and if the Republicans really believe in trickle down, they should stop trying to whitewash the exploitative pyramid schemes of their wealthy donors and come up with a real model for equality instead.