This week, Obama and Cameron should compare notes – and then wake up.

The Obameron Brothers….only way is up

This is the last chance to put our banks back in the cage

For a few days starting tomorrow, President Obama will smile at the well-wishers in Britain, show deference to the Queen, and generally pretend to like us. While he’s around (and I’m not breaking any injunctions here) I understand he’s going to have an economics session with Prime Minister David Cameron.

If and when that meeting of barren minds takes place, they should be able to reach a simple conclusion: no matter how hard you try to get banks to behave like social animals, they will screw you and pump up their bonuses.

Obama tried to get help to the repossession sector of the US housing market, using Federal funds. The idea was ill-conceived (chucking good money after bad) but at least three major banks used the funds fraudulently, and are now the subject of SEC investigations. His man Bernanke has been pumping Fed funds into the banking sector, in an effort to increase liquidity into the economy, for nigh on two and a half years – depending on who you believe about when it stopped, or if it ever stopped. This ‘POMO’ (Permanent Open Market Operations) scheme’s main achievement has been to send the Dow through the roof: the banks used the money for two purposes – to underwrite multinational megamergers, and buy stocks on behalf of their clients. Jobs have been lost, not created, as a result of this double-cross.

Cameron and his Chancellor George Osborne first of all tried to get the banks to set an example, and forego bonuses for 2010. Bob Diamond explained that this item would not be on the agenda, and they ended up paying themselves more than ever. Almost no money has filtered through to the small business sector after QE, and the financial sector – that’s the banks, remember – is still the only bit of the economy holding its end up. Not hard when you consider they’ve been doing it mainly with taxpayers’ money. Manufacturing has grown, but much as the Government tries to hype this, growth on a base of 12% of all economic output is a spit at the tornado of problems we face.

It’s not just that both leaders have chucked enormous income-tax monies at the investment banks: they’ve also given them a near as damn it 0% interest environment (‘ZIRP’) in which they can clear a net profit of around 2.3% simply by buying gilts and Fed Bonds. Now there is a degree of mutual interest here: higher rates would bankrupt the Anglo-Saxon West completely in very short order, and buyers of Government debt are always welcome. But it benefits the banks far more than the governments, because the former don’t have the latter’s catastrophic level of debt.

Let me rephrase that: the banks aren’t technically bankrupt, whereas the UK and US are. As and when rates rise and bad property debts (Russia, domestic and commercial property) plus derivative bets sink the banks, it’s all going to be a bit academic – because the Sovereign nations behind them will be penniless fiscal pariahs.

Obama, you will remember, caved in to Hank Paulson’s wolf-cry in 2008 and gave Wall Street $870 billion dollars. It was meant to recapitalise the banks. The banks used it to make money, and then said it was ‘nowhere near enough’. As I write, Britain’s banks are also giving David Cameron the same line on the subject of his Big Society. The FT reports this morning that the big boys are ‘furious’ because his Big Society Bank (into which they’re being asked to chip a minute £200M) will be lossmaking ‘for the first five years’ – according to the Cabinet Office.

As this ‘breaks’ the Merlin Agreement of last February – in that it won’t be the usual license to print money – the Diamond geezers are all hopping mad. They saddle us all with £1.1 trillion of debts and liabilities, we ask for £200 million back. Only if we can make profit, they say. And anyway, you broke our agreement youdidsosothereandsucks.

Except that, as usual, the banks are lying. They broke the Merlin Agreement in the very first quarter of its operation: having committed to lend £19 billion a quarter to small businesses, the BOE figures out this month show they lent only about £16.8 billion between January and March 2011. Get out of that, Slicker boys.

In the face of this Everest of evidence that the banks are really little more than well-tailored crooks, the US President chose to tackle it by killing Osama Bin Laden. Cameron was a tad more ambitious in bombing Libya. Both leaders could change history this week – by announcing a joint communique to bring the Anglo-Saxon banking sector back into line, and make a start to the process by establishing the public funds they’ve been given as a debt to be repaid.

They won’t, of course. For one thing, such an announcement would panic the Bourses globally, and cause financial shares to collapse. That’s the failsafe is you’re a banker: in the end, their answer to everything politcians say is, “You’re bluffing: you wouldn’t dare”.

But like it or not, this toxic isotope of a financial system is once again on the brink. It’s no good blathering with the Yes We Can have a Big Society bollocks: as long as the bankers are there siphoning off the funds, there just isn’t going to be the money to do any of it.

I will bring one small symptom to your attention re the on-the-brink thing. Last week was a light POMO week in the US: so there wasn’t much need to sell US Bonds. But the evidence from the what sales there were is very clear indeed: foreign central banks stayed well away from the auctions.

One day, they’ll start to do this to us as well….from a judicious mixture of fear and blackmail. Now is the time for two western leaders to come to the aid of the citizen.

Related: The Slog’s 2008 anxieties still haunt us all  Bernanke bows to pressure

10 thoughts on “This week, Obama and Cameron should compare notes – and then wake up.

  1. John,

    The one important link you miss (surprisingly considering one of your other current subjects) is that the economics session will be centred on how to change the IMF into a vehicle devoted to the propping up that will be needed in the scenario you expect.

    Regardless of conspiracy nonsense we are seeing the start of big changes to how the IMF distribute “money” that will be more and more fictitious, less dollar based and more openly seen as trading tokens. A new IMF head will have to be chosen carefully to revel in the non-entity of manipulation.

  2. Well done,at least a sane rational word smith telling us about the accident about to happen.No doubt we will be swamped with,”who could a known”after the event.

  3. Hear, hear John.

    What is wrong with everyone! Please, please wake up. This is a domestic balance sheet recession because the consumer is now debt saturated and the Ponzi scheme is finally over. Note to Bernake and Merv and their Treasuries – it’s demand side problem stupid! Nobody’s borrowing. Read it again – nobody want’s to borrow.
    The Fed and BoE QE programmes are trying to fix it with supply side interventions i.e increasing the money supply to try to reflate the economy through the money multiplier effect. No appreciation of the role of private debt in all of this. Plus the fact that fractional reserve banking is not how commercial banks work anyway.
    It is extremely worrying that the government is going through with an austerity drive across the public sector. Just look at Ireland, Greece and Spain for what’s going to happen. We are going to have a full blown depression if the business sector and public sector don’t main aggregate demand as households delever.
    Watch the GDP figures fall off a cliff once austerity starts – which of course will force another round of business sector redundancies.
    Even without this public sector austerity – at least a Japan lost decade is the future reality. Way, way worse if government austerity kicks in. Terrible to watch this slow motion “car wreck” unfolding.

    • Private debt has been shown over the last few years to be the driver of our Western economies.
      This in itself is an indictment of our pseudo-capitalist system. The trouble is that we have already seem the collapse of the Eastern bloc “socialist command” economies and no other system has been tried in recent history.
      So which way now? Rampant capitalism, true socialism (someone try defining it first please) or one of the new theories that are floating around (Positive Money, Modern Monetary Theory, Venus Project(!) etc.
      Apart from these I can only see a return to early mediaeval serfdom. At least it has a track record.

    • It may well be a demand problem due to existing debt, but what is the BoE (read NewLab now Coalition govts) supposed to do? The alternative is for govt to admit that it has failed the nation and is unfit for purpose.

      NewLab HAD a Ponzi economic model that kept unemployable people employed and justified a huge increase in unemployable civil servants. All that produced vast tax revenues to fund rising state spending which Gordon Brown was obsessed with.

      Suddenly it falls off a cliff.

      Passively allowing the economy to revert to a natural pre-credit-bubble level is not what socialists do, won’t keep large numbers of people employed and won’t support state spending as it was under Brown & Co.

      The actions they have taken are to reinflate the bubble as best they can (ZIRP) and (Coalition govt) progressively reduce state spending to a level supportable by reduced tax revenues.

      I think much of that is wrong, but from their pov, I can see why they’re doing it (or at least think they’re doing it, given John’s comments).

      • I’ve got a fair amount of sympathy with TPA views, but it didn’t escape my notice that the BBC described them as a “right wing think tank”.

  4. This video above reports such unbelievable INCOMPETENCE, with such dire consequences for our country….. it’s actually excrutiatingly FUNNY in places.

    • Last word on this.
      …. And yet, in spite of the undeniable facts relating to the National Debt, the 4.8 TRILLION owed by us, our children and our grandchildren……half the nation are still voting Labour, the public sector are unable to give up their god given right of over indulgence at tax payers expense for an appalling input, and we are still headlining injunctions about who’s shagging who, because the British People STILL DON’T GET IT….we are nearly BUST, and we need to focus very urgently on the sectors that create WEALTH…agriculture, horticulture, mining, manufacturing, tourism, exports,to name a few, and then reduce the TAX TAKE drastically, and the nonsensical red tape so that it’s worth getting out of bed in the morning to do an honest day’s WORK.

  5. In the meantime we have another volcano up. Theoretically, it should be only a temporary inconvenience and that is likely. But if the Laki fissure blows so will the North European economy.

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