Pilant's Business Ethics

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Tag: International Monetary Fund

Banks Need to be Protected from Themselves

 

Waiting for a bank loan.

Banks Will Always Suck At Trading, Badly Need A Volcker-Like Rule: Study

A new study by economists Arnoud Boot at the University of Amsterdam and Lev Ratnovski at the International Monetary Fund finds that recent blow-ups in the banking sector — JPMorgan Chase’s $6.8 billion “London Whale” losses and that whole financial-crisis thingy, to name two — are not isolated events, but “a sign of deeper structural problems in the financial system.”

The only prescription? Less trading by big dumb banks.

“Without policy action, crises associated with trading by banks are bound to recur,” Boot and Ratnovski write in a blog post about the paper. “Even strong supervision will not be able to prevent them. Consequently, it appears necessary to restrict trading by banks.”

Banks Will Always Suck At Trading, Badly Need A Volcker-Like Rule: Study

If you read the fuller article, and I recommend you do, you will find that banks have incentives to do what is essentially speculative trading. Right now with interest rates low, there is a terrible temptation to take their money and gamble with it since there is little profit in traditional investments. And, of course, why do legitimate investments in business, industry and homes, when you can make so much more money speculating?

The banks have to be regulated to perform their traditional functions of lending to build a strong economy. We protect banks from collapse and insure their deposits with taxpayer money because when they loan money that develops the economy and creates opportunities. What we are getting now is a lot less useful investing and a lot more gambling at the public’s expense.

James Pilant

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Student Loan Debt – A Crushing Burden

Student Loan Debt – A Crushing Burden

Student loans are how most American students finance their education. They seldom have any other choice. This article I am quoting comes from Edufactory. It is interesting web site. It looks at the world from the vantage point of a college student, more European than American. But I like to hear what Europeans have to say about U.S. issues. I find the common thought pattern of the “beltway boys” or the “very serious people”  to be irritating. This is a very large article. This is the opening paragraphs.

Debt has had a crushing impact on the lives of those who must take student loans to finance their university education in the US. For tuition fees that have been so notoriously high in private universities now are rising in public universities so quickly they are far out-pacing inflation. Student loan debt in the US has been much higher than in Europe (with the exception of Sweden), though recent developments there would indicate that this gap may soon no longer exist (Usher).

We should also take into account the fraudulent way in which the loans have been administered by the banks and the vindictiveness with which those who have been unable to pay back have been pursued by collection agents. The most frustrating aspect of student loan debt being the legally toothless position the debtor is in, because government policy has relentlessly vested all the bargaining power in the hands of the creditors.

Student loans are a strange philosophical creature here at the beginning of the 21st century. Daily, the newspapers and television are filled with talk about the need for highly educated workers. States with low ratios of college graduates to the general population are considered poor sites for new factories and development. A nation’s competitiveness, perhaps in the long term, its very existence, may depend on the level of education of its population.

So, how does discouraging people from going to college make sense? Isn’t that a form of slow societal suicide?

And what is the effect on those who bear that debt for decades? It’s pretty obvious it forces students away from any job that isn’t well paid. That debt makes sure that the debtor works all the time, year after year. It never stops. There is no opportunity to write that novel, travel or simply live a life free from constant financial pressure.

Why do we finance education this way?  The philosophy of secure investment and low interest rates, a product of the Chicago School of Economics, epitomized by the policies of the International Monetary Fund are the root cause. To make investments maximally secure, government spending must be minimized and wage pressure limited. Spending must be limited because taxation, any taxation, for any purpose is inimical to maximum profit. Wage pressure produces inflation which reduces the value of debt. If debt decreases in value, once again, investment security is threatened. Therefore expenditures on education must be carefully limited.

Of course, from a banking stand point, subjecting millions of Americans to continuous debt during the entire course of their lives with the full support of the federal and state government to collect the money might seem advantageous.

Many of you have already realized the problem with this. In the long term, investments in a nation with a gradually decreasing educational level endangers investment. That is easily explained. You are only damaged by a poor long term investment, if once you have maximized profit you can’t move your investment elsewhere. When the United States becomes unprofitable, the money will simply move. By then the process can go on in, perhaps, Russia or some country in Western Europe.

Americans to preserve their country’s international standing, future prosperity and in the long term the existence of the nation might want to consider how to maximize the graduation rate as well as prioritizing the fields where we want graduates. Training tens of thousands of students each year in broadcast journalism when there are only a few openings does no one any good except those holding the educational loans.

Let’s read a bit more from the article –

As typical of  “invisible” movements, statistics fail us in drawing its proportions. We have no estimate, for instance, of how many have been driven to suicide or how many have been forced to go into exile due to their student debts. Nor do we have a measure of the social impact of the growing de-legitimation of the student debt machine. We can only speculate about the consequences of disclosures concerning the collusion between the university administrations (especially in the case of “for profit” institutions) and the banks, now commonly acknowledged in the media as well as in congressional investigations. For sure, blogs and web-groups are forming to share experiences and voice anger about student loan companies like the biggest one, the Student Loan Marketing Association (nicknamed “Sallie Mae”). On Google alone, there are about 9,000 entries under the rubric “Sallie Mae Sucks,” and another 9,000 under “Fuck Sallie Mae.”  Browsing through the chat rooms, with their harrowing stories of wrecked lives and mounting frustration against the operations of Sallie Mae, makes it clear that the potential for a debt abolition movement is high. So far, however, most attempts that have been made to give an organizational form to this anger have largely demanded the application of consumer protection norms to the management of the debt.

Student loans may well be justified as part of the mix that pays for education. But it should be determined at what level it deters significant numbers from college. It should be determined when it goes to institutions primarily set up to collect that money with little benefit from the education paid for. The proportion of the educational expense paid for these loans increases year by year. Is that healthy for the educational system in the long term or for the citizens in this country?

It takes intelligence to make good decisions about what we as a nation need from education. It takes intelligence to measure the effects of this debt on the society as a whole. It takes intelligence to challenge the strange doctrines of the Chicago School and its many adherents.

I don’t see our leadership rising to the challenge.

James Pilant

 

Student Loan Debt – A Crushing Burden

Student loans are how most American students finance their education. They seldom have any other choice. This article I am quoting comes from Edufactory. It is interesting web site. It looks at the world from the vantage point of a college student, more European than American. But I like to hear what Europeans have to say about U.S. issues. I find the common thought pattern of the “beltway boys” to be irritating. This is a very large article. This is the opening.

Debt has had a crushing impact on the lives of those who must take student loans to finance their university education in the US. For tuition fees that have been so notoriously high in private universities now are rising in public universities so quickly they are far out-pacing inflation. Student loan debt in the US has been much higher than in Europe (with the exception of Sweden), though recent developments there would indicate that this gap may soon no longer exist (Usher).

We should also take into account the fraudulent way in which the loans have been administered by the banks and the vindictiveness with which those who have been unable to pay back have been pursued by collection agents. The most frustrating aspect of student loan debt being the legally toothless position the debtor is in, because government policy has relentlessly vested all the bargaining power in the hands of the creditors.

Student loans are a strange philosophical creature here at the beginning of the 21st century. Daily, the newspapers and television are filled with talk about the need for highly educated workers. States with low ratios of college graduates to the general population are considered poor sites for new factories and development. A nation’s competitiveness, perhaps in the long term, its very existence, may depend on the level of education of its population.

So, how does discouraging people from going to college make sense? Isn’t that a form of slow societal suicide?

And what is the effect on those who bear that debt for decades? It’s pretty obvious it forces students away from any job that isn’t well paid. That debt makes sure that the debtor works all the time, year after year. It never stops. There is no opportunity to write that novel, travel or simply live a life free from constant financial pressure.

Why do we finance education this way?  The philosophy of secure investment and low interest rates, a product of the Chicago School of Economics, epitomized by the policies of the International Monetary Fund are the root cause. To make investments maximally secure, government spending must be minimized and wage pressure limited. Spending must be limited because taxation, any taxation, for any purpose is inimical to maximum profit. Wage pressure produces inflation which reduces the value of debt. If debt decreases in value, once again, investment security is threatened. Therefore expenditures on education must be carefully limited.

Of course, from a banking stand point, subjecting millions of Americans to continuous debt during the entire course of their lives with the full support of the federal and state government to collect the money might seem advantageous.

Many of you have already realized the problem with this. In the long term, investments in a nation with a gradually decreasing educational level endangers investment. That is easily explained. You are only damaged by a poor long term investment, if once you have maximized profit you can’t move your investment elsewhere. When the United States becomes unprofitable, the money will simply move. By then the process can go on in, perhaps, Russia or some country in Western Europe.

Americans to preserve their country’s international standing, future prosperity and in the long term the existence of the nation might want to consider how to maximize the graduation rate as well as prioritizing the fields where we want graduates. Training tens of thousands of students each year in broadcast journalism when there are only a few openings does no one any good except those holding the educational loans.

Let’s read a bit more from the article –

As typical of  “invisible” movements, statistics fail us in drawing its proportions. We have no estimate, for instance, of how many have been driven to suicide or how many have been forced to go into exile due to their student debts. Nor do we have a measure of the social impact of the growing de-legitimation of the student debt machine. We can only speculate about the consequences of disclosures concerning the collusion between the university administrations (especially in the case of “for profit” institutions) and the banks, now commonly acknowledged in the media as well as in congressional investigations. For sure, blogs and web-groups are forming to share experiences and voice anger about student loan companies like the biggest one, the Student Loan Marketing Association (nicknamed “Sallie Mae”). On Google alone, there are about 9,000 entries under the rubric “Sallie Mae Sucks,” and another 9,000 under “Fuck Sallie Mae.”  Browsing through the chat rooms, with their harrowing stories of wrecked lives and mounting frustration against the operations of Sallie Mae, makes it clear that the potential for a debt abolition movement is high. So far, however, most attempts that have been made to give an organizational form to this anger have largely demanded the application of consumer protection norms to the management of the debt.

Student loans may well be justified as part of the mix that pays for education. But it should be determined at what level it deters significant numbers from college. It should be determined when it goes to institutions primarily set up to collect that money with little benefit from the education paid for. The proportion of the educational expense paid for these loans increases year by year. Is that healthy for the educational system in the long term or for the citizens in this country?

It takes intelligence to make good decisions about what we as a nation need from education. It takes intelligence to measure the effects of this debt on the society as a whole. It takes intelligence to challenge the strange doctrines of the Chicago School and its many adherents.

I don’t see our leadership rising to the challenge.

James Pilant

Did The International Monetary Fund Push Tunisia Into Revolution? Yes.

The IMF played  an important role in the Tunisian Revolution

This is from the International Monetary Funds Survey Magazine, an article entitled –

Tunisia Weathers Crisis Well, But Unemployment Persists.

(September 10th, 2010)

Maintaining a stable macroeconomic environment that promotes employment and growth also requires determined expenditure control, the IMF assessment said. Key for success in this area is the reform of the social security system. To this end, the authorities are in discussion with social partners on pension reforms to buttress the pension system’s financial sustainability. The government should also explore ways to contain subsidies of food and fuel products, the report noted.

The authorities are also undertaking reforms to make the tax regime more business friendly. International comparisons with other emerging market economies show that the tax burden on businesses is relatively high in Tunisia and that there is scope to increase the yield from consumption taxes. To promote private investment and employment, the authorities intend to reduce tax rates on businesses and to offset those reductions by increasing the standard VAT rate and expanding the tax base through the elimination of exemptions, the report noted.

Tunisia’s growth-enhancing strategy also includes a package of measures to strengthen the financial sector through consolidating the financial strength of banks, enhancing the role of banks in the economy, restructuring the public banking system, and bolstering the presence of Tunisian banks abroad. The aim, ultimately, is to transform Tunisia into a banking services hub and a regional financial market.

To strengthen the country’s ability to adapt to changes in the global economic environment, the authorities also intend to modernize the monetary policy framework by introducing inflation targeting and to implement convertibility of the dinar and capital account liberalization by 2014. The IMF assessment said that this strategy would require significant preparatory work, particularly further strengthening of the banking system and deepening of the foreign exchange, money, and capital markets. The report also noted that the authorities would need to take additional steps to ensure increased reliance on interest rates as the operational target of monetary policy.

The IMF had been recommending an austerity regime for Tunisia for many years. Being an exceptionally corrupt and kleptocratically ruled nation, the pain of these kinds of “austerity” measures fell on the poor. In Tunisia, the poor is virtually everybody.

The IMF was pushing for a decline in government spending particularly in the areas of food and fuel in a poor population that could rarely afford either. Per capita income is a little over $6,000 but the population is divided into a very small oligarchy of immense wealth and a very large population of the poor. So, I would suspect that income among the average Tunisian was probably far less than half. So, they were recommending cuts in food and fuel in a population just hanging on to the edge, hardly able to make it from day to day.

It could be said that the IMF at all times stands for cuts in social welfare spending, business tax cuts, consumption tax increases (a form of sales tax),  bank consolidation, and declines in government spending. But there is no issue upon which the IMF is more devoted than inflation control. It crops up again and again in report after report. Inflation damages capital because it makes debts less valuable to creditors. Since while inflation can exist by itself, it is also a characteristic of growing and prosperous economies, that kind of economic growth must be avoided. What is wanted instead is stable economic growth with little or no wage pressure. This removes inflationary pressure and assures those loaning money of a full return on their investment.

There is another thread you pick up when you read IMF reports, a fascination with data. They always want more data. Better reporting they call it.

The numbers are everything. People are not.

James Pilant

Popular Revolt in the Arab World (via Grand Strategy: The View from Oregon)

These events are hardcore business ethics matters. It is the economic theories of the Chicago School of Economics that propels the austerity measures all over the world. It is the intense privatization movements again pushed by American philosophies and business interests that is a factor in these conflicts. I will cover the IMF and its part in these uprisings in more detail in my next posting.

There are few commentators I trust as much as J. N. Nielsen. Certainly very few are as well read.

I strongly recommend his writings.

James Pilant

Popular Revolt in the Arab World Thursday Tunisia’s authoritarian government of several decades duration has fallen to a popular uprising. This was not a perfectly bloodless revolution, but bloodshed was definitely kept to a minimum, largely because security forces took the side of protest … Read More

via Grand Strategy: The View from Oregon

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