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The US student debt bubble is a study in financial dysfunction — FT.com

One of the most memorable moments of this week’s Democratic National Convention came during Bernie Sanders’ speech, when young delegates wept as the former presidential candidate endorsed Hillary Clinton. No wonder they were crying. Mr Sanders brought America’s $1.2tn student debt bubble into the spotlight, arguing for free college tuition so that young people entering a lacklustre US labour market would not be hamstrung by debts they could never repay.

Source: The US student debt bubble is a study in financial dysfunction — FT.com

Really excellent article about the negative practices and impacts of student debt in the US. The same issues are also very much in play in this country. Education should be structured as public investment not private debt. Given the impact that it has on the spending capacity of the young and therefore demand in the economy it is set to reinforce a spiral of decline that undermines the life opportunities of young people and ultimately the writing off of the debt.

 

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BHS report lays bare failure and liability — FT.com

“Dominic Chappell, who bought retailer BHS for £1 and presided over its collapse barely a year later, had credibility problems that would have frightened many sellers away.Not only was he a former bankrupt who had been introduced to the sale of BHS by a convicted fraudster, but his own investment bankers had walked out after discovering that they had been misled about the terms of the deal.Yet so determined was Sir Philip Green, who acquired BHS in 2000, to proceed with the rushed sale that, instead of giving proper scrutiny to Mr Chappell’s obvious shortcomings as a buyer, the retail entrepreneur either overlooked them or fixed them by inserting himself on the other side of the deal.”

Source: BHS report lays bare failure and liability — FT.com

The collapse of BHS with the loss of jobs and pensions is an outrage and Sir Phillip Green should rightly be pilloried in the media for this. However, neither stripping him of his knighthood, nor even securing a substantial contribution from his personal fortune into the pension fund, something that I would not bet money on, addresses the real problem.

If the government want to look after the interests of ordinary workers they need to provide them with some real power in a world where it has been consistently taken away from them. The model of capitalism that says companies need to be run exclusively in the interests of shareholders needs to be challenged and the rights of other stakeholders given real legal force.

Having workers representatives on the Board of companies would be one step, changing tax laws that allow debt to be an allowable deduction against profit would be another. Real action against tax havens and a comprehensive overhaul of international tax arrangements for multi-nationals to ensure tax is paid where profit is earned. Payments of dividends out of reserves should be subject to specific rules which take account of the claims of other stakeholders, such as pensioners before they are allowed.

Sir Phillip Green may be the unacceptable face of capitalism but it is not the face we need to change. We need a system where the rights and duties of a much wider range of stakeholders are taken into account and given real power. At the moment more and more wealth and power is accruing to a smaller and smaller group of people. There moral culpability is a matter of concern. More important however is the need to create a structure which tips the scales back towards the interests of ordinary workers through genuine shifts of power.

Crucifying Sir Phillips’ reputation in the press may make people feel better but it does not address the systemic issues of a model of capitalism which is becoming pathological. Mrs May is going to have to translate rhetoric into radical legislation if her credibility is to be sustained.

 

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Brexit – What a Mess!

Political elites around the world have been infected by an inability to provide genuine and convincing leadership. This partly because of examples of personal ambition or plain greed getting in the way of rational governance but it is much more to do with a far more insidious and profound undermining of concern for the big issues of politics.

It is thirty years since the “big bang” in the City of London, this, emblematic of a global process of financialisation and deregulation. Everything, being given a monetary value, traded and then gambled through more and more “sophisticated” derivatives.

The idea that there is something called society or that the economy is anything other than a series of rational, utility maximisers with perfect knowledge seek personal advantage has been undermined if not destroyed.

Politicans when they looked to set up the European Community had a rather greater vision. They had just come through two “Great” wars which had devastated a continent and killed millions of men, women and children. They knew that there were things that were more important than the price of bonds and derivatives. No one worries about the LIBOR rate in the cemetery.

I am not suggesting the past was a land where politicians were noble, selfless guardians of the greater good of humanity. Men’s motives have roots deep and complex. Neither am I suggesting that a well functioning economy is not vital for a good society. However I am arguing that there are some profound political issues which have been increasingly marginalised. Issues about who gets what and why have been parked on the basis that all boats rise as the productivity tide come in and what is there to worry about if living standards are increasing.

This model probably always had a limited life but when the tide is no longer rising, all the little boats in the harbour are stuck in the mud and the only ones gaining are those in the ocean going yachts the prospects for the future are grim.

We now have a set of politicians on the remain side of the argument who are reaping the discontent they have sown over the past thirty years. The everyday disparagement of the European Union, the failure to challenge a world-view which sees all current evils through the prism of immigration, an unwillingness to accept that being filthy rich is not a sign of being one of the elect and that inequality is eroding national solidarity.

Worst of all a failure to make a case for the European Union that is more than, it is the least worse future. Europe clearly has its problems, the democratic deficit being a key one. But the same politicians who rail on and on about faceless unelected bureaucrats would go apoplectic if you said ok we want to elect them. Europe needs radical reform, Britain should be at the heart of that process holding up a vision of a better future which is more than simply a more efficient economy. For many people “the economy” is a mythical beast. Which, bites them when there is a recession and does very little for them when there is a boom.

Whilst the remain side are reaping the seeds of discontent, the out campaign are busy sowing a more virulent strain of the crop. If they win I fear we are all in for a bad harvest.

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Up Europe!

“Woe, woe and thrice woe!” says “Senna the Soothsayer” Cameron. The economy will collapse, world war three will start and we will be cast into the outer wilderness on the fringe of Europe. On the other side of the debate Senator “Ludicrus Sextus” Johnson has a profound but unaccountable fixation with bananas and seems to feel they are proof positive that we should leave Europe.

 

Nauseus“Nausius” Osborne on the other hand has written an ode on the perils of  leaving Europe clarifying that it will cost every household four thousand three hundred sesterces in lost GDP. Of course this is the Nausius who found twenty-eight billion sesterces on the way home from the Forum but had lost it again before he got home!

Lots of very clever people have been supporting Nausius and Senna in the Treasury, the World Bank, the IMF, and the Bank of England. Sadly their track record on prediction does not inspire confidence. Not one of them spotted lending money to individuals with no incomes, jobs or assets, by banks that were ludicrously in debt might end in tears.

Just as the cry goes up “we need a vision”  who should step forward but “Preator” Gove setting out how sovereignty could be recovered and trade with the rest of the world established. Unfortunately it seemed to be set within a vision of a return to Imperial Preference and ultimately the Gold Standard. You could almost hear the strains of Land of Hope and Glory as he spoke.

“Lurcio” Corbyn has sensibly been keeping his head down. Whether it’s about not intruding on private grief or not wanting to stir up his own portion of that grief he seems to be avoiding the bofrankie-howerd-07ut of rhetoric inflation that has taken over the Tory Party.

If this is a decision which will shape the future of our country for the foreseeable future the quality of the debate about it has been derisory. It is of course a difficult issue. The leave campaign have the problem of trying to conjure up what a different world might look like when many of the actors that will have a role in that different world flatly contradict what they say. On the remain side the case is difficult because it starts from the premise that Europe is in principle a bad thing but then goes on to insist we would be insane to leave it in practice!

One worries that when it comes to the vote the “don’t give a damn’s” will have it.

There is a radical case for the UK remaining within Europe. It is a case which also requires a commitment to reform both of the UK’s semi-detached position and the accountability of the existing Community structures. It has been made interestingly by Yanis Varoufakis, the sometime Finance Minister for Greece, and by Martin Sandbu of the Financial Times. Whatever you may think of their politics, and I have no idea what Mr Sandbu’s are, at least they raise fundamental economic, social and political questions about the future of Europe and the UK’s role in it. These are the questions the electorate should be considering, not spurious predictions about the future that are impossible to verify ex ante. More of this anon.