Udo Reifner,
Hamburg
"Change"
– Financial Services and the Credit Crisis
Introduction
to the 8th International Responsible Credit Conference
London 2008: “Global banking in crisis! Now is the time for
Responsible Credit” 13/14 November 2008 – New Connaught
Rooms, London
Two days before
the leaders of the worlds' most powerful economic and political
actors known as the G20 including the notorious G7 together with
China, India, Russia and Brazil will or will not decide on what banks
should do, are allowed to do or should be prohibited to do
stakeholders from all countries, classes, social organisations have
gathered in London to discuss how money can be used to better serve
the people instead of promoting greed, enrichment or destruction.
We all look to
Washington D.C. presently, less because we expect solutions from the
big B's like Bush, Blair, Brown, Barroso or Berlusconi who have led
u8s into this crisis through deregulation, destruction of public
responsibility and liberal market philosophies but because there is a
new slogan that electrified people in Chicago as in Berlin.
Change
Yes we would like
to have change in financial services. But further more we do not only
ask for it but we can offer alternatives which should be taken into
account. This change as any change in the world will start with us.
We have to change our attitudes and ideologies, our views of money
and the money society before we are able to provide money driven
solutions for the real world. There are a number of concrete
alternatives to be discussed here which the summit in Washington will
ignore.
Change is
necessary because in fact even with this crisis nothing has changed
yet. While the British government has provided billions of pounds
starting with Northern Rock, the present conference will be the first
in Europe will even see the state further withdraw from taking
responsibility. It will be the first of our seven conferences where
neither the hosting country nor the EU Commission has provided any
support for those who try to represent the interests and views of
those outside the banking system who have already and will further
suffer most from this crisis. While there has been sufficient money
at EU level to host a number of bankers-only conferences in the last
five years to promote the deregulation through the Financial Services
Action Plan and its successors the EU as well as national governments
still do not find 40.000 € out of their 5 trillion subsidies and
guarantees which they have provided for the private banking system..
We have provided
seven principles of responsible credit. The European Parliament and
the Commission has have instead opted for a new Consumer Credit
Directive where not even one of these principles or of its 22
sub-principles could be said to be considered. But still George W.
Bush, a few days before he leaves office, has announced a code of
conduct, the British Prime Minister proposes principles of
responsible lending and politicians do not stop to tell the public
that they are considering principles of good conduct which should
even be made obligatory for the banks and their profit maximizing
mechanisms. If this were true these entities had at least recognised
what we have been propagating and elaborating throughout the world on
access to high quality credit, for transparency and a one
price APR, for adaptation of failing credit relations, for the
protection of debtors and debt relief, for usury in all its modern
forms and independent advice. It is interesting to note that on this
conference the ministries of justice of the members of the Council of
Europe have from a human rights perspective joined us in many of our
efforts to promote responsible credit while the ministries of
finance, economic affairs united in the respective European Council
still ignore this totally focussing on “responsible borrowing”,
“free markets” while they subsidise the banking sector in
a way which could be called a purely socialist model if not the banks
would have overtaken the state.
We need change.
But what should be changed in the present dealing with the world
financial crisis?
Change from "Finance" to "Credit".
We ask the G20:
Hold a world credit summit instead of a finance summit. The present
crisis is a crisis of productive credit. It announces the end of even
the wish to use credit and debt as a productive tool to develop the
real world. The G20 should explain the credit crisis as a visible
effect of usurious and irresponsible credit practices where credit is
robbery and coping with credit risks has turned into gambling.. After
the third world debt crisis, after massive bankruptcies of small
businesses, after millions of overindebted households from credit
card, overdraft and especially small instalment credit now homeowners
in mortgage loans have been brought to the limits of exploitation.
Yes the poor pay more but what is new more than they can provide.
The crisis has
made it obvious: not every profit from idle capital can be squeezed
out of the real and productive part of society: from families,
enterprises and public entities. There are limits for us all. This
crisis should make it apparent for all that the misery of the poorest
is also the misery of us all. It has now reached the profit
expectations of the wealthiest, the debtors' poverty has become the
risk of the investor's greed. If we would not cover this insight
through state subsidies and guarantees where again the poorest will
pay most of it this time disguised not be free market ideologies but
by just the opposite: an ideology that we are all in one boat and
have to help the sinking ship of free enterprise with that taxes
which should under normal conditions be designed for those functions
in society which markets and free enterprise are not able to provide.
We have to come back to the roots of money and credit. .
All money
transfers, every financial services is a credit: either a credit to a
bank or from a bank, to an enterprise or from an enterprise in credit
and savings, from all to one or one to all in insurance and futures.
Each cent or penny earned in capital assets has to be paid by debtors
who took out credit in its different forms of loans, deferred
payments or commercial papers and repay it together with interest and
fees out of their labour income, out of taxes, out of productive
investments from the increase in real wealth. The five billion Euros
given as incentives to investment bankers to develop hazardous
financial waste have been paid out of the budgets of debtors
somewhere in the world. People should learn about the truth: Whatever
is paid out in return for just having money has to be worked hard for
by somebody else. The biggest lie of neo-liberalism was that "money
works for you". The three to five trillion Euros state
guarantees will uphold the possibility to use this lie for another
decade. The subsides do not distinguish between the interest one
earns from saving in order to facilitate the investment of others
from those interest earned by either robbing from the savings of
others or from the additional interests and fees with which credit
has been increasingly burdened.
Change from the "administration of risks"
to "risk prevention".
The world summit will continue to help in the first place to deal
with the enormously increased artificially created financial risks
through more supervision, regulation of risk products like derivates,
MBS and ABS, certificates, options and futures and through better
state guarantees. But 80% of these risks have been artificially
created just because its trading became so lucrative. While our
ancestors developed instruments which helped to distribute risks more
evenly in order to raise concern about risks and make risk prevention
lucrative in order to minimise risks the money economy has instead
made the creation of risks a primary goal of the wealthiest and most
powerful entities which now rob the world with their hedge funds,
structured papers and collateralized debt obligations.
While all returns on investment come from credit also all risks
mirror only the risks incurred from lending where borrowers either as
enterprises with their productive labour or consumers and the state
have to render such credit productive under conditions which are not
totally foreseeable. We have been told that Non Performing Loans in
Subprime Credit have been the basis of the present crisis. We have to
translate this into real terms.
A (1) non performing (2) subprime (3) loan is a (2)
poor (3) borrower in a (1) personal crisis of his family,
business or nation. Those who extend credit have created ever
more products which are not adapted to the needs of consumers,
homeowners, small businesses and states. Advancing future income by
i.e. accelerating the whole debt at a time when the borrower faces
financial troubles is one of the most devestating, one-sided and
ignorant ideas of the credit system. Because debt is seen only as an
investment and an asset of the creditor and investor and not as a
necessary implication of productive credit, the adaptation of credit
to changing circumstances is no true concern in a world where the
crash value of credit engagements has become a commodity.
Ccredit has thus become ever more destructive. Consumer problems have
been misused to increase interest rates, to burden them with fees, to
use churning and flipping models to guarantee that lesser and lesser
parts of the advanced capital can be used to promote real things
while more and more leaks into the obscure channels of provisions,
fees and refused returns disguised in the principal of the follow up
credit who finances all irrespective if the money served the real
economy or only the greed of those who act as intermediaries between
labour and labour, labour and consumption or consumption and
consumption..
When house prices quadrupled in London, did ordinary people get more
homes, better homes or were they just thrown out of the City of
London? The increase in house prices in the US did not create wealth
but 1.2 million foreclosures in one year and many to come. The UK is
expected to have a drop in house prices by 30%. Spain is on its way
and in Germany junk real estate has been sold as promising investment
exactly by that bank HypoRealEstate which is now rescued by us all
while its victims remain in the dark. The profits of the increase in
house prices were transferred from homeowners to the capital owners
through collateralised debt instruments (CDI), mortgage backed
securities. While 80% of American homeowners are left with negative
equity which means overindebted the investors who caused this crisis,
which churned the mortgage market and took away the book money of
seemingly increased values from the home owners through fees, risk
transfer and increased monthly instalments or by refinancing usurious
credit card debts throug equity release and second mortages get
compensation and state guarantees.
While the payday loan industry made millions of people bankrupt by
together with the British government and based on paid empirical
researcher telling us that 30% or even 200% p.A. APR was appropriate
they could now announce a further increase in business since the near
bankruptcy of the lower middle class has opened them a totally and
new promising market. Usury has become an increasing necessity to
provide credit for all. The abolition of the remaining rate ceilings
in the EU are still part of the post FSAP banking reform programme of
the EU. The new Credit Directive openly acknowledges the right of
banks to take out all usurious cost hidden in insurance provisions,
refinancing arrangements, linked services, deterred repayments and
endowments from the APR which for the public as well as the
anti-usury legislation in countries like Germany, the Netherlands,
France, Belgium, Italy and Poland but also Japan or Central Amerca
still serves as the core indicator of the total cost of credit.
Change from "creditworthy people" to
"peopleworthy credit".
Banks
believe that some human beings are not worthy of their credit. Basle
II, the illegitimate creator
of world law to whom obedient legislators at supra- as well as at
national level thank their blueprints for bank law together with its
executive: World Bank and IMF have taught us that not labour and
consumption but money makes the world go round. Claiming to make
banks safer its concept of risk based pricing and securisation
channeled through its balance sheet requirements has helped to
separate risks from credit. They have induced the banks to allocate
risk outside their balance sheet, to commercialise them in special
papers and opened them to gambling. The unity of credit and risk,
burdening the lender with the financial consequences of the risks
incurred through irresponsible banking practices has been reversed.
The increased demand for risks and the enormous profits this new
market promises have made risk creation the most sane and lucrative
business of the world: usury in credit and gambling profits from its
sale.
The Basle II approach has provided the legitimacy to price products
higher where people face more risks – the historical definition
of exploitation and usury still visible in the civil codes. In a sort
of self-fulfilling prophecy the burden of usurious interest, risks
and fees has made insolvency inevitable for ever more classes of
society. In a system where temporary liquidity problems are
automatically turned into permanent insolvency through the
acceleration of payments this has led to a growing NPL market and an
uncontrolled rise in personal bankruptcy and negative equity..
While social risks like unemployment or deteriorating communities
used to be carried collectively in former societies money markets
have managed to burden those alone with the total risks in society
who already suffer most from it. Risk based pricing is the modern
from of class struggle from above.
Banks have been developed to facilitate a collective use of combined
worldwide labour. Today banks have turned into institutions that make
the poor poorer and the rich richer. The state is caught in a trap.
Money supply is like water irrigation. Inundations are as we know
from the Ganges and the Nil terrible but much better than draughts.
Therefore the State has first to save the banks in order to be able
to tame their floods and streams of money. A misguided public and
politics where the wrongdoers as seemingly experts for money and
people are mandated with the rescue from their own deeds will risk
that when they have accomplished the first phase of their work:
restore money supply in general irrespective of its form the second
phase will be forgotten until the next more important crisis will
occur. Those who robbed our wealth and invested it into high spread
financial products should not be left alone in this process. Banks
know much about money and little about people, they know how to
increase such productivity which can be expressed in money profits
but they are ignorant for those areas where productivity is more or
different from profit. Peopleworthy credit requires banks that are
listening, economists which recognise that besides efficiency human
nature is made up of love and social values which are hidden in the
law, in human rights and moral principles and whose effects on
society as well as it development out of social processes is studied
by critical sociology which has had a sudden death in the
neo-classical decades.
People worhty credit is a credit that enhances individual and social
life, peace, general welfare, justice and sustainable labour and
consumption. It is adapted to the income and consumption cycles of
the borrower, to the investment goals and minimises its odd effects
on budgets, thinking and family life. .
We are here in London to discuss how better credit can be developed,
how securities can secure homes instead of capital investments and
how banks can provide their services in order to facilitate
productive labour and consumption for all of us.
Eight Responsible
Credit Conferences
ECRC conferences have always
contributed to the present issue. In 1989 in Hamburg we focussed on
unemployment and consumer debt. "Banking for People" was
the publication of this first step into linking credit to productive
work where more than 72 authors developed their vision of financial
services which has still to be put in practice.. With our Birmingham
declaration 1992 we focussed an consumer bankruptcy and its impact on
families and poverty. Our Italian conference in 1993 was dedicated
to the then seemingly utopic issue of "bank safety" in
general. The big achievement of this conference was the thesis that
unsafe bank behaviour with regard to their borrowers will result in
unsafe banks. The Bergamo report is still on the Internet and
provides the lectures the different form of bank safety require. It
was based on the Scandinavian, Japanese and Canadian bank and
mortgage crisis. It analysed money laundering and the Swiss model
together with the effects irresponsible banking would have on bank
safety. Our next conference in 1996 in Strasbourg was dedicated to
regional responsibility of banks. We studied the links between banks
and the community, models like the Community Reinvestement Act in the
USA, the Coop banking model as well as banks owned by the cities or
small banks. We had Gale Cincotta, the mother of community
reinvestement legislation in the US, held one of their last speeches
where she encouraged us to strengthen this links which in the present
crisis show how vital the blood exchange between a bank and the
communities it services is for its own safety and security where
countries like Iceland where banks have lost any contact to its
country of origin show what risks such behaviours include for the
country they claim to be part of. The conclusions of this conferences
cited Martin Luther King's speech of hope and change and compared the
money systems of the world to the form water supply.
We too were tempted by a neo-liberal
dream in our Gothenburg conference 2000 on Access to Credit. But we
not only studied the ideology and opportunities of social banking
where profit driven systems like microlending or ethical investment
are used to promote socal goals. We also investigated its empirical
effects and most of us came to the conclusion that we had asked the
wrong question. It is not access to credit as such which is good or
bad but access to responsible credit only which promises a better
future while access to bad credit worsens especially the fate of the
lower classes but as we see now also that of the whole society.
Studying the situation in the hosting
Scandinavian countries we found that those countries with the most
sustainable credit supply systems had the least problems in access
and the lowest exclusion rates while the UK and the US as well as
liberalised emerging markets were the leading discriminators with
regard to the poor. Exclusion was not exclusion from credit. These
countries have an abundant credit supply but it is bad and wrong
credit which threatens families as well as businesses. They have no
tradition in rendering credit productive through consistent usury
legislation comprising all forms of exploitation where weak consumers
need money from a greedy market of money investors.
We then decided that we needed
something different form a purely quantitative access to credit and a
different understanding of the "new social questions in
banking". Financial literacy, Microlending, Consumer Information
and Access to Credit were seen as concepts which are vulnerable to
neo-liberal ideologies who can thus blame the borrower for the
present credit crisis (financial literacy), excuse banks for their
ignorance and free them from their own obligations to serve the
community by promoting alternatives and social actors which are
financed by the public.while profit is kept private. Since these
concepts deviate public attention from the banks and their system and
focus on the borrower and their capacity alone on one hand while on
the other hand thy contain grains of truth we since then have
incorporated them into our following conferences and developed their
productive functions in the taming of market forces: Microlending as
a research as well as an education in peopleworthiness of credit,
financial education as a form where consumers learn to ask questions,
teach the banks what they need and want and evaluate the results of
their efforts in banking and information and advice as a counterpart
to advertising and disguise of usurious practices.
ECRC conferences which with the
participation of countries from all continents have developed into
true CRC conferences are since focussed on the quality of credit, on
responsible lending and sustainable investment.
These conferences on the international
level based on and prepared by national conferences create are not
designed to create alternatives to the banking sector. Alternative
money, no-money societies or non-bank systems are often no more than
new religions which deviate us from studying the successful examples
and development within the banking sector which alone promise a
development of alternatives within the system instead of to the
system.. The banking system is ours. It is not the private property
of bankers or other individuals but part of our national heritage. We
want to change it to the better, to make it more responsive to the
people and we want this from all banks not only from some ethical,
religious, altruistic alternative banks or non-banks. We need the
skills of the bankers, we need the experience in risk allocation and
assessment, we need their information channels and computer
programmes - we do not head for less than this to develop a
culturally and socially sustainable economy.
To achieve these goals a dialogue has
to be initiated, not a dialogue in state sponsored advisory councils
and expert groups where consumers and user are named as
representatives, flooded with unprepared and unsorted information in
order to vote on things they do not understand and are unable to
influence. Such expert democracy which neo-liberalism has built up
especially in Brussels and London has shifted the responsibility for
banking legislation from parliaments and the public to “experts”,
“specialists” which are in fact mostly lobbyists of the
economic sector which only need a few faces for which one could claim
independence and consumer orientation as long as they have not been
hired either by the European Commission itself or by the supplier
side.
For our mission we do not need
appointments by governments or the EU Commission to speak about what
should be necessary. Best ideas, best experience and critical
reflection without taboos have to be developed and expressed freely.
We do not need intermediaries between banks and people. We want to
speak directly to them. Bank associations have plaid a dubious role
in monopolising the dialogue in the past by offering people as
interlocutors which no little to nothing on banking practices but are
paid just to promote one single goal: defend whatever has been
detected as wrong, prevent state interference and propagate the
corresponding neo-liberal ideologies. We must speak directly with
banks which due to their need to sell better and more to their
customer are much more pragmatic and open to social approaches than
their popes.
Nobody of us awaits that banks invite
us to run their business. Nobody expects that bankers just sit there
to get blamed for policies which reflect the general situation of our
modern socities. We only expect that bankers listen and learn from us
as we learn from them without prejudice and precondition.
Many banks including bank authorities,
bank supervisors and bank ministries still think that we are their
enemies. Only a few among which Citibank and GE-Money who made this
conference financially viable need special recognition without asking
us to promote their commercial interests. They seem to understand,
that there is something in our activities which needs promotion even
there where it hurts financial interests. We are no competitors but
stakeholders. This is different.
I hope the present conference will
prove this again as our previous seven international and more than
twenty national conferences have shown.
Let me cite BBC News from October 22
in order to show how big our task will be:
"President George W Bush
will host the world's first global financial summit in the US on 15
November, a White House official has said. The meeting - the first
in a series - will discuss the financial crisis and ways to prevent
it recurring. Leaders from the G20 group of nations - the world's
leading industrialised countries and major developing nations - will
attend. The meeting, to be held in the Washington DC area, will
consider the reforms needed to avoid another financial crisis and
look at the progress being made so far. "The leaders will review
progress being made to address the current financial crisis,"
said White House spokeswoman Dana Perino. In order to avoid a
repetition of the crisis, she said they would "agree on a common
set of principles for reform of the regulatory and institutional
regimes for the world's financial sectors". The head of the
International Monetary Fund, the president of the World Bank, the
United Nations secretary general and the chairman of the Financial
Stability Forum have also been invited to participate" (BBC
News: "Bush to host world finance summit"
http://news.bbc.co.uk/2/hi/business/7684740.stm)
We now understand
why all these people could not come to this conference.
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