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"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

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.


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"

We now understand why all these people could not come to this conference.

ID: 42062
Author(s): UR
Publication date: 16/11/08

BBC News World Summit

Created: 16/11/08. Last changed: 16/11/08.
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