Banking, Economics & the Media 2.....Privatisation.

   The media has had a dominant effect on the way we understand economics as the media generally takes the point of view of the bankers, the politicians. These types of people are good at manipulating the media for their own purposes. This then can give them the power to generate a false perspective of economics. But it is one for a number of reasons they continue to generate. As part of this manipulation the media also gives a positive spin to privatisation.
   Privatisation is where governments use investors money to buy services which had already been paid for by tax payers. A similar situation would be like handing over a house you had bought to a landlord so he could charge you rent at whatever rate he decides for the rest of your life. There is no benefit to the public in this. Any MP trying to convince us we will be better off as a result of privatisation is just passing us off with the standard government spin. Businesses that are privatised are predominantly paid for with borrowed money (Shares are basically borrowed money with the dividend as interest). All of us will be paying the interest on these borrowings for the rest of time.- even though we paid for the services outright in most cases while they were in control of the government. The door on privatisation needs closing and locked for good. All the U.K. governments of the last decade have joined hands in misleading its public on this. If they would only tell us during their election campaign I am sure they would never get the most important job in the nation. Having said that,  the media seems to spend a lot of time trying to convince the public that we will be better off for privatisation. The media seems to spend too much time repeating the waffle of politicians, bankers, and people who are in businesses who will benefit from deals which are involved in privatisation, but spend little time analysing the actual effects of such deals on the public.
   Privatisation does however help explain the governments loyalty to the stock markets, and no doubt makes the government a load of cash along the way. This would explain why U.K. and other National TV companies pummel their viewers on what is going on in the stock markets. Stock markets provide an almost endless stream of cash to pay for national owned services that the governments of the world want to cash in on. They therefore need to encourage that money which originates from deposit accounts, ISAs and other types of investment to keep providing fuel for the stock brokers to keep pumping up the prices of all businesses including the privatised ones. Banks and Stock brokers will do OK too.
   As mentioned above, selling off a home which you have paid for outright, to a landlord, so he can charge you what he wants for the rest of time, including long after you have retired would only make economic sense to some one who had been educated at the wrong school or to a fool. Privatisation is exactly this, but only in this case it involves a national company we have all paid for, instead of your home.
   The reason why governments have got away with this up to now is because the media has not carried out its duty in informing the public of what privatisation is really about. Also, in education, A levels in economics don't recognize problems created by privatisation, or in fact the stock markets or anything else which is being dealt with by 'Anti-Crisis Economics' such as Private Equity. The media and the world re-knowned education in the U.K. is letting us all down as far as economics is concerned and is beginning to appear as if it is intended to mislead us. Ofcourse it may be that all the TV reporters, newspaper columnists, politicians and bankers have all received out dated information through their economics degrees, which may be has not been up dated for twenty five years. If so, then the best thing David Camerron can do is get his economics up to date as this is not Hogwarts, its planet earth 2011.    

Boom & Bust 1...Bankers say we can't do without it. The truth is we could. Bankers won't make as much money without it!

   We are told by economists and bankers that boom & bust is about as controllable as the weather. But maybe the bankers at least  have a reason  for wanting us to believe this.
   A free market economy is all about a seller being able to sell a product at the highest price they can get a buyer to pay. This wouldn't be such a problem if we all paid out only our own money. But the way things are today, some of us can borrow some money, some can't borrow any, and some involved in what we shall call capitalist business can borrow a phenomenal amount from the banks. When I say phenomenal amount I mean billions of dollars, euros or pounds.
   This is where it may be difficult  to see why boom and bust is some kind of uncontrollable phenomenon. The reason being that the billions being lent by the banks (when they are lending) are simply funding the boom itself. Property businesses (via shares and private equity) are being paid for with borrowed money.

Why are these people borrowing money to buy these properties and businesses?
Because they can not afford to pay for them otherwise!

   One of the biggest factors as most people will be aware shortly after the crisis surfaced in 2008, of the price a high value item can be sold for today is the amount of money a bank will lend to buy it today.
   In the case of a house purchase, a bank may agree to lend the money to buy a house partly because in a years time it expects the house to have risen in value. But a major part of the reason why it might be valued at a higher price in the future will have to be that the banks will lend more money to buy it. As long as bankers keep increasing the amount of money to buy properties and businesses they can create the criteria for a 'boom'.
    But this makes a nonsense out of the 'science of economics'. If the banks suddenly all started lending money, and then property prices began to rise and businesses began to increase in value (as a result of increased activity in the private equity buy out business) would that mean we are out of the recession and straight into a boom?... It seems just a little bit too easy doesn't it?
   The banks would be happy as they would be making lots of profit from the increase in business. Investment representatives would probably be telling us through the media that job prospects are good and there would be jobs created.
   An illusion that the recession is over could therefore be created quite easily, but would this really end the recession?
No. The reason is that the only sector which will have really improved is the financial sector. The apparent boom hasn't materialised because we have more money as we are out of recession, but is merely because the banks have started lending more money.
   In this situation, the construction industry will receive a boost. But part of this, in fact the majority will be down to speculators or property tycoons. At the moment (2011), landlord s are buying more properties than all genuine home buyers combined in the U.K. Due to 'safety nets' associated with  landlords as opposed to the rest of us this is likely to continue.
   So basically when the banks do start lending again, it is unlikely to be because of the end of a recession. It will be an illusion that will be created, which would be fine if we all benefited, but only a few will benefit. The property tycoons who they will happily lend money to, to buy more properties and the banks themselves who will make profits from lending. The losers will be the tenants (who have been increasing in no. without much media notification since 2003) who will have to pay inflated home costs, and also tax payers who will be paying the rent of the unemployed and retired. Costs to businesses will rise due to our increased housing costs and taxes due to welfare costs. Those who can afford to buy their own homes will pay more and maybe work longer hours and make other sacrifices to pay for them along with paying the increased taxes.

   The question has to be asked. How much of the last boom was an illusion created by the banks, and how much of this so called boom was representing an improvement in all our lives. Many would look to statistics such as GDP to back up the fact that a boom has occurred, but each time stocks and shares change hands, each time money is lent to business and property tycoons for billions of dollars for their investments (which many will have a negligible actual product if any at all- See other articles in Anti-Crisis), and all kinds of other financial movements were taking place during the last "boom" which would have increased the GDP in the U.K., the U.S. and any where else big in the finance industry. You have to understand that the movement  of money does not necessary mean there will be a product of that transaction. And hence this is one of the major problems of economics today and the reason for 'Anti-Crisis Economics'.

Banking, Economics & the Media 3.....The Stock Markets.

   Anyone who either reads the business pages of news papers or watches televised business services such as that broadcast by the U.K.s BBC, at various times throughout any week day are bombarded with details of the stock markets, and little else where businesses are concerned.. Many people will read the news papers or watch the programs in the belief that the information gathered from them will give them an insight into how the economy is doing. After all, much of our economy is dependant on how businesses are performing . Unfortunately any one who believes this is being totally misled. Whether the presenters and columnists are trying to mislead the public, or they have just been misled themselves into believing the 'information' they broadcast to us is probably dependant on the individual broadcaster or columnist. However to the dismay no doubt of many investors, share prices in the stock markets can go up and down for a number of reasons which have absolutely nothing to do with the performance of the business they relate to. Also, often a business journalist will pass off a rise in share prices as an improvement in the economy. This is absolute nonsense.Values of businesses are determined by stock brokers. Stock brokers will use any reason which will trigger off other stock brokers  to buy shares in a company. Also, the money they use to buy the shares is not their own, as it belongs to the investors into pension funds and ISAs and other types of investment account. Those investors are not representative of the economy. This is because the less wealthy do not have a pension plan or a mortgage, therefore no endowment, hence no investment for stock brokers to invest. The money stock brokers use is unlikely to come from the less wealthy in the economy. Share prices could therefore rise as a result of those with pension plans increasing their investments. Okay, so then maybe when there is an increased amount of money in the stock markets as a result of increased investment in pensions (This could happen during a property market slump, when sales of property is re-invested ). It may reflect an improvement in the amount of savings the wealthy half of the economy are able to invest. That's great, but the thing is this is not business news, because no business had anything to do with it. But some ones shares will go up in price regardless because there is a pile of money which needs to be invested, and there is not much point in putting it into property at the moment (2011). If you are unemployed and the media tells you that employment prospects are growing because share prices are rising, don't pin your hopes on any major improvements in finding a job.

So why would the BBC and other similar international broadcasters and news papers give you this, what seems to be misleading information?
There is only one simple answer to this. Our financial system and the stock markets (that is the world banking system and stock markets), though flawed, are treated like a religion by many bankers, politicians and the media, which all thrive off this industry. It is also vulnerable. To merely question it adds to its vulnerability...
The current financial system has stumbled along fairly unchanged for many years, because the bankers, politicians, and the media have convinced the public that it worked and created good for all. Unfortunately, events that first surfaced as far as the general public are concerned in 2008 and have had continuing devastating affects on the world economy ever since are showing no signs of improving. Stock markets are very prominent whenever there is bad news about the economy. Maybe it is time for individual investors to decide the destiny of their investment instead of simply handing it over to bankers and stock brokers to invest in quick gain, short term investments. Ofcourse if this happened, that is if the public were to find a way which could help them to invest  money in a safe place and where it could help people to build new homes thus creating jobs without going through the stock markets, this would create new market conditions for the stock markets to operate within. There would be less money for all the stocks shares and there would be the inevitable down turn in the sacred stock markets. But then, isn't the free market economy that is always promoted by many media provided so called 'economists', 'business experts', 'investment advisers' and bankers all about making your own choice? The Stock Markets are potentially vulnerable to what is apparently their biggest selling point. A free market. Which would explain why there is an army of spokes persons in all areas of the media to defend them.

Were Sub-prime mortgages to blame for the banking crisis or have the banks singled out one 'player' to protect the management from further scrutinization?

   The reason which has been credited with being the cause which began the banking crisis was what is known as Sub-prime mortgages which originated in the United States. These are the lending of mortgagaes to less than wealthy home buyers. Lending money to home buyers is one of the purposes that people would associate with banking, and a purpose that would be an acceptable use of invested money. It may also be a socially acceptable excuse if this really was the main cause of the banking crisis.
   Using this as an excuse seems rather convenient as many other 'types of business' banks are lending money to would seem less socially acceptable. Also at the time when the banking crisis surfaced, the main priority, and understandably so would be to prevent people withdrawing their investments and creating termoil in the stock markets. For this a sacrifice would be worthwhile, and if you could put part of the blame on home buyers who they took pity on, not being wealthy enough, then all the better.
   The fact is that in the United States much of this money was actually paying for new homes. Employment was being created while they were being built. This would have spread wealth. In fact building homes is the last thing that would cause a banking crisis or recession. In comparison to the U.K.,the U.S. was building more homes in relation to the number of mortgages. What was happening in the housing market in the U.S. was far more sustainable than what was happening in the U.K. In the U.K. a larger proportion of morgages were for older homes. Lending to buy ready built homes is less economically sustainable than lending for new homes as there is no employment generated on the purchase of an existing home. In short, mortgages alone would be more likely to have caused economic problems in the U.K. than the U.S. Many of the U.S. home buyers did not have high incomes and so may have been paying a higher interest rate to cover the increased risk. It would seem though unfair that these people should be paying higher interest rates for increased risk when the banks were actually increasing the risks of default themselves through other areas of 'business' they had been (and still are) involved in, which have had major implications on the economy. These are Private Equity, Stock Markets, Hedge Funds & 'Property tycoons'. Most of the home owners who lost their homes in the U.S. could be still paying their mortgages today if it wasn't for these economy under mining investments by the banks. These investments caused inflation, job losses and business closures. The U.S. government reacted by increasing interest rates. This then lead to the inevitable house reposessions and collapse of the housing market. We therefore believe the sub prime domino was one that was pushed by a number of others which the banks will have less willingness to explain.
 (See other Anti-Crisis articles on Private Equity, Stock Markets, Hedge funds & Property Portfolios).