Columns

Stop begging the banks, Minister Shaw; compel them!

Dorlan H
Francis

Thursday, September 07, 2017

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I observed with utter dismay the governor of the Bank of Jamaica, Brian Wynter, and recently Finance Minister Audley Shaw's lamentation that interest rates are too high and their pathetic begging of the banks to do something about it. Free markets now mean kowtowing to industry players who want to do as their greedy hearts desire. One man's freedom stops where the next man's enslavement begins. Minister Shaw even went further to offering what some may consider a extra inducement to the banks: If they cut interest rates he was prepared to review the taxes on assets.

Minister Shaw, you are to do no such thing, and you are to stop the grovelling and the begging and start compelling. The banks must be made to understand that they cannot have it all. And their freedom to do as they please is subordinate to the freedom of 2.7 million people to live in dignity.

The banks produce nothing that sustains life. They do not produce rice or flour, butter or milk. They do not produce medicines that cure or amusements that entertain. They do nothing that sustains life — which is the essence of economics — but they want the most out of the economy. Their purpose is supposed to be financial intermediaries who take the savings of people and channel them into productive life-sustaining ventures. But they have collectively concluded that doing these things do not satiate greed fast enough. And they have all but abandoned the function for which they were established.

Banks, like the rest of mankind, have got caught up in the harebrained belief that we are here to make money and accumulate wealth, and any means that leads to that end is smart and should be pursued — even if these means and methods suppress life-sustaining activities and cause life to be wretched and miserable.

Ever since the invention of money there have been no ends to the folly and idiocy that have been pursued to acquire and keep money. It was the idiotic belief that wealth was the amount of gold and silver that a country holds which caused countries to hunt gold and keep it. It was this thinking that gave rise to mercantilism. Stronger countries, like Spain at the time, went and capture other countries and extracted all the gold and silver they could find. Spain went to Peru and dug down the money mountain as Potosi smelt it into silver and shipped it back to Spain. How rich did Spain become? It was the same thinking which led countries to believe that it was wise not to spend the gold and silver they possessed.

It was not until 1776 when Adam Smith wrote the Wealth of Nations that people began to understand that wealth was not the amount of gold and silver one had, but the amount of life-sustaining goods and services that a country produces. It was against that background that Smith posited that people should, instead of hoarding gold and silver, spend freely. And the concept of the free markets emerged. Greedy men have bastardised this concept to mean that men should be free to do whatever they want. Greed is so all-pervading it makes fools of us all. Men who accept that it is folly to hoard gold and silver now believe that it is smart to hoard dollars and cents. This is the thinking that is currently guiding the banks, and they must be shaken from their folly ground.

Money is to be used as capital to finance the production of goods and services needed to sustain life, and as a medium of exchange to allow goods and services to move from producers/suppliers to consumers. The more abundant the capital, and the cheaper it is, the more an economy will prosper. With cheap money, more people — even those who are less able — can venture. It is the multiplicity of venturing that will cause substantial economic growth. Finding clever ways to make money without the making of things is an exercise in futility.

Banks have found clever ways to make money not making or financing the making of anything. And they have no limits on how much they want to make. Ignorant people think this is smart. It is idiocy. One of the leading banks in Jamaica made net profit of $14 billion on revenues of $65 billion in 2016. This against a background where GraceKennedy, one of the best-run companies in Jamaica and a company which provides life-sustaining goods and services, makes net profits of $4 billion on revenues of $88 billion in 2016. If GraceKennedy can survive off $4 billion, why can't the banks? What are the banks doing to deserve such a massive windfall?

It is time we stop encouraging the folly that the making of money by any means is smart. It is this thinking that is causing economic uncertainty all over the world. It is causing unimaginable human suffering. It is the reason that is causing political upheaval all over the world from Brexit to the election of Donald Trump in the US, and Emmanuel Macron in France. People are suffering, they don't know why, and they are searching for solutions.

Minister Shaw, it is time to act before people look for other means to solve their suffering. The banks must be made to know that they cannot have it all and they must leave some on the table for others. There is no need for you to be offering more incentive to get the banks to do what they were established to do. You are not to bow to their greed.

It is time to start compelling the banks. Start by imposing fiscal measures, not cutting them. Divide banks income into two categories — active and passive. Active income should be defined as income from activities for which the banks were licensed to do. Taxes on this income stream can remain as is. Passive income should include “bank fees” and the “investments of banks in the shares of other companies”. The taxes on this income stream should be increased by at least 10 per cent and progressively increased as income from this stream increases beyond certain thresholds.

Minister Shaw stop playing the money games greedy men have designed. If interest rates are not lowered to single digits the country can kiss “5-in-4” goodbye. Growth does not come by wishing and hoping, but from the availability of abundant and cheap capital. Do not cause people to lose hope.

Dorlan H Francis is a personal financial adviser and author. Send comments to the Observer or dhfken@hotmail.com.

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