Need to stop greed in forex trade ranks
Agitation for radical transformation of banking system grows after scam by 17 banks
LIKE most things South African, there is a great deal of ritualism that accompanies the annual Budget exercise.
For Finance Minister Pravin Gordhan, a seasoned hand in presenting budgets, the predictable part of the choreography may lie in the mandatory recitation of a verse from the illuminati; for the writers of the economic survey it may entail repeating last year’s assurance that darkness is inevitably accompanied by light at the end of the tunnel; and for those who are dubbed corporate “honchos” it may lie in describing every budget as “responsible”, “innovative”, or even “path-breaking”.
But when Gordhan presents his books of national accounts today, he would do so against the backdrop of President Jacob Zuma’s State of the Nation address and under the cloud of the financial crisis that has exposed the scam of 17 leading banks, including three South African, at the root of the country’s misery.
These banks were widely regarded as the acceptable face of banking.
There were no hidden charges in Zuma’s call for the stiffest penalties against the wrongdoers.
“If proven to be true it would confirm the pervasiveness of unbridled greed within the ranks of the forex trading sections of banks even after evidence that such behaviour has the potential to collapse the national and global financial system and bring about immeasurable pain to ordinary people as evidenced by the deep recession of 2008/9, which was triggered by banks conducting their business recklessly,” Zuma said.
Zuma must feel particularly aggrieved because he was demonised for the collapse of the rand following his cabinet changes in 2015.
There was the House of Assembly at its worst: blame shifting; moralising; and, above all, opportunistic pointscoring to the foul-mouths across the floor.
It is also the latest turn in a series of outsourcing controversies that have shaken public confidence in the government’s transformation agenda because the government is one of the banks’ biggest clients.
Listening to the vox populi on radio about the Competition Commission’s report on its investigations into the manipulation of the currency by the banks was depressing.
It confirmed their worst fears about how the wealthy elite handle their assets.
The scale of the crisis is unprecedented, especially with three of the country’s leading banks – Absa, Standard Bank and Investec – thrown in the spotlight.
As a consequence of the scam, the banks’ clients viz. the government; corporate South Africa and private persons are now in a position to demand redress for their losses (if any) from the immoral practices. There’s scant reason to believe there weren’t any losses.
One of the best kept secrets is that banks make a fortune out of thin air.
A Canadian, Victoria Grant, was incensed a few years ago when she found out how banks made money.
She asked an audience at a Rotary Club if they ever wondered why their government was paying $60 billion a year in interest on the national debt and who was getting the money.
“What I have discovered”, she said, “is the banks and the government have colluded to financially enslave the people of Canada”.
It’s not just the political class who don’t get it; lots of people also do not realise the scale of the disaster that is our financial system.
And they are asking how much the banking fraternity knew about these shady deals and why the bank ombudsman hadn’t uncovered this scandalous stain on the country.
Most people believe banks lend money deposited with them and is lying idle.
In reality, when banks advance a loan, they simply create the money by debiting the borrower’s account electronically.
Martin Wolf, former chief economics editor of the Financial Times wrote: “The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.
“Banks create almost all money as debt. It’s a fact admitted by the Bank of England, the US Federal Reserve and the European Central Bank and no doubt by our own Reserve Bank.”
In the wake of the banking mess, there’s been a growing agitation for radical transformation of the banking system, especially the setting of a peoples’ bank or state bank.
If all this seems too radical and unprecedented to venture into, consider that one American state has had its own bank for 98 years; and it has not only escaped the credit crunch but is understood to be doing remarkably well.
It’s not widely understood how important this call is.
At the height of the 2009 financial crash, only three of America’s 50 states were solvent – meaning they had the revenues to meet their budgets.
One of them was North Dakota.
It was an unlikely candidate for the distinction.
It is a sparsely populated state of less than 700 000 people, largely located in isolated farming communities afflicted with cold weather.
Yet since 2000, the state’s GNP had grown by more than 50%. Personal income and wages have also grown.
The state not only had no funding issues, but it had a budget surplus.
North Dakota boasts the only state-owned bank in the US.
The Bank of North Dakota (BND) was established by the state legislature in 1919 specifically to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men.
The bank’s stated mission was to deliver sound financial services that promote agriculture, commerce and industry.
To what depths must a country sink before politicians are compelled to realise that the nation’s collective future means more than the immediate gratification of the short-sighted?
That is an answer only the voters can provide.
Ami Nanackchand is a veteran Durban journalist