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A MANIFESTO IN THE MAKING

 

Manifesto Introduction
 
The party defines itself by the five core policies. So that members and non-members clearly understand what the party stands for, these cannot be changed. At present they are principles the details of which will be decided according to the party constitution
 
All other policies will be decided according to the constitution
 
Below is a provisional list of headings for the Mani-festo each with a link to a page
That page contains provisional ideas for discussion.

Read this, as work in progress. Only DRP paid up members can comment and so if you want to have your say:

 

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A NEW CONSTITUTION FOR BRITAIN
Constitution Design
Executive
House of Commons Senate/House of Lords
Autonomous Regions

Electoral System

Democracy
Judiciary
Constitutional Court Supreme Court
Functions of Government Public Services Board Monetary Policy Board

Monarchy

Civil Service

Republicanism

Liberalism

 


 

ECONOMICS
Banking

Corruption

Finance
Globalization
Monetary reform

Personal Finance

Austerity

Great Crisis

Government Finance

 

TAXATION
Tax havens
Corporation tax
Income tax
Wealth tax

 

REGIONS
Federal nation
Autonomous regions

 

INDUSTRY
Skills training
Industry needs
Business development
Export assistance

Employment

 

PUBLIC SERVICES
Health
Education
Utilities
Transport Road Rail Air
Social Housing
Postal Services, Telecommunications
Police
Fire Service
Prisons
Probation Service
Waste/ pollution

 

FOREIGN AFFAIRS
Europe
Commonwealth

Islamic World

USA
War
Defence provision

World

 

SOCIETY
Families
Social exclusion
Minorities and race relations,
Citizenship

Economic enfranchisement
Church of England
Civil Society
Deprivation
Youth
Meritocracy
Immigration

Ethical Issues
Humanitarian issues/Animals
Press and Media

 

NATIONAL PLANNING
National planning strategies
Coordination of regions
Transport

Energy/Climate Change

 

LAW

Justice
Human rights
Liberty
Economic rights
Citizenship
Penal reform
Vice
Drugs
Prostitution
Gambling

 

CULTURE
Arts
Broadcasting/BBC
Press

 

POLITICS
Political parties
Corruption
Protest
Political philosophy

Events

 

HISTORY

British Republicanism

Monarchy

Whigs

Recent Politics

 

SPORT/LEISURE

 

ENERGY

 

ENVIRONMENT

 

AGRICULTURE

 

CEREMONIAL

 

CIVIL SERVICE
Government departments
Prosecution Service

 

 

 

 


 

ISSUES DISCUSSED IN THE NEWSLETTERS NOT LINKED TO THE MANIFESTO

 

Whiggism

 

HISTORY

British Republican History

 

OTHER NATIONS

USA

 

 

 

 


 

 

4 Banning of exotic financial instruments

 

A.SECURITISATION

 

What is securitisation?
Suppose you ask your bank manager for a loan, say, in order to buy a house – a mortgage. He grants you the loan and you then have a contract with the bank. The bank’s obligation to you is fulfilled by making the cash, let’s say, £100,000, available to you and your obligation is to pay interest and repay capital in regular monthly payments over a defined period of, say, 20 years. In addition the contract involves you giving the house as collateral so that in the event of your defaulting on your side of the contract the bank will be able to claim the house as its property to cover your debts.
So far so good. This sounds like good old-fashioned cozy banking as you always understood it. The contract depends not just on the strong terms it contains but also on the personal understanding you have with the bank manager and the sense of continuing agreement and obligation. You may assume you are repaying the bank and the bank holds your debt to it on its books. But this assumption would be quite wrong.
In today’s banking world, what you may not have appreciated is that within a nanosecond of the contract being enacted, the loan has been “sold” to another party. The bank has made a tidy profit as “originator” of the deal from its fees, but if it keeps the loan on its books it will be restricted from making further loans and earning further fees and bonuses. This is where what is known as the “shadow banking system” comes into play. This consists mainly of what are called Special Purpose Entities or SPEs (usually sited in tax havens such as the British Cayman Islands) and it is the SPEs that take the loan off the bank’s books. But the SPEs don’t keep it either. They then sell the loan to “investors”. Thus the “investors” supply a capital sum which is passed through the SPE to the bank who originated the loan to you. In return the “investors” receive, via the SPE again, the income stream represented by your regular payments minus the fees of all those along the way.
The process I have just described is “securitisation”. It is effectively just selling on a loan to another party. It first started to become widespread in the 1960s but ballooned in the 1990s and reach mammoth proportion in the noughties. Meanwhile all sorts of complications (or “innovative financial instruments”) into have been introduced that ride on the back of securitisation. However all of them are designed to increase credit in the economy and as we know for every piece of credit there is also a debt. It is plainly obvious, even to orthodox economists, that the amount of debt we now have in the world economy is unsustainable.
So what is wrong with securitisation? It is wrong in the first place because it destroys the integrity of the original contract that you had with the bank. You do not now know who you ultimately owe the money to. Your bank does not have to tell you and due to all the complications that follow on from securitisation, frankly, it does not know itself. Why does this matter? It matters because the process of divorcing the lender from the debtor generates a whole new economy of debt and risk management where the real economy that you live in and work in means less and less. The banks should be there to serve the real productive economy, but as it is now, the real productive economy serves the interests of the banks
The idea of banking as most people understand it is as follows. Some people have money surplus to their requirement to live – i.e. savers. Others need money to start businesses or invest in property. (Today we are used to borrowing just to live but this is a malign result of current economic management and by no means inevitable.) The banks mediate between savers and borrowers to allow credit to go where it is needed. Debt is kept to a minimum with prudent banking and prudent regulators
We are now a very long way from that situation. There is more than one reason for this but securitization is an essential element that creates the new economic world we live in. I mentioned the problem of the divorce between lender and borrower but this in turn results in a further major problem.
Without securitisation, the amount of debt in the economy would be driven mostly by real economic factors. A business wants to invest in new plant. A loan is created to enable it to do that. With securitisation this is reversed. Now the driver is the desire of the banks and their investors to find new debt to “securitise”. The full obscenity of this was shown up clearly in the American sub-prime crisis where loans were made not because they were a good thing for the borrowers but because of the rapacious desire for more debt for the bank originators to sell on. The sorry tale whereby the rating agencies faked high ratings for the loans is too familiar to repeat here. But none of this could happen without securitisation. It is only because the banks know they can sell the loans on that they create them in the first place. If they had to keep the loans on their books the subprime crisis would never have happened.
A great deal of the current economic crisis is due to securitisation. It allows the tail to wag the dog whereby there is an overriding desire for debt by banks and “investors” regardless of whether the real economy can support that debt. Securitisation serves to balloon the money supply. That money supply is held by banks and “investors” who then want to place that money at a profit. If they run out of debtors they cannot place it.
Today their need for debt is being satisfied by sovereign debt and the politicians are falling over backwards trying to structure the debt of sovereign nations so that those who hold the vast mountains of cash can find a home for their money. That is, for instance, essentially what the euro crisis is about.
But let us step back a little. This mess is based on banks being able to shift loans off their books. Surely they need to have this facility. Otherwise they might be deprived of flexibility and that could hobble their operations unreasonably. In fact, for this to happen, there is an alternative to securitisation which does not usher in all its bad aspects – assignment.
If you have ever held a commercial lease you know how this works. Suppose you have taken out a lease a period of say 14 years on an office. If you wish to move you can assign the lease to someone else, that is to say, the person taking it over then becomes responsible for all the obligations of the lease, paying the rent, maintaining the property and so on. However, your obligations are not finished, for if the assignee defaults on the contract, you as originator of the lease will still be responsible. Exactly the same thing would happen if a bank assigned a debt. If would retain ultimate responsibility for it and so the integrity of the contract would be preserved. Prudent lending would be necessary.
Quite simply securitisation should be banned. The integrity of loan contracts must be preserved in an economy that is based on real productive activity as opposed to the money economy and the near-corrupt, or actually corrupt, activities of the banking community that goes with it.
Securitisation leads to the demand for more debt by those who control finance. It leads to the increasing “financialisation” of our lives which means every aspect of our lives from paying for an education, paying for our next holiday, ownership of a property, buying almost anything, all become the subject of loans. Companies and nations all become mired in debt and the banks love it. We trade our future to survive in the present. We give up our economic freedom for debt slavery to our financial masters with no way out.
A particularly good example of how securitisation and the voracious appetite for debt it creates work can be seen in student loans
The student signs up for the loan and is then in long term debt. This makes this individual’s financial life perfect for securitisation. The banks transfers a big bundle of student loans to a company called a special purpose entity (SPE) so they are shifted off its balance sheet, freeing it up to make more similar loans. The SPEs are located in tax havens, usually, the British Cayman Islands, and the fact that they are in tax havens is integral the high profitability of the deal. The SPE then performs the “securitisation” process, whereby it takes the bundled up loans and divides them up into sellable units called collateralised debt obligations (CDOs). These are then offered on the global market. Many will be bought by individuals who avoid tax in a variety of way such us by hiding behind shell companies registered in tax havens or secretive low tax countries like Switzerland. Meanwhile the student tries to get on with his or her life and in doing so supports the global banks and their superrich clients.
Many people think that the reason for students paying for their education is to avoid government debt. But this is not the real driver and never was. JP Morgan Director Blair, expanded the student population and at the same time forced them all into debt. This was neither an educational programme nor a social mobility programme but part of the ongoing process of  the “financialising” all of our citizens lives burdening them with grinding debt that can be securitised so transferring  wealth from working people to the superrich
And as we can see before our eyes, more debt means more debt. As you become so mired in debt for many the only way out is to take on more debt or “reschedule” existing debt. This is grist to the mill of those cash rich who want to profitably place their money. And so debt descends into a vicious spiral from which there is no way out. This has come to mean extending debts to our offspring where babies born into the world start their life in a state of indebtedness.

 


 

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© COPYRIGHT. All content of this website unless otherwise indicated is the copyright of Peter Kellow. You may freely quote and republish content on condition that you acknowledge the author the source and give the link to the website www.democraticrepublicanparty.co.uk

 

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