The final word on bank profits

The Report of the Finance & Expenditure Committee on the Reserve Bank’s Monetary Policy Statement for December 2012 is now public and contains the following gem on bank profitability late in 2012 (from page 9):

Recent data released by the Reserve Bank updated information it had provided to us in November about New Zealand banks’ profitability compared with those in other OECD countries. The new figures indicate that the profitability of Australasian banks is in the upper range for banks in advanced countries, rather than the mid-to-lower bracket as the governor had indicated at our earlier meeting…Some of us find it a matter for deep concern that the Reserve Bank’s data places Australasian banks as the fourth most profitable in the OECD on the basis of their returns on assets, and that data from the Bank for International Settlements suggests Australasian banks were actually the most profitable in the world in 2011.

So there it is; our foreign-owned banks are doing very nicely while the rest of New Zealand’s businesses are struggling to get by.

Expect to hear more from us on this in the New Year.

Frog

35 thoughts on “The final word on bank profits

  1. ‘Legal theft’ seems to be what banks and white collar types specialize in, when they step over into illegal theft the amounts swindled or stolen can be eye watering. Between the banks tax frauds and all the financial company thefts and failures we are talking BILLIONS of dollars stolen by a very small group of people.

    Despite hundreds and hundreds of millions of dollars stolen only a handful of people will go to jail and even then for a very very short period of time.

    In the case of the banks BILLION dollars tax scams no-one will be charged
    or go to jail ….

    The dis-incentive for such similar scams or crimes is nonexistent and the banks and financiers will be devising new ones all the time …..

    Our banks making record profits and paying bugger all tax during a recession is to the detriment of New Zealand. They are sucking money out of the rigged system and hurting ordinary people.

    Expect National to do nothing on this issue and instead blame the unemployed and solo parents for there not being enough money for things like hospitals and schools ………..

  2. Gerrit

    If someone is robbed, defrauded, cheated or poisoned slowly. Does THEIR knowledge determine whether a crime is committed?

    As to what Greens know and Green Policy I only know that the people I met with in Hamilton were quite worked up about this issue. Some MORE than I am, and nobody was neutral or particularly happy with the banks… and we are listening to Steve Keen.

    Our policy takes years to change though, and education is needed for most of New Zealand to understand what and why this is. The Occupy movement was interesting for what was and wasn’t reported. The reporters seemed to have a talent for seeking out the confused, while several very perceptive explanations were provided… much like mine about how the theft is progressing and what it is doing to ordinary people… and ignored and unreported.

    It will be some time before the world manages to get that worked up again… and it needs to be a lot more certain about its purpose when it does.

  3. Photonz1, I recommend that you read some of the books published in the last two years revealing the role of bankers in the global financial crisis. Or if you want to go further back in time, try JK Galbraith’s book, “Money – whence it came, where it went.”

    The short point is that a lot of people thought they could get rich quickly and weren’t too concerned about how they did that.

    Once it’s every man for himself, our society starts to unravel. You can see that with Greece, where tax evasion was a national sport. Closer to home, we have dairy farmers dumping their crud in rivers and getting away with it.

  4. Yeah. I don’t feel “injured” by the banking system when I have to have 350k buried in a basic house.

    And. Is there any moral difference between how Key made his money and robbing a bank at gunpoint. The gunpoint robber harms a lot less people.

    It seems to be a particular future of our new neo-liberal society that people consider they have “earned” 100k annual pay rises, or 20% rises in wealth while ordinary people have pay cuts or get made redundant, or that someone they have ripped off, “should have known better”.

    Come to that. 20% of our children in poverty, children dying of third world diseases, in one of the worlds richest countries, is also a crime. When are the politicians, and their backers, who are responsible, going to be charged.

  5. bjchip – “I am applying a standard to the behaviour of the bankers, not to the knowledge of other people that they have suffered an injury.”

    Gerrit – “If the bakers are so “injurious” to us, why do we keep using them.

    I would suggest that the majority of people don’t feel “injured” by the banking system.”

    C’mon, Gerrit! Shake off that egg-nog fug!

  6. If the bakers are so “injurious” to us, why do we keep using them.

    I would suggest that the majority of people don’t feel “injured” by the banking system.

    You obviously do but are a minority not even supported by the Greens.

    For where are the alternative banking policies off the Greens? Only policy is for the state banking to be carried out by a NZL owned bank.

    No great (or minute) shift in policy in regards monetary supply ( oops I forgot, fire up the printing presses).

    Even the Greens don’t feel “injured” by the banking system?

  7. What is stealing? It has MANY forms, but only one basic feature. Wealth is transferred from one person to another without consent. Fraud being a form of theft where the consent is not an issue, as deception makes knowledge of the theft impossible.

    Stealing ALWAYS harms people… they may not be aware of the theft but it always does harm, else it would not have so many of its forms written into the law already.

    Am I seeing here an attempt to prevent the Bank’s behaviour from being characterized as “crime” because they operate within the laws that they make for themselves. This is ludicrous on its face.

    I am applying a standard to the behaviour of the bankers, not to the knowledge of other people that they have suffered an injury. Someone exposes you to a deadly dose of radiation, or arsenic or you name it. You DO NOT know you were injured, but you die anyway. Was it not murder because you didn’t notice how it was done and the effects were not immediately obvious?

    There is a standard we set and have always set here.

  8. BJ,

    People are injured by other people.

    Trouble is with your definitions is that you are presuming other people are “injured” by actions of others.

    If the other party does not claim an “injury”, is there actually one?

    Or are you judging that an “injury” has occurred and are now also the adjudicator that apportions blame?

    Slippery slope this, my opinion that others have suffered an “injury” is over ruling the “injured” parties opinion.

    Should be an interesting debate!!

    Happy and Prosperous New year for you and the family for 2013.

  9. Sorry DBuckley but for me a crime is committed when one person injures another with intent. The legal niceties are for cops and lawyers.

    http://www.merriam-webster.com/dictionary/crime
    http://www.thefreedictionary.com/crime

    Note the 3rd and 4th definitions.

    Moreover, having something evil graduate to something that is prohibited by law is really quite difficult if you can’t redefine it because you are so tied up with the words. You are discarding a useful meaning and impairing the societies ability to recognize things that NEED to have laws to prohibit them. We use language to think about the world… and to experiment with changes to it.

    My thinking about the crime of stealing from everyone, or stealing from future generations is not changed by the fact that there isn’t a LAW. I recognize the evil. I recognize the immorality. I call it criminal because it is that. People are injured by other people. It cannot be a “nothing to see here folks” moment.

  10. Quite the contrary, BJ, I am being very careful with words, which is the exact point of my writings. If one cannot be honest in ones argument, then surely one has lost at the outset.

    Everyone can – and should – play the game of right and wrong, but it is a heinous error to conflate “wrong” and “crime”. Sometimes they are the same, sometimes they are not.

    Different people have differing opinions on right and wrong.

    The behaviour of bankers is not necessarily illegal, but evidence of their crimes…

    And there it is. If it isn’t illegal then by definition, there is no crime comitted.

    Continuing to argue that there is grey rather than black and white debases the severity of what are actually crimes.

    Now you may wish to argue the law is incorrect, and thus needs ammending to make something unlawful (for example, to argue that hate speech should be a crime rather than protected free speech), but that still doesn’t change the current definition of what is and is not a crime.

  11. Don’t push the words I used further than how I used them DBuckley. The first part of that sentence contained the allowance that their actions were not necessarily illegal.

    That is the concession I make to the laws of nations, and the only such concession I am allowed. I cannot allow my definition of criminal behaviour to be bound and permanently limited to the limits that lawyers use to tie us all in knots.

    So can anyone play this game?

    EVERYONE plays this game. We have no choice but to make up our own minds whether something is right or wrong – ALWAYS! You attempt with your words to limit our ability to do that. The result of YOUR definitions is that the decision of the state becomes final, by refusing to allow other definitions to be applied, it becomes permanent and unchangingly final.

    You CANNOT change a thing if you aren’t able to think of it as other than what it is… except by accident.

    It is a large can of worms that every person is required in their lifetime to deal with continually. Many… most… don’t. They are content to accept the definitions handed to them by their church and their state and do not question much until a mistake in those rigid definitions hits and hurts them or someone they know.

    Theft however, is a very OLD crime, and it is widely defined as such.

    I am merely perceiving the theft using methods that no lawyer can obscure is not redefining the crime… merely exposing it.

    Everyone gets to decide DBuckley. Everyone HAS to decide. The law as we have it is a framework built by humans and it contains errors and distortions put there by humans, sometimes intentionally creating privileged classes of humans.

  12. Merry Christmas all!

    So, now, BJ, because you don’t approve of what you are calling “economic injustice”, you’re calling it a “crime”?

    Now whereas you may well be right, I’d like to explore the notion that one can just decide something is a crime. And it is based on who gets to decide what a crime is. Who gets to decide when something is a crime?

    Currently, it is governments, within an approximate framework of internationally recognised principles. And now it is suggested that we can extend beyond those principles to just make up crimes anywhere we like. So can anyone play this game? What it it is used for evil rather than good?

    This is a large can of worms you are suggesting be opened here, and as ever, the law of un intended consequences applies…

  13. If nobody tries to change it, it will never be changed. I don’t mind that it is difficult to imagine it.

    That change is a means to an end.

    The economic injustice and distortion of power and even the theft from billions of people that the banking system we have entails is as nothing to me. The fact that it demands perpetual growth and thus prevents meaningful action to protect the environment for future generations however, makes it imperative that it be changed.

    Fractional Reserve banking makes it impossible to achieve almost any other goal of sustainability.

    One might point out that you agree that there was a crime in MacDonald’s case, with a problem of identity. Similar in some ways to the OJ Simpson case. There was a crime. The behaviour of bankers is not necessarily illegal, but evidence of their crimes against the rest of human civilization are plain in the distortions of commerce, wealth distribution and power that curiously ALL favour the bankers.

    Entrenched indeed they are. However Neo, we have the power to alter the rules in their Matrix.

  14. McDonald was tried and found not guilty, but it is generally agreed by all that a crime was committed by someone, as generally, when someone is killed unlawfully, there is a crime committed. There was no question of a crime in connection with the BNZ affair.

    Addressing your second question: Generally, I’d be happier with a banking system other than fractional reserve banking, as Mile Taylor quoted above, and BJ and I have agreed on many times. The fact a bunch of us (and globally that’s quite a big bunch) would like fractional reserve gone, and a return to banking based on something (though there are varied opinions on what that something might be) isn’t going to get any traction because of entrenced power.

    This is where BJ and I part ways, I work within the (bad) system, he wants it changed despite the fact it won’t be any time soon.

  15. Mr Buckley, in reference to the BNZ tax avoidance, says “There is no stealing. defrauding, or guilty”
    I agree, and add that Ewan MacDonald is not a murderer.

    But I would like to know your (DBuckley) answer to BJ’s question,
    “They really should be stopped, don’t you think?”

  16. http://www.ritholtz.com/blog/2012/12/the-lie-that-prosecuting-bank-fraud-will-destabilize-the-economy-is-what-is-really-destroying-the-economy/

    “Failing to Prosecute White Collar Crime Guarantees a Weak and Unstable Economy … and Future Financial Crashes

    The Departments of Justice and Treasury are pretending that criminally prosecuting criminal banksters will destabilize the economy.

    The exact opposite is true.

    Failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.

    After all, the main driver of economic growth is a strong rule of law”.

    Try saying you, or your accountant, do not agree with the IRD if you are ever in court for tax evasion.

  17. But still there is misrepresentation here. The short version is that IRD said that the BNZ have not correctly applied tax law, and that BNZ owe us a load of money. BNZ countered by going to court to argue that the IRD were wrong. The court sided with IRD. BNZ pays up. This isn’t even thinly disguised white collar crime, let alone crime. This is a row, and it was settled in the righteous place.

    Of course, if ones purpose is to poke an organisation in the eye with limited regards for the facts or truth, then taking elements of truth and embellishing the story isn’t a bad way to go about it. After all, it is undoubtably true that at the conclusion of the row, BNZ did have to write the IRD a rather large cheque. And IRD, as required by law, did show their displeasure in being made to wait.

    Boring, factual commentry on the case with link to judgement, at least I think this is the case being referred to.

  18. Michael – Had you followed any of what we say here, or the people we talk to about economics, you would not ask that question. However, do take a look at Steve Keen’s economic vision.

    http://www.debtdeflation.com/blogs/manifesto/

    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    …and ask yourself if opponents of fractional reserve banking who understand that the sovereign state can control the issue of its own currency would go back to the old way of doing things if they have the opportunity to alter those deadly mistakes.

    WE understand society influences the environment only through the economy, and a distorted economic system (which is what we have now) damages both.

  19. @Mike taylor – You have a great post, but say, how quickly do you think a Green Party government would be trotting off to the same banks – cap in hand?

  20. Usually in a disagreement as to what the law allows, for ordinary people, if the court finds that the law does not allow it, they are fined, assessed tax penalties or go to jail. Different for corporate Managers and shareholders of course.

    POAL have now been repeatedly taken to court by MUNZ. The court have found that POAL have broken the law in every case.

    Still waiting for the fines or prosecutions.

    Ditto for the management, political and regulator manslaughter at Pike River.

  21. I don’t know as I agree. Stealing and Fraudulent dealings have both legal and common meanings, and stealing through legal means is a favored white-collar crime. The people who suffer the theft are often out a few bucks each across an entire population, but they have been stealing from every person on the planet (apart from themselves) for quite a long time – as Mike Taylor points out above.

    They really should be stopped, don’t you think?

  22. Whoa there daddyO

    There is no stealing. defrauding, or guilty; all these terms refer to criminal activities, and there has been no suggestion whatsoever that there is anything criminal in the bank’ actions.

    Sure, the banks and the IRD have a difference of opinion over what the law allows, and that gets resolved through the courts.p, which is exactly what happened.

  23. The banks are basically a pack of thieves …..

    It was only a year or so ago that the major Australian banks were found to have defrauded New Zealand in over a BILLION dollars in tax by the high court.

    http://www.guide2.co.nz/money/news/business/bnz-loses-court-case-with-654m-in-tax-and-interest-in-dispute/11/9496

    ‘Five New Zealand banks are disputing 22 transactions in a raft of court proceedings, of which this is the first. In total, they have been assessed to owe as much as $2 billion in unpaid taxes and interest.’

    The banks were found guilty and paid over 1 billion in taxes they had evaded…..

    So just 5 banks can steal 1 Billion from the government.

    It looks like with the excessive profits they are taking from our country that they have found more cleaver and legal ways of stealing from us .

    They have proven that they are not to be trusted.

  24. And paying yourself for your own work is counterproductive.

    Like the town council cannon polisher who was going to buy his own cannon and go into business foir himself. Though you could say someone is paying themselves for their own work, when they build their own bach or boat.

  25. Actually, the reason you can’t lend money to yourself is physical. Money represents work done.

    You can however work without compensation. Interest however, has nothing to do with it.

    The notion that the bankers get no benefit from the created money unless it is loaned out at interest is however, true. It is a sort of limited truth though, as they are allowed to use that money to buy government bonds, loan to each other and basically hide any transactions they choose behind the borrowing for mortgages on houses. Their role in encouraging house price inflation seems to escape notice as well.

    So yes… but it doesn’t prevent the distortions, fraud and theft from the rest of the society… and one notices that the banks in Europe and the USA get bailed out by taxpayers… it is remarked on when that does not happen.

    As in Iceland, and Sweden.

  26. It’s also worth quoting the para after the one that Frog quoted, as it adds significant context:

    The Reserve Bank urged caution in drawing conclusions from the data. It said that accurate cross-country comparisons are difficult to make because of extraordinary items and tax issues, and also the data must be viewed in context. It pointed out that the profitability of banks in many OECD countries has been hard-hit since the global financial crisis, and that most banks in Asian countries would be more profitable than New Zealand’s, but are not included in the data. The Reserve Bank agreed that it is not desirable for a country to have the world’s most profitable banks, but pointed out that all countries want their banks to be healthy, which many in the OECD are not at present.

    If the big Australian banks were ripping us off, surely the Kiwi owned banks would do the honourable thing and undercut them by miles and thus be less profitable? (Yes, that’s a rhetorical question)

  27. Although banks create money, they cannot directly benefit from that creation themselves: they can only benefit from that creation when the imaginary created money comes back with real interest. This is the same reason why one can’t lend money to oneself.

    Commercial banks, for that is what we are talking of here, like all business organisations, make money from customer activities. They will always make money if there is any other activity going on. So why should we be surprised that banks are very profitable? Time was when more transactional activities required more pen-pushers with ledgers, but us computery people got all the ledger minders sacked years ago. Intel and AMD now takes the strain. Banking is a weightless activity.

  28. Higher company profits mean higher taxes and more jobs.

    Except this doesn’t apply to banks, where employee numbers have been steadily reducing since the advent of electronic banking services while profits have increased, and the banks have only recently settled a long running case of massive tax avoidance.

    Low profits mean low taxes and reduction in jobs.

    Indeed. So why are banks allowed to profit excessively at the expense of the rest of the community?

  29. To Photonz, banks should not exist to generate profit. (making money from money). They should simply exist to help facilitate trade and to help society manage its’ money, not to create our money supply out of thin air as debt and charging us interest for the privilege of using our own money. That’s why banks should be publicly owned, providing no interest mortgages, loans, etc. The payoff is the long term benefits of more people owning homes, business starting up and expanding thus employing more people, etc.

    The banks have hijacked the world.

    ‘Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When, through process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of the government applied by a central power of wealth under leading financiers.

    These truths are well known among our principal men, who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance. It is thus, by discrete action, we can secure for ourselves that which has been so well planned and so successfully accomplished.’

    – Montagu Norman, Governor of The Bank Of England, addressing the United States Bankers’ Association, New York, 1924.

  30. Sorry Photonz, but your lack of comprehension of the role the bankers play in the decline of the NZ economy is evident from your statement. The bankers get rich while the rest of us starve and barely break even. This is not just a NZ problem… but the fact that the banks themselves are offshore IS a mostly NZ problem.

    Banks are special in our fraudulent money system. They create the stuff. They have unique powers. If the rest of us ARE struggling and they are growing wealthy, then those powers ARE being abused. The black box analysis is very clear. The results are universally observed. The corrupt practices that got banks in trouble overseas are not related to actual BANKING, just to the overreaching of the corruption that their near absolute power has spawned.

    Knowing where the money comes from and why, we do not suffer from your illusions about profits, and we measure profit differently too. We deduct our costs – net, not gross profits for this nation are important.

    :-)

  31. The banks have the most profitable of all time whatever it is and what country is not that they do not have to win is not that the problem is that they earn more with so many fees that they invent this is it

  32. Loved Winstons question “Of course, the Reserve Bank was very neutral
    about the idea of a compulsory savings regime 13 years ago. Do you recall
    that?” I wonder if he was talking about his referendum? PS: I was one of the 3 or was it 4% who agreed with him!!

  33. Much better in your parallel anti-profit universe that banks struggle like those in Europe, and have to be bailed out or claim back houses from anybody not keeping up with their mortgage, have massive staff cuts, and no taxes to pay.

    If you don’t like profits, then no one’s stopping you from shifting your money and mortgage to a bank that’s struggling.

    Higher company profits mean higher taxes and more jobs.

    Low profits mean low taxes and reduction in jobs.

    One day the Greens might figure that out. But I doubt it.

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