I could afford children when I had them - I didn't need tax credits when I had my children ten years ago - now I can't get by without them because the minimum wage has lowered some wages and the wage itself has been left behind by inflation. When I met Dave 11 years ago, he was earning £6.80 an hour (unskilled) and is now earning £5.93. I don't think there was any way I could have predicted a wage decrease over ten years - middle-incomes have increased with inflation, and public sector pay was increased ahead of it.
Not really. We were talking about bankers overcharging, and I pointed out that such a thing is impossible in a free market. I anticipated the response that you made as being a potential answer to overcharging generally, but I did not seriously think that you would say that the banking market is not free enough. With the recent calamities, even the hard right in the US has lost its apetite for more freedom in such markets. Arguably, the only rational conclusion to draw is that the only time markets should be allowed to be free, is when the outcomes don't really matter to people one way or another.
But anyway, how do you overcome this contradiction? Are you seriously saying that the banking market was not free enough?
Indeed. It is more compelling to say that banks have been significantly *undercharging*, for that is precisely why so many institutions have failed recently.
I still don't see *how* you conclude that banks are "overcharging". As institutions, the recent calamities prove that they were not overcharging customers. Individual bankers have done very well indeed, but their remuneration is in line with what the rest of the market is offering. If bankers are "overcharging" in terms of their remuneration, then we must agree that something other than the market determines what is an acceptable rate of pay.
I think that would be a peculiar thing to infer from my words.
It may be better to look at what I have written :-) (hint : I'm not BartC)
I don't have an easy answer as to how much money the banks should remove from the economy for their services. I don't even know what proportion of their profits come from charges and what from simply playing the markets with their own money (as opposed to playing the markets with other people's money and charging for that).
"Barclays profits near double to hit £11.6bn", "average bonus of £95000" (2009).
You see these headlines all the time.
It must be a pretty good business model for a business to bounce back in a year or two with such profits. And they don't even produce anything! Maybe they should share their expertise with other businesses.
I used to wonder how banks made any profits at all from servicing my current account. I would guess now it's something to do with giving me virtually 0% interest on my account (in common with a million other customers), while charging 20% interest on credit card purchases, even though base rates are at 0.5%.
That's on top of charging 2% to retailers for every credit card transaction (equivalent to the recent VAT rise, but going to the banks instead of the treasury). No worry about premises, advertising, staff, buying stock, unsolds, returns, heating, thefts, rates.. If a shop fails, they make the money instead from the competitor across the road. They can't lose.
Then there are the penalties and charges...
And these are just some of things we know about. I'd guess most people know little about banking so wouldn't even understand some of the profit-making mechanisms. It can't be as simple as paying us almost nothing on savings interest, while lending our money out at hefty interest to borrowers, can it?
I remember needing an endowment policy to go with a mortgage. Each year, the company took a management fee from any profits. After 8 years (a third of the way through the term), I'd paid in a total of £5000, and the surrender value was just £5000 too! All I'd done was help them make a nice living for
8 years; I might as well have put the cash in a drawer! (I remember visiting their lush offices taking up an entire floor of an office building in town -- it was probably just a branch -- and contrasting it with the dump I was living that I couldn't afford to do up; or heat. And that had reduced in value by 40% since buying it.)
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