New forms of Shadow Banking, or Loan Sharks

New Forms of “Shadow Banking” or “Loan Sharks”?

The bank accounts of people who are trying to get a bank loan on the internet are being accessed by loan sharks, and by companies who will search for loan sharks. This scam works by asking loan applicants on the internet for their bank details. The reason given is these details are necessary in order to facilitate the loan. Then these details are shared with about 200 other loan sharks who take sums of £50 to£75 from the account at frequent intervals between midnight and 3 a.m.. This is the time when welfare benefits are loaded into bank accounts. Enough raids on an account may remove all the money in the account.
A quick search on the internet revealed over 20 companies who will search a loan for you in the UK alone. They mostly reveal that they will “pass on” your details, but do not specify which details these are. Some customers may think it is only name and address. Indeed that is all that is required on the first page. Later pages require sort code and account number!
The phrase “Shadow Banking” mostly refers to hedge funds and sovereign funds. These companies are harder to regulate than high street banks. However, the scams described above have produced over 600 complaints a day at the Royal Bank of Scotland alone. This is an indication of the large number of customers affected. The sums of money are much smaller than in hedge funds, but the direct effect on large numbers of people can leave them without any money at all.
This is a form of banking seemingly permitted in the UK by the Financial Conduct Authority, and charging exorbitant interest rates, and raiding bank accounts at midnight! Surely this is another form of shadow banking. The official estimate from the FCA for payday loans in 2013 was £2.5 Billion for 1.6 million consumers. This is big business. There is no comment from the FCA on the current scam. However one company called “My Loan Now” is no longer taking on new customers, as of today.
What is to be done?
Retail Banks have a responsibility for informing their customers about revealing their bank details. Most banks give this advice on their web sites, and in person if asked. But finding advice about payday loans outside the individual bank’s own loans is difficult to find on their websites. And indeed there may be no advice for payday loans.
Given that all payday loan companies cannot be closed down, and only limits on interest rates, and caps on charges are proposed: why not make retail banks offer loans at normal terms and conditions that already govern their personal loans?
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“Double Irish” Tax Evasion in Europe.

Tax avoidance in Europe


The Irish Government claims that it has, for many years, had a 12.5%  corporate tax rate for all corporations, including international firms.  This compares well with the average for the European Union average of 21.34%. But Apple pays only 2% or less.

However, the following countries offer 0% corporate tax:

Cayman Islands




Jersey and


The highest world rate is 55% in The United Arab Emirates.  The rate in the USA is 40%. Other European rates are;

France 33%

Germany 29.58%

Italy 21%

Luxembourg 29%

Netherlands 25%

Spain 30%.

United Kingdom 21%

The Luxembourg and Netherlands figures are most interesting because they are also being investigated by the EU for “State Aid”; as is Ireland. So, if Ireland can offer 2% or less to Apple and others, then it seems likely that Luxembourg  and Netherlands are also offering less than their official rates. How does this work?

Under Irish law one can incorporate a company in Ireland, but have a “tax residency” in another country. Only countries charging 0% would be more attractive than Ireland offering less than 2%.  However Ireland’s official 12.5% is still below the above EU rates: and if Apple can negotiate 2% or less, then Ireland must be one of the most attractive countries in the world for low tax.

The only other attraction of the 0% rate is that it makes companies “stateless” for tax purposes. So, only small amounts of American and  British profits are taxed in the countries in which they do business. This produces a massive overall tax saving for the companies. A USA Senate report called this the “Double Irish”. You pay one small amount of tax in America, and another small amount in Ireland.

What is to be done?

The EU wants all it’s 34 countries to be more transparent about tax payments. All large companies will be asked to publish their annual profits on country  by country basis. This should reveal profits in the countries in which they operate; and in the countries in which they have a “tax residency”.

If this exercise is limited to EU countries only, then international tax havens will not become transparent. This is not just an EU problem but a world problem. But the EU is a good place to start. There may well be sharp increases in unemployment in Ireland, and a few other EU countries. Finally, there will be a short increase in employment in all the above countries offering 0%.

Trade Unions recruiting in service sector in UK and USA.

Trade unions recruiting in service industries in UK and USA.

A recent comparison of hotel pay in London and New York shows that  cleaners working for the same global hotels, have different pay rates. The New York cleaners earn roughly 3 times the London cleaners. How can this be so?

Some London cleaners are on the national minimum wage at £6.31 per hour in Park Lane. In New York’s Park Avenue the wage is £17.66 per hour. This produces an estimated annual wage of £32,159.00.

British trade unions recruit about 2% to 4% of hotel workers. American trade unions recruit  70% of hotel workers. This appears to be an answer to the above question. Put differently, being a member of a trade union has a big influence on wage levels.  All this raises the question as to why American unions are so successful relative to British unions?

One measure of union success in recruiting members in a workforce is the “Density” measure. Density measures the number of union members as a percentage of all employees. For the last half of the 20th century British unions hovered around 40%. This started to reduce in the 1980’s. In the 21st century it varies between 20% and 29%: in common with 9 other West European countries.

Falling density in Britain had much to do with decline in heavy industry starting in the 1980’s.  But service industries have always been less unionised than manufacturing. Unions in Britain have always found it harder to recruit in banks, insurance, retail, and hotels. So, why do American unions do better?

Density in America was 20.1% in 1983; but only 11.3% in 2013. If one focuses on the service sector only, in 2013 American density was below 7%. This is not so different from the British figures of 2% to 4%.

However, one major difference is that American unions have a long history of coalitions with activists on immigration rights, trade policies, health care, and the living wage movement. Further, recent increases in recruiting are largely in the service sector in the West Coast.

Perhaps this American tradition could be copied in Britain. Campaigns over Low Pay already exist, but much closer relations with activist groups remain to be created and fostered!

Barclays Bank and the “DarkPool”.

Barclays Bank and the “Dark Pool”.

Like many other large investment banks Barclays has a “dark pool”. It may have started when Barclays acquired Lehmann Brothers bank in New York when it collapsed. This pool is dark because the deals done in it are secret. Quite how secret is unclear.

Obviously the traders know their own trades. But who buys what , and at what price is not known to the owners of these assets. Nor is it clear which senior managers outside the dark pool, but in the bank, know anything at all.
This pool may have started to facilitate very high levels of trading, at very high speed on computers, with very small profits to the bank on each trade. But the very high volumes of trading still produced handsome profits for the bank. This changed when some few trades for very large sums started in the pool, because the trade could be in secret, and there would be no public knowledge until after the trade was done. This also avoided public stock exchanges in New York.

Some clients objected to this and were assured that it would stop. There is now an investigation by New York lawyers on behalf of the Bank’s customers.

This is especially embarrassing for Barclays as they have a new chief executive who has set up a Compliance Academy, with Cambridge University, to ensure that all employees are aware of compliance issues around the dark pool. So, the bank spends £300 million on compliance; and employs 2,100 people to actively ensure compliance. There are 2 year long classes for graduate recruits; and regional master classes for more senior employees.
The Judge Business School at Cambridge are reported as training Barclays staff in truthfulness and “what is compliance”. The School itself offers classes on the “interface between values and behaviour”; “ways in which the sector responds to acts within the regulatory environment”; and “behaviours and practices of organisations to respond to the need for trust and good conduct”.

All this seems relevant, if vague; and nobody can object to the need for trust and good conduct. Most employees in banks today are already graduates, and some may feel that their university days are behind them. So, it will be interesting to see what long term influence these classes have on behaviour back at the bank. Also, the need for classes trust and good behaviour may strike some as implying that they personally lack these morally desirable values.
Closing down these dark pools, and insisting that all deals are done in public stock exchanges, might be more effective and less costly. But then there is the loss to the bank of a large slice of their total profits. Introducing free in-credit banking for individual current accounts is seen by Barclays Chairman as driving banks to seek income elsewhere! It begins to look like the retail customer is responsible for the darkness of the pool.

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Public Sector Strike: Immediate Reactions.

Public Sector Strike: Immediate Reactions

The Conservative party reaction was predictable. Over the last 4 years public support for strikes has fallen; it was claimed. Evidence from the British Social Attitudes surveys from 2010 to 2013 (inclusive) has a different story.
When asked whether management will always try to get the better of employees, the replies from a national sample were as follows:

Agreeing and strongly agreeing to the above question rose over the above years from 51% to 54%.
Disagreeing and strongly disagreeing fell from 46% to 43%.

These figures can be interpreted in different ways. Firstly, they can be seen to imply a stability over 4 years. Secondly, they can be seen to show a small but significant majority distrusting management. This implies some support for striking. Thirdly, this distrust of managers is stable. This implies that support for strikes is stable, and not falling. Fourthly, the two sets of figures are not so far apart. So the views of both strikers and non-strikers, and trusters and non-trusters in managers are all to be fought for.

There is no clear overall majority against strikes.

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Public Sector Strikes: The Preparations.

Public Sector Strikes: The Preparations.

At least 6 major public sector unions are set to go on strike on Thursday 10th July. Union leaders expect a major turn out, the biggest since 1926.

The government is threatening stricter union laws to stop weak or old ballots making strikes legal. Currently a simple majority of those voting is enough to make a proposed strike legal. A stricter rule might require half of all the membership to both vote and support the proposed strike. Few ballots would get a 50% vote currently. This has to do with many things.

Poor record keeping, members moving address and not informing the union, members leaving the union, members retiring are just a few reasons. But perhaps the major reason is that workplace balloting is illegal. Were this to be allowed in future it seems reasonable to assume that 50% could be reached. Also, the actual turn out on the day of the strike is often higher than the ballot.

The possibility of workplace balloting is a return to the past, and is most unlikely to happen. The unspoken fear here is of unions bullying their members to vote for a strike.

The vast majority of union members are now in the public sector. This leads to a criticism of unions being very weak in the private sector. This is true, although there has been some increase in recent years, but from a low base. However, one could argue that this strike is an example of unions operating from their position strength; the public sector.

All the above is an argument to persuade unions to be more open about their support, especially in the public sector. But having a government which is also your employer is a position of weakness. Unlike disputes in the private sector there is no other government to appeal to! This is all the more reason to show the union’s strength; not only by the numbers marching on Thursday, but by showing internal efficiency, and loyalty by their members, who have suffered.

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Zero Hours Contracts: The Latest Evidence.

Zero Hours Contracts: The Latest Evidence.
The Office of National Statistics estimates that there are 583,000 or 2% of the total workforce on Zero Hour contracts. The Chartered Institute of Personnel Development (CIPD) estimates a figure of about 3% based on their evidence from employers. Most zero hour workers are in hospitals, about 75% , with 51% in Further Education.

The justification for these contracts is they offer flexibility to both the employer and the employee. The benefits to the employer are clear. They can adjust employee attendance at work to deal with booms and slumps in demand. For the employee the situation is not so clear.

Specifically, there is an exclusivity clause which stipulates that the zero hours worker may not look for work elsewhere whilst with the current employer. Clearly, this limits the flexibility of the worker. The CIPD evidence shows that about 40% of employers use this clause. Further not all workers are aware that they are on this contract, until their wages drop.

The CIPD evidence says that most workers are happy with zero hours, especially nurses in the NHS. Here, these contracts are long established, and well managed. However, it is still the case that zero hours gives more employer flexibility than agency workers, with written contracts
The only right a worker has is to be an employee with a fixed hours contract, after 12 consecutive months of a broadly consistent work pattern. This is important as the worker becomes an employee with a long list of rights, including to be protected for “whistle blowing”. However, this creates a perverse incentive to sack workers before 12 months elapse.

What is to be done? Exclusivity clauses should be made illegal. Workers should become employees as soon as the law can change. Employers should have to provide a brief written summary to all employees of rights responsibilities and pay, within one week of starting work. A much fuller legal contract should follow soon after.