R&L: Why did you want to write this book? Tell us what crony capitalism means to you and give us a sense of its greatest threat.

Peter Schweizer: I wanted to write the book because for years I’ve been involved in policy and the philosophical debate in D.C. concerning the growth and size of government. I’ve come to the conclusion that while that debate is important and needs to continue to take place, the bottom line is that whether conservatives or liberals are in charge, the government continues to expand.

We’ve got to change the incentive structure that exists in Washington, and that incentive structure is driven by cronyism, where the state and private sector intersect. If I were to define crony-capitalism, I really use the term cronyism because I don’t think that it speaks of capitalism per se, but cronyism is essentially where economic decisions in terms of who accumulates wealth and who doesn’t, is not based on merit, it’s not based on economic prowess or success or meeting needs in the marketplace. It’s based on political connections and relationships whereby you are able to either manipulate the state to your advantage, and to the disadvantage of your competitors.

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A friend of mine was recently preparing to leave the army, and began a training course for a debt recovery agency. He was horrified that the trainees were taught not to waste too much time on people who could stick up for themselves, but to concentrate on the vulnerable who could easily be intimidated, such as the elderly or single mums, from whom far more money could easily be found. He left the course, disgusted.

But the gap which the payday lenders exploit isn’t just a gap in the market. It’s a gap in our collective self discipline. We’re still a society hopelessly hooked on a spendthrift lifestyle. We see something glitzy, we want it, and we want it now, really not paying close enough attention to how on earth we’re going to pay the borrowed money back. The financial crisis that is crushing us at the moment wasn’t simply caused by the banks being feckless lenders: we were all too happy to be feckless borrowers. The banks are now being more careful ”“ perhaps overly so with business ventures ”“ but payday lending still lets people get stuff they can’t afford. Even if one has paid back a loan, there remains the constant text pestering for another: “There is £££ ready for you, just call 0800 XXX XXX and it will be in your account in 15 minutes.” As another friend told me, if you’re struggling, it can be just too hard to resist.

So, Justin Welby, the recently appointed Archbishop of Canterbury, has decided to do something about it….

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A consortium backed by the Church of England to bid for 315 Royal Bank of Scotland branches has lined up the ex-United Utilities boss Philip Green to front its bid.

Green is to replace John Tiner, the former Financial Services Authority chief executive who stepped down as chairman in the wake of the controversy caused by the parliamentary commission on banking standards investigation into HBOS.

Green is to chair the bid vehicle ”“ one of three that have submitted bids for the RBS branches this week ”“ working alongside former Lloyds Banking Group banker John Maltby who has been lined up as chief executive.

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Beth Glover was a juror on the trial of former Goldman Sachs trader Fabrice Tourre. When the lawyers were discussing the mortgages tied to the securities at the center of the case, Glover realized that, for all intents and purposes, they were talking about her mortgage.

“When they were looking at the subprime mortgage groupings, I think I would have been in one of those,” Glover told me. “I didn’t have as great as FICO score at that time.”

Glover’s an Episcopal priest. She says she saw the devastation the financial crisis caused to her parishioners. They lost homes and jobs. Church programs had to be cut for lack of funds.

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There is something endearingly audacious about Justin Welby’s expressed desire to compete the titans of Britain’s payday loan industry out of existence. But the Archbishop of Canterbury’s remarks raise two connected questions. Can he do it, and should he want to?

The first point is easier to deal with….

There are better ways for the archbishop to help the poor than for the church to dish Wonga. Those on the margins of society will always need occasional access to loans to help tide them over unscheduled expenses or interruptions in income. That these should be appropriately priced goes without saying.

The real challenge, however, is not simply to shave the interest rate by a few points, but to ensure that those who take out loans do so in the full knowledge of the risks and with a realistic plan for managing them. This means two things: first, offering genuine advice to potential borrowers; and second, real assistance should things go wrong….

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A credit unions expert has praised the Church of England for its plan to out-compete payday lending company Wonga.

Dr Peter Davis, of the University of Leicester’s School of Management, has worked as a consultant on credit unions and other forms of co-operative around the world – including for the United Nations Anti-Poverty Unit.

He welcomed the Archbishop of Canterbury Rev Justin Welby’s plan to build up credit unions as an alternative to payday loans that charge astronomical interest rates.

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It was not the ideal start to the Archbishop of Canterbury’s grand initiative to bring a new morality to Britain’s banking sector….

But despite the stumble out of the gate, Welby appears committed to taking on payday loans ”“ small, high-interest, short-term loans to those who can’t get credit elsewhere ”“ as a means of “speaking for the poor.” And his plan raises questions about just how much clout the Church of England wields through its portfolio of investments and through the influence the church has over its flock ”“ how it ought to wield it.

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As the scriptures tell it, Jesus expelled the money changers from the temple to cleanse it of a “den of thieves.” With some discernible echoes, the newly appointed archbishop of Canterbury has initiated a comparable crusade against newer financiers charging enormous interest on what are called payday loans.

Unlike the biblical showdown, though, the outcome of this newest confrontation seems freighted with moral ambiguity, risk and potential ridicule.

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…in this process of liberalisation over the centuries, it seems we have forgotten a couple of key principles. If I lend money, the borrower makes a promise to repay. If I lend money to borrowers I believe will probably default, I am inducing people to make promises they will break. Inducing promise-breaking is straightforwardly unethical.

Again, although short-term high-interest loans may (as Eck and Melanchthon claimed) help people through temporary difficulties without their being forced to liquidate assets (e.g. sell the family car) unnecessarily, if I lend money very short term and at high interest to someone that is already insolvent and that person defaults on other creditors shortly after repaying me, I have profited at the expense of those other creditors. That could be seen as akin to theft ”” capturing assets that should rightly be used to repay other loans.

It could be difficult to regulate lending that induces promise-breaking or that extorts the assets of other creditors without preventing more innocent lending that helps with liquidity or business launching.

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Once again, the Church of England was in the headlines for all the wrong reasons. The Archbishop of Canterbury Justin Welby, below, its relatively new leader, denounced the demons of payday lending, vowing to defeat them with the church’s own credit unions. Yet almost instantly it emerged that his own organisation had played a role in their creation through its huge investment funds.
For those of us who take little interest in this declining institution beyond wondering how it remains an established church in our multi-cultural age, it is just the latest farce involving bungling bishops and clerical contortions.

Yet this weekend, even Catholic-born atheists such as me are forced to concede that the current resident of Lambeth Palace is emerging as one of the most distinctive voices in the country. His deft political touch, sharp media abilities and displays of decent humanity could even help restore his church to the role expected by its followers after decades during which it failed to capitalise on its centrality to national life.

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The morality of payday loan firms is under the spotlight. But what do faiths say about money lending and interest?

In general, usury defined as the lending of money at high interest rates, is frowned upon by religion. The three Abrahamic faiths – Judaism, Christianity and Islam – take a very firm stance against it.

Several passages in the Old Testament condemn usury, in particular when lending to the poor and destitute. This led to lending money at interest being forbidden in the Jewish community, explains Dr Alastair McIntosh from the Centre for Human Ecology: “In Jewish tradition charging interest was forbidden within the community, but it was permitted to outsiders.”

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Nicola, a young woman with a daughter aged 3, was homeless, unemployed and “sofa surfing” when she sought the help of the community bank at Trinity Centre in Louth, Lincolnshire.

The centre is part of the local Church of England parish and for two hours every Wednesday morning, the bank ”” a credit union run entirely by volunteers ”” opens for business.

Nicola did not even have a bank account. The credit union waived its administrative costs to help her open an account. This meant that she was able to secure an affordable loan through the union that served as a deposit.

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When Greece ran into financial trouble three years ago, the problem soon spread. Many observers were mystified. How could such a little country set off a continental crisis? The Greeks were stereotyped as a nation of tax-dodgers who had been living high on borrowed money for years. The Portuguese, Italians and Spanish insisted that their finances were fundamentally sound. The Germans wondered what it had to do with them at all. But the contagion was powerful, and Europe’s economy has yet to recover.

America seems in a similar state of denial about Detroit filing for bankruptcy…. Many people think Motown is such an exceptional case that it holds few lessons for other places. What was once the country’s fourth-most-populous city grew rich thanks largely to a single industry. General Motors, Ford and Chrysler once made nearly all the cars sold in America; now, thanks to competition from foreign brands built in non-union states, they sell less than half. Detroit’s population has fallen by 60% since 1950. The murder rate is 11 times the national average. The previous mayor is in prison. Shrubs, weeds and raccoons have reclaimed empty neighbourhoods. The debts racked up when Detroit was big and rich are unpayable now that it is smaller and poor.

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The Archbishop of Canterbury has described the naming and shaming of bankers in the wake of the financial crisis as “lynch mobbish”.

The Most Reverend Justin Welby admitted sympathy for former bankers when hearing evidence as a member of the Banking Standards Commission.

He admitted “thinking, ‘I’m not sure I would have been very different,’ rather than thinking how bad they were”.

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The bankruptcy of Detroit, confirmed in 16 pages filed at 4:06 p.m. Thursday, marks an epic fall for an iconic American city even as it opens a new chapter whose ending is decidedly uncertain.

No one really knows how the largest municipal bankruptcy in the nation’s history will end and when ”” not Emergency Manager Kevyn Orr, who recommended the step Tuesday, not his lawyers, and not Gov. Rick Snyder, who said he approved the filing “as a last resort to return this great city to financial and civic health for its residents and taxpayers.”

“This decision comes in the wake of 60 years of decline for the city, a period in which reality was often ignored,” the governor wrote in his authorization. “Without this decision, the City’s condition would only worsen. With this decision, we begin to provide a foundation to rebuild and grow Detroit.”

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The Church of England is backing a bid for hundreds of branches being offloaded by Royal Bank of Scotland, raising the prospect of a new, ethical bank on the high street.

The Church Commissioners, who manage the Church’s investments, are helping to fund a consortium led by the former banker and trade minister Lord Davies looking to take control of 315 RBS branches.

With investment decisions by the Church Commissioners taking into account the advice of the Church of England’s Ethical Investment Advisory Group, this would suggest consumers will have a new, ethical banking option if the consortium is successful.

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The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that the central bank intended to reduce its monetary stimulus later this year ”” and end the bond purchases entirely by the middle of next year ”” if unemployment continued to decline at the pace that the Fed expected.

Mr. Bernanke said that the Fed planned to continue the asset purchases until the unemployment rate fell to about 7 percent, the first time that the Fed has specified an economic objective for the bond-buying. The rate stood at 7.6 percent in May.

The Federal Reserve also struck notes of greater optimism about the economic recovery, saying in a statement released after a two-day meeting of its policy-making committee that the economy was expanding “at a moderate pace,” the job market was improving and risks to the recovery had “diminished since last fall.”

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Speaking at St Paul’s Cathedral this evening, Archbishop Justin said there will never be “perfect” banks, because “in the end no human being is of themselves perfectly good.”

But the Archbishop said we can have “potentially good banks”, which are motivated by virtue and not just financial bonuses and penalties.

Such a banking system would be “realistic” about human fallibility, but “optimistic” about human potential, he said.-

Read it all and note the audio link to the full address.

During the testosterone-fuelled boom years, Christian faith was about surviving in the City, but since 2008 and the revelation that it was all built on sand, Christians have been saying unequivocally that the gospel is non-negotiable, that working in commerce isn’t about surviving as a Christian but about transforming the way we do business, that Christianity is disruptive of systemic greed and corruption: that, in short, their work serves their faith and not the other way round. They are converting markets, not just people. These are the new Power Christians.

Welby is their spiritual, as well as titular, leader. Born in 1956 into a privileged, if eccentric family, he has managed a tension between descent from a powerful Conservative dynasty (on his mother’s side, he is a scion of the Butler family, which gave us Rab Butler, the deputy prime minister to Harold Macmillan) and skeletons in the family cupboard (it was seen fit to conceal his paternal Jewish-immigrant lineage from him until he became an adult).

This background may have contributed to Welby the Outsider, part of the establishment but also a thorn in its side. It is no surprise that the relentlessly bourgeois HTB couldn’t contain him. Note that he considerably widened not only his social but his theological circle after he left the Knightsbridge church. Via Africa and the Middle East, he arrived as dean of Liverpool Cathedral, where he operated what he and Dr Williams have dubbed a “mixed economy” of traditions. Now add that eclecticism ”“ one might even call it a catholic taste in denominations ”“ to the can-do attitude of the City whizz-kid and you have someone who can tap effortlessly in to the energy of any kind of Christian witness….

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European governments are figuring out that taxing financial transactions won’t be a magical money machine and that the proposed levy might even damage the European economy.

Reuters first reported Thursday that EU officials are scaling back a transaction tax proposal supported by 11 countries that is supposed to take effect in January. The levy could instead be introduced on a “staggered basis,” one official told the news agency. The first phase might only tax sales and purchases of shares, not bonds or derivatives transactions, and at 0.01% instead of 0.1% as currently proposed. A rate of zero is more appropriate.

Enthusiasm for the tax has been dimming for a while, including in governments that have previously backed it. Christian Noyer, the Governor of the Banque de France, said in Paris on Tuesday that the levy will raise “nothing at all.” One unnamed EU official told Reuters that a scaled-back transaction tax would reap revenue of less than €3.5 billion. The full-fledged levy, as proposed by the European Commission in February, was supposed to rake in €31 billion a year.

Read it all (if necessary another link may be found here.

European countries plan to scale back a proposed financial transactions tax drastically, initially imposing a tiny charge on share deals only and taking much longer than originally intended to achieve a full roll-out.

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There is no evidence that an FTT would moderate market volatility ”” and attenuate sudden shifts of mood on financial markets.

A recent report by Anna Pomeranets from the Bank of Canada concluded that there have been instances when an FTT led to an increase in volatility ”” most significantly on the New York Stock Exchange and the American Stock Exchange, between 1932 and 1981, where increases in the FTT were associated with rising volatility, increased bid-ask spreads, and lower trading volumes.

Similarly, the idea that capital is under-taxed in current tax regimes is mistaken.

Read More At Investor’s Business Daily: http://news.investors.com/ibd-editorials-viewpoint/052913-658027-financial-transaction-tax-in-europe-will-not-raise-much-money-and-may-hurt-growth.htm#ixzz2UmJX6SiT
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Barclays has “repeatedly let down society” and needs to clean up its culture in the wake of the £290m fine for rigging Libor, the Church of England said on Wednesday

The annual investment report by the Church Commissioners shows that the discussions with Barclays will be reviewed in July, a year on from the interest rate scandal that led to the departure of the chairman Marcus Agius, the chief executive Bob Diamond and chief operating officer Jerry del Missier.

In the report the commissioners, working with the Ethical Investment Advisory Group (EIAG), said they had “commenced an intensive engagement with Barclays seeking robust assurance that, having repeatedly let down society with its conduct, Barclays is making a determined and successful effort to effect a fundamental turnaround in culture”.

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In the thirty or so years that I have been following EU affairs ”“ or is it nearer 35 years now since I studied in French literature in Paris, and German philosophy in Mainz ”“ I have never seen ties between Europe’s two great land states reduced so low.

The French Socialist Party crossed a line by lashing out at Chancellor Angela Merkel in person. It is one thing to protest “German austerity”, it is quite another to rebuke the “selfish intransigence of Mrs Merkel, who thinks of nothing but the deposits of German savers, the trade balance recorded by Berlin and her electoral future”.

There is no justification for such an ad hominem attack. German policy is indeed destructive, but that is structural. It is built into the mechanisms of EMU and the anthropological make-up of the enterprise.

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Justin Welby, the new leader of nearly 80m Anglicans around the world, has won a respectful hearing for his ideas on banking and the British economy. Even if they disagree with the details, people have generally not reacted by saying “this man hasn’t a clue what he is talking about” or “he should go back to singing hymns.”

On April 21st, the archbishop of Canterbury suggested that big, unhealthy banks should be broken up into regional ones, as part of a “revolution in the aims” of banks designed to make sure that they served society as well as their own narrow interests. That sounded very like the proposal made last month by Ed Miliband, the Labour leader, for local lenders modelled on the German system. It comes at a time when the government faces hard decisions about the future of the Royal Bank of Scotland after its rescue by the tax-payer. Given the immediacy of the issue, some people will accuse the archbishop (who lists his hobbies as French culture, sailing and politics) of making narrow political points rather than broad moral ones.

But he also had some longer-term ideas on the financial sector. Drawing on his experience as a member of a parliamentary Banking Standards Commission, he said senior positions in banking ought to form a regulated profession which required qualifications.

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Speaking on Radio 4… [on Saturday], the Archbishop of Canterbury stressed the implications of Christian ethics for the City of London

The Christian Gopsel has “always had strong social implications” and been concerned with “the common good”, the Archbishop of Canterbury said….

In an interview for Radio 4’s Week in Westminster, Archbishop Justin said his main mission wasn’t to inject morality back into British business. But he said that how the City of London – which “is so important and so full of very gifted people” ”“ behaves in relation to the common good is a major concern not just for the Church but for society generally.

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Justin Welby, the archbishop of Canterbury, laughs when it is suggested that he has a mission to raise moral standards in the City. “My key mission is to lead the Church in worshipping Jesus Christ,” he says.

He points out, however, that Christian teaching concerns the “common good”, and he is concerned about “how the City of London, which is so important and so full of very gifted people”, relates to this concept.

Dr Welby is in a unique position to do something about it. Outside the cathedral he enjoys two political pulpits from which to shape the debate: in the House of Lords and on the cross-party parliamentary banking commission.

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The City of London has been affected by a “culture of entitlement” at variance with what others think reasonable, the new Archbishop of Canterbury has said.

But the Most Reverend Justin Welby told the BBC business morality was in many ways much better than in the past.

He also defended his description of the UK’s economic situation as a depression rather than a recession.

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Culture change in financial services will not be achieved by “light touch” or “heavy touch” regulation, Archbishop Justin said at a Westminster discussion organised by the Bible Society.

Instead the banking sector must adopt “an aim of service to society and not mere rent-seeking, and a culture of virtue based in the realities of daily life and not a fantasy nirvana,” he said.

Describing what this change of culture might look like, the Archbishop said it would require “a ruthless honesty and a deep willingness to be made very uncomfortable indeed through listening to things one does not want to hear”.

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Speaking at a Parliamentary event on “finding long-term solutions to the financial crisis”, Archbishop Welby said there needs to be a “revolution in the aims” of banks to ensure they serve society rather than “self-regarding interest” or even just shareholders.

“What we’re in at the moment isn’t a recession but some kind of depression,” he said. “It needs something very, very major to get us out of it, in the same way it took something very major to get into it.”

The Archbishop, who sat on the recent Banking Standards Commission but said his ideas were not those of the Commission, also called for professional banking standards to be introduced as a way of transforming ethical standards in banking.

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