September 24, 2012
One fine day you start a family business. You take $10,000 and put yourself and your partner on the payroll and order in some stationery, making the spare room into an “office”. The business runs out the back of the car, selling pancakes or trees to plant. You use the family car thinking that the business can absorb the cost of running it.
As you business starts to expand, you may go to a bank and ask for financial facilities to help grease the wheels. Your suppliers have to be paid before the income is reaslised, so you “need” an overdraft. That’s a minimum $10 per month to the bank or more perhaps depending on which country state and village you live in in this unequal world. Or there is an interest payment on the unpaid balance at the end of the month. Before you know it you are borrowing to keep up with the bank and you are watching your capital run out. You go to the bank for some more, pretty soon the business will start to work. Then you notice Joe from across the road selling stuff out the back of his car. You realise you need to identify yourself to clients so you print a business card. Take that, Joe. For this, you ask the bank for a loan as you are bound to start pulling in the big bucks now that you have a business card.
Pretty soon, you are back at your old job paying for the business. Business is folly. You got a lot of catching up to do and then the tax man wants returns. And, what? A tax bill? They did not accept that the family car was being claimed for correctly and had fined you. You work long hours to make up for this and all the rest of it.
The logic requires there be a consequential modifier that adds potential to the ability to make more than you cost to the world. And that we can measure our value as though it were a proper measure of our selves. Over time the value of the capital is diluted by the actions of the bank to expand it. This pressure – the adding of new new debt by the bank shifts the window of value to accommodate. This pressure is inflation. Growth occurs only when the bank adds credit. Hence evolves third way economics, the idea of increasing the banks solidity, its creditworthiness. The more the bank owns (you) the more it can borrow (from Joe). Its window of capitalisation allows the slithering cash exchanging. Limiting fluidity by austerity measures is like a tramp with a hand painted sign. the advertising may be helpful but the fact he is a tramp will kill his sales. Businesses do not always result in a capital increase, and this one, I am afraid is all too typical. The bank can now repossess the assets you have been paying a mortgage on for ten years.
Any business decision is improved by open, straight to-the-point assertive behaviour between self-interested parties who want to make a deal so that supply chains can continue to conveyance goods to market. The skills necessary to take market share literally means that you take it away from competitors. Hence there will be winners and losers in our financial system. Not all competition allows fair competition. Our winners will tend to be corrupt.
Losers tend to be wound up by solicitors and put into administration by banks. Banks may then become more than a little miffed and send round the bailiffs to strip them of their assets. This final indignity is enough to fling financiers from hirise glass towers tumbling in tune to the stock market black Monday followed by bad Wednesday and sad Friday. You lose your footing on the first, your shirt on the second and with your third goes your soul.
And if you just can not resolve it with the bank, or they refuse you there is always the Financial Ombudsman.