The Dark Side Of The Finance Industry – An Interesting Update

An article in the local press commenting on a Senate committee’s consideration of privacy and credit management issues mentioned the name of a solicitor working for a Consumer Credit Legal Centre, so on the spur of the moment, I wrote to her and suggested that she might like to look at this blog.  The next thing I knew, I was asked to make a submission to the Senate myself and this I have done.  While I have no qualms about the publication of my material (after all, everything I say is supported by twelve fat files of documents), the Senate has listed it as confidential, so it cannot be read publically at this stage.  However, the gist of my submission is that an applicant for credit must give explicit or implied permission before a prospective lender can approach other finance organisations and that the applicant is entitled to see what they have said, so that errors and abuses can be corrected.  I even went so far as to say that an audit trail of decisions made by a computer system should be included.  Finally, I have suggested that any litigation relating to abuse of the system or careless and inappropriate application of the system should be freed of any time limitation (after all, my own experience shows that it can take an awful lot of money and time to expose bad practices and this was largely due, I think, to the other parties relying on the Statute of Limitations to protect them).

Let us see what happens !

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The Dark Side Of The Finance Industry – Part 2.

This post discusses a problem which I had with a finance company back in the 1990s.  It is, of course, history now, but the story is worth telling, because it exposed quite a number of problematical attitudes, behaviours and processes in the finance industry which have the potential to cause extraordinary damage to the individual customer. Most of these still exist today and support my thesis that we must find new ways of controlling the excesses arising out of these features.  Also, it illustrates how loosely controlled processes within finance companies can be abused by individuals for their own ends.

The story is told in a couple of documents which I prepared years ago with a view to publishing them on the internet at the time.   In the event, recovering from the consequences of the unconscionable behaviour described in it took up so much of my time (and money), I was unable to do this and I have only gone back to them now because of their relevance to the current thread.

The downturn in the economy which Australia experienced in the early 1990s was followed by a remarkable boom time.  Through no fault of our own, we lost a lot of money, but we survived and would appear to have been well placed to rebuild our business and private fortunes in the improving economy. However, we had great difficulty in raising even modest amounts of finance to speed up the recovery process. At first, we simply assumed that financial institutions were averse to lending to small business in general.  However, a contract to lease a new motor car in 1998 shed an entirely new light on the matter.  We found that we were the victims of a highly prejudicial (and undeserved) creditworthiness report.  Due to the opaque financial processes of the day (which have not changed much if the horror stories about derivative trades gone wrong are to be believed), we had no idea this report existed and only found out about it when the car dealer and its associated finance company used it to manoeuvre us into accepting a contract whose terms were totally unconscionable.

Once we became aware of the existence of the report, we set out on a long (and expensive) journey to uncover its source and how it was handled within the industry.

The first document deals with the motor car lease.  The management of Volvo Australia were aware of the terms of the lease, but they endorsed it as a fair one and never retreated from that view (though after we won a court case they quietly got rid of their local managing director, the dealer and the finance company – which in itself is a commentary on their corporate ethics !). Having been a Volvo customer for 25 years, we felt very betrayed by their attitude and my essay also includes an analysis of customer relationship management in general, which some readers might find interesting.

Volvo Essay, Version 3.

Once the Volvo issue was settled, we continued our odyssey to expose the secretive attitudes within Esanda (whence the creditworthiness report emanated) and the deliberate or customary obfuscation displayed by other financial organisation.  This part of the story is set out in the second document.

Esanda Essay, Version 3.

At this point, it is reasonable to ask the question “Where are we going with all this  ?”. My answer is that, in a sense, people matter more than companies and other institutions.  People have only one life to live and that life should not be compromised by the unethical, illegitimate (i.e. breaking rules) or illegal (i.e. breaking laws) behaviour of institutions of any sort which have been set up to provide goods and services to the community.  I must stress that here I am considering only serious and lasting damage.  Obviously, if one buys a new coat ostensibly with a designer label, only to find that it is a fake, the fraud is only of passing effect. To lose one’s home or one’s business at a critical time of one’s life, however, is a different thing entirely.  I myself am lucky to be enjoying a pleasant enough retirement (though more limited than might otherwise have been the case), in part thanks to a beautiful and supportive family. However,  when I read about those who, through no fault of their own have been driven to alcohol, drugs and suicide on account of the deceptive and fraudulent behaviour of those to whom they have entrusted their savings and assets, I have to do what little I can to change, if not the world, then at least the financial part of it.

“Where we are going” with this thread, then, is the hope that I can get to a point where I can set out my ideas (some a bit off the wall, I must admit) for the conduct and regulation of the finance industry and hopefully have some conversations with people of similar interests.

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The dark side of the finance industry – part 1.

In my first post to this blog

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I tossed an idea into the ring, hopefully to start an ongoing discussion.  I would now like to expand a little on some of the issues generated by that idea.

Essentially, my thesis is that institutions and corporations of all kinds (called entities hereafter, for convenience) are essentially artefacts. They are created by people (either singly or in the mass) for various purposes, operated, modified and closed down when no longer required (or are otherwise unable to function).  Under the direction of those in charge of them, they interact with people, who will either benefit or be damaged by that interaction, according to the circumstances.  Where damage occurs, it may be relatively mild and can easily be consigned to history.  On other occasions, it can be absolutely devastating and ruin people’s lives. It is this last outcome which is the one which interests me because, unlike entities, people have to live on and deal with the consequences of that damage.  For this reason, there must be explicit contractual and implicit ethical behaviours imposed on entities of all kinds (including, of course, those who run them or are employed by them), to ensure that people do not suffer undeservedly from their activities

In this discussion, I will set out a few examples of inappropriate corporate or institutional behaviour (some of them from my own experience) which have had adverse consequences beyond the acceptable norm with a view to identifying behaviours required to minimise the damage done to people’s lives and fortunes and how they may be taught or enforced.

The betrayal of individuals (called clients hereafter for convenience) who need to interact with entities can take many forms.

  1. An entity may claim to have expertise or resources that it does not have.
  2. An entity may have the necessary expertise or resources to provide the goods and services on offer, but its processes are inadequate in various ways and are not acknowledged to be so.
  3. The entity (or an employee thereof) uses the processes and resources of the entity for its own benefit.  There are a number of possible outcomes; (a) the client may simply fail to derive the expected benefit from the interaction, or (b) if the client has provided an asset (or an asset has been obtained on behalf of the client), the asset or its value is lost, or (c) the asset or its value is lost and the client loses other assets because the terms of the transaction for which the asset was used, allow other parties to the transaction to claim the values of their losses from the client.
  4. The entity (or an employee thereof) uses the processes and resources of the entity deliberately to damage the client. The possible outcomes are in general the same as those in item 3.  The reasons for this behaviour may include (a) payback for depriving the entity or employee of expected benefits, or (b) payback for perceived damage done to the entity or employee (usually by way of complaint), or (c) a tactic to reduce the resources of the client and secure an advantage in a future commercial transaction.

Of course, this list is not comprehensive and there many variants, but it does identify some of the categories which I want to discuss, mainly because my own experiences, or those of people I know personally, give me a degree of authority to do so.  Most of the examples I will quote relate back to an earlier financial downturn in the early 1990s and to the decade following.  However, from what I read in the media, nothing much has changed, except that there appear to have been considerable increases in scale, rendering the need for greater regulation and insistence on ethical behaviour even more imperative.

Just to get things rolling (while I put together details of some more dramatic events) I will start by publishing a report that I deposited with various credit reference agencies in the early 1990s.  As a self-employed person, I was very vulnerable to the unconscionable conduct of various finance institutions, agencies and corporations that I did business with.  My accounts were often paid late (sometimes not at all), but fortunately, I always found paying work and everyone got paid in full, including all interest and late payment penalties. Nevertheless, I considered it prudent to tell my side of the story to prospective financiers and employers.

Here it is.’

Curiously, shortly after I had published this post, the following article appeared on the front page of The Age in Melbourne – and there was me thinking that financial organisations were adopting more civilised manners in their debt collection processes!   The fact that it was the NAB, who features prominently in my report, shows that all too often, behaviours of corporations are prompted by a cultural attitude and hence, even old examples like the ones I am publishing can flash warning signals to those who need to do business with them in the future.

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The Israel-Palestine Question – A Way Forward ? (Part 2)

In an earlier post, I suggested that the Islamist current terrorist activity would lose most of its justification if a satisfactory solution to the Israel/Palestine conflict can be found. In this post, I would like to put forward such a solution, derived from historical circumstances and not biased towards either side in the conflict. Before I can do that, however, I would like to discuss briefly the nature of terrorism and its role in the conflict under discussion.

 Let us return to the years immediately following the end of the First World War. Casualties in that war were appalling and the idea that any future wars should not result in comparable numbers of dead and injured promoted a great deal of discussion in the military staff colleges of Europe and the New World. One notion that was put forward and endorsed by many military thinkers, stated that it was acceptable to deliberately inflict civilian casualties on opposing combatant nations, in order that their will to resist would be reduced and that total casualties might be less when the war was concluded. This thinking was used to justify Hitler’s Blitzkrieg concept, the firebombing of Dresden and Tokyo and the dropping of the atomic bombs on Japan.

 Now, let us apply this concept to the Israel/Palestine conflict. First of all, is the conflict a formal one, even though no declaration of war was ever issued ? I suggest that, as Israel is occupying the West Bank and investing the Gaza Strip, taking land by force from Palestinians and using it for Jewish settlements and cutting Palestinians off from essential services such as health care, the formality of the conflict may be taken as read. Israel is vastly more powerful in terms of military resources than Palestine and while it does not set out to kill Palestinians, it can be argued that its offhand and careless attitude to the killing of Palestinians has much the same psychological effect on the Palestinians as suicide bombers have on Israelis. In other words, either both sides employ terrorist tactics or both sides do not. While there is no doubt that the ideology of Hamas is terrorist in nature, its members are Palestinians, and the struggle against Israel lends its activities legitimacy until the conflict is settled in a manner fair to all Palestinians. Hezbollah has an even more tenuous legitimacy, until such time as the Golan Heights are returned to Lebanon. Al Qa’ida, of course, has no legitimacy at all, except in their own minds.

 After the first world war, the Ottoman Empire was broken up and the rule over Palestine passed to Great Britain under a League of Nations mandate. Between the two world wars, the Jewish population in Palestine increased slowly under the sponsorship of various Zionist movements. This caused a degree of concern among the Palestinians, who felt threatened by the rise in influence of financial institutions established by the Zionists solely to promote the interests of Jews (not yet Israelis!) and particularly Jewish immigrants. It has been asserted that once a property fell into Jewish hands, it was never thereafter sold back to a Palestinian. I suspect also that the British authorities, who had had much more interaction with Jewish people of a European or American background, treated them with a degree of favouritism, which further alienated the Palestinians. Note that I am not criticising the actions of the Jews at this time – all people are entitled to pursue their own interests to the extent that the law allows.

 After the second World War, the British Government became very concerned at the numbers of Jews coming to Palestine and took various steps to restrict this inflow. The flow continued surreptitiously with new settlers being brought in by ship and smuggled ashore. This activity was celebrated in books such as Leon Uris’ novel Exodus, later made into a film. The heroes were of course, Jewish, and the general acceptance of Exodus and similar writings by the European and American public provided great encouragement to the Jewish cause. However, its leaders became impatient and various guerrilla-type groups such as Haganah, Irgun Zwai Leumi and Lohamei Herut Yisrael (the “Stern Gang”) were established. They (and the Arabs, too!) indulged in terrorist activities causing death and injuries to people and damage to buildings and infrastructure. The most notable event of this type was the bombing of the King David Hotel in Jerusalem. This is, of course, now old history, but I mention it to support my very important point that, until a solution to the Israel/Palestine problem is found, we should not consider one side to be terrorist in nature and the other not. Both sides are fighting for a very well-identified cause in accordance with principles adopted during the second World War, using all of the resources they have to hand (after all, a suicide bomber can be considered as a somewhat goulish delivery mechanism). If a solution can be found and agreed to by both sides, then any continuing hostilities by maverick groups will revert to terrorism as we understand it.

 As a sidebar, I myself believe that wars should be fought between armies, who are adequately armed and trained and that any damage to civilians who are not combatants, are defenceless and may not even believe in the cause which provoked the war, is a crime against humanity. In particular, I believe that the Hiroshima and Nagasaki nuclear attacks were immoral and at the very least, premature. The justification was that it would save lives (particularly US ones) but I would dispute this. America commanded the skies, so that Japanese soldiers, who had been fought to a standstill, could not be resupplied. It was open to the Americans to invite the Japanese, under a flag of truce, to witness a test detonation, or to deliver film of earlier tests to Japan. Instead, they delivered two nuclear bombs in quick succession, before the Japanese could react in any way. I believe that these attacks were essentially experiments, to judge the effects of the bombs. My reason for thinking so (apart from the hasty sequence of events – only three days between raids) is that the two bombs were of entirely different design. However, that is only my opinion and I am no anti-nuclear activist ! I only mention this to show how fragile is the morality which condemns only those terrorists who do not support one’s cause.

 My suggestion is, therefore, that we put aside all arguments about who is a victim and who is a terrorist and try and find an objective formulation which would simultaneously protect the right of Israel to exist, but at the same time give the Palestinians hope of a future with no dependency upon Israel for jobs and services and allow them an independent engagement with the rest of the world culturally and commercially. It is clear that the events of 1948 were highly detrimental to the interests of the Arab population in Palestine. When the decision was made to partition the country, I suspect that the United Nations delegates simply thought that a line would be drawn on a map, that everyone would stay where they were, the people on the Israel side would quietly become citizens of a new country and everyone would simply get on with life. Of course, this was never going to happen. Apart from the cultural conflicts going back centuries and the (fairly well-founded, based on the propaganda of the day) belief that the Jewish people intended to take over the historic biblical area called Eretz israel), the assignment of the richest and most productive area to the Jews without any compensation was bound to release huge reactions of anger and envy. There is an eerie parallel here with the American decision to invade Iraq, under the false impression that the Iraqis would seize upon the opportunity to become nice little democrats, just like the Americans. The Sunni/Shia confrontation, hundreds of years old, was always going to derail that naive hope.

 We all know that there is no way in which the clock can be turned back and a return to the pre-1948 situation achieved. However, what we can do, perhaps, is to look at the situation of the time and ask ourselves; if it was the will of the United Nations that part of Palestine should be ceded to the Jewish people, is there any way this could have been achieved, without loss to the Palestinians of the day. I would like to suggest that there was one way and that was for the United Nations to buy the land from the Palestinians and present it to the Jewish people. Funding could have come from all of the nations who voted in favour of the motion, with contributions pro rata to population, gross domestic product or any other measure deemed appropriate. Given that the Palestinians never received this compensation, it will have increased in value by a factor of about 32 (doubling every 10 or 12 years) and now be worth many billions of dollars. This money will be made available on demand for infrastructure and commercial development and for investment. It should not be considered aid.

 There will, however, be some strings attached and this is where the impact on the terrorist situation might come into play. Here are some conditions which I would propose.

 1. Israel has the right to all land up to the Green Line. The difference between this line and the original 1948 boundary can reasonably be considered to be reparations for the wars of 1948, 1967 and 1973.

2. All Israeli settlements in areas outside the Green Line must be vacated, without exception. I did think of one situation where they might be retained by settlers and that is,  if Israel and Palestine could ever establish an entente similar to the European Union, the settlers could pay compensation for the land (in effect purchasing it in the way many Arab sheiks buy houses in London, for instance) and thereafter pay taxes to the Palestine authorities. The same privileges would accord to Palestinians buying property in Israel.

3. Arabs must give up the right of return to Israeli territories, except as noted above. They must look to the future, which hopefully will be golden.

4. The funds lie on the table and will only be made available when ALL Islamic states have acknowledged the right of Israel to exist.

 This last condition is the most important. The current proposals for the Palestinian state are quite miserable, leaving its occupants dependent on Israel for poorly-paid jobs and grudging services in perpetuity and any tacit support they may give to any continuing terrorist activity will be quite understandable. The only long-term solution is to make Palestinian interests totally opposed to those of the terrorists, so that they will not only desist from supporting them, but will have an active interest in curtailing their activities.

In preparing these notes, I came across a very good book: “1948: The First Arab-Israeli War” by Benny Morris. Although Mr. Morris is an Israeli and obviously viewing the war from an Israeli standpoint, he shows a considerable understanding of the Arab position (or rather, positions !) of the day and is brutally honest about the good and bad behaviour of parties on both sides (not to mention the British ! ). A very interesting read.

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The Israel-Palestine Question – A Way Forward ? (Part 1)

We tend to think of terrorism exclusively in terms of an aggressive Islamism, but really, terrorism is a fairly universal response of the troubled mind. I am not aware that the Unabomber was an Islamist, nor the sad young man who was responsible for the Oklahoma bombings. I once worked in a building housing our Australian Family Court and have stood in a lift where the vibrations of frustration, despair and anger were absolutely palpable. These could quite easily translate into radical action. To put it simply, terrorist activity is a general human response of an extreme nature and can only be met by the introduction of processes which at best will divert would-be terrorists to a more satisfying life and at worst will deny them any validation for their actions. Homeland security or any other similar preventive initiative will do nothing to solve the problem (in fact, it may make matters worse, in that it may excuse the confrontation of the root causes and the lack of discussion thereof).

 Having said all that, most of the terrorist threats that we perceive today do arise from an aggressive Islamism, promoted by clerics with their own agenda for a world-wide caliphate (in which, of course, their own power and influence will be enhanced!). However, it would be quite wrong to condemn Islam as an inherently violent and uncompromising religion. I have a copy of the Koran, which I read from time to time .In terms of its content, it is exactly like the Christian bible. It contains excellent advice on a personal relationship with a God (whether His name is Allah, Yawe or whatever) but it also contains accounts of a violent history. This history is seized upon by fundamentalists of all complexions to justify their attitudes. In so doing, they ignore the context in which those historical events happened. The promoters of Islamist terrorism take advantage of the envious, the angry, the mourners and others who can be persuaded that there is nothing left in this life that can compare with the ecstasy of a reception into paradise, heaven or whatever name one’s religion assigns to a blissful future state.

 At the present time, the state in which the people of Palestine find themselves is a very significant driver for Islamist terrorist activity. However, paradoxically, it may yet become the means by which this particular brand of terrorism may be defused. It is a very sad fact that almost all of the literature, correspondence and political discourse in this area takes sides with either the Israelis or the Palestinians, painting one group of people or the other as demons. In fact, in most cases, all they want to do is to have a good life and bequeath an equally good one to their children. For most Israelis, the re-establishment of Eretz Israel, the only kingdom which controlled all of the sites of historical importance to the Jewish people, but which existed for only a hundred years or so, is a nice dream, but one they can live without. For the Palestinians, the destruction of Israel is also a dream, borne of the resentment they feel at the loss of their territory and the treatment they have received at the hands of the Israeli authorities. However, this dream might evaporate if the interests of the Palestinians can be divorced (in their own eyes) from those of the Islamists and indeed seen to be in direct opposition to them.

 The Palestinian state that is currently under discussion will simply not achieve this desired end. The best that it offers is the creation of a state that, because of its resources and location, is condemned for the foreseeable future to be a client state of Israel, providing cheap labour and always at risk of losing land and resources, where the military power of earlier days may have been replaced by that more subtle one invested in finance and banking.

 The State of Palestine, whenever it is established, needs three things to be successful. Firstly, it needs an appropriate geography. This includes, of course, secure borders guaranteed by some international protocol. However, it also includes some method of connecting the Gaza Strip and the Left Bank, either with land, or with infrastructure (roads and railways) which are likewise protected by international guarantee. There must also be a connectivity to the outside world which will facilitate the passage of those goods and services which will provide a good income to support the State. The second thing that it needs is sufficient monetary support (which may be viewed as compensation, investment or aid) to pay for the development of infrastructure, commercial and manufacturing activity and social services that will allow the State to function at a level comparable with the rest of the developed world. Finally, it needs assurance of markets for its goods and services, which for a considerable period, will need to be of a preferential nature, until the State is fully established. My own fervent wish, which may or may not be realised in practice, is that at some stage in the future, the old animosities between Israel and Palestine wither away and they actually become partners, colleagues and friends in business and social activity, providing ready access to each others’ sacred and historically important places.  The European Union could provide a promising model.

 A review of the historical events which led to the current situation and how they may be used to evaluate the rights and needs of both the Israelis and the Palestinians will be set out in my next visit.

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Coming From and Going To

I hope that this blog will cover a fair bit of territory. The main interests I hope to expose here are politics (no rants, I promise), the environment, corporate and personal ethics and perhaps a little personal stuff. This probably sounds a bit serious and dull, but I have to say that the more life one puts behind one, the funnier it gets (in a wry kind of way, of course).

Here is one idea for starters. What was it that Karl Marx got so wrong ? He did a remarkably good analysis of the capitalist system as it existed in the 19th century, then he teamed up with Engels to try and put together a political system that would correct the ills spawned (so he thought) by that system. Somehow, it simply did not work. I think that his solution was wrong because it assumed that the fault lay with the kind of institutions (business and government) that comprised the economic environment of his day and that the answer lay in substituting differently engineered institutions.

I would like to suggest that the problem is much more fundamental. Individual persons come together to form a community. No matter what the anarchists say, most people believe that we need institutions of one sort or another to perform various tasks (e.g. keep the peace) or provide various services (e.g. make and sell goods). So, the community gets together and sets up a government. Individuals set up shops. Other individuals see economies if a lot of shops are owned and operated by one company. And so forth.

The problem is that any institution gains a certain amount of power when it is created. Some of this is delegated by the community, as in governments. Private institutions, such as corporations, gain power informally from the resources they attract (money, powerful friends). The exercise of this power can have good or bad consequences, either by deliberate intent or simply as a collateral effect. In a sane and healthy community, I believe that there must be implicit and explicit contracts between the individual (singly or en masse) and the institution, determining what is appropriate behaviour and what is not. From this there will flow rewards or penalties, depending upon the way in which these contracts are honoured or not.

Sadly, many of these contractual responsibilities are honoured more in the breach than in the observance and hopefully, some specific instances will become topics of conversation in this blog.

Typically, I got this screed back to front, talking about where I was going to first. Well, here is a quick note about where I am coming from. I was born into a community where a lot of money was made from coal mines and shipbuilding and there was a lot of trade union activity to secure reasonable (or unreasonable, depending upon where you stood) wages for the workers. My family owned a wholesale plumber’s merchant’s business and I went to a public school (quaintly, the British call schools that one pays fees for public and not private), but our home was close to a working class housing estate owned by the local Council and many of my out-of-school friends lived there. I am, I suppose, a left-winger, but only in the very traditional sense that the left-wing sees all the faults and wants to correct them, while the right-wing sees all the benefits and wants to retain them. I believe in the value of elites, to some extent, because somebody has to spend the time thinking and putting forward good ideas for the betterment of the world (provided that these ideas are acceptable to the population at large, of course). Is that enough, or would you like more ?

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