“There are two worlds, the one in which people are convinced they live, and the one that is considerably more dramatic, the one that is real”

Friday, June 8, 2018

South Africa: time for Our Bank?

Interest paid: R229,306.15

A R100,000 house bought 30 years ago with a 10.5% per annum home-loan from any of South Africa’s banks would cost, after 360 instalments, a grand total of R329,300[i].

R229,306 minus a few minor odds disappeared into the pockets of the owners of the private banks.
It is a nationwide legal sting. South Africans are conditioned to paying out their hard-earned cash without question to support the system.

Had the same house been bought in Malaysia or Australia where the rate is below 5% the interest paid would have been less than $unit 90,000.

With South African car loans the interest rate is higher still because the asset is not as resalable and as vehicles quickly lose value the repayment period is shorter; typically 3 to 5 years. Using the FNB Repayment Calculator at 12% over 5 years an R100k car will cost R139218[ii].

Whatever the loan the principle is the same. For the privilege of going into debt to participate in the economy the borrower pays into the banks’ private-members box.

Clearly the ANC doesn’t understand

It is ‘… a cruel irony,’ said (then ANC General Secretary) Blade Nzimande in 2009, ‘… after more than 15 years of democracy … why do we still live in a society in which the legacy of apartheid appears to be constantly re-produced and even expanded?’[iii]

10 years further on and the ANC still battles to distinguish between apartheid and Greed Capitalism and fails to grasp that although all have a vote there is no democracy while a Greed Capitalism system is in place. It is an elite-group-run financial dictatorship.

The goal of Greed Capitalist corporations is the maximisation of profits no matter the cost to humanity or the environment[iv].

Capitalism is the best system we have. Communism (in all forms) failed. Socialism without an ownership component has only succeeded where powerful-accepted leaders direct.

But the current variant - Greed Capitalism as described in my O.B.E.S.E. post – is destroying South Africa. The destruction is visible as daily the difference in fortunes between powerful ANC cadres and their corporate business pals and rest widens. South Africa is already the most unequal of all societies.   

It has nothing to do with white supremacy … it is elite – black and white – greed made legal by a system managed by private business, authorised by government.  

Private banks thrive  

A Standard Bank share bought in July 2002 and sold in (February 2018) appreciated by over 700% (Google charts). The profits supporting the share rise comes out of some customers depositing and others borrowing money.

Share owners don’t have to do any work. They profit merely by buying into the sweat and tears of South Africans who have little option but to use banks. The investor[1] doesn’t have to fix broken pipes, cut any lawn or pay levies, maintain the car/save taxi fare or negotiate with the hospital or school uniform supplier. All they do is collect dividends on top of the spectacular share price rise. Their agony lies in deciding when to sell – or hold.

The dividends rose too: Nedbank paid dividends to shareholders of R8.02 in 2013, (2014) 9.65, (2015) 11.05, (2016) 11.40 and in 2017, R12.40 (see Morningstar 5-year history). From the same banking-hall Nedbank JustSave offered customers with deposits of R1000 - R9 999 a measly 2.90% interest (April 12 – Nedbank page).

Generosity for “investors”, a slap in the face for those who make the banks’ profits.

The customers are struggling South Africans while Nedbank’s biggest shareholder with over 50% is (ultimately) Old Mutual Plc. That’s the company that left South Africa for London when “democracy” came in 1994.

Standard Bank has now the giant Chinese ICBC Bank holding 20% with other foreign institutions (Old Mutual is there too) having nearly 9%. It’s complicated but it seems First National Bank is ultimately controlled by Remgro[v] of the Rupert family – that’s how private these banks are. And foreign. Barclays Plc, 17th biggest in the world[vi], is parent to Barclays Africa and is the daddy of Absa Group Limited (Wikipedia).

On one hand …

At nation-level the effects of money flowing out of RSA verges on the catastrophic: Professor Patrick Bond (Wits University) noted in 2016 that the “balance of payments deficit that results from profits, dividends and interest flooding out is the main reason that we have such a huge current account deficit”[vii] [viii].  It is also one of the reasons the Rand was crashed … from R8.92 to the USD in 2013 to R14.30 in November 2017.

As money leaves, the home-situation gets more desperate. Money must stay to circulate … the concept is simple: What one person spends becomes another’s income.

As the ANC with its open (financial) border policy[ix] has allowed the money to fly away that money is here to be spent IN SOUTH AFRICA. It is likely circulating on the Isle of Man, London, Bern …   
Disappearing money raises living costs, pressurises wages, and still the high interest on loans has to be paid. And that’s not the full story.


The interest demanded was never money in the first place. The bank simply declared (because it can, because we allow it) “R100k is credited to your account to pay for the house. You must pay it back.”

“That’s reasonable” thinks the borrower.

But the bank continues, “plus R229k in interest and fees!”

Surely the word “interest” is wrong. “Tribute” is an older word which broadly means the tax or plunder due to the stronger for allowing the weaker to live.  

That R229,000 isn’t real money. It was never worked for or manufactured in a factory. In fact it doesn’t exist until the borrower pays. That’s damaging enough.

The crippling blow is two-fold: The borrower pays back real money, money that is only found within the community he or she lives. Every tribute payment takes hard-earned money out of South African societies’ economy. Instead of spending the money in the community to make someone else’s income it is being given for no logical reason to the bank. It is the system South Africans voted for.  

Why 10%?

The two examples, Malaysia and Australia rank in the top 10 for safest living: South Africa suffers from endemic poverty and crime that make Gaza appear tame. Rather than fix the problems (and one way is to introduce more money into society) the government message to investor-speculators is

“Don’t worry, be happy – you’re getting a risk premium of 10%. Our poverty struck, sunk in crime, South Africans will pay.”    

We’ll pay all right because with the system we can only sinker deeper.

“So what. My R100k is now R1m”.

Applying a 7.5%[2] inflation rate a R100,000 home bought in January 1988 would be worth R867,213.11 in February 2018[x]. Selling for R1 million puts you slightly ahead but if you are of a class whose budget has a higher ratio of food, housing, transport and other basic costs your inflation rate was likely closer to 9%. Selling at R1 million would make you a loser, perhaps by as much as R250,000[xi].

And the children

In the 30 years the kids have grown up. They’re looking for a similar house but it will cost R1 million plus. They’ll need a minimum monthly income of around R30 000, and they’ll pay over and above the purchase price an extra R2 million 159 thousand[xii] by the end of THEIR 30 years.

Credit is needed to make capitalism work

The banks are doing well – for themselves. Revenue earned per employee for Nedbank (for example) amounted to R3 million (Barron’s).

What if it was recognised that …

Citizens need work to pay for housing, transport, education and so on, because they need housing as a family base to get work to earn money. They need transport to get to work. They need half decent food/medical and so on to be able to work productively. They need to improve themselves and to educate their children so that those children will be equipped to fight for the few jobs available so that one day they’ll be in a position to have a house near to work to work … and so the cycle should repeat. But it doesn’t.

The system devalues the remuneration paid for the work done, the inflation component makes it harder for all. What was once just a cabbage is now a buy-leave decision.
“We have nothing. No houses. No good schools. No hospital.”  … North West resident in May 2018[xiii].

Whichever way the issue is examined all South Africans from Middle Class down are under the whip held by those occupying the owner/share-owner/manager seats of the system. It is a system that demands the maximisation of profits. The system drivers are private banks.

Isn’t it time to support community banking?

South Africa is not a super-rich, highly productive 1st World nation. South Africa has been stripped of resources, left totally unable to compete and when it wants to do anything it is cajoled to borrow 1st World money on 1st World conditions. The country cannot afford it – collapse draws daily nearer.

But - South Africa can start to change all of that. It can initiate change at the individual–community level and there is a feasible and sensible alternate:
Community Banking[xiv].

Even if initially the only change made is that the tribute paid on those home and car, medical and schooling and so on loans goes into the community - into local clinics-schools-roads-environmental protection and job-creation – then forming Our Bank, a public bank, to do that is worth discussion. 

“Of course, there are critics... They argue that public banks would put public money at risk. Would you be surprised to know that most of the critics are bankers?” said David Weidner, financial advisor at Morgan Stanley.[xv]

[1] They’re not investors. They’re owners as long as the money returns are good.
[2] It is an average and its low when considering Middle income level food, (say) car repairs, medical don’t you think? A beer now costs over R17. In 1990 bread cost around R1.10 - Over 1200% increase?

[i][i] https://www.yourmortgage.com.au/calculators/home-loan-repayment/result/
[iii]  Martin Plaut and Paul Holden’s ‘Who rules South Africa’.
[iv] The Corporation
[v] Remgro owns 1/3rd of Rand Merchant Investment Holdings Ltd and 28% of RMB Holdings which in turn owns 1/3rd of FirstRand Limited … see 4-traders
[vi] http://uk.businessinsider.com/the-biggest-banks-in-the-world-2017-4
[vii] https://medialternatives.com/2016/04/15/patrick-bond-responds/
[viii] South African tax services are sweating to nail taxpayers who have taken much needed capital out of the country illegally while laughing legally though clearly as immorally, are the banks and the shareholders.
[ix] http://www.douglasschorr.com/2017/05/zumas-not-junk-hes-just-lost-our-marbles.html
[x] https://inflationcalc.co.za/?date1=1988-01-01&date2=2018-04-10&amount=100000
[xi] http://www.calculator.net/future-value-calculator
[xii] https://www.property24.com/calculators/bond#mortgage
[xiv] Ellen Brown … https://www.youtube.com/watch?v=5H2klRvaXrE
[xv] https://www.huffingtonpost.com/ellen-brown/occupy-protests-banks