Editor’s Note:
Although this article specifically mentions events in the U.K. it is equally applicable to events and situations in the U.S. I just finished reading best selling author Michael Lewis’ excellent book The Big Short: Inside the Doomsday Machine which fully details the inside workings of the U.S. SubPrime Bond market that led up to the 2008 financial crisis. And it goes right along with this article. Other excellent books by Michael Lewis
Forensic Accounting
Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct an examination into a company’s financial statements. Thus, providing an accounting analysis that is suitable for court.~ Investopedia
Prior to the 2008 Credit Crunch, the United Kingdom Financial Insurance Real Estate economy (FIRE) provided the population with easy access to credit cards and mortgages. High Street banks had plenty of money to lend and were offering attractive deals to people with limited means.
It was like the “free bread and circuses of the Roman Empire.” People lived beyond their means on “borrowed money.” Four years later, the Credit Crunch threatens to turn into a full-fledged Depression.
“No Jobs, No Credit & High Inflation”
Once 2008 rolled around, High Street banks were asking for bailouts from the government. The FTSE declined 31%. Large real estate projects were mothballed. Unemployment increased. People lost their homes.
The troubles of 2008 did not begin in that year. The British Empire has been declining. It has financed much of its wealth growth during the last decade on credit card debt.
“Imperial Structural Decline”
There is a number of key moments when the United Kingdom fell down another rung of the global ladder. In 1967, Prime Minister Harold Wilson was forced to devalue the Pound Sterling. By 1982, the British were fighting the Falklands War and by 2008, Land Rover was sold to Tata Motors.
British manufacturing is being outsourced. The Office for National Statistics (ONS) National Accounts Blue Book shows that from 1995 to 2009 manufacturing declined from 21% of UK GDP down to 12%. During the same time period, financial services increased from 6% to 10% of UK GDP. The UK was trying to replace manufacturing products with financing services.
“Best Financial Products in the World”
The UK has some of the most innovative financial products in the world. London is a world banking juggernaut. But banking depends upon real products being produced. Consider the services industry of the butler. He has a job when his employer has income from other productive forces. High Street banks thrive when manufacturing thrives. Since 2008, the unemployment rate in the UK has increased from about 5 to 8%. People are living on the wealth built up over the centuries. Eventually, that will be used up.
“Charge My Lifestyle”
UK citizens have “borrowed money” to pay for their lifestyle. This amounts to “borrowed time” until the debt is repaid. During the good times before 2008, money was cheap. Now, money is expensive as banks tighten their lending standards.
Some banks are being prosecuted for mis-sold PPI. It is only a “drop in the bucket.” These minor fines have not re-established the integrity, credibility, or reputation of the banking sector. Money is going to bailout PIIGs rather than in producing British jobs.
“How Forensic Accounting Can Help”
The problems of the financial crisis are structural, systemic, and political. Valuable credit is being used to uphold unproductive organizations. Forensic accounting can re-establish a credible system to govern securities fraud, damages, and bankruptcy. The modern prosecutor can collect e-mail evidence to prosecute white-collar crime. Banking fraud can be punished. The politicians lack the resolve and backbone. Political contributions from bankers are leading to this corruption. Forensic accounting creates structural change to provide for real solutions. Some people don’t even have enough money to go bankrupt. Iceland has begun arresting banking crooks for fraud.
“Roman Empire Redux”
The British are following the bad policies of the Roman Empire. It is punishing the productive and rewarding a small class of “patricians,” “royalty,” or “bankers” who don’t produce anything. Every month, another major bank admits that it engaged in financial fraud. Recently, British bankers were found guilty of manipulating LIBOR.
Were they punished severely? No.
Investors can’t trust the United Kingdom. Just like the Roman Empire, the UK is starving the hard-working until the entire system collapses. The rule of law is not being followed. This destroys the integrity and reputation of Europe and the entire system. Forensic accounting can re-establish the basic trust that people must have in their politicians and bankers.
“Stiff Upper Lip”
During hard times, you need to have a stiff upper lip. During the London riots, many necessities were unavailable. People need to depend upon themselves. Pay off as many credit card bills as possible. Trust in real assets. Reconnect to your local community.
“Reward Productivity”
People respond to rewards or punishments. The most productive people will benefit in the long run. Unproductive bankers and politicians should be removed from office. Scarce capital should go to hard-working entrepreneurs. Rebuild families and businesses. Enforce forensic accounting laws.
“Where is the Money?”
The United Kingdom needs to find out where the money is. An unholy alliance has been established between politicians and bankers to ignore each other’s crimes. This must be rejected. Markets will re-establish equilibrium when politicians are corrupt. Credit should be like water flowing to the most productive organizations. Debt must be restructured. Productivity must be rewarded.
No one is above the law. If the law enforcers are the problem, then they must be removed and replaced. The United Kingdom must have a backbone. Enforce the rule of law through forensic accounting. That is the solution to the financial crisis.
See Also:
- So Long, US Dollar As World’s Reserve Currency
- Oil Prices < $40/Barrel?
- Gold is a “Crisis Hedge”
- Currency Wars – The Making of the next Global Crisis
- The European Debt Crisis and Your Investments
- 6 Questions about the Financial Crisis
- Credit Crisis: Are We Set Up for The Perfect Storm?
Sources:
http://www.pwc.com/gx/en/forensic-accounting-dispute-consulting-services/index.jhtml
http://www.bendyson.com/the-cause-of-the-financial-crisis/the-solution-to-the-financial-crisis/
