Insurance companies in need of a painkiller

Chris, Fee and KJ discuss the eye-watering cost of false personal injury claims

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Debt debate

Discussing austerity Britain, Chris and his wife inadvertently fan the flame of protest in their daughter

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Neither admit nor deny wrongdoing - when nobody is responsible, anything is acceptable

One of the stellar successes of the internet has been the Massively Multiplayer Online Role-playing Games (MMORPG). Improved internet line speeds, enhanced graphics, thick clients, multiprocessors, and games like “World of Warcraft” have contributed to multiverses of fantasy and mayhem that suck millions of people and billions of productive hours out of the real world. The great attraction of these virtual worlds is that you can take on a new incarnation. You can be what you’re not, dare what you don’t, and smoke in public places. In these worlds you are Super Sized in every way – weapons, skills, appendages - and create the sort of mayhem you only see in the movies. Perhaps the greatest attraction of these virtual worlds is that you take no responsibility for what you do. You can be reckless, you can be stupid, you can be really really bad (the sort of thing even your own mum wouldn’t forgive), and there is no comeback. Burn a village or two; kick a goblin when he is down; type really rude words that you saw someone else type. You are immortal – get “killed”, and you are back in action within seconds. And when you’ve had enough for the day, you just brush your teeth (unless you’re really pumped up with adrenalised recklessness), rub on your creams, and snuggle up in bed to dream about tomorrow’s mayhem.

A world where you can get away with what you like, destroy, lie, cheat, steal, and have to take no responsibility. Who would have thought it could be possible!

“Bank of America Corp., the No. 3 U.S. bank, was fined a record $10 million by the Securities and Exchange Commission because it lied to the regulator during a probe into trading by the bank and a former employee…….[Bank of America] neither admitted nor denied wrongdoing, and neither the bank nor the SEC named the employee whose records were at issue.”

“Morgan Stanley agreed to pay $102 million to end an investigation in Massachusetts into unfair lending practices….Under the terms of the settlement, Morgan Stanley admitted to no wrongdoing.”

“JPMorgan Chase has agreed to pay US$153.6 million (£95 million) to settle civil fraud charges that it misled buyers of complex mortgage investments just as the housing market was collapsing. JP Morgan did not admit any wrongdoing.”

“Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO…Goldman agreed to settle the SEC's charges without admitting or denying the allegations.”

Britain has always relied on the US to impose penalties on companies. FSA fines over the last 10 years have been such a piddling amount that placed on a graph next to bonuses paid to bankers you can hardly see them. (Use the zoom on your browser – at least in 2009 and 2010 they are just about visible). As a cost and deterrent to banks these amounts are less than irrelevant.

The USA is much more into headline grabbing fines, running into hundreds of millions and even billions of dollars. Forbes Magazine’s report in 2004 lists billions of dollars in penalties on Wall Street firms over successive years, with most of the culprits allowed to leave the court without any admission of wrongdoing. The same firms subsequently led the world into the dodgy deals and misselling that landed us in the financial crises of today.

Taking money from a Wall Street firm is like taking a cup of water from a river. The river has plenty of water, and flows on regardless. The big names dip into their pockets several times a year to pay fines for their misbehaviour, regarding it as just another overhead like their electricity bill. They see regulatory fines as no more reason to stop thieving than the electricity bill is a reason to switch off the lights.

Nobody would know this better than an accountant, as was stated by a senior KPMG executive in evidence to the US Senate:

“Based upon our analysis of the applicable penalty sections, we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees”… “For example, our average [OPIS] deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000.”

Commenting on a deal done by the SEC with Barclays involving a US$298 million fine with no admission of wrongdoing, US District Judge Emmet Sullivan said:

“The public has very little confidence in white-collar crime prosecutions. It’s proceedings like these [that raise questions about] fairness and justice. Why are the financial institutions being treated like this? People plead guilty to criminal conduct. This bank isn’t being asked to do that,” …..“If other banks saw that the government was being rough and tough and that bank executives had to stand before a judge and plead guilty, it might be a powerful deterrent,” 
US District Judge Emmet Sullivan, August 2010.

Punishment is only effective if it deprives the offender of something to the point of discomfort. Depriving Wall Street and the City of London financial firms of money is no deterrent. The overly endowed Masters of the Universe have only one thing of the same quantity as everyone else. Time. The only thing that can be taken from them that they would miss is their time – spent in jail.

Humanity has tended to follow its worst tendencies, and use the justification that “everyone else is doing it” to make it acceptable. The way we explain away the monstrous things that were done by our ancestors is that they were par for the course in those days. By the codes and morals of the time, such things were “not wrong”, therefore we should not condemn those people. Until 1865, “Liberty or Death!” Americans singing about the “land of the free” thought it reasonable to kidnap, buy and sell fellow humans. Slavery was abolished in the USA in 1865, but it took another hundred years until 1965 for the “Jim Crow equal but separate” laws to be struck down. Laws by which racism such as segregation in public places could be made a legal requirement in the USA.

History will say that the codes and morals of our times meant it was quite acceptable to rip off ordinary people. After all, acceptable behaviour is acceptable because it is accepted, not because it is right. Allowing the big financial companies to get away without accepting guilt shows a doorway to many other industries. Engineers know they are smarter and more deserving of reward than bankers, and saw that bankers got away scot-free with their rip-offs. Betting that the profits they could make by some well targeted mischief would richly outweigh the penalties  – confident that they would never have to admit wrongdoing and serve jailtime – corporate executives from all industries ripped-off, paid-up, and ripped again.

We see it again and again. Software, pharmaceuticals, aerospace. Suppressed competition; overcharging; cartels; bribery. Retribution is limited to cash fines, paid by the company from profits ripped out of us.

In the words of the US Judge, complaining to a government prosecuting lawyer who was complicit in keeping named individuals out of a case: “You agree there must have been some human being who violated U.S. laws?”

Polonius’ advice to Laertes (Shakespeare’s Hamlet): 

Neither a borrower nor a lender be; 

For loan oft loses both itself and friend, 

And borrowing dulls the edge of husbandry.

Justice system’s advice to corporate swindlers:

Neither admit nor deny doing wrong;

For admission may require us to take unpleasant action,

And denial would leave a rather strong pong.

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Glastonbury braced for U2 tax protests

U2 'tax dodge' is not pro bono … neither are the Glastonbury protesters

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Numeracy skills a challenge for universities

Only the numerate among us go to university … or is that the other way round?

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Gove's Law

All politicians pretend they have more knowledge on a subject than they actually do, but one man trumps them all

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Benefits Fraud: would the taxpayer save money by giving every citizen their due, not a penny more, not a penny less? Actually, it would cost £12.7 billion EXTRA!

Moral outrage is about something that doesn’t affect you personally. If someone pulls the leg off your teddy bear, it’s not moral outrage you are feeling – just rage. (No, really, I forgave you years ago. You know who you are!)

Moral outrage is all about the principal. And is magnified more by how close the offender is to you than by the magnitude of the offence.

• Morally Outrageous:            Someone who is about the same as us, same habits, same social group, doing something naughty. Outrageous because they are getting away with something we could get away with, if only we could be a bit more immoral:
• Jumping the queue
• Driving like an idiot
• Benefits fraud

  

• Just Damn Annoying:            Someone very different to us: e.g. a celebrity, top company executive, or banker. Less outrageous, because their naughtiness is something we could only aspire to in our dreams/nightmares:
• Getting let off by the police for extreme bad behaviour, including assault and substance abuse
• Taking multi-million bonuses while wrecking the world economy
• Asset stripping companies, and throwing pensioners onto the streets

When Ed Miliband, the leader of the UK Labour Party, wanted to give his outraged morals an airing in a speech earlier this month, he picked on two sets of bogeymen.

1)      A man he had met who “hadn’t been able to work since he was injured doing his job. It was a real injury, and he was obviously a good man who cared for his children. But I was convinced that there were other jobs he could do.”

2)      The executives of “Southern Cross care homes - where millions were plundered over the years leaving the business vulnerable, the elderly people in their care at risk and their families feeling betrayed.”

Miliband went on to say “We must be once again the party of the grafters” rather than, as before, of grifters. And continued “..there is a link between the man on incapacity benefit and those executives at Southern Cross. What is that link? That these are people who are just not taking responsibility - and the rest of us are left picking up the pieces.”

How did a “good man who cared for his children”, claiming £71.10 a week in incapacity benefit while looking pretty fit to Miliband, find himself in the whiffy company of unashamed slash-and-burn executives who pocketed an estimated £500million at the expense of pensioners?

The sad truth is the thought of some individual scamming us taxpayers out of £71.10 per week in incapacity benefit while actually being capable of flipping hamburgers for minimum wage is enough to blow all our other troubles away. We will soon forget about Southern Cross, but the bitterness for benefits cheats will stay with us.

No matter that we can’t afford a proper armed forces or a health service, we need to hand our schools to private companies, have to work until we are older and get less pension. Misfortunes caused by avaricious bankers who were let off the leash, self-serving politicians who got rid of the leash, and incompetent regulators who wouldn’t know how to use that tricky-dicky catch on the leash even if they had a leash and the inclination to use it.

What we need to do, we are told by politicians to the left and to the right, is tighten up on the benefits system. Make sure that everyone gets just what they are entitled to, not a penny more and not a penny less.

But would tightening up save us any money? The figures show that it would actually cost us billions.

In these straitened times, saving money is what it’s all about. After all, did we scrap HMS Ark Royal because we didn’t need it? If so, why did we have it?  By taking out the Ark Royal, bankers did something last achieved by a German U-Boat in 1941. 

All that bad banking is overlooked, but benefits fraud is not. So let's take a closer look at those benefits fraud figures:

In 2009-10

• £3.1 billion was overpaid, of which £1 billion was fraudulently taken in benefits. The rest was due to errors by the DWP and by the customers.
• £1.3 billion was underpaid, all of which was due to DWP and customer errors.
• NET Overpayment = £1.8 billion

On the other hand, the amount that was simply not claimed at all is many times this.

The fact is, if everyone got what they were entitled to, nothing more and nothing less, then Department of Works and Pensions figures show it would all cost us £billions MORE!

The last thing governments want is to be clear about the uncomfortable truths. So, here are the meanings of key bits of official-ese you will need for the next bit:

Caseload take-up compares the number of benefit recipients - averaged over the year - with the number who would be receiving [benefits] if everyone took up their entitlement for the full period of their entitlement.

Expenditure take-up compares the total amount of benefit received - averaged over the year - with the total amount that would be received if everyone took up their entitlement for the full period of their entitlement.

Income Support & Employment and Support Allowance

• Take-up between 78% and 90% by caseload.
• Take-up between 85% and 94% by expenditure.

Pension Credit

• Take-up between 62% and 73% by caseload.
• Take-up between 71% and 81% by expenditure.

Housing Benefit

• Take-up between 77% and 86% by caseload.
• Take-up between 82% and 90% by expenditure.

Council Tax Benefit

• Take-up between 63% and 70% by caseload.
• Take-up between 65% and 73% by expenditure.

Jobseeker’s Allowance (Income-Based)

• Take-up between 47% and 59% by caseload.
• Take-up between 49% and 63% by expenditure.

And here are the totals in folding money:

“Taking all six income-related benefits together, [Income Support, Pension Credit, Housing Benefit, Council Tax Benefit, Jobseeker’s Allowance (Income-Based) and Employment and Support Allowance (Income-Related)] there was between £6,930 million and £12,700 million left unclaimed in 2008-09; this compared to £38,110 million that was claimed and represents take-up by expenditure of between about 75 per cent and 85 per cent.”

Department of Works and Pensions, research published in June 2010.

Fraud in 2009/10 cost £1billion, which was less than 1% of total benefits payments. The reality is that if the government ran a campaign to ensure everyone took only what was coming to them, it would cost up to an extra £12.7 billion. How likely are they to do that at a time like this?

Politicians are overwhelmingly from the comfortable middle classes. Brought up traditionally, they will have all watched all those optimistic Hollywood musicals repeated over the years at Christmas. Few were repeated more often during the childhoods of this current generation of politicians than this song from “The King and I”.

Whenever I feel afraid

I hold my head erect

And whistle a happy tune

So no one will suspect

I'm afraid.

While shivering in my shoes

I strike a careless pose

And whistle a happy tune

And no one ever knows

I'm afraid.

The result of this deception

Is very strange to tell

For when I fool the people

I fear I fool myself as well!

Singing the song of benefits fraud finds plenty joining in from the broadcast, online, and print media. Politicians, always afraid of being found out, are happy to take cover and comfort wherever they can find it. 

Benefits fraud, certainly a problem in itself, has proved successful in diverting Ripped-Off Britons from the much bigger problems in their lives. Politicians hope that by making ordinary Britons suspicious of and annoyed with their neighbours, they will forget they are getting ripped-off far far more by utility companies, banks, insurers, the taxman, and the government itself. Bigger problems that the politicians are too afraid, or too complicit in, to deal with.

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Liebrary: Financial Services corporation tax makes a major contribution to overall UK tax

Financial services companies and their bag-carriers warn of dire consequences if they were regulated and taxed more. They threaten to leave the UK, and move to more accommodating countries, and take all their corporation tax with them.


Reality: Financial services corporation tax only contributes 2% of UK tax revenues.

Corporation tax contributes less than 10% of tax revenues. 

The Financial Sector, the greatest of the rippers-off of us Britons from cradle to grave, is lionised for paying 20% of all corporation tax. But 20% of 10% is a measly 2% of all tax revenues.

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Beating the baggage allowance

Fee considers extreme measures to increase her baggage allowance on budget flights

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Googling an economic recovery

Chris and KJ wonder if the Bank of England's plan to study Google searches will yield results

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