This article first appeared at GroundUp. Pictured: King Sibiya, founder of the Lungelo Letho Human Rights Foundation.

A landmark case to decide how banks should deal with home repossessions will be heard on 28 and 29 August in the South Gauteng High Court. 

This follows a directive by Gauteng Judge President Dunstan Mlambo, who ordered a full bench of the court to sort out the tangle of inconsistent home repossession judgments. Mlambo also wants the court to establish under what circumstances judges should set reserve prices on repossessed homes.

Court rules were changed late last year to allow judges to set reserve prices when homes are sold at sheriff’s auctions to stop them being sold for a fraction of their worth. Despite this, some courts in Gauteng continue to authorise the auctioning of houses (known as “sale in execution”) without reserve prices. The forthcoming case will clarify how and when judges should set reserve prices.

GroundUp reported the court case of Given Nkwane, whose home, valued at R470,000, was sold for R40,000 at auction by Standard Bank after he defaulted on his home loan.

This prompted former Public Protector Thuli Madonsela to tweet, “With due respect to the court, I consider this judgment to be grossly unjust and inequitable. It is a setback regarding social justice. Should this matter be taken on appeal, it would be great if all those concerned about social justice join in as amicus curiae (friend of the court).”

Lungelo Lethu Human Rights Foundation, represented by the Legal Resources Centre, has been admitted as a friend of the court (there is no applicant in this case, only friends of the court). Lungelo Lethu founder King Sibiya (pictured above) argues in an affidavit that there should be clearer directions for judges in setting reserve prices, and only in exceptional circumstances should a home be sold without a reserve price.

Lungelo Lethu wants the court to appoint an independent panel to advise on the matter. Sibiya cites several alleged abuses of the court process in his affidavit, including that of Mapule Molokomme whose home was sold at auction for only R10, and then on-sold by the new owner for a substantial profit. She was evicted from the home when she was eight months pregnant, and soon after the death of her husband. Lungelo Lethu says many of the 900 cases it has attended to over the years involve abuses of the court processes, where defaulting clients only discover judgment has been taken against them when the new owner arrives to assume possession of the property. This is because they were not properly notified of the legal action being taken against them by the banks.

Sibiya also states that while Lungelo Lethu educates borrowers on their obligations to repay loans, in hundreds of cases abuse of the court processes by lenders has affected the constitutional rights of the debtor to housing, dignity, safety and security, and access to adequate water and food. This abuse has also affected the rights of children. For many poor people, their home is their sole investment. “The current system, when the home is sold for nominal amounts of money, means that people do not get a cent from the sale of the house,” Sibiya says.

Lungelo Lethu’s arguments are supported by economist Dr Sean Muller, who disputes claims from the banks that the setting of reserve prices would reduce interest in the auction, and therefore make it less likely to find a buyer.

This article first appeared in Moneyweb.

Court papers filed in the Western Cape High Court last week by University of Stellenbosch’s Law Clinic and Summit Financial Partners make for disturbing reading. They are asking the court to stop creditors from loading unlawful costs onto the accounts of distressed debtors, which they reckon has cost debtors R1 billion in unlawful fees.

The so-called in duplum (‘double’) rule was written into the National Credit Act (NCA) in 2007, and means that once a borrower is in default, the outstanding amount payable can never be more than double the outstanding debt at the time of default. If you borrow R1 000, repay R400 of this and then default, the outstanding amount is R600. Under law, you are not obliged to pay more than double this amount (ie. R1 200) no matter how much interest supposedly accumulates, as long as you remain in default.

Some creditors saw what looks like a loophole in the NCA, and added service, administration and legal fees, claiming these fell outside the Act.

Take the example of Edgar Arnolds of Somerset West, one of the applicants in the case. He borrowed R12 000 from Bayport Financial Services in April 2011 at an interest rate of 34.4% a year for 36 months. This meant he had to repay R745 for 36 months, coming to a total of R26 837.

He defaulted later in 2011 and Bayport secured an emolument attachment order (EAO), also known as a garnishee order, against his salary. Arnolds’ employer was ordered to deduct R732 a month until the outstanding debt of R11 685, plus costs, was extinguished. As an aside, the garnishee order was obtained in the Randburg Magistrates Court, in Johannesburg, even though Arnolds lives in the Cape. This is unlawful, as garnishee orders must be obtained in the jurisdiction in which the borrower lives or works.

Six years later, in 2017, Arnolds wondered why his employer was still deducting R732 a month from his salary. Bayport informed him that he still owed more than R7 400. Arnolds discovered that after six years of dutifully paying his monthly debit, he still owed more than half the original amount borrowed. He asked Bayport for a reckoning, which it duly supplied.

In addition to the interest charges of R21 019, Bayport had loaded services, legal and other charges of nearly R6 500 onto his account. Had he paid this outstanding amount, he would have forked out R33 000, nearly three times the amount he borrowed. Another applicant in the case ended up repaying R5 100 on an initial debt of R600.

This is when the Law Clinic and Summit Financial Partners decided to step in on behalf of Arnolds and nine other clients with similar stories. It wants the court to rule that the services, legal and other fees should form part of the in duplum definition – in other words, the defaulting client should never have to pay more than double the outstanding debt at the time of default, even after accounting for all costs.

“The problem that debtors are facing is one of inconsistent judgments around the interpretation of the National Credit Act,” says Stephan van der Merwe, senior attorney at the Law Clinic. “We are not asking for a change in the law. The law, in our view, is clear enough. You cannot load these unlawful charges onto a client’s account as a way of side-stepping the in duplum rule.

“We need a healthy credit industry in SA, and we support those who abide by the rules. This case is aimed at those who do not.”

Dr Theo Broodryk, head of the Law Clinic, adds: “The fact that 49 respondents, including all the main banks and major lending institutions, have been joined to the application, is indicative of the impact that this case could have on the South African credit market.”

This is not the first time the Law Clinic has taken on what it sees as abusive practices by lenders. In 2016 the University of Stellenbosch Law Clinic took on the micro-lenders on behalf of 15 low income clients whose salaries were being siphoned off by garnishee orders. The Western Cape High Court and Constitutional Court found in favour of the Law Clinic.

In that case, lenders were found to be skirting the law by having garnishee orders stamped by a clerk of the court, rather than a magistrate, and often in courts far away from where the borrower lived. These practices were declared unconstitutional.

“Two years on, the applicants have approached the court regarding what they identify as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts both before and after judgment,” says the Law Clinic in a statement.

In an affidavit before the court, van der Merwe says section 103(5) of the NCA places a limit on the costs a creditor can claim in enforcing its agreement. “Consumers are no longer at the mercy of credit providers, who often have unlimited resources to pay legal fees to recover their debts which costs are the simply passed onto the consumer.”

This article first appeared at Moneyweb.

The business rescue practitioners trying to save the eight Gupta-owned companies placed under business rescue in February have had to face down 42 court cases in less than four months. That works out at more than 10 a month. The Gupta family from India has been implicated in corruption of state-owned companies through its close ties with former President Jacob Zuma, who now faces corruption charges of his own.

The blizzard of litigation kicked off within days of business rescue practitioners being appointed in February. Several of the cases came from liquidation practitioners seeking to liquidate rather than rescue the crown jewel in the portfolio, Optimum Coal Mine (pictured above), after getting legitimate creditors to sign over their claims. All of these attempts to liquidate the companies failed.

The motivation to liquidate rather than rescue the companies is obvious: the liquidators stand to make 10% on any monies raised from the sale of assets, which could amount to anything between R300 million and R500 million. Attorney Bouwer van Niekerk from law firm Smit Sewgoolam, which is representing the business rescue practitioners, says the litany of court cases was clearly stage-managed by previous managers to the prejudice of the companies, staff and creditors.

In April, several directors of the Gupta-owned Oakbay denied business rescue practitioners (BRPs) access to the company’s Sandton offices. The directors claimed that Oakbay, the Gupta-owned company that controlled the eight companies in rescue, had not itself been placed under business rescue and therefore the BRPs had no right to enter. The court threw out the claim, and forced Oakbay to open its doors to the practitioners. Many of the court cases against the Gupta companies involved appeals against decisions handed down by the North and South Gauteng High Courts. All of these appeals went in favour of the business rescue practitioners.

In recent weeks there was an attempt to sabotage Optimum Coal Mine when overhead cables supplying power to trains transporting coal from the mine were cut. Optimum had to replace the cables at a cost of more than R3 million.

All this pales alongside the damage wrought by the Guptas themselves, who appear to have drained the company of cash – to the point where miners were sent underground without protective gear and machines were left to rot.

Within 24 hours of taking over as business rescue practitioner for the Gupta companies, Louis Klopper testified before the Parliamentary Portfolio Committee. “I told the committee that the Guptas had pillaged the companies and treated them as their own personal piggy banks. I still stand by those comments,” he says, adding that a more detailed picture of the causes of failure at the businesses will soon be available.

This article first appeared at Moneyweb.

Seventy-seven-year-old former stockbroker and debt counsellor Fanie Grove has spent most of his life in financial services, but what he saw as a debt counsellor turned him against credit forever. His advice: avoid credit altogether, but if you must dip your toes in this sewer, be aware of the scams and tricks.
Seventy-seven-year-old former stockbroker and debt counsellor Fanie Grove has spent most of his life in financial services, but what he saw as a debt counsellor turned him against credit forever.

One client borrowed R4 000 from a cash loan company and ended up paying back more than R60 000. That wasn’t the end of it. Lawyers for the loan company still pursued the client for a further R29 000, until Grove told them to take a hike.

After nearly a decade as a debt counsellor, Grove has become a whistleblower against abusive lending practices. He has written scores of complaints to the National Credit Regulator (NCR) since 2007, detailing how creditors are miscalculating interest on car loans and other debts, as well as loading unauthorised insurance charges onto clients’ accounts.

“People are living from pay cheque to pay cheque. More than 80% of their working lives go to repaying debts. What worries me is where we will be in 50 years’ time unless we change people’s spending and savings habits, and bring greater accountability to the lending industry.”

The country is swimming in debt, he says. It usually starts with a month-end cash crunch. The first port of call is the bank. When that source of credit is tapped out, people move onto the loan sharks and things rapidly spiral out of control.

Lawyers involved in debt recovery also see an opportunity for illicit profit. In one case lawyers attempting to recover debt on a R3 000 fridge claimed the purchase price was R18 000. “I have seen numerous instances where lawyers inflated the capital amount of the loan by 50%, and then added 30% a month interest on top of that.

“People are encouraged to borrow without asking too much about the interest rate. This is the first mistake. Once they enter the debt system they are trapped, having to borrow more to cover the interest bill. There are hordes of vultures, many with bibles under their arms, that are making fortunes in the cash loans business. In hundreds of cases I have seen, people end up in the hands of the debt counsellors, a new concept introduced under the National Credit Act (NCA), to assist debtors to reschedule their debts and gradually pay them off.”

The banks have learned to game this system, declaring the very act of going under debt review as an act of insolvency – precisely what the act was intended to prevent. The result was that banks were foreclosing on people’s houses and cars as soon as they went under debt review.

“Fortunately, the act was amended a few years ago to prevent creditors from doing this. In other words, it is no longer an act of insolvency to go under debt review, but it speaks volumes about the ethics of banks that they would circumvent the spirit and intent of the NCA, knowing that it was attempting to protect debtors from such predatory behaviour,” adds Grove.

Out of this melee arose the garnishee crisis, throwing millions of people in SA into a debt crisis. This is when lenders extended credit and obtained court orders to deduct repayments from workers’ monthly salaries – known as garnishee or emolument attachment orders (EAOs).

According to NCR figures, more than four out of ten people in SA have impaired credit records. The Magistrates Court Act was amended in 2017 so that no more than 25% of a worker’s salary may be garnished (deducted from the payroll). Another change to the law requires magistrates rather than court clerks – as was previously the case – to authorise emolument attachment orders.

The Magistrates Court Act requires that EAOs are issued in the jurisdiction in which the employer resides. To get around this, lenders simply apply for a garnishee order in another jurisdiction far from the borrower’s place of work. “We see many instances where people borrowed in Cape Town but the creditor approached a magistrate in Joburg or Polokwane for judgment. Such judgments are in fact illegal, but again, it shows the deviousness of those engaged in this kind of reckless lending and recovery. Loan sharks have their own Magistrate’s Court and sheriff’s stamps so they can create fraudulent court orders.

“Sadly, most people do not check the correctness of their account statements. Some years ago I started to interrogate close to 100 vehicle purchase statements that clients had asked me to look at. I ran my own reconstruction of the statements and found staggering errors. In virtually every case, the accounts were wrong. Interest was miscalculated and unauthorised charges were added on top,” says Grove.

“Here’s the problem with vehicle purchases. Firstly, more than half the vehicle purchase agreements I have seen are not signed by the purchaser, something the courts tend to overlook, probably out of laziness. Secondly, the car salesman is not authorised in terms of the NCA to offer financial advice. This is often when the problem starts. Buyers are taking the car salesmen at their word when they ask what the monthly repayments will be, but then the actual bank statement arrives and it reflects a different amount. The salesman tells the car buyer he is free to choose an insurance provider of his choice, but then the bank statement shows an unauthorised deduction for insurance from a provider of the bank’s choosing.

“People will first borrow from the banks, then when that source is exhausted they start borrowing from loan sharks. I had one client earning R55 000 a month who was so deep in debt he was approaching me at the end of every month to pay his electricity bill.”

In another case, a client borrowed R3 000 from a loan shark at 30% monthly interest. When the borrower could not keep up with the repayments, the loan shark then offered an even larger loan of R10 000 to cover the outstanding loan. The client accepted, and the situation repeated. “It was at this point that he approached me to bail him out,” says Grove.

“Once these matters go legal, the lawyers are next in line to claim their share. Here it starts getting ridiculous. I have seen numerous cases where lawyers’ fees were larger than the original capital amount borrowed.

“Government needs to realise [this] debt recovery business is rotten with vultures and scammers.”

Suggestions for reversing this debt spiral:

• Monthly salaries to be paid weekly, in ratio of 20% in the first two weeks, and 60% at the end of the month. This spreads cash flow through the month.
• Only registered credit providers to be allowed to issue garnishee orders (to eliminate the loan sharks).
• Once a consumer is placed under debt review, attorneys and debt collectors should be prohibited from adding legal and collection charges.
• Establish a dedicated tribunal, separate from the National Credit Regulator and ombud, to rule on cases of reckless lending.

This article first appeared at Moneyweb.

Lawyers defending clients against the banks say the Gauteng Judge President’s recent directive can be used to freeze home repossessions and evictions.

Gauteng Judge President Dunstan Mlambo wants a full bench of the High Court to sort out the mess of inconsistent judgments over home repossession cases.

In a recent practice directive, Mlambo says he also wants a full bench of the court to decide on the setting of reserve prices when properties are sold at sheriffs’ auctions. Until recently, repossessed properties were sold at auction without reserve prices, resulting in some homes being sold for as little as R10. A recent change in High Court rules now allows judges to set reserve prices. But this has also caused confusion. Some judges have dismissed banks’ applications to declare properties “specially executable” without a reserve price, while others have done the opposite.

In April, former public protector Thuli Madonsela highlighted the injustice of selling properties for a fraction of their market worth, after the Pretoria High Court decided it was legal for Standard Bank to sell a R470 000 house for R40 000 to recover a mortgage debt.

She tweeted: “With due respect to the court, I consider this judgment to be grossly unjust and inequitable. It is a setback regarding social justice. Should this matter be taken on appeal, it would be great if all those concerned about social justice join in as amicus curae (friend of the court)”.

Cases such as this have embarrassed the banks and the legal profession. Following Madonsela’s advice, the Lungelo Lethu Human Rights Foundation (LLHRF), represented by lawyers at the Legal Resources Centre, has been joined to the proceedings as a friend of the court, and will be making written and oral submissions.

LLHRF president King Sibiya sees the directive from the Judge President as a major victory against creditor abuse: “It effectively amounts to a freeze on evictions in Gauteng, which is exactly what we have been campaigning for all these years. There are more humane ways for banks to recover debts than throwing families onto the street. We say the Constitutional rights to dignity, property and justice must be given due weight by courts when hearing cases involving the recovery of debts by banks.”

Sibiya is one of the architects of the R60 billion class action suit being brought against the major lending banks for selling repossessed properties below market price.

“There is an epidemic of evictions in the townships in recent years, with gross abuse of court procedure. We recently surveyed several hundred evictees and more than half were not properly notified by the banks of their intention to bring legal action. How can you defend yourself when you do not know the bank is bringing legal action? It is time for the courts to sort out these inconsistent judgments and abuse of court processes by creditors.”

Alexandra Ashton, an attorney with the Legal Resources Centre, says the Judge President’s directive can’t be used to stop the sale if an order for execution has already been given. “But in cases which are pending before the court in which banks have applied for sale in execution, the directive is a reason for the matter to be postponed until the full court has given its judgment.”

Legal advisor to the LLHRF, Leonard Benjamin, argues that a special tribunal needs to be set up to hear home repossession cases. “The adversarial nature of the court process and the winner-take-all result – usually in favour of the banks – is not always in the best interests of justice. In some of the cases we have seen, the banks are getting away with murder, claiming legal and administration fees to which they are not entitled, and often incorrectly calculating interest and outstanding loan amounts. The courts are not the right forum for this. We need a specialised forum where these cases can be aired in a spirit of finding resolution and allowing debtors time to recover from a financial setbacks without losing their homes.”

Moneyweb approached Standard Bank for comment on the directive. Ross Linstrom, spokesman for the bank, replied: “As you are aware the matter is currently sub judicaeand we therefore cannot comment on the questions that you have posed. Suffice for us to say that Standard Bank has duly served and filed its papers and we await the hearing of the matter.”

The Judge President’s directive references four cases involving Absa and Standard Bank to be decided by the High Court. It highlights inconsistencies in judgments by the court, particularly where banks apply for default judgments against debtors and at the same time ask the courts to declare properties executable (authorising them to be sold at sheriffs’ auctions). For banks, this expedites matters and allows them to auction properties without having to approach the court twice: once for a money judgment, and again to declare the property executable.

Mlambo’s directive says the practice of the court is to postpone applications such as these to allow the debtor time to catch up on the arrears. “If upon the postponed date the arrears will have been brought up, the agreement would be reinstated (in terms of the National Credit Act) and the debtor will not lose her home,” says the directive.

Divergent practices have entered the court system over the years. Mlambo wants the court to decide what, if any, discretion judges should have in granting judgments for the full accelerated balances on mortgage debts. Most mortgage bonds have “acceleration clauses” which allows banks to call up the full outstanding loan even though the debtor may only be three or four months in arrears.

“A person’s home is their most important asset and it should not be possible to have it so easily removed from them,” says Benjamin. “If a person is three months in arrears, the law as it stands allows for the bank to attach movables, such as furniture and sell these items to catch up on arrears. Why go straight for the house as the first option?

“This directive is a vitally important step in establishing uniformity in the way courts treat home repossession cases and, hopefully, to bring greater justice and respect for the Constitution to such cases.”

Ciaran talks on SAFm radio about the spread of Durban’s construction mafia to Joburg.

This article first appeared in Moneyweb.

It’s a shakedown that’s been going on for several years in KwaZulu-Natal, but is now rearing its head in Johannesburg. Local community gangs, often armed, threaten to shut down construction sites unless they are given 30% of the work.

“The mafia is particularly prevalent in the Durban metro area, which is why I will no longer work in this area,” says a construction manager who asked not to be named. “I was previously working on a construction site in Pietermaritzburg and these guys would turn up every day, cocking an AK47 in front on my office. You have little option but to agree to their terms, which means 30% of our sub-contractors are imposed on us.”

The so-called construction mafia has organised itself into business forums, one of which is the Delangokubona Business Forum, reportedly comprising more than 3 000 members, according to the Sunday Tribune.

The gangs usually demand that construction managers employ their members, often at extortionate rates – in one case, a construction company was ordered to employ a bricklayer at R2.50 a brick when the going market rate is R0.80 a brick. Several sites have had to let other workers go to make room for the so-called mafia workers, who frequently lack the skills needed for the jobs. Nor are they necessarily local. Equipment and materials are reported to have been stolen in some instances when Forum workers have been employed.

Peter Barnard, a partner at Cox Yeats Attorneys, has won around 30 court interdicts against multiple business forums on behalf of construction firms in KwaZulu-Natal.

“It seems that this all started in February 2016 when a crowd stormed into the Durban mayor’s office demanding that local suppliers and contractors be given work,” he says.

“From what I understand, they left that meeting with the impression that local suppliers and contractors would be awarded 30% of government construction contracts. They obviously misunderstood what was being conveyed. The new Regulations to the Preferential Procurement Policy Framework Act, which govern most state projects, are complicated and don’t create an automatic entitlement to work.

“They obviously heard what they wanted to – and have proceeded on the basis that they are entitled to 30% of all work on projects. From about March 2016, ‘business forums’ started hitting construction sites and demanding work.”

Barnard says that virtually every major development and Project in KwaZulu-Natal has been affected by one or more forums.

The “construction mafia” rejects accusations of thuggery, claiming to be fulfilling government’s mantra of radical economic transformation by ensuring that 30% of sub-contracting work is given to locals.

Recently, construction of the Oceans Hotel in Umhlanga, backed by businessman Vivian Reddy, was shut down for several months after work was disrupted by Forum members. Last year WBHO downed tools for several weeks on the R1,8bn expansion of the Suncoast Casino when Forum members stormed on site demanding a slice of the action. One manager with a major construction firm confirmed that the mafia has now appeared on construction sites in the north of Johannesburg.

Some site supervisors and managers have started toting guns in self-defence after numerous instances of on-site assault. In some cases, site managers have been shot at or threatened.

Several construction firms have had to approach the courts to interdict the Business Forum from intimidating or harassing construction workers. Among the companies awarded interdicts against the group are Tongaat Hulett Developments, Vumani Civils CC, WK Construction SA and Water Bles Investments. The interdicts prevent members of the Delangokubona Forum from intimidating or harassing workers at the Sibaya Precinct development in Umdloti.

The troubling aspect is that the intimidation tactics appear to be working.

Many firms are forced to enter into negotiations and reach a settlement with the various business forums. Construction projects with a 15% profit margin cannot afford time delays, given the highly geared nature of these projects. Delays add to the costs, so companies will often prefer to come to an accommodation with Forum members rather than run the risk of further disruption and intimidation.

Local government officials and police have promised to stamp out such instances of thuggery, but construction managers say the city government in Durban is sending out mixed signals, promoting “radical economic transformation” on the one hand, while promising to stamp out thuggery on the other.

“The difficulty that companies have is that they are already employing locals and complying with the law,” says Barnard. “They have to meet government requirements to be awarded the tenders and projects in the first place. Then, after moving onto site, they now have another group, or several of them, coming in and demanding that they be employed. If they don’t get what they want, they often shut the site down.”

Some site managers say the police will respond only when a serious crime such as assault is involved. Barnard says the interdicts awarded by the Durban High Court include an action to compel the SA Police Services to do whatever is necessary to give effect to the court orders. “The SAPS have been very good in executing on these orders, and that has helped bring some order to the situation.”

One construction executive who asked not to be named says that although his company won an interdict against the business forum, it proved difficult to serve on the individuals involved. “So although we won the interdict, this did not stop them. Many of the people who were intimidating us were not even local. We then started working with the local community and explained that these people were trying to take their jobs. It was at this point that things started to quieten down.”

A water project for eThekwini Municipality in KwaZulu-Natal has been repeatedly disrupted by business forum members, despite an interdict being awarded to the contractors. “We are hoping for a final order that will allow the SAPS to make an arrest in this case,” says Barnard, adding that this would be the first such order that he is aware of.

There is a danger that some struggling construction firms will be put out of business by these mafia-style tactics. It remains to be seen how forcefully police in other parts of the country deal with cases of intimidation as the mafia spreads from Durban.

This article first appeared in Moneyweb.

Michael Hudson is regarded by many as one of the world’s best economists because of his willingness to pierce the veil of deceit that passes for modern economic wisdom. His latest book J is for Junk Economics exposes much of modern economic thought as pure propaganda. 

Michael Hudson is regarded by many as one of the world’s best economists because of his willingness to pierce the veil of deceit that passes for modern economic wisdom.

In 2006 he warned of the coming mortgage bubble as an inevitable result of the debt explosion, but his warnings were brushed off as the murmurings of a spoiler.

J is for Junk Economics is his latest work, and is a follow-up to his previous book, Killing the Host. Junk Economics is discomfiting to those who profess to understand free markets. It is a full frontal attack on modern banking, monopoly privilege and the so-called rentier class that has siphoned wealth away from the working and middle classes to the already wealthy.

“The 2008 banking and junk mortgage crisis saw the United States and Europe save banks and bondholders, not their economies. While governments spent trillions on bailouts and ‘quantitative easing’ to save large creditors and speculators from losses on their bad loans and gambles, public and private infrastructure has been left to crumble and median wages are drifting down.”

The printing of new money in the form of “quantitative easing” is fire-hosed into the stock, real estate and bond markets to keep asset prices aloft.

Junk economics says Hudson, is the cover for all this. Dressed up in scientific jargon, it is little more than propaganda calculated to redistribute wealth upwards, reversing the policies urged by 19^th century classical economists and reformers.

Hudson is an advocate of debt Jubilees of biblical reference, where unpayable debt was simply written off – usually by rulers seeking recruits for a new war or large-scale public works programme. The ravages of compound interest guarantee that our current debt burden can never be repaid, other than by more and more money printing. But that always ends in catastrophe, and is in fact the poison that has killed civilisations from Babylon to Greece and Rome.

The way we measure gross domestic product is fictionalised by the inclusion of unearned income such as interest and rent paid to the FIRE sector – finance, insurance and real estate. Exclude these rentiers (as they were known a century ago) and our GDP figures come crashing down. Hudson distinguishes between the “real economy” of factories and commerce from the financialised economy, though it is the latter which is exalted as the engine of economic growth. This is how the US economy has been deindustrialised, as factories moved to low wage countries such as China.

What about the perceived wisdom of budget surpluses so popular among World Bank types? Hudson points out that budget surpluses are achieved by raising taxes or cutting back public spending, “taking money out of the economy to pay bondholders.” Paying down public debt sucks money out of the economy, just as consumers servicing their bank loans leads to debt deflation.

Just as commercial banks create money electronically by lending, governments can do the same thing. Government budget deficits spend money into the economy, which is not inflationary when labour and resources are unemployed. This is in contrast to neoliberal economists who preach austerity, followed by bank bailouts when their disastrous policies inflate financial bubbles to the benefit of their constituency of bankers and bondholders. He fires broadsides at modern economists for enabling the dispossession of the 99%, and smears the Nobel Economic Prize is a PR campaign for “neoliberal junk economics”.

Tough stuff, but immensely entertaining. “It is time to throw down the gauntlet and accuse the rentier financial class deceptions of being what they are: economic fictions,” writes Hudson.

J is for Junk Economics is a dictionary of sorts, explaining the theories of Adam Smith to John Mills. Even the word “free market” has been twisted by modern interlopers to mean freedom to extract unearned rent or income. This is where Hudson is at his best. “To deter regulation, taxation or nationalisation – and even to gain public subsidy and government guarantees – lobbyists for the FIRE sector depict rent and interest as reflecting their recipients’ contribution to wealth, not their privileges to extract economic rent from the economy.”

Banks and real estate speculators derive unearned “rent” from the overall improvement in property values. A new access road funded by taxpayers increases the overall value of properties in the area. Banks and speculators extract this value in the form of higher mortgage payments and commissions. The phenomenon was well known in the 19^th century by Karl Marx and classical economists such as John Stuart Mill. The recommended solution to this was for governments to tax the increase in land values away, rather than hand it over to rentiers, and reinvest this back into the community to promote further prosperity. To count this unearned rent as part of national income is to pretend that banks are providing a real economic product (as opposed to bank lending for a factory, for example, which leads to tangible economic output).

Another misconception tackled by Hudson is the notion that classical economists such as Adam Smith stood for free markets and opposed government interference. What they actually opposed were governments controlled by the landlord aristocracy dominating tax policy, resulting in Britain’s House of Lords taxing labour and industry instead of land and finance.

At a time when there is discussion of starting a state-owned bank in SA, the architects should be required to read this book rather than listen to the solicitations of bankers. China’s state-owned banking system, long derided by Western analysts for its abstruse accounting, has been a major pillar of that country’s economic miracle. Rather than taxpayer-funded bailouts, as occur in the West when banks fail, Chinese banks simply write down debt.

You can watch some of Hudson’s debates and presentations on Youtube to get a sense of his staggering knowledge of economic history.

This article first appeared in Moneyweb.

Tens of thousands of illegal miners scramble below ground each day, hoping to pull out half a gram of gold and get to it the surface without being robbed or fleeced.

Try as they might, the government and trade unions are powerless to stop the tens of thousands of zama-zamas who descend each day into the network of discarded mine tunnels underneath Johannesburg, reckoned to run to 160 000 kilometres. That’s four times the circumference of the earth, and virtually impossible to police.

They descend at dawn and resurface at 6pm when the police change shifts. Some will stay underground for days, some for months. There is a supply network that feeds those underground with food, alcohol and batteries. Armed “security guards” protect the entrances to the underground tunnels, charging R50 or more to those who enter. Nothing in life is free. Even these abandoned mines have new landlords.

A few kilometres outside the Benoni CBD to the east of Johannesburg, the authorities made an effort to curtail illegal mining by collapsing some underground entrances. A few weeks later, the entrances were reopened and it was business as usual. There are hundreds of entrances dotted around Johannesburg, and they all belong to someone.

The mining houses long ago abandoned these mines as non-viable, but there is still sufficient gold in them to attract thousands of illegal miners every day. They enter without hard hats, harnesses and the other paraphernalia required to keep them safe. Mines spent hundreds of millions of rands on support infrastructure to prevent roof collapses and provide fresh, cool air. None of this happens in illegal mining.

Most zama-zamas chip away at the gold-bearing reefs with small picks, while the better resourced use explosives. They load the ore into small back-packs and make their way to the surface, dodging the police to get the ore to the above-ground “refineries” where the ore is crushed and the gold extracted from the concentrate using mercury. The mercury is burned off, leaving a small nugget of gold.

These illegal miners have their own equivalent of fishing stories – hard to prove, but amazing if true. Three Zimbabweans working under Modder B mine are reported to have recovered 4.7kgs of gold in three days of work, worth about $200 000 at today’s gold prices. They apparently returned home, squandered the money and are now back underground at Modder B.

But the hardscrabble reality for most is far more sparse than this: the people working the illegal refineries above ground expect to make 0.5-1 gram a day, worth R420/g on the black market operating on the East Rand. Sometimes you hit a sweet spot, where the same amount of rock yields ten or 20 times this amount.