Modern economics is pure propaganda

Written by Ciaran Ryan. Posted in Journalism

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 19th 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 19th 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.

 

The most dangerous occupation in the world

Written by Ciaran Ryan. Posted in Journalism

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.

170 billion reasons why the Reserve Bank is a target for state capture

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb.

Dawie Roodt

Former Reserve Bank employee and now senior economist at Efficient Group, Dawie Roodt, says there are 170 billion good reasons why the state would want to get its hands on the assets of the Reserve Bank.

He says last year’s failed attempt by the public protector to alter the mandate of the South African Reserve Bank may be a prelude of what’s to come.

Assets worth R170 billion are reflected on the Reserve Bank’s balance sheet as belonging to the state – most of them unavailable for state spending. The state will have to borrow R224 billion in the current fiscal year to finance its budget, and will be looking for any cash it can lay its hands on.

Of the R170 billion Reserve Bank assets belonging to the state, R70 billion was accumulated when Trevor Manuel was finance minister and tax revenues exceeded budget projections. The economy was powering ahead and foreign inflows meant too much money was in circulation, with the danger that inflation would ratchet out of control. An amount roughly equivalent to R70 billion was transferred from the state to the Reserve Bank to take some of this money out of circulation, but with the agreement that this money could not be used for state spending in the future. It was a smart idea by Treasury, which seems to have anticipated that a future administration would make a claim on this money. These funds now sit on the Reserve Bank balance sheet as a liability to the state.

The Reserve Bank also holds about R100 billion in forex that belongs to Treasury, but this too may only be used for foreign currency transactions, and is not available for domestic state spending.

Roodt says the state would love to get its hands on this money to help solve some of its budgetary constraints: “R170 billion would solve a lot of problems, like SAA, Eskom and other state-owned entities, which have huge debt obligations falling due. I suspect this was the reason the public protector last year brought out a report recommending a change in the Reserve Bank’s mandate. Though this was rejected by the High Court, I believe we may see further attempts to weaken the Reserve Bank.”

Last year public protector Busisiwe Mkhwebane attempted to have the Constitution amended to change the Reserve Bank’s mandate, which is to protect the value of the currency. The Constitution also requires the Reserve Bank to perform its functions “independently and without fear, favour or prejudice”, but in consultation with the cabinet.

Mkhwebane also ordered Absa to repay a R1.12 billion Reserve Bank bailout stemming from its acquisition of Bankorp in the 1980s. Absa and the Reserve Bank are opposing this, and the matter is currently before the court. The attempt to alter the bank’s mandate was rejected by the North Gauteng High Court, but Roodt believes that this was not the final attempt to capture the Reserve Bank.

Zimbabwe was once the freest economy in the world

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Lewrockwell.com.

Zimbabwe is best remembered as the country that clocked up a jaw-dropping inflation rate of 231 million percent a year.

That insanity came abruptly to an end in 2009 when the country adopted the US dollar and South African rand as the official means of exchange.

How did it get to this Olympian inflation rate? The same way it always happens, by rampant money printing.

Less well known is what happened immediately after this. The ruling Zanu-PF party lost its outright majority in the 2008 election and was forced to share power with the opposition Movement for Democratic Change (MDC). In came opposition member of parliament Tendai Biti as finance minister, and in a 30 minute speech to parliament he announced the end of virtually any form of government interference in the economy. No more exchange controls, no more price controls, no more import permits needed. Government was getting out of the business of trying to regulate the economy.

Within weeks, shortages of fuel and food had vanished and once-empty supermarkets were stacked to the roof. Inflation, which just a year previously had been doubling every few hours, fell to minus 7 per cent. Within two years, Zimbabwe’s inflation rate was the lowest in the southern Africa region. The economy grew at an average 8% a year over the next four years, albeit off a bombed-out base. Zimbabweans could scarcely recognise the country in which they were living. Entrepreneurs were making money hand over fist. They were buying cars, going on overseas holidays and sending their kids to the best private schools.

This free market experiment came to an end in 2013 when Mugabe won outright control in an election most believe was stolen, and reverted to form, reintroducing exchange and other controls.

If crisis makes its own opportunity, here is a case in point. Zimbabwe had hit such a low ebb, it was ripe for the kind of radical free market economics that frighten the bejeezus out of other countries.

Regulators have an innate fear of anything that moves freely and without hindrance. Take exchange controls, which we Africans have endured our entire lives. South Africa has had exchange controls since the apartheid years, a policy mindlessly extended under the African National Congress-led government.

The great fear is that removing exchange controls will lead to a flight of capital and all the attendant dangers that implies to the balance of payments, inward investment and tax revenue.

Zimbabwe’s experience is quite the opposite. Government tax revenue shot up nearly eight-fold in four years, and there was no shortage of foreign currency. The balance of payments did deteriorate, but this was partially offset by much higher inward investment flows.

MDC opposition member of parliament Eddie Cross, an economist by training, says this flowering of economic prosperity should be heeded by other countries. “We could solve Venezuela’s problems (with inflation and shortages) in an hour,” he told Moneyweb.

That’s right. He is saying we should look at Zimbabwe as a model for economic reform.

Two months ago, Robert Mugabe was deposed in a soft coup after 37 disastrous years at the helm. His successor, Emmerson Mnangagwa, through cut from the same party political cloth as Mugabe, made a decent impression at the recent Davos confab, promising sweeping reforms and respect for democratic outcomes. Though as Cross points out, he hasn’t followed this up with substantive reforms.

Zimbabwe’s next election comes up in June, and there is a real chance the country will have an opposition party in government, or at least a coalition. That holds out the exciting prospect of a free market finance minister such as Tendai Biti once again taking over the country’s purse strings.

If that’s the case, Zimbabwe, with a population among the best educated in Africa, is a miracle waiting to happen. I’d put money on it.

More people on welfare than have jobs in SA

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb. Pictured below: Narius Moloto, head of trade union federation (NACTU).

 

 

 

 

 

 

 

 

 

 

 

There are now more people receiving social grants in SA than there are people with jobs.

Finance Minister Malusi Gigaba’s budget highlighted the predicament government finds itself in: there are 17.6 million people receiving grants, against the 16.2 million people with jobs in the country.

In 2001 there were 12.5 million people employed and just 4 million people receiving social grants, according to an Institute of Race Relations survey. The number of people on social grants has exploded more than four-fold in 17 years, while the number of official jobs has gone up just 30% over the same period. Aggravating the situation is the growth in public sector jobs from 2.1m to 2.7m since 2008. Public servants’ salaries – which are more than a third higher than the private sector average – now account for nearly half the annual budget.

“This situation is not sustainable,” Dawie Roodt, chief economist at the Efficient Group, told the Austrian Business Chamber at a post-budget briefing in Sandton last week. “I disagree that this is a conservative or reasonable budget, as some have claimed. It is an awful budget. SA has become a country of social upliftment, rather than a country of economic upliftment. We’re among the most highly taxed countries in the world, and there is no apparent recognition of how we got here or how we are going to get out of this mess.”

Rather than trying to focus on job creation, Roodt says the government should be looking at economic growth as the primary engine of job creation, flanked by privatisation, massive infrastructure development and a world class skills development programme.

Mike Schussler of Economists.co.za says a worrying aspect of the structural dependence being created in the country is that of the roughly 16 million people with jobs, 10 million are in the formal sector and only 7.5 million of those pay tax. “If you add people who are pensioners, we are on our way to having 19m people who are dependent on some form of social grant or pension. This leaves the few who are working to carry the burden. This cannot continue.”

The returns that South Africans receive on their taxes are abysmal. SA learners score among the worst in the world when it comes to maths and science, due in part to the high learners-to-educators ratio: 32 in SA versus 24 for the rest of the world. This is despite spending 22.5% of the budget on education each year. Social assistance will account for R197 billion or nearly 13% of the budget in the coming fiscal year. Coming in just behind this is interest spending, which will swallow R180 billion or 12% of the budget.

Narius Moloto (pictured above), leader of the Pan African Congress and secretary-general of trade union federation Nactu (National Council of Trade Unions), says while the tax base is becoming smaller, government welfare grants are ballooning out of control – a situation that is unsustainable, even in the short term: “The cash grants system is another form of political patronage and does not encourage upward progression in the economy. The way it is structured at present entrenches dependency. With some of this money that is being spent on social grants, we could have established cooperatives and micro-enterprises in poor communities with a view to permanently weaning them off welfare. That’s not happening and the programmes aimed at job creation are not working.”

One quick way to cut spending is to eliminate the provinces, which are little more than super-Bantustans with mini-presidents, says Moloto. “SA is over-administered. There’s huge duplication between national, provincial and local government. We can save billions a year by eliminating this duplication.

Michael Komape died because he was a rural African child

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at GroundUp.

The Michael Komape trial wrapped up on Friday in the Limpopo High Court in Polokwane, with counsel for the family, Vincent Maleka, asking Judge Gerrit Muller to compel the provincial Department of Education to attend to the dire state of school sanitation in the province (Limpopo is one of nine South African provinces).

Five-year-old Michael drowned in a pit toilet at a school near Polokwane in 2014. Limpopo’s Department of Education has already admitted liability for the death. It now remains for the court to decide on the amount of damages to be awarded to the family, which is seeking compensation for emotional shock, trauma and grief.

The state has opposed calls for so-called Constitutional damages on top of the common law damages being claimed by the family.

Much of the argument in the last two days centred around whether the Limpopo Department of Education should be compelled to address the sanitation backlog of schools in the province, and by what means.

The court raised the prospect of a so-called structural interdict, which would likely compel the Department to address its sanitation backlog within a fixed time period.

Maleka (pictured right) argued against this on the basis that it would require each violation of the interdict to be argued afresh in court. The Department was unlikely to comply with a structural interdict, given its tardiness in addressing the existing sanitation backlog in schools, he said.

He asked instead for the judge to develop a common law remedy which would allow specific damages for grief, or alternatively for damages specifically related to violations of the family’s Constitutional rights, such as the right to life, dignity and equality.

He also asked for a declaratory order declaring that the Department has failed in fulfilling certain of its Constitutional obligations. Such an order would have a practical effect, said Maleka. It would hold the Department accountable for its violations of the Constitution, and it would vindicate the rights of Michael Komape and other learners in the province.

It would also give teeth to the Constitution, in that basic education envisaged by the Constitution is impossible without functional school toilets.

“There surely cannot be justice for Michael Komape if the defendants are allowed to plunder the public purse to pay the damages for their willful negligence without any further sanction. As we stated earlier, this case requires a judicial sanction that is exemplary and the declaratory order is an important component of the groundbreaking relief that we ask this Court to grant,” said Maleka.

Oral evidence in November last year showed the Limpopo Department’s sanitation and toilet system to be among the worst in the country. Even the Department’s own annual reports show the extent of the sanitation backlog in the province’s schools. The court heard evidence that funds earmarked for sanitation infrastructure went unspent several years in a row and were then returned to the Provincial Treasury.

In his heads of argument, Maleka pointed to the legacy of apartheid-era discrimination that afflicted rural schools. “We submit that the fact that Michael was an African learner living in a village in Limpopo and that he died in a school toilet is not a coincidence. It is precisely because Michael was an African learner at a rural public school that he died and that he died in the manner in which he did. It is difficult to argue that this could have happened to a learner of another race or in an urban school. It follows then, that this type of pain, suffering and grief could not have befallen anyone other than a rural African family.”

Judgment was reserved. It remains to be seen whether this turns out to be a precedent-setting case that provides backbone to the Constitution and holds government departments accountable for their actions and omissions. This is the outcome being sought by Maleka and public interest law firm SECTION27, which is representing the Komape family. If the Komapes are successful in their case, it will force government departments to examine their actions in light of Constitutional rights to equality, dignity, and to life. It will force government departments to re-prioritise budgets to avert the kind of tragedy that befell Michael Komape in 2014.

Zim has a message for South Africa and it’s not good

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Acts.co.za

As we launch into the New Year, there are some positive developments to consider as we ponder the plight of over-indebted consumers, the push-back against entitlement politicians, and the message trickling across the Limpopo from Zimbabwe as it confronts a glimmer of hope.  

The change of leadership in Zimbabwe is a signal to the rogues in our own country who expect to lead forever, as if this were an heirloom of entitlement.  Adolf Hitler promised the 1,000 year Reich, Ian Smith of Rhodesia said his racist party would likewise rule for 1,000 years, Jacob Zuma said the ANC would rule till Christ returned. It’s time to start counting the days and months whenever some fool politician starts making predictions.

Old man Bob Mugabe has gone, along with his wife and entourage, and the new incumbent, Emmerson Mnangagwa, promises free and fair elections and a revitalised economy. Hell, they’re even talking of giving some stolen farms back to whites. I’m betting on Zim becoming the great African success story of the next five years, regardless of which party eventually rules. Mnangagwa is no saint, as the families of slaughtered Ndebele in the early 1980s will tell you (when upwards of 20,000 supposed political opponents were shot or buried in mine pits), but he understands what has to be done to claw the country back from the brink of outright ruin that it has faced for close on 15 years.

There is no other way out of this mess: Zimbabwe has 90% unemployment, and the only way to create jobs is to let the private sector in. A SA-style Truth and Reconciliation Commission is needed to expose the architects of the plunder and fratricide that sent nearly half the population into exile. That’s a crime against humanity, and while the army cleaves tightly to Mnangagwa’s tailcoat, this will not happen. But in time it will.

Meanwhile, foreign investors are waiting on the sidelines, but they will not jump until there are solid assurances that their property will not be confiscated by arbitrary indigenisation rules and policy changes. This realisation will eventually trickle across the Limpopo to SA, where investment has similarly evaporated.

2017: the year the tide turned against corruption and lawless banks

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Acts.co.za.

2017 will go down as the year the tide turned against corruption. President Zuma will soon be gone and his successor, assuming it is Cyril Ramaphosa, will start to rebuild the ruling party around traditional ANC Charter values of human rights and respect for voters. He will have to if the ANC has any hopes of maintaining a majority in the 2019 elections. 2017 was also a year in which the courts started to rein in lawless behaviour by the banks, making it harder to repossess homes for a pittance.

 

It’s that time of year again when we celebrate Christmas and recount the achievements and follies of the year. The ANC goes into its elective conference this weekend to pick a new leader, with Cyril Ramaphosa taking the lead in several polls. If elected, he has one monumental job ahead of him to slow the runaway train of corruption and graft that has characterised the ruling party elite under President Jacob Zuma.

We’re a bit better informed about events now, thanks to some sterling work by Jacques Pauw whose book The President’s Keepers seems to have been read by just about everyone with an email address (thanks to the soft copy version that did the rounds, in case the security establishment tried to pull it). It’s a depressing read for the most part, but fall-down funny in places. It concludes that Zuma had to become president to stay out of prison for more than 700 charges of corruption. This utterly compromised man allowed the Gupta family to capture state-owned companies and make ministerial appointments. We learn that Zuma would not submit his tax returns before or during his presidency, lest the source of his funding became known. He was surrounded and pampered by criminals and gangsters. It’s astonishing just how close these guys managed to get to the levers of power.

We also learn that here is a man who has never had an honest job in his life, and whose bills were paid by others – including former President Nelson Mandela who gifted him R3m to clean up his debts, and get his affairs in order. This didn’t last long. Around the time Zuma defenestrated Thabo Mbeki as leader of the ANC, he tried to open a bank account with Absa Bank.

From The President’s Keepers by Jacques Pauw: “Benefactors showered Zuma with white envelopes while banks were at his feet. When the cash-starved politician approached Absa in the late 1990s to open an account, his bad credit record with Standard Bank and Nedbank should have disqualified him. But the business centre manager wrote in a memorandum that Zuma was likely to be elected South Africa’s deputy president soon and that his ‘bank balance was the last item on his mind, with more important matters regarding the country and the province to focus on’

“Within three months, Zuma’s account was heavily overdrawn.”

Surely a case of reckless ending if ever there was. In any event, Zuma will soon be history but may still pull strings from behind the scenes, particularly if his former wife Nkosazana Dlamini-Zuma wins the race for leader of the ANC. She will have her hands full keeping her ex out of court and away from the mountain of charges against him.

One of the great victories of the year is the triumph of the free press in SA against an onslaught from the dissemblers in government. Bell Pottinger, the PR firm, is no more. It’s racially charged campaigns against “white monopoly capital” and in favour of “radical economic transformation” (code for theft) have been exposed for what they are – attempts to deflect attention from the crooks in government.

The Democratic Alliance has taken over the running of Joburg, Pretoria and Port Elizabeth (it’s run Cape Town for much longer) and has been drip-feeding stories of corruption under the previous ANC administrations to the voters. Another book by Crispian Olver, How to Steal a City, details how Nelson Mandela Bay “was entirely captured and bled dry by a criminal syndicate.” Olver is an ANC insider sent in to clean up corruption in the city. What the criminals wanted were the tenders so they could pillage the public purse: building, transport, you name it, they had it all wrapped up. Which explains why warehouses full of buses remain unused and thousands of houses paid for by the public taxpayer remain unbuilt. The scale and audacity of the theft is breathtaking. Olver is a brave man, who admits he had to have bodyguards to protect his life while investigating the criminal syndicate that took over the city.

Another victory is the call by the Parliamentary Standing Committee for Public Finance for an inquiry into banking abuses, including the use of “bouncers” to repossess cars without following the correct legal process; the repossession of houses and other assets without issuing so-called Section 129 notices (in terms of the National Credit Act) which notifies the debtor that legal action is about to commence unless the arrears are settled; and the issue of summonses by banks without attaching the original documents purportedly signed by customers. When challenged on this, the banks claim the originals were destroyed in a fire. This fire should have been designated a crime scene, since banks were able to foreclose on thousands of South Africans with recreated documents that – astonishingly – have been accepted by the courts.

And on this basis an estimated 100,000 homes have been repossessed by the banks since 1994. One of the oddities of SA law is that repossessed houses could be sold at sheriffs’ auctions for a fraction of their worth because the rules specifically disallowed reserve prices to be put in place. So in addition to losing a roof over their heads, bank customers were left with staggering debts to the bank. This is a form of debt slavery that most never recover from. The good news is this type of behaviour by the banks is no longer going to be tolerated by the courts. The new court rules require a reserve price to be put in place, so we will no longer see homes being sold for R10 and R100 as we have seen in the past.

Credit must go to activists such as King Sibiya of the Lungelo Lethu Human Rights Foundation and Advocate Doug Shaw, who have been calling the banks out on this nonsense for years. In November, the government gazetted new court rules which provide far greater protection for home owners – any application for repossession and sale in execution must include market and municipal valuations for the property. And banks will have to show that they have tried other less aggressive ways to recover their outstanding loans.

The law is at last recognising that the Constitutional right to dignity and housing takes precedence over a bank’s right to recover its loans. This will force banks to take a more humane approach to loan recovery, and provides far greater ammunition to customers in periods of financial distress.

I predict that there will be a few more major victories in the courts for abused customers. I am aware of several that are now close to finality. These victories will forever change the way the banks deal with customers.

It wasn’t just the banks that were dealt a snot-klap in 2017. Steinhoff’s accounting shenanigans has shown again that we should not always trust what we are told by the gatekeepers, such as the A-list accounting and law firms. KPMG and McKinsey were neck deep in Eskom’s corrupt activities, and have suffered dearly for their sins.

So there is plenty to celebrate as the curtain draws on 2017.

The state versus Michael Komape

Written by Ciaran Ryan. Posted in Journalism

James and Rosina Komape, parents of the drowned child, Michael.

This article first appeared in Groundup.

Michael Komape was five years old when he drowned in a pit toilet at Mahlodumela Primacy School in Chebeng Village, outside Polokwane, on 20 January 2014.

The shocking story made news across the world, and raised questions about the governance of Limpopo Province’s education department.

On Monday the Limpopo High Court in Polokwane will begin hearing a claim for damages by Michael’s family against the National Department of Basic Education and the Limpopo Department of Education. This case is set down for three weeks and SECTION27 is acting as the family’s legal representative, with Vincent Maleka from Thulamela Chambers as the senior counsel.

Michael’s parents, James and Rosina Komape, remember clearly the day he passed away, but are reluctant to talk of the details that will form part of their case against the state. It is apparent that the family has not recovered fully from the terrible events of that day.

The undisputed facts are this: On 20 January 2014 Michael fell into a pit toilet at Mahlodumela School and drowned in a sea of human faeces. Some hours later his body was retrieved by the fire department.

The toilets were demolished that same day and within weeks new toilets were erected in their place. The evidence of the dilapidation which claimed Michael’s life now lies buried underground at Mahlodumela School. Though some photographs of the deadly toilets were captured on a smart phone and will be presented to the court this week.

R60bn court challenge against banks over home repossession abuse

Written by Ciaran Ryan. Posted in Journalism

More than 225 applicants, mostly from Gauteng townships, have launched a suit in the Constitutional Court, claiming damages from the big banks for home repossession abuse. The applicants are also asking for a criminal investigation into banking executives involved in this abuse. This article first appeared in Groundup.

The applicants are claiming R60bn from the banks for unlawful repossession of homes since the Constitution came into effect in 1994. This figure is based on the average estimated loss of home equity value multiplied by the roughly 100,000 homes repossessed in SA since 1994. Home equity is the difference between the market value of a property and the amount still owing on a mortgage loan.

The Lungelo Lethu (“Our Rights”) Human Rights Foundation is the driving force behind the suit, and has spent several years putting the case together in collaboration with advocate Douglas Shaw.

The first applicant is Innocent Gwisai, whose home was repossessed and sold at auction for a fraction of its worth after he fell into arrears with his bank loan. Other applicants include Ernest Mashaba, John Mojaki, Solomon Nhlapo and Victor Zuma, whose cases of home repossession were previously reported in Groundup.

Nedbank, Absa, FirstRand Bank and Standard Bank are cited as respondents in the case, as well as the National Credit Regulator, the Minister for Justice and Constitutional Development, the SA Human Rights Commission and the High Court Rules Board. All applicants had their homes repossessed after supposedly falling into arrears on their mortgage bonds. The homes were then sold at auction for a fraction of their market value through sheriffs’ offices around the country, according to the court papers. Shaw, who is representing the applicants, estimates homeowners have lost close to R60bn in foregone home equity as a result of the banks’ repossession practices.

South Africa’s sale in execution practices are considered among the most abusive in the world according to research by Shaw, since they allow for homes to be sold at auction with no reserve price. This has resulted in some homes being sold for as little as R10, and then on-sold by opportunistic buyers for hundreds of thousands of rands. In many cases, it is the banks themselves that are buying these houses at sheriffs’ auction and then selling them for a profit.

The applicants want the director of Public Prosecutions “to look into the criminal liability of the directors of each respondent bank for knowingly selling properties for less than their value after the constitution was introduced, and report back to this court within six months from the date of this order.”