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How the financial market redistributes from poor to rich
by Gerhard Schick
Thursday Jul 29th, 2021 9:58 AM
"Some business models, such as high-frequency trading, where huge blocks of shares are shuffled back and forth every millisecond, have no added value for society, but bring profits to a few financial professionals at the expense of everyone else."
How the financial market redistributes from poor to rich
By Gerhard Schick
[This article published on 12/21/2020 is translated from the German on the Internet, https://www.dgb.de/themen/++co++8ab7ace4-4374-11eb-8d02-001a4a160123.]

The Corona crisis has increased redistribution from the bottom to the top. But the problem goes far beyond the current pandemic, as outlined by financial expert Gerhard Schick.

There are few things we agree on as much: 87 percent of Germans agree with the statement that "the unequal distribution of income and wealth is increasingly becoming a problem for the cohesion of society in Germany." The facts confirmed this assessment; the trend toward social inequality continues. This is reflected, among other things, in incomes: since the 1970s, income from work has taken an ever smaller share in the overall distribution of money, while assets from capital gains have taken an ever larger share. Decades of anti-poor policies are to blame for this situation: deregulation of the labor market, lowering of the public pension, abolition of non-profit housing, etc. In parallel, taxes at the top end have been cut and the wealth tax abolished. The result: more rich, more poor and fewer people in the middle.

The role of the financial market is often underestimated. Yet it acts like a great redistribution machine from the bottom to the top. This can also be observed during the Corona crisis. In March, for example, some hedge funds made billions within a few days by betting on the downfall of companies that were struggling to survive with their employees. On the other hand, low-income households are particularly affected by Corona and suffer large losses of income. Some of these people then quickly find themselves stuck with banks offering exorbitantly high overdraft rates of up to 13.75 percent or debt collectors with excessive fees.

"Some hedge funds made billions in just a few days in March by
by betting on the demise of companies that were just struggling to survive with their employees."

But the problematic redistributive effects of the financial market do not exist only in times of crisis. I find it outrageous how some in the financial industry treat the financially poorest in society and throw them off track. In the case of installment loans and basic accounts, for example, many banks and savings banks are overreaching and accepting the financial decline of their customers. Targo-Bank, for example, which has a strong presence in consumer loans, achieves a return on equity of around 40 percent!

Billionaires, on the other hand, are generally less likely to have to worry about being fleeced. Private banks and the like lovingly coddle the large fortunes. This is good for the wealthy in two ways: First, Lehman certificates and similar nonsense are not even offered to many wealthy people, because they pay their advisor directly and thus there is no sales pressure. Second, the compensation the advisor receives is lower, in percentage terms, than what the ordinary investor is charged. So small savers and the middle-net-worth often have to pay more on a pro-rata basis to have their money taken care of, while receiving inferior products.

"Some business models, such as high-frequency trading, where huge blocks of shares are shuffled back and forth every millisecond, have no added value for society, but bring profits to a few financial professionals at the expense of everyone else."

In addition, as a rule only the rich can put money into investments with often particularly high returns. Partly one must bring even 100 000 euro and more. The CumEx tax heist with its dream returns, for example, was only offered to very wealthy investors. The same applies to financial constructs for tax avoidance in shadow financial centers such as the Cayman Islands.

Less visible, but not to be underestimated in its impact, is the redistribution in favor of the financial sector that results from financialization. Increasingly, revenues are accruing not in the sectors in which they are actually generated, but in financial companies such as private equity funds. No wonder financial centers have boomed in recent years, while regions of industrial value creation have lagged far behind. Some business models, such as high-frequency trading, in which huge blocks of shares are shifted back and forth in millisecond cycles, have no added value for society at all, but bring profits to a few financial professionals at the expense of everyone else.
Anyone who does not oppose these phenomena on the financial market will not be able to solve the distribution issue. The goal must be to put the financial markets back at the service of society as a whole - and to make them smaller to do so. This is precisely what we are working for with Finanzwende.

Gerhard Schick, 48, was a member of the German Bundestag from 2005 to 2018. Since July 2018, he has been a board member of the "Bürgerbewegung Finanzwende" for sustainable finance.

"The financial market is pulling money out of our pockets. Unfair handling of savings and our retirement provisions, gigantic tax fraud and brazen real estate speculation make life difficult for us." That is why it is high time for a financial turnaround. This is what financial expert Gerhard Schick demands in his new book "The Bank Always Wins." New rules and measures are needed, and criminal actors must be stopped.

He sheds light on criminal machinations such as tax fraud and money laundering, illustrates how brazen real estate speculation and the business with high-risk financial investments promote the redistribution from poor to rich, and reveals how lobbyists cleverly thwart important laws. Even if not everyone has realized it yet, citizens have been feeling the effects of the financial market poisoning for a long time: occupational disability insurances do not pay even in case of long illness, although they were concluded exactly for this case. So-called vulture funds buy up debt instruments of poor countries at bargain prices and then sue for repayment in full after responsible states have stabilized the country again by writing off its debts. Schick shows, despite everything, a citizen-friendly financial world is possible. Gerhard Schick: The Bank Always Wins - How the Financial Market Poisons Society, 256 pages, Campus Verlag, 22 euros.
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