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“Buried in all the horror of the
payment protection insurance scandal.. was a killer detail showing how bad the
banks are at helping the real economy. The PPI fines being paid by the banks
are a form of transfer from the banks to the real economy: picture Smaug in The
, lying on his mountain of gold, being reluctantly forced to part
with a few coins by Middle Earth’s version of the Financial Conduct Authority.
The recipients of the money do exactly what the banks/Smaug won’t: they spend
it on goods and services. The Office of Budget Responsibility is the body set
up by George Osborne in response to the fact that people had stopped believing
official Treasury pronouncements. In their response to last year’s budget, the
OBR included a modest boost to ‘household consumption growth’, i.e. people
spending money, thanks to the effect of PPI repayments. The OBR’s assessment of
Osborne’s other policies showed no effect on household consumption growth. So
the OBR reckons that the PPI repayments have done more to help the economy than
all the other stuff the chancellor is trying to do put together! Another body
showed the effect of PPI fines to be a boost of 0.2 per cent to GDP: a
significant figure at a time when GDP was hovering between zero and something
with a minus sign in front of it. That’s really amazing. The banks are so bad
at their primary function, lending money, that it’s better for the economy if
they pay billions of pounds in fines to the customers they ripped off.”


consistently excellent John Lanchester savaging our ever-useless banks in The
London Review of Books


As most English students will
tell you, the term ‘pathetic fallacy’ describes the personification of nature,
typically by despondent poets, or the treatment of inanimate objects as if they
bore human characteristics. In matters of finance and investment, perhaps the
best example of ‘pathetic fallacy’ is Ben Graham’s coinage, Mr. Market. Warren
Buffett goes on to explain the analogy in the Berkshire Hathaway 1987 Annual

Graham, my friend and teacher, long ago described the mental attitude toward
market fluctuations that I believe to be most conducive to investment success.
He said that you should imagine market quotations as coming from a remarkably
accommodating fellow named Mr. Market who is your partner in a private
business. Without fail, Mr. Market appears daily and names a price at which he
will either buy your interest or sell you his.

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