Gareth Vaughan on a need for more banks, living in a burning building, New Zealand stacking up well, the collision of science and politics, the Psychopath in Chief & a song for Dominic Cummings

This Top 5 COVID-19 Alert Level 2 special comes from interest.co.nz's Gareth Vaughan.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz. And if you're interested in contributing the occasional Top 5 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 5s here.

1) More banks needed?

In this podcast Bloomberg's Joe Weisenthal and Tracy Alloway talk to Richard Werner. An economist at Linacre College at the University of Oxford and Professor of Banking and Finance, Werner is sometimes described as the father of quantitative easing. He talks about what he learnt by studying the Japanese economy, and what it means for the current crisis.

One point he argues strongly, focusing specifically on the US, is the need for lots of small banks in a crisis like this one because they tend to lend to small businesses.

The main thing is to ensure there are many small banks because small banks lend to small firms. The US used to be uniquely well endowed on this front because only 10-15 years back America had 12000 banks. But the US, like other countries, has had this policy where central banks want to concentrate the banking system. So the number of banks has been declining and in the last decade they've fallen from 12000 to only barely 5000 banks.

So that's bad but still it has been so many that 5000 are still left and that's much better than other countries. So the US is next to China, ...these are the two countries with the most banks. The next one in this ranking is Germany which has 1500 banks, by far the largest number of any country in the EU. And so Germany's also likely to  do better.

Because America still has these 5,000 banks many of which are small local, community banks, it can get the money to small companies. That needs to be strengthened and these banks need to be helped. And the best way to help them is to end this ridiculous policy of zero interest rates, or in Europe negative interest rates. Because that's actually a key factor in forcing the banks to merge and getting rid of small banks and getting concentration in the banking system. So instead we should end that.

Based on these comments perhaps Werner would support the New Zealand government's launch of unsecured loans to small businesses, administered by the IRD? (Minister for Small Business Stuart Nash says 69,000 small businesses have now applied for nearly $1.2 billion worth of these loans).

Our big four banks - ANZ, ASB, BNZ and Westpac- control nearly 90% of NZ banking assets and liabilities. As reported by interest.co.nz on Tuesday, three of the small NZ owned banks, The Co-operative Bank, SBS Bank and TSB, recorded losses during the March quarter. Perhaps the Government should be giving them a leg up to help them lend to SMEs?

Meanwhile, Werner also says the Fed should raise interest rates. Presumably he'd say something similar about the Reserve Bank of New Zealand, which has the Official Cash Rate at 0.25% and is undertaking billions of dollars worth of quantitative easing?

The Fed should, as a part of this policy package, raise interest rates in order to push up long rates, steepen the yield curve and give banks a perspective they can actually earn some money by lending. Because at the moment they are still barely surviving. And they know this is an opportunity now they're getting government support because they're aggressively trying to write loans, but it's not sustainable. You need a positive yield curve for that, which is why the yield curve is a great business cycle indicator and sadly that's still pointing down. So the Fed needs to work on that one. They've been working in the wrong direction when it comes to interest rate policy.

Meanwhile, circulating on social media this week...

2) Living in a burning building.

An American friend who is a basketball and LA Lakers fan sent me this article. From the LA Times, it's by legendary basketball player Kareem Abdul-Jabbar reflecting on the extraordinary events in the US following the killing of George Floyd by police in Minneapolis.

He says the black community's used to institutional racism in education, the justice system and jobs. And even though all the conventional things are done to raise public and political awareness, the needle hardly budges.

But COVID-19 has been slamming the consequences of all that home as we die at a significantly higher rate than whites, are the first to lose our jobs, and watch helplessly as Republicans try to keep us from voting. Just as the slimy underbelly of institutional racism is being exposed, it feels like hunting season is open on blacks. If there was any doubt, President Trump’s recent tweets confirm the national zeitgeist as he calls protesters “thugs” and looters fair game to be shot.

Yes, protests often are used as an excuse for some to take advantage, just as when fans celebrating a hometown sports team championship burn cars and destroy storefronts. I don’t want to see stores looted or even buildings burn. But African Americans have been living in a burning building for many years, choking on the smoke as the flames burn closer and closer. Racism in America is like dust in the air. It seems invisible — even if you’re choking on it — until you let the sun in. Then you see it’s everywhere. As long as we keep shining that light, we have a chance of cleaning it wherever it lands. But we have to stay vigilant, because it’s always still in the air.

My friend, by the way, is among the tens of millions of Americans who has lost his job since COVID-19 hit the country.

3) The Psychopath in Chief.

Tony Schwartz, ghost writer of Donald Trump's book The Art of the Deal, has written about his changed perception of the US President who has, naturally, been a focal point of recent events in the US. Among the extraordinary scenes, peaceful protesters were tear gassed to clear the way for a Trump photo opportunity at a church, with a bible in hand, near the White House. During the melee an Australian TV reporter and cameraman were assaulted by police.

On Medium Schwartz writes about how his view of Trump has changed. Previously Schwartz says he viewed Trump as an insatiable narcissist with a hunger to be loved, accepted, admired, and praised. While this remains "prima facie true," Schwartz says he now believes there's more to Trump.

The catalyst for my shift came after a friend sent me a long paper written by Vince Greenwood, a Washington, D.C.-based psychologist. Greenwood makes a detailed clinical case that Trump is a psychopath, a term that is now used nearly interchangeably with sociopath. Psychologists continue to debate whether it’s legitimate to diagnose anyone from a distance without the benefit of a clinical interview. In Trump’s case, his life history is so well documented that a thorough assessment does seem possible. As I once did up close, we can observe every day which psychopathic traits Trump manifests in his behavior. The highly regarded Hare Psychopathy Checklist enumerates 20 of them. By my count Trump clearly demonstrates 16 of the traits and his overall score is far higher than the average prison inmate.

The trait that most distinguishes psychopaths is the utter absence of conscience — the capacity to lie, cheat, steal, and inflict pain to achieve their ends without a scintilla of guilt or shame, as Trump so demonstrably does. What Trump’s words and behavior make clear is that he feels no more guilt about hurting others than a lion does about killing a giraffe.

He also highlights Trump's lack of empathy, something that has been starkly apparent throughout the COVID-19 crisis as tens of thousands of Americans die and tens of millions lose their jobs.

The second quality that sets Trump apart is his lack of empathy. In the face of a crisis like the Covid-19 pandemic, we expect leaders to feel our pain, and to respond with expressions of compassion and comfort. Not Trump. In 13 hours of comments he made over a recent three-week period, The Washington Post reported that he spent a total of two hours attacking others, including the media, 45 minutes praising himself and his administration, and a total of just 4.5 minutes expressing rote condolences for Covid-19 victims and front line workers.

Where Martin Luther King Jr once stood and said “I have a dream.” pic.twitter.com/HJ3qZqq2tQ

— Patrick Chovanec (@prchovanec) June 3, 2020

4) New Zealand stacks up well.

Whilst many in New Zealand are doing it tough thanks to COVID-19 and the government imposed restrictions to counter it, this chart from Visual Capitalist has our economy well placed in an international comparison. 

COVID-19 brought the world to a halt. But after months of uncertainty, things are slowly easing back to normal. This chart demonstrates the extent to which major economies are reopening.

5) The collision of science and politics.

Der Spiegel takes a look at how the coronavirus has brought together two vastly different worlds that normally have little to do with each other: Politics and science. They highlight the plight of German virologist Christian Drosten, thrust into the limelight as his research and expertise influence government policies and attract criticism.

Science doesn't usually have many real-world consequences as long as the results of research remain inside scientific circles, where uncertainty is seen as a reason to continue with the research. Mistakes may be embarrassing, but they are rarely a big deal. A new paper is published and the record is set straight.

Different Stakes

When politicians make mistakes, however, they can have far-reaching consequences, both for citizens and the politicians themselves, who risk not being re-elected. That's why they prefer to base their decisions, and their actions, on certainties. But these are hard to come by, especially in the case of COVID-19.

Step by step, researchers are being forced to explore completely new territory under the watchful eye of a nervous public. There have been more than 20,000 papers published on SARS-CoV-2 and COVID-19, according to the World Health Organization. And every one of them claims to contain new information. No wonder that what was considered fact yesterday can prove to be a mistake today -- not because a researcher's opinion has changed, but because new information has come to light.

But politicians have to take that preliminary information and "do" something. After all, the virus isn't waiting around for certainties to emerge. On the contrary, it would spread relentlessly if we let it.

And to finish off here's a song for Dominic Cummings, infamous adviser to British Prime Minister Boris Johnson.

.