Loans and Finance

Loans and Finance

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News and information about loans, money, debt, finance and business issues.

Thursday, October 30, 2008

House Sales Fall

The Times reports that the number of homes sold during 2008 has fallen to the lowest level since 1974, this despite a record 14.6% fall in annual house prices during October.

The pressure is on the Bank of England to stop dithering and cut interest rates aggressively, so called "experts" predict that rates will fall from 4.5% to 2.5%.

In the midst of this, Gordon Brown and the Labour party are enjoying the "high" from their "nationalisation" of the banks.

My advice to Brown and Labour is simple, enjoy it whilst it lasts.

Bankers, banks and money lenders are the least favoured strata of society, by becoming bankers the government will find itself blamed for every repossession and foreclosure in the country.

Labour may be low in the polls now but, once the repossessions kick in, it hasn't seen anything yet!

Wednesday, October 29, 2008

Signs of a Heartbeat?

Despite the best attempts by the politicians and media to talk the UK economy into a slump, the mortgage market has refused to lay down and die.

The Bank of England reports that mortgage approvals for house purchases rose in September, for the first time in over a year.

Mortgage approvals rose to 33,000 in September, up from a record low in August of 32,000.

Net mortgage lending rose by £2.2BN in September, in August it fell by £691M.

Notwithstanding the faint signs of a heartbeat in the mortgage market, the pressure is still on the Bank of England to stop dithering and cut rates.

Tuesday, October 28, 2008

The Bankers Strike Back

The major high street banks, never fearful of damaging their already trashed reputations, will go to the Court of Appeal today in a bid to overturn the High Court ruling that unauthorised overdraft charges are unlawful.

The banks lodging the appeal include; Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Nationwide and the Royal Bank of Scotland.

Whatever the outcome, not expected to be decided for quite some time, the banks will ensure that they make money out of their customers one way or another. In the event they lose the appeal, they will simply abolish free current accounts.

It's as simple as that!

Monday, October 27, 2008

Sterling Falls

The Pound continued to fall this morning, below $1.55 in early trade, as traders take account of Britain's parlous financial state.

However, those who believe that a country's machismo can best be displayed by a strong currency are seriously misguided. A falling pound, under the current circumstances, will be of great benefit to Britain's exporters.

That said, the Bank of England has a duty to cut interest rates swiftly and aggressively in order to lessen the effects of the recession.

The longer the Bank dithers, the worse it will become.

Friday, October 24, 2008

Down Down Down

The FTSE fell 8% this morning, as the UK entered its first recession in 16 years.

Alistair Darling told BBC News:

"It's obvious now that our economy, other economies across the world, are moving into recession.

Yes, it's going to be difficult, yes it's going to be tough, but we can get through it
."

Therefore why is the Bank of England still sitting on its hands, and not cutting interest rates more aggressively?

Thursday, October 23, 2008

How The City Works

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for £10 each.

The villagers, seeing that there were many monkeys around, went into the forest and started catching them.

The man bought thousands at £10 and, as supply started to diminish, the villagers stopped their effort.

He further announced that he would now buy monkeys at £20 for each.

This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to £25 each, and the supply of monkeys became so small that it was an effort to even find a monkey, let alone catch it!

The man now announced that he would buy monkeys at £50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at £35, and when the man returns from the city, you can sell them to him for £50 each."

The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again, only monkeys everywhere!

Now you have a better understanding of how the City works.

Monday, October 20, 2008

Tax and Spend

Old style Labour is rearing its ugly head in terms of its fiscal "management".

Figures from the Office of National Statistics (ONS) show that net debt (£645.3BN), expressed as a percentage of GDP had risen to 43.3% at the end of September, up from 36.2% a year ago.

This rise in public spending, which of course will have to be financed by tax rises, will not save the country from recession nor indeed provide much of a soft landing.

The key to "managing" the recession is that of cutting interest rates, not just in the UK but in the other major economies of the world.

Lamentably, the Bank of England has been remarkably slow to grasp that point so far.

Thursday, October 16, 2008

Rate Cuts

Despite the "bailouts" being promised by various governments, the markets are currently in freefall as the fact that the world's economies are heading for recession strikes home.

Poor retail figures from the US, and lousy employment figures in the UK have added to the misery.

It is clear that the "bailouts" need to be augmented by serious interest rate cuts by the central banks of the G7, failure to grasp that nettle will see the world stuck in a recession that may turn to slump.

Monday, October 13, 2008

The Bank Run

Injecting capital (nationalising) into banks is all very well. However, there are two further steps that governments need to take:

1 Guarantee all deposits (deposits are the bedrock of the banking system, without a guarantee depositors will continue to withdraw their money)

2 Cut interest rates by at least another 1% in all major economies

Do the above and the run on banks will be halted, fail to do the above and the run will continue.

Thursday, October 09, 2008

Interest Rate Cut

Yesterday's 0.5% reduction in interest rates by the Bank of England was not enough to stave off recession, another 0.5% at least is required now.

Wednesday, October 08, 2008

Worthless Guarantee

As I predicted earlier this week, the guarantee by the Icelandic authorities re bank deposits was not worth the newspapers it was printed in.

Icesave, the online British arm of Iceland's second biggest bank Landsbanki, announced yesterday that its customers could no longer withdraw or deposit money, as Landsbanki was taken into receivership.

The Icelandic government then reneged on their pledge to guarantee deposits.

Alistair Darling told the BBC:

"The Icelandic government have told me, believe it or not, they have no intention of honouring their obligations there."

The Icelandic authorities, by reneging on their pledge, have signed the death warrant of their economy.

Gordon Brown is threatening to sue the Icelandic authorities.

Brown has also set out a radical £500BN package today to save the British banking sector from collapse and break the damaging logjam in credit markets.

At last, some much needed action!

Tuesday, October 07, 2008

The Disunited States of Europe

True to form the governments of Europe have shown their true colours and acted in their own self interests, wrt the ongoing banking crisis, rather than in a unified Europe wide manner.

Ireland, Germany and Denmark have guaranteed bank deposits and others (such as Spain and Greece) look likely to follow.

Had the EU acted in unison, it may have lessened the panic. Unfortunately the scramble to protect self interest has done nothing to assuage the market.

The UK now needs to take the following actions, without any further dithering:

1 Guarantee all bank deposits

2 Cut interest rates aggressively

Failure to do so will worsen this crisis.

Now is the time for our political masters to show leadership and courage; dithering and "moral hazard" are no longer acceptable excuses.

Monday, October 06, 2008

The House of Cards Comes Tumbling Down

The FTSE fell by 6% this morning, despite the fact that congress approved the bailout.

The Times reports that Alistair Darling will make a statement later today on whether he will bail out the UK's banks.

On Saturday Angela Merkel, the German leader, criticised the Irish decision to guarantee all deposits in their leading banks without consulting other European countries. One day later Ms Merkel was forced to take almost the same action.

All very well.

However, the uncomfortable truth, that governments dare not speak of is that if there were to be a serious run on the banks the governments that have guaranteed the deposits (Iceland, Ireland and Germany) would not be able to honour their guarantees.

What we will now see is a re run (albeit on a much larger sale) of the day when Britain was forced out of the ERM by market forces. This time market forces will show that a country's guarantees are worthless, and are in effect a house of cards.

The market will win, but at a terrible cost.

Iceland will be the first to go. It is clear that the governments, and political systems, of the world are not able to keep pace with events.

The long term result will be that banks across the world will end up being nationalised, and every citizen of the world will end up being in debt for the rest of their lives.