Loans and Finance

Loans and Finance

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

Tuesday, March 31, 2009

Hissy Fit

President Sarkozy threw a hissy fit yesterday, and played to the domestic French audience, by threatening to walk out of the G20 summit if France's demands for tougher financial regulation and a global regulator are not met.

Sarkozy blames the "Anglo-Saxons" for the economic crisis.

Apportioning blame is all very well, but it is necessary to fix the problem first. As I noted before, if your neighbour sets fire to his house you do not sit on your hands and remonstrate with him, you help him put the fire out before it spreads to your house. Once the fire is out, you can then remonstrate with him.

Monday, March 30, 2009

Dunfermline Building Society "Saved"

The Dunfermline Building Society has been broken up, with its non toxic elements going to the Nationwide Building Society; whilst the taxpayer has bought the toxic assets.

Under the deal the Nationwide absorbs the brand name, £2.3BN of retail deposits, 34 branches and £1.02BN of mortgages.

The taxpayer takes on poor quality buy-to-let loans.

FYI, the Dunfermline Building Society resides not a stone's throw from Gordon Brown's constituency. Fortunately for Brown, with only a few days to go before his much vaunted G20 summit, he will be saved the embarrassment of seeing his local building society going bust.

Friday, March 27, 2009

Useless Statistics

The downward revision of last year's government statistics about the economy shows just how unreliable government information really is.

The Times reports that GDP fell by 1.6% during Q4 of 2008, not the 1.5% previously estimated. Extrapolated on an annual basis this means that GDP fell by 2%, rather than the 1.9% previously estimated.

Aside from providing the media with lurid headlines, what precisely is the point of government statistics when they are so clearly unreliable?

The most effective measure of the strentgh/weakness of the economy, is the number of available London taxis for hire on the streets of London after midnight. The weaker the economy, the more taxis available and the more prepared the driver to take the passenger outside of Central London.

Thursday, March 26, 2009

Councils Breached Guidelines

The Audit Commission has issued a report "Risk and Return: English local authorities and the Icelandic banks" that states that seven local authorities breached guidance and their own treasury protocols by investing £32.8M with Icelandic banks just before their collapse last October.

The report identified the following boroughs as negligent;authorities and the Icelandic banks, found London Borough of Havering, Kent County Council, Redcar and Cleveland Borough Council, Restormel Borough Council, Bridgnorth District Council, North East Lincolnshire Council and South Yorkshire Pensions Authority.

The authorities relied too heavily on credit rating agencies and external advisers.

Kent invested £3M of its cash in an Icelandic bank, after a finance official failed to open an e-mail which warned it not to do so.

The majority of the 451 authorities had invested within the rules laid out by the Chartered Institute of Public Finance and Accountancy (Cipfa). However, the report recommends a review of Cipfa guidelines, training for councillors and staff to enable them to interpret and question external and internal advice, monitoring of a wider range of information continually and revision of the national framework to reassess the consideration given to liquidity, security and yield.

The councils deny the report's findings.

Rita Greenwood, the finance officer at Havering council, said that the council made a deposit in an Icelandic bank 20 minutes before an alert went out which downgraded the banks to a lower security rating.

"We refute being called negligent. We rely on ratings done by established international organisations such as Fitch and Moody's and we were absolutely following all our policies and procedures."

The Guardian quotes Nick Chard, Kent county council's cabinet member for finance:

"The position and language used by the Audit Commission is quite extraordinary; it really is a case of the pot calling the kettle black. The Audit Commission's own internal report stated that they were not aware of the potential problems with Icelandic banks until Monday 6 October 2008; yet they are highly critical of local authorities making deposits after April 2008."

He noted that the commission has 18% of its total deposits in Icelandic banks compared with Kent's 9%.

Wednesday, March 25, 2009

To Play The King

Gordon Brown has effectively dismissed Mervyn King's warning that Britain may not be able to afford further fiscal stimulus measures.

Brown is warming up for next week's G 20 summit in London, and spoke to MEPs in Strasbourg yesterday; today he will attend a breakfast debate in New York hosted by The Wall Street Journal, deliver a speech at a New York university and meet with Ban Ki Moon, Secretary-General of the United Nations.

Brown continues to press for countries to use fiscal stimulus packages to refloat the economy.

Fiscal stimulation is all very well if it goes to the places and people that actually need it, and that there is the money there to stimulate the economy.

The trouble is that Britain entered this recession with precious little in the "store cupboard" as Brown has already spent it during the years of plenty.

Tuesday, March 24, 2009

RPI Hits Zero

The Retail Price Index (RPI) for February hit 0% for the first time in 49 years, according to government statistics today.

All very well, but why then are prices of life's necessities (eg power, fuel, food, council tax etc) still rising?

Then one needs to consult the Consumer Price Index (CPI), which rose to 3.2% from 3% in January. Mervyn King was forced to write to Alistair Darling to explain why the CPI was still above target of 2%.

All of the above statistics are doubtless fascinating for the politicians, media and chattering classes. However, as they are out of date and indeed do not reflect the reality that people face, their value to the "man in the street" is limited to say the least.

Monday, March 23, 2009

Taxing Times

It seems that the Tory Party still has to decide what it really wants to do, or rather what it really can do (given the mess that the economy is in) about tax.

Whilst Labour may try to have some fun with of the divisions in the Tory Party, the fact that there are divisions will force the Tories to really think about what their priorities are and will ensure that they develop an economic and political policy that they really believe in.

Something that the Labour Party never quite managed whilst in office.

Saturday, March 21, 2009

A Serving of Pork Pie

Pork PieCould it be that the Treasury Select Committee, investigating Sir Fred's RBS pension, were served a slice of pork pie the other day by Myners?

"The Times has learnt that Sir Tom McKillop, the bank's former chairman, has written to the chairman of the Commons Treasury Select Committee, offering to provide fresh evidence after hearing Lord Myners's testimony last Tuesday.

Sir Tom is understood to dispute what Lord Myners told the committee when he said that he was not informed about the size of Sir Fred’s pension pot during negotiations last October over the Government’s rescue package for the bank.

In fact, according to Sir Tom, Lord Myners was told exactly how much the pension was worth..
.."

Friday, March 20, 2009

Treasury Asleep At The Wheel

It seems that, despite the "tut tuts" of Gordon Brown and the government over "excess" and "risky" lending, the Treasury was happily allowing Northern Rock to continue to offer 125% mortgages after the Rock sought a state bailout.

After the bailout in September 2007, Northern Rock lent a further £800M. Unsurprisingly many of these mortgages have gone bad.

Maybe someone should tell the Treasury that they are meant to be safeguarding taxpayer interests?

Thursday, March 19, 2009

Public Sector Crippling Private Sector

The Times reports that as the private sector contracts and sheds jobs, as the recession worsens, the public sector is in fact growing. The Times notes that:

- Public sector pay rose by 3.7% in the year to January 2009. Private sector pay fell by 1.1% cent in that period.

- 30,000 jobs were created in the public sector last year, with 105,000 lost in the private sector.

There may be a tenuous, theoretical argument, that keeping people in the public sector at least lessens the unemployment figures. However, the reality is that the government is broke and that it relies on the private sector to fund its public sector largess (eg do not forget that, unlike the private sector, public sector pensions are still final benefit schemes).

Paying ourselves to wear high visibility jackets, carry clipboards and form fill may in the short term keep people off the unemployment register. However, in the long term unless we cut our cloth according to our tax take, and remember that it is the private sector that powers the economy, this shortsighted policy will spell economic and social disaster for Britain.

Wednesday, March 18, 2009

Myners - A Lesson in Failure

Lord Myners attempted a bravura performance yesterday in front of the Treasury Select Committee, wrt their investigation into Sir Fred "The Shred's" RBS pension.

Unfortunately for Myners, he wasn't terribly convincing as he sought to deflect people's attention and pass the buck by saying (in a tone of "disgust") that the RBS Board had "bent over backwards" to reward Goodwin.

Other "playing to the gallery" quotes from Myners included gems such as:

-"beyond my comprehension"

-"extraordinary"

-"outrageous"

On listening to Myners one would be forgiven for thinking that he played no part in the affair whatsoever. Unfortunately for the hapless and hopeless peer of the realm, Myners had a very large role in the affair.

Myners admitted that he had been warned by Bob Scott ex head of RBS's remuneration committee that "The pension will be enormous, you know that".

Did Myners then, on being warned of this, ask how much the pension would be?

Can you guess the answer?

Yes that's right, Myners claims he didn't ask!

"I sought no information."

Either the man is lying, or else he is surely one of the most incompetent fools ever appointed to represent the taxpayer.

As Michael Fallon MP put it:

"Either you were party to very expensive back-scratching, or you neglected your duty to the taxpayer."

The bottom line is that Myners failed in his role, over such an obvious and easy target.

The question now is, given that the government failed in this relatively simple matter, what other horrors are lurking in the details of the bailouts that they have agreed to on our behalf?

Tuesday, March 17, 2009

Lord Myners Grilled

Lord Myners is currently being grilled by the Treasury select Committee, wrt his role in the Sir Fred "The Shred" Pension issue.

A live feed of the session is available via The Times.

It is worth remembering that the details and timing of the leaks about Sir Fred's pension were highly convenient for the government, as it diverted people's attention away from Brown's role in creating the lax tripartite regulatory system that has undoubtedly contributed to this financial shambles.

Friday, March 13, 2009

Worse Than Worthless

Following on from yesterday's article about the FSA wanting people to be afraid of its powers, it would seem that it has much more work to do if its dream is to ever become reality.

The Times reports that the FSA blocked an attempt last April by institutional investors in Royal Bank of Scotland to vote against Sir Fred Goodwin.

The FSA veto of a proposal to put all RBS directors up for re-election ensured that Sir Fred did not have to stand.

It seems that the FSA was afraid that a mass rebellion against the board would have destabilised the bank.

This raises the question, that has been asked so many times before:

Who exactly does the FSA serve, the shareholders or the banks etc that pay its fees?

On the basis of the above it would seem very clear the FSA is beholden to its paymasters in the City, rather than those it is meant to serve and protect.

Nothing will change until the tripartite system is abandoned and a new regulatory regime created, whereby the FSA is radically restructured or abolished.

Thursday, March 12, 2009

Be Afraid!

I see that Hector Sants, the head of the Financial Services Authority (FSA), is telling the City that people should be "very frightened of the FSA".

That will most certainly be a first!

He has warned that there will be a new, more proactive approach, to regulatory enforcement, which would be far more direct and intrusive. All very well, but this is shutting the stable door after the horse has bolted.

Whether or not the FSA finally develops some cojones is not the issue. The fundamental reason for the failure of financial regulation is the tripartite system created by Brown. As long as that is in place, the regulatory failings of the past will be destined to be repeated in the future.

Wednesday, March 11, 2009

Brown's Vanity Project

Despite the fact that the UK is suffering the worst recession in decades, and the government is effectively broke, Gordon Brown is determined to spend money hosting his personal vanity project.

World leaders, 22 are expected, will attend a conference organised by Brown at the ExCel Centre on April 2. The purpose of the conference is to revive the world economy.

All very well, but here is why it is a waste of time and merely a vanity project designed to project Brown as a "leader":

1 It will cost the British taxpayer £50M.

2 The recession has been "in play" for quite some time now. World leaders and their finance ministries ought to have already formulated plans for stimulating the economy.

3 A one day networking event in London will make not the slightest difference.

4 The leaders and their advisers have other opportunities to discuss and brainstorm, eg Davos and via phone and video links.

All in all this event is a waste of time and money, and fools no one.

Tuesday, March 10, 2009

The Great Recession

It would appear to be official, the world is in the grip of a "great recession". That at least is the view of the IMF.

Dominique Strauss-Kahn, head of the IMF, said that the global economy could shrink for the first time since the Second World War.

He is quoted in The Times:

"The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes.

Continued deleveraging by world financial institutions, combined with a collapse in consumer and business confidence, is depressing domestic demand across the globe, while world trade is falling at an alarming rate and commodity prices have tumbled
."

He drove his points home by using the phrase a "great recession".

Warren Buffett, in the US, piled on the misery by referring to the situation as an "economic Pearl Harbor".

The next couple of years are going to be particularly bloody for many. Governments around the world would be well advised to start thinking outside of the box and coming up with genuine solutions, to help people weather this storm, that can be implemented in the short term without the need for the usual bureaucratic delays.

Monday, March 09, 2009

Lloyds Bonuses

Lloyds, the bank rescued by the government after taking on the poison chalice of HBOS, has announced that it will be paying around £80M in bonuses.

Needless to say there has been a knee jerk reaction orchestrated by the government manipulated media. The government are keen to whip up a frenzy of anti bank feeling, lest its own role in the financial crisis be subject to excessive scrutiny.

However, before effigies of bankers be burnt in the streets, it is worth noting that the majority of the bonuses are being paid to ordinary members of staff, and that those senior members of staff eligible for bonuses may have to wait up to three years for them.

It should also be remembered that Gordon Brown "brokered" the HBOS deal, ie he twisted arms to save his political skin.

The government are as culpable as the bankers for this mess.

Friday, March 06, 2009

Where No Man Has Gone Before

The Bank of England had a "Star Trek" moment yesterday, as it lowered interest rates to 0.5% (the lowest in the UK's history) and committed to pump in £75BN into the UK economy over the next 3 months via quantitative easing (printing money).

Quantitative easing has never been attempted in the UK, when the Japanese tried it in the 1990's it had little success.

As to whether these policy measures will work is anyone's guess, we are entering uncharted territory and going where no man (UK central banker) has gone before.

Thursday, March 05, 2009

Interest Rates To Fall

It looks a racing certainty that the Bank of England will announce later today a cut in interest rates from 1% to 0.5%.

Given that this leaves it little manoeuvring room for further cuts, the Bank will also start the process of quantitative easing (ie printing money).

The objective of both of the policy instruments is to ease the credit drought, to try to bring the economy back to life.

Wednesday, March 04, 2009

The Contrarian Stance

As the Bank of England gears up for quantitative easing (ie printing money) and a likely further cut in interest rates (decision due tomorrow), Woolwich (the mortgage arm of Barclays) has (as per The Times) increased its fixed and tracker rates by up to 0.3% points. A two year tracker for borrowers with a 40% deposit has increased from 2.74% above base to 2.99% above base. The fee is £995.

Woolwhich justifies this move on an increase in demand for their products and an increase in mortgage funding costs.

Clearly they are expecting a rate reduction announcement tomorrow!

Tuesday, March 03, 2009

Northern Rock Mortgage Arrears

The Times reports that Northern Rock (the bank owned by the taxpayers) mortgage arrears have risen by 394% (from 3,492 to 17,264).

Given this situation, and the fact that the housing market has not yet stabilised, how wise is it for the Rock to be offering 90% mortgages?

Monday, March 02, 2009

HSBC Cash Call Drags Market Down

HSBC's record cash call of £12.5BN, aside from causing the collapse of its own shares by 9% today (down by 46p to 445.25p), also dragged the FTSE down by 3% to a six year low of 3700.

Meanwhile, doing the rounds, is this rather amusing take on the banking bailout:

Bailout