Loans and Finance

Loans and Finance

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

Wednesday, March 31, 2010

The Great ISA Rip Off

The Times reports that the Isa tax break created by Gordon Brown to encourage people to save has turned into a £3BN a year rip-off operated by the banks.

That at least is the conclusion of Consumer Focus (CF), a consumer watchdog.

Consumer Focus has made a formal complaint to the Office of Fair Trading (OFT)alleging that cash Isas pay derisory rates of interest and that banks use unfair obstacles to stop people from switching to better deals.

Mike O'Connor, CEO of Consumer Focus, is quoted:

"It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.

The average Isa saver is getting a poor deal
."

It estimates that cash Isa savers are being denied between £1.5BN and £3BN.

It is hardly surprising that people do not trust the banks.

Monday, March 29, 2010

Mortgage Approvals Stall

Despite boast from the government that the budget's changes to stamp duty (for the next two years first-time buyers purchasing properties worth up to £250K will pay no stamp duty) will give the housing market and, by definition, the economy a much needed boost, reality does not match political spin.

Figures from the Bank of England show that mortgage approvals fell in February by just over 1,000 to 47,094, the third consecutive monthly fall.

This indicates that first time buyers are having trouble raising the loans necessary to buy their homes, it is unlikely that the stamp duty holiday will be enough to change that situation.

Friday, March 26, 2010

The Greek Bailout

Despite protestations from Greece that it would look to the IMF not the EU for a bailout (if it "really needed one"), a joint IMF/European bailout of sorts has been agreed.

EU leaders have agreed on a paltry $30BN bailout for Greece, which will simply delay the day of reckoning for that failed economy.

In return for this much hyped gesture of little substance, the EU has extracted a heavy price. The EU has granted itself sweeping new powers to co-ordinate all EU economies.

Whilst the Euro made some recovery, this will be only a short term recovery. Even if Greece really has been "saved" (and there are serious doubts that it has), there are other EU countries that are also close to economic meltdown eg; Portugal, Spain and Ireland.

As part of the deal the little known and untested Herman Van Rompuy, the permanent European Council President, is now in charge of "the economic governance of Europe".

Unsurprisingly there have been calls from Angela Merkel, the German Chancellor, for a new treaty to give the EU extra economic powers. Those with good memories will recall that only last year EU leaders "promised" that they wouldn't need anymore powers, and that the Lisbon treaty was good enough for at least 10 years.

The lesson to learned here is that politicians, most especially European politicians, should never be trusted.

This will end badly for Eurozone countries, both politically and economically.

Thursday, March 25, 2010

The Domino Effect

Moving on from the diversion of yesterday's budget, most of the contents of which will probably not come to fruition, the Times reports that European economies are gradually being downgraded one by one.

Ireland
Downgraded from AA+ to AA-
November 2009

Greece
Downgraded from A- to BBB+
December 2009

Turkey
Upgraded from BB- to BB+
December 2009

Portugal
Downgraded from AA to AA-
March 2010

This "death by a thousand cuts" is, unsurprisingly, negatively impacting the Euro which fell to a ten month low against the dollar yesterday.

Downgrades make it increasingly difficult for downgraded countries to borrow from the bond markets, without increasing the rates they pay lenders (thus increasing their fiscal woes).

There is of course the possibility of an EU bailout for countries facing ruin. However, that prospect (for Greece anyway) looks rather unlikely given that Chancellor Merkel has called Greece's bluff and suggested that it should go to the IMF (something that Greece has been bluffing it will do).

The economic solution that the EU needs to face, namely expelling Greece, may appear politically unpalatable. However, it is the only solution that will stop the infection spreading.

Wednesday, March 24, 2010

Happy Budget Day

Today is budget day.

In keeping with "modern tradition", since Labour took office, budget "secrets" are now routinely leaked.

This year's budget will, according to the media, contain an announcement from Alistair Darling that stamp duty on properties will be scrapped on house purchases up to £250K for first-time buyers.

All very well, if they can borrow the money to buy the house.

Duty on strong ciders and alcopops will be increased significantly, in an attempt to reduce binge drinking by young people.

I am of the view that the economy and country would run much more effectively if politicians resisted the urge to tinker, meddle and change the rules quite so often.

Tuesday, March 23, 2010

Darling Receives Pre Budget Boost

In the run up to tomorrow's "eagerly anticipated" budget, Alistair Darling has received something of a boost from the inflation figures.

The Office for National Statistics (ONS) reports that inflation (consumer prices index - CPI) fell to 3% in February.

However, the retail prices index remained at 3.7%.

Optimistic forecasters believe that inflation will fall back to 2% by the end of the year.

Doubtless the wave of optimism that these figures has unleashed will be somewhat dampened after tomorrow's budget, which will bring home to roost a few truths about the real state of the economy.

Monday, March 22, 2010

Dulwich Leads The way

Well done to my old school (Dulwich College) for winning the annual Target 2.0 competition, run by the Bank of England in conjunction with The Times, which puts A level students in the shoes of the Bank's Monetary Policy Committee.

Dulwich College won by challenging the Bank to be more "high-profile" in getting the inflation message across, as well arguing that a 4% inflation target would give policymakers much more room for manoeuvre if they needed to cut rates quickly.

Friday, March 19, 2010

Strike

As Britain faces a miserable Easter of travel chaos, thanks to the BA strikes and actions of Bob Crowe and his dinosaurs, it is worthwhile remembering that labour administrations tend to end in this form of chaos.

My advice to the British people is to send the unions, the Labour party and politicians in general a very loud raspberry of contempt and to go on a general strike just to show how futile in the modern global economy striking really is.

Wednesday, March 17, 2010

Smoke and Mirrors

Data released by the Office for National Statistics (ONS) this morning shows that the number of people claiming jobseeker's allowance fell by 32,300 in February, to 1.59M.

The total number of unemployed also fell, down 33,000 to 2.45M between November and January.

Labour, and ill informed media organisations, will of course claim that this heralds a recovery.

However, the number of people actually in employment fell by 54,000. The employment rate is now in fact at a 13 year low.

This apparent contradiction comes about because people are in fact pulling out from the labour market, or being taken out of the labour market by government "non" job schemes.

The number of people of working age counted as "inactive" is at an all-time high, 8.16M.

In effect, a large number of people are giving up on finding work.

Tuesday, March 16, 2010

EU Puts The Boot In

The EU, keen to show that it will not be pushed around by failing states such Greece, has issued a strong rebuke to the UK over its debt levels.

A leaked draft from the Commission warned that Britain's budget plans failed to guarantee it would meet an EU deadline (2014-15) to cut its debt to below European stability rules which caps debt at 3% of GDP.

The government, not surprisingly, have rejected this rebuke and note that the cuts required by the EU (£20BN) would be half of the education budget.

"Ironically", the leaking of the EU rebuke has taken some attention off the EU's failure to address the Greek issue.

Monday, March 15, 2010

Deplorable

Gordon Brown has weighed into the BA strike by saying that it is deplorable.

Lord Adonis noted, quite correctly over the weekend, that the strike threatens the existence of BA.

As to whether anyone in the BA union or management is listening is another matter.

Friday, March 12, 2010

Ernst & Young To Go The Way of Andersen's?

The Times reports that Ernst & Young (E&Y) could face legal action after a $38M 2,200 page US report into the collapse of Lehman Brothers accused E&Y of professional negligence over a number of years before the collapse of Lehman Bothers in 2008.

The report states that Lehman's used Repo 105 (an accounting "fudge") to remove temporarily up to $50BN from the balance sheet.

The report criticises Ernst & Young, who were Lehman's auditors:

"..for among other things its failure to question and challenge improper or inadequate disclosure in those financial statements".

Could it be that Lehman's will do for E&Y what Enron did for Andersen's?

Thursday, March 11, 2010

How To Destroy Brand Value

The ongoing safety issue wrt Toyota, and the company's handling of the issue, highlight how brand value (so painstakingly built up over the years) can be so very easily and quickly destroyed by an inept and unresponsive management.

The Times has added fuel to the fire by reporting that Toyota was forced hand over to US congressional investigators a memo produced in 2006, by its own factory workers, concerning issues over car safety.

The memo was sent to Katsuaki Watanabe, president of the company in 2006, and condemns "safety sacrifices" made by the company in pursuit of profit.

It noted that that vital processes were in the hands of "amateurs".

Toyota is learning the lesson that all businesses must learn, no business lasts forever.

Wednesday, March 10, 2010

The Big Freeze

As if the long and snow bound winter has not been enough, Gordon Brown (keen to show that he can make decisions) has decreed that another freeze is on its way.

This time it relates to a £3BN public sector pay freeze on the pay of top civil servants, judges, generals and doctors.

He seems to have forgotten that he is no longer Chancellor, and that the "privilege" of setting public sector budgets rest with the Chancellor.

Given the fact that Brown and his acolytes have bankrupted the country, £3BN is but a drop in the ocean

Were he really serious about saving public money, he would impose a heavy does of reality on councils and other members of the public sector who have defined benefit (final salary) pension schemes. The private sector has long since recognised that these are unsupportable.

However, Brown knows that he employs at least 5% of the electorate; to upset them before the election would be political folly.

Whoever wins the election will of course need to address the issue of public sector pensions, the pain will come later.

Tuesday, March 09, 2010

Trade Gap Widens

Despite the fact that the Pound has fallen in value, relative to other currencies, Britain's trade gap with the rest of the world unexpectedly widened during January to £7.987BN.

City "experts" had expected a deficit of £7BN.

The unexpected news served to push Sterling lower, which in theory should actually help exports.

It seems, so the story goes, that the poor weather in January was to blame for the deterioration. However, were that to really be the case then imports would have been affected as well. The fact that the gap widened, means that imports were not so seriously affected affected by the weather as exports.

Monday, March 08, 2010

Kraft To Be Investigated

The City Takeover Panel is to investigate as to whether Kraft misled Cadbury investors wrt a promise to keep Cadbury's Somerdale factory open.

Kraft said on November 9 2009:

"Kraft Foods believes it will be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and invest in Bournville, thereby preserving UK manufacturing jobs."

After the deal was completed, Kraft said that the factory would close by 2011, losing 500 jobs.

Aside from allegedly misleading Cadbury, the promise unforgivably gave false hope to the workers at the plant.

Friday, March 05, 2010

Olympic Sale

As the Greek financial crisis simmers "gently" there have been calls, perfectly serious ones, that Greece should hold an "Olympic" sale and sell some of its islands in order to raise much needed cash.

The calls for this Olympic sale, unsurprisingly, have come from Germany.

Josef Schlarmann, a senior figure in Germany's governing Christian Democratic Union party (CDU), said:

"What should a bankrupt person be doing?

Selling everything he owns to pay his creditors, that's what. For the Greeks that means buildings (eg Acropolis) and unpopulated islands
."

Needless to say the Greeks are none too impressed with these "helpful" suggestions, and it is fair to assume that they will add to the tensions surrounding the upcoming meeting between Angela Merkel and Greece's Prime Minister, George Papandreou.

Thursday, March 04, 2010

BA On The Precipice

The prospect of a BA strike this month looks highly likely. BA have retrained a thousand staff to keep flights going, and have chartered 23 aircraft and crew from rival airlines to fly out of Heathrow if the strike does go ahead.

Whilst this may keep the flights going, more or less, the damage done to the brand and finances of the company are such that its future existence will be seriously jeopardised.

No company, let alone an airline, is immortal. The union and management need to remember this before they push BA over the precipice.

Wednesday, March 03, 2010

Pressure Eases On Greece

Pressure on the beleaguered Greek economy, and its position within the Euro, eased temporarily as Greece's cabinet approved a new austerity programme today (the third in the last 3 months).

In theory, if the austerity plan can actually be enacted, it will yield 4.8BN Euros from spending cuts and tax increases.

In case that doesn't work, Greek singer Nana Mouskouri has offered her European Parliament pension (she served as an MEP 1994-1997) to help ease the pressure on the public finances.

However, this respite is only temporary, announcing a new budget and actually implementing it are two different things entirely.

Tuesday, March 02, 2010

The Seduction of The FSA

Lord Turner, the chairman of the Financial Services Authority (FSA), has told the Treasury Select Committee that the FSA was "seduced" into thinking that the economic boom was unstoppable.

In other words the FSA was asleep at the wheel.

He also noted, quite correctly, that another global financial meltdown could occur.

In the event that the Tory Party wins power at the next election, the FSA will become a footnote in the history books as the failed tripartite system (set up by Brown) is dismantled.

Monday, March 01, 2010

Upward Revision

Last week saw the Office on National Statistics (ONS) issue revised growth figures for the last quarter of 2009.

The initial figures for growth of GDP) were revised upwards from 0.1% to 0.3%.

However, before champagne corks are popped, the ONS also revised downwards the overall contraction in GDP during the recession; from a 6% contraction to a 6.25% contraction.

Hardly time for celebrations just yet!