Loans and Finance

Loans and Finance

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

Friday, October 29, 2010

The Curate's Egg

The leaders of the EU have managed to create for themselves, and the people of Europe (whom they claim to represent), something of a curate's egg wrt the agreement to revise (in limited fashion) the EU rulebook.

There will be a "limited treaty change" (so as to avoid countries having to ask their voters to endorse it), that will ensure a legally watertight underpinning of the Euro110BN bailout for Greece and the Euro750BN bailout for others.

However, those countries that do not stay within EU deficit budget limits will not lose their vote (as Chancellor Merkel from Germany had been pressing for).

Despite the fact that Europe is still stuck in recession (with a staggering 10% unemployed) the EU budget will still rise by at least 2.9% (seemingly "necessities" such as an 85% rise in the EU entertainment budget cannot be denied our "respected" MEPs and their acolytes).

Were the EU a private corporation it would have, quite rightly, gone to the wall years ago.

Thursday, October 28, 2010

EU Loses Touch With Reality

David Cameron has thrown in the towel in his fight to resist an EU imposed increase of £435M in Britain's contribution to the EU (based on an EU budget increase overall of 2.9% to £110BN).

Ironically, if this 2.9% rise is approved, it will in fact be a modest "victory" for Cameron who has been fighting a rearguard action (calling all EU heads of state) to prevent the implementation of a budget increase of 5.9% which is being demanded by MEPs. These MEPs are clearly a bunch of individuals who have not set foot on "real world planet Europe" for many years, and are unaware that Europe/the world is in the depths of a recession.

The health warning here is very real, 2.9% is the minimum rise that will go through.

The fact that budget rises of this kind are being pushed through, during a time when national governments are being forced to reduce their own budget deficits, shows just how out of touch with reality the EU has become.

The EU, by acts of folly such as this, will eventually engineer its own self destruction. Unfortunately, in the meantime the citizens of its member states will pay the price for the greed and intransigence of the MEPs.

Wednesday, October 27, 2010

The Dog That Didn't Bark

The House of Lords is conducting an enquiry into the audit profession, and has been told that accounting rules were a significant contributing factor to the banking crisis.

Tim Bush, a member of the Accounting Standards Board's (ASB) Urgent Issues Task Force, told the Lords that international accounting standards forced auditors to abandon the principle of prudence in their audits.

Lord Lawson accused the profession as being "one of the dogs that didn't bark."

He quite rightly uses the phrase "one of".

As noted many times before on this site, the tripartite regulatory system set up by Gordon Brown failed primarily because no one body that belonged to it (ie Bank of England, Treasury and FSA) was deemed to actually be in charge of it.

Monday, October 25, 2010

Push for Growth

As David Cameron at the CBI promises that the government will push for growth and implement a national infrastructure plan (whatever that really means), these promises need to be set against the backdrop of a subdued mortgage/loan market.

The British Bankers' Association (BBA) reports that the downward trend in mortgage approvals continued in September, along with a low demand for personal loans.

The BBA attribute this to personal economic uncertainties.

Fair comment, however, they should also look to their own members' tightening of credit lines (and extortionate interest rates when compared to the Bank of England rate) as another reason for the fall in lending.

Whatever "push for growth" the government may promise/aspire to, the strength of the British economy is based on debt/property; until these areas are stimulated, eg via greater bank lending, significant growth will not occur during the course of this parliament.

Friday, October 22, 2010

More Quantitative Easing

Judging by signals from both the Chancellor and the MPC, the Bank of England is gearing up to increase its level of quantitative easing (currently around £200BN).

The Telegraph quotes George Osborne:

"The country needs a decisive plan, we've set out the decisive plan.

It has some caution built into it, there is of course the freedom for the Bank of England to deploy monetary policy tools as well
."

QE is where the government "prints" new money and uses it to purchase gilts, corporate bonds and commercial paper. Thus it ends up paying the interest owed on the government debt purchased to itself.

As and when the cuts cause excessive political problems, or simply do not work, the government (in the guise of the Bank of England) will print money.

Thursday, October 21, 2010

Bank Levy

The government has published draft legislation for its levy on bank balance sheets.

The levy (less than 0.1%) will be applied from 2012 on the global balance sheets of UK banks, and the UK operations of banks from other countries.

In theory, it will raise approximately £2.5BN per annum.

It will be interesting to see how the banks "shuffle" their worldwide assets and liabilities in the run up to the introduction of this tax, and indeed how they "reassess" the value of their assets and liabilities.

George Osborne is anticipating some "creative accounting", and is pressuring the banks to sign an anti tax avoidance pledge.

A nice idea, in theory.

However, as any first year accounting student will tell you, tax avoidance is perfectly legal (evasion is illegal). I fail to see how the pledge, if signed, can be enforced.

Wednesday, October 20, 2010

The SOBER Decade

Welcome to the "SOBER Decade", as George Osborne announces a £83BN spendings cut package that will (according to the much publicised photo of the Treasury briefing document) cost 490,000 public sector jobs by 2014/15.

Savings
Orderly
Budgets
Equitable
Rebalancing

Some leaders of the private sector claim that it can absorb the unemployed fleeing from the public sector. A tad optimistic to my view, given that many in the public sector have zero experience of working in the private sector and that there is considerable "prejudice" within the private sector to those from the public sector.

As ever there will be a chasm of reality between economic "plans" and political reality.

The next decade may well be "sober", but will the patient survive the withdrawal symptoms?

Monday, October 18, 2010

Lah Lah Land

The Chartered Institute of Personnel and Development have conducted a survey of a sample of people who work in the public sector.

Forty nine percent of those sampled agreed with the statement "workers have to do what's necessary to protect their jobs and if that disrupts public services, that's the price of living in a democratic society".

Quite how going on strike will actually protect their jobs and current terms/conditions of employment eludes me. Like it or not, the country cannot afford the current level of debt bequeathed to it by the previous administration.

Thursday, October 14, 2010

The Bank of England's Credibility

Andrew Sentance, a member of the MPC of the Bank of England, has warned that the Bank risks losing its credibility over inflation worries.

Sentance has long argued for the 0.5% interest rates to be raised, in order the slay that inflationary monster that he perceives to be lurking in the economy.

Sentance is wrong:

1 The credibility of the Bank is not an important factor at this point in the economic cycle (ie a slow return to growth after a debilitating period of recession), restoring growth is the important issue.

2 The economy is not yet in a position to withstand an increase in rates.

Thursday, October 07, 2010

Work Longer, Contribute More

Lord Hutton has published an initial recommendation from his ongoing review of final salary public sector pension schemes.

Simply put, public sector employees should work longer and contribute more to their pension schemes (thus taking the burden from the private sector). Lord Hutton wants the final schemes to be changed to a career average basis.

The unions are already "reacting" in a totally expected manner to this recommendation; ie they don't like it.

Lord Hutton's final report will be published before the 2011 Budget.

Wednesday, October 06, 2010

Currency Wars

Dominique Strauss-Kahn, the head of the IMF, has warned that cuts in interest rates and quantitative easing (as recently announced by the central bank of Japan) could upset the global economy recovery and trigger "currency wars".

The Japanese central bank is reverting to a "zero interest rate" policy (which it abandoned in 2006).

Given that both the US and UK have cut rates and instituted quantitative easing, Mr Strauss-Kahn's comments seem a little "behind the curve".

Tuesday, October 05, 2010

Prison Work Proposal

Ken Clarke's proposal to make all prisoners work a 40 hour week, and for them to be paid a minimum wage, is a good idea:

- It will alleviate the soul crushing boredom of prison, a recipe for trouble in any institution.

- It will give the prisoners some self respect.

- It will give the prisoners experience of real work, something many of them may never have had.

The downside of this proposal is that for the honest law abiding long term unemployed, it may come across as a bit of a "slap in the face".

Monday, October 04, 2010

Child Benefit Shake Up

I see that George Osborne used the BBC Breakfast show to announce to a bleary eyed "Monday morningish" nation that child benefit for higher rate taxpayers would be axed "by" 2013.

Someone should remind Osborne that announcements such as this should be made to Parliament first. The Tories were always quick to criticise Labour when they indulged in this form of "government via media announcement", sadly they seem to be emulating their foe.

Credit to the interviewer, who was clearly taken by surprise, for trying to press some details out of Osborne. She quite rightly made him admit that "higher rate" includes not just those on 50%, but also those on 40%.

She then asked, in relation to "by 2013", whether this would be phased in over a period of time up to 2013. Osborne gave a rambling, evasive response which did not answer the question.

Quite clearly he intends to start cutting child benefit back (for higher rate taxpayers) now, in phases, rather than leaving it all until 2013.

Friday, October 01, 2010

The "Luck" of The Irish

Commiserations to the people and government of Irleand who, having come to the rescue of their beleaguered banks during the global credit crisis, now have to do it again.

The Irish government will now take control of Allied Irish Banks Plc, and inject extra cash into the previously nationalised Anglo Irish Bank Corp. The cost of the rescue is estimated to be around Euro50BN.

The Irish budget deficit will be approximately 32% of GDP. In order to try to avoid following Greece, and having to ask for an EU/IMF bailout, the government will be making further cuts in its budget.

As to whether this is politically acceptable remains to be seen.