Monday:
Hard Labour's Mr Milipede has called for the "break up" of the banks. More accurately, he's called for no more than the implementation of last year's Vickers and Tarts report.
Not that the Coalition's WATERED DOWN Vicker's proposals are GOOD, but Hard Labour's proposal is TIMID, and leaves a HUGE OPPORTUNITY for Liberal Democrats to lead REAL RADICAL REFORM.
WE SHOULD break up the banks but NOT JUST into "high street" and "casino". We should take these ENORMOUS institutions, particularly the two that we OWN and turn them into LOTS of SMALL local and regional banks.
I wanted to say this in the "Growth and Jobs" debate at the Brighton Conference just past. I put in a card but sadly I didn't get called. Sadly, because the debate was largely side-tracked into a false debate between the leadership and Liberal Left's amendment. I don't think that that debate was helped any by having so many of the speakers against the amendment be MP's; when it came to a vote it seemed very few people – passionate though they are – actually favour breaking the Coalition's fiscal mandate agreement. It would have been HEALTHIER for the Party to see some "ordinary" members taking to the stage to speak against the amendment. I know I would have done, given the chance.
However what I really wanted to contribute was support for the policy of better access to local banking and credit for small business. Largely what I'd have said was this:
The banks are very big, international institutions. But jobs and growth in the UK have always, historically, come from small and medium sized local businesses. This is a FUNDAMENTAL MISMATCH in SCALE.
Small and medium sized businesses are the REAL "wealth creators" and often they're not ACTUALLY WEALTHY (a distinction that the Conservatories prefer to blur – but I'll talk about the need to tax WEALTH rather than WEALTH CREATION in a different diary) and not being wealthy means that these businesses, and the people who work to make them work need to BORROW.
And we know that small and medium businesses are the ones finding it HARDEST to get investment from the big banks. That's why Vince is having to set up HIS OWN bank just to try and uncrunch the credit to their businesses.
We can't expect Vince to do all the heavy lifting by himself though. That's why we need MORE banks. That's also why we need them to be SMALLER, LOCAL banks where they have the knowledge to help and support local businesses.
Hard Labour's solution to FAILING Banks, Mr Alistair Dalek's solution, was to bung them together into EVEN BIGGER banks. Even bigger FAILURES.
We all know that "banks too big to fail" were really just "TOO BIG".
The answer to the risk of bank lending is NOT to make them store up money like dragon's treasure. That's what we're doing, but it's what is stoppering up the flow of money to business.
Instead we should spread the risk about so that it becomes SMALLER and more MANAGEABLE. Small banks might be at greater risk if local businesses do badly, but small banks are SMALL ENOUGH TO SAVE.
I'm not saying get rid of ALL the International Banks. On the contrary, we need banks at all different scales. But policies of acquisitions and mergers, and laisez faire attitude to COMPETITION have seen big banks gobble up small ones, leaving us with a virtual CARTEL. (And if we're going to convince the Conservatories about this, remind them that more banks means more COMPETITION which is supposed to be GOOD for the consumer. They're supposed to like that sort of thing.)
Making banks SMALL is GOOD LIBERALISM: it protects people from BULLYING by putting them on a more even footing with their bank AND it encourages LOCALISM by giving the small bank bankers an incentive to invest in their community.
(I'm going to try writing a few "big policy idea" pieces in the near future for the fairly obvious reason that the FEDERAL POLICY COMMITTEE elections have come around again.
If you want to see the Party discussing big, radical policies again, please do encourage any voting reps to vote for me – that's Richard Flowers, rather than Millennium Elephant.
And if there are any big ideas you think I should be covering, or even any radical small ideas, please comment or e-mail me!)
Showing posts with label Banks. Show all posts
Showing posts with label Banks. Show all posts
Tuesday, October 02, 2012
Saturday, February 19, 2011
Day 3702: An Interest in Inflation
Saturday:
This week, we learned that the headline rate of inflation is 4% (with the rate including mortgage costs an even higher 5.1%) and we were warned that higher interest rates are on the way, pinching our purses even tighter.
For lots of people, particularly those on public sector pay freezes, this is VERY BAD NEWS. Inflation turns a pay FREEZE into a pay CUT: you get the same money, but it doesn't go as far. In fact, inflation does this even if you do have a pay rise.
So why risk the EXTRA pain of higher mortgage repayments now?
Well, for starters, interest rates are like exoplanets – you really want to find them in the GOLDILOCKS ZONE.
(No, that's NOT like Dr Woo's "Medusa Cascade"; it means not too hot and not too cold but just right.)
It's fairly obvious what the problems are if your interest rates are too HOT or rather too high: anyone with any borrowing – which is most businesses, on top of everyone one who bought a house using a mortgage – they get squished flat under the cost of repayments.
If all your money is going in interest repayments then you have no extra cash to put into savings or to employ new workers.
So, HIGH interest rates are HARMFUL to prospects for GROWTH.
BUT, there are problems if your interest rates are too LOW as well.
Although it is much cheaper for businesses to borrow, it's much harder to find anyone to borrow FROM, because almost no one wants to lend money when the rate they'll get back is so low.
Think about this as a SAVER: people who have money in the bank are seeing it LOSE value at the moment because the interest rate is LESS than the inflation rate.
If I had £100 today, I could buy £100 worth of sticky buns with it. But put it in the bank and in a year I might have £100 and 50p, but to buy the same number of sticky buns would cost me £104!
Or to put it another way: I could buy sticky buns today for £96.63; in a year's time those buns will cost £96.63 PLUS £96.63 x 4% inflation, which is £96.63 PLUS £3.87 or £100.50, which is what I get from putting my imaginary £100 in a bank.
So what we call the "REAL" value of putting £100 in the bank is that it LOSES £3.37 (or 3.37%) in value!
(Of course real savers can get better interest than the ½% base rate, but it makes the point.)
So for starters, very low interest rates discourage saving, which is a bad thing anyway. But more than that, they mean banks have no reason lend money out, even if there were any savers putting it in, which perpetuates the CREDIT CRUNCH.
So, LOW interest rates are actually HARMFUL to prospects for GROWTH too.
SAVERS want to make a PROFIT on their savings, so they need higher interest rates to encourage them to put their money into banks.
BANKS – and this is going to be unpopular – need to make a profit too. So THEY need higher interest rates both to tempt in savers AND to make money when they loan it out to businesses.
BUSINESSES need more lending, so that they can buy new machines or factories to grow their businesses and take on more workers who in turn will then have money to save.
Okay, but I'm sure you can spot the problem at once. You don't need to be a genius to work out that you DO need to be a genius to know WHERE the Goldilocks Zone IS.
A rise in interest rates will inevitably (and in fact AUTOMATICALLY) cause a rise in that measure of inflation that includes the cost of mortgages. (It's called the "RPI" if you want the technical language.)
Put up interest rates and you MIGHT stimulate growth – but you WILL stimulate inflation, which cuts into people's budgets and makes it harder for them to save or invest… which might REDUCE growth.
Worse still, an increase in the interest cost that businesses have to pay might stop them from expanding or, worst of all, mean they can't cover their other costs and put them out of business altogether!
(And you very well KNOW that just as SOON as interest rates start to go up Hard Labour will be putting on their sad puppy faces and saying how AWFUL it is that Coalition policies are making things WORSE for "hard pressed" families with mortgages and business with borrowings.
Which is a bit like someone who's just driven a TRUCK through the front of your HOUSE saying how AWFUL it is that the builders are going to have to knock down your garden wall to get it back out again.)
Sticky, isn't it. And not in a bun way.
So, you might very well ask, if low interest rates are so BAD, how come the Bank of England let them get this low in the first place?
Well, the Bank lowered interest rates during the recession in order to protect EXISTING BORROWERS. By reducing the amount that people and businesses had to spend on interest, the Bank gave them more to spend on other things, reducing the effect of higher prices and protecting jobs.
As I explained above, low interest rates DON'T help savers and they DON'T help NEW borrowers (because there's nothing for them to borrow). So it's hard to invest in new projects. But in a recession, the economy is shrinking and defending what you have is prioritised over starting new stuff.
You DO have to start investing in new stuff EVENTUALLY. (Real investment, I mean: people starting or growing businesses; not Hard Labour's idea of more public spending.) But WHEN you start investing is a whole 'nother sticky bun!
Anyway, when dead low interest rates didn't look like working, the Bank went one step further and started printing money, so-called Quantum of Easing, which meant that there was more actual money washing about in the economy.
The low interest rates contained the problem of the huge debts that Hard Labour had run up; printing money allowed them to go on spending like there was no tomorrow. And as it happened, for Mr Frown's government there WAS no tomorrow.
One way of looking at this is to say that the extra money soaked up the effects of inflation, allowing the economy to keep going through the downturn.
But the flip side is to suggest that the extra money actually CAUSED the inflation because it meant that prices COULD rise, stuff could cost MORE, even though there was LESS economic activity because of the recession.
Monetarists will tell you that if there is more money about and the same amount of stuff to buy, then the price of the stuff will go up to match the available money. If you believe that – and I'm not entirely sure that I do – then RAISING interest rates will REDUCE the amount of money in the economy and so reduce inflation.
What I do believe is that by printing money we have undermined the value of the POUND. Printing new pound notes does NOT magically create new VALUE out of nowhere. It takes the EXISTING value and just spreads it out a bit more thinly.
So, low interest rates means there is little return for FOREIGN investors to put their money into Great Britain, and printing money means that they think (correctly) that our pounds are now worth LESS than they used to be. So our pounds can buy less of their goods.
In other words, the pound goes DOWN and imports become MORE EXPENSIVE, which is INFLATION.
Raising the interest rates – and, possibly even more importantly, starting to reverse the Quantitative Easing – will strengthen the pound and ease the inflationary pressures of higher import costs.
I only say EASE, not ELIMINATE, because there are GENUINE reasons beyond the weakness of the currency that mean imports are getting more expensive. And will KEEP ON getting more expensive.
In fact, looking back I see that I already wrote a diary about this… back in 2007!
Yes, it is a bit SCARY to think that the economic crisis has been going on for MORE THAN THREE YEARS!
And those forces have not gone away. The pressures on food and energy resources will continue to grow as China and India and Brazil and all the others continue to expand their economies and populations.
In spite of this, it has been clear for quite a while – from signs like the weak pound and the rising inflation rate – that interest rates are definitely too LOW at the moment. A carefully planned and MODERATE increase (or rather a gentle series of cautious increases) might provide some comfort to savers and maybe, just maybe, do better than Project Merlin in convincing the banks to start lending again.
.
This week, we learned that the headline rate of inflation is 4% (with the rate including mortgage costs an even higher 5.1%) and we were warned that higher interest rates are on the way, pinching our purses even tighter.
For lots of people, particularly those on public sector pay freezes, this is VERY BAD NEWS. Inflation turns a pay FREEZE into a pay CUT: you get the same money, but it doesn't go as far. In fact, inflation does this even if you do have a pay rise.
So why risk the EXTRA pain of higher mortgage repayments now?
Well, for starters, interest rates are like exoplanets – you really want to find them in the GOLDILOCKS ZONE.
(No, that's NOT like Dr Woo's "Medusa Cascade"; it means not too hot and not too cold but just right.)
It's fairly obvious what the problems are if your interest rates are too HOT or rather too high: anyone with any borrowing – which is most businesses, on top of everyone one who bought a house using a mortgage – they get squished flat under the cost of repayments.
If all your money is going in interest repayments then you have no extra cash to put into savings or to employ new workers.
So, HIGH interest rates are HARMFUL to prospects for GROWTH.
BUT, there are problems if your interest rates are too LOW as well.
Although it is much cheaper for businesses to borrow, it's much harder to find anyone to borrow FROM, because almost no one wants to lend money when the rate they'll get back is so low.
Think about this as a SAVER: people who have money in the bank are seeing it LOSE value at the moment because the interest rate is LESS than the inflation rate.
If I had £100 today, I could buy £100 worth of sticky buns with it. But put it in the bank and in a year I might have £100 and 50p, but to buy the same number of sticky buns would cost me £104!
Or to put it another way: I could buy sticky buns today for £96.63; in a year's time those buns will cost £96.63 PLUS £96.63 x 4% inflation, which is £96.63 PLUS £3.87 or £100.50, which is what I get from putting my imaginary £100 in a bank.
So what we call the "REAL" value of putting £100 in the bank is that it LOSES £3.37 (or 3.37%) in value!
(Of course real savers can get better interest than the ½% base rate, but it makes the point.)
So for starters, very low interest rates discourage saving, which is a bad thing anyway. But more than that, they mean banks have no reason lend money out, even if there were any savers putting it in, which perpetuates the CREDIT CRUNCH.
So, LOW interest rates are actually HARMFUL to prospects for GROWTH too.
SAVERS want to make a PROFIT on their savings, so they need higher interest rates to encourage them to put their money into banks.
BANKS – and this is going to be unpopular – need to make a profit too. So THEY need higher interest rates both to tempt in savers AND to make money when they loan it out to businesses.
BUSINESSES need more lending, so that they can buy new machines or factories to grow their businesses and take on more workers who in turn will then have money to save.
Okay, but I'm sure you can spot the problem at once. You don't need to be a genius to work out that you DO need to be a genius to know WHERE the Goldilocks Zone IS.
A rise in interest rates will inevitably (and in fact AUTOMATICALLY) cause a rise in that measure of inflation that includes the cost of mortgages. (It's called the "RPI" if you want the technical language.)
Put up interest rates and you MIGHT stimulate growth – but you WILL stimulate inflation, which cuts into people's budgets and makes it harder for them to save or invest… which might REDUCE growth.
Worse still, an increase in the interest cost that businesses have to pay might stop them from expanding or, worst of all, mean they can't cover their other costs and put them out of business altogether!
(And you very well KNOW that just as SOON as interest rates start to go up Hard Labour will be putting on their sad puppy faces and saying how AWFUL it is that Coalition policies are making things WORSE for "hard pressed" families with mortgages and business with borrowings.
Which is a bit like someone who's just driven a TRUCK through the front of your HOUSE saying how AWFUL it is that the builders are going to have to knock down your garden wall to get it back out again.)
Sticky, isn't it. And not in a bun way.
So, you might very well ask, if low interest rates are so BAD, how come the Bank of England let them get this low in the first place?
Well, the Bank lowered interest rates during the recession in order to protect EXISTING BORROWERS. By reducing the amount that people and businesses had to spend on interest, the Bank gave them more to spend on other things, reducing the effect of higher prices and protecting jobs.
As I explained above, low interest rates DON'T help savers and they DON'T help NEW borrowers (because there's nothing for them to borrow). So it's hard to invest in new projects. But in a recession, the economy is shrinking and defending what you have is prioritised over starting new stuff.
You DO have to start investing in new stuff EVENTUALLY. (Real investment, I mean: people starting or growing businesses; not Hard Labour's idea of more public spending.) But WHEN you start investing is a whole 'nother sticky bun!
Anyway, when dead low interest rates didn't look like working, the Bank went one step further and started printing money, so-called Quantum of Easing, which meant that there was more actual money washing about in the economy.
The low interest rates contained the problem of the huge debts that Hard Labour had run up; printing money allowed them to go on spending like there was no tomorrow. And as it happened, for Mr Frown's government there WAS no tomorrow.
One way of looking at this is to say that the extra money soaked up the effects of inflation, allowing the economy to keep going through the downturn.
But the flip side is to suggest that the extra money actually CAUSED the inflation because it meant that prices COULD rise, stuff could cost MORE, even though there was LESS economic activity because of the recession.
Monetarists will tell you that if there is more money about and the same amount of stuff to buy, then the price of the stuff will go up to match the available money. If you believe that – and I'm not entirely sure that I do – then RAISING interest rates will REDUCE the amount of money in the economy and so reduce inflation.
What I do believe is that by printing money we have undermined the value of the POUND. Printing new pound notes does NOT magically create new VALUE out of nowhere. It takes the EXISTING value and just spreads it out a bit more thinly.
So, low interest rates means there is little return for FOREIGN investors to put their money into Great Britain, and printing money means that they think (correctly) that our pounds are now worth LESS than they used to be. So our pounds can buy less of their goods.
In other words, the pound goes DOWN and imports become MORE EXPENSIVE, which is INFLATION.
Raising the interest rates – and, possibly even more importantly, starting to reverse the Quantitative Easing – will strengthen the pound and ease the inflationary pressures of higher import costs.
I only say EASE, not ELIMINATE, because there are GENUINE reasons beyond the weakness of the currency that mean imports are getting more expensive. And will KEEP ON getting more expensive.
In fact, looking back I see that I already wrote a diary about this… back in 2007!
Yes, it is a bit SCARY to think that the economic crisis has been going on for MORE THAN THREE YEARS!
And those forces have not gone away. The pressures on food and energy resources will continue to grow as China and India and Brazil and all the others continue to expand their economies and populations.
In spite of this, it has been clear for quite a while – from signs like the weak pound and the rising inflation rate – that interest rates are definitely too LOW at the moment. A carefully planned and MODERATE increase (or rather a gentle series of cautious increases) might provide some comfort to savers and maybe, just maybe, do better than Project Merlin in convincing the banks to start lending again.
.
Saturday, March 20, 2010
Day 3365: Daddy's Letter to Labour
Friday
I am sure that you can guess just how THRILLED Daddy Richard would be to receive a really POSITIVE and HEART-WARMING message from the General Secretary of the Hard Labour Party.
Unfortunately, that's NOT what arrived in the post this week. Instead, and before the General Election campaign has even started, Hard Labour are already so PANICKED about the Liberal Democrats that they are using NEGATIVE CAMPAIGNING and DISTORTION to attack us!
So, once we'd peeled Daddy off the ceiling, we persuaded him to write a THANK YOU note, and maybe ask one or two little questions for clarification…
And here is the offensive… sorry offendING leaflet:
Lies...? Damned lies...?
...or statistics?
Incidentally, Chicken Yoghurt may have gotten there first with a very similar story.
Meanwhile, in COMPLETELY UNRELATED news, today Mr Balloon will – according to Conservatory Home – "invoke the spirit of Thatcher…" (this probably involves thirteen BLACK CANDLES and an unlucky GOAT – maybe Lord Pigby Jones or similar) "…in challenging the vested interests in the unions - and the big banks"
Hang on, that's practically a DIRECT QUOTE of Captain Clegg!
What does this involve?
"I can announce today that a Conservative government will introduce a new bank levy to pay back tax payers for the support they gave and to protect them in the future."
Hang on, that's practically a DIRECT QUOTE from Mr Dr Vince!
Look, it is perfectly simple: we welcome Mr Balloon's decision to campaign FOR Liberal Democrat Policies, and say this – it you WANT Liberal Democrat Policies, why not get them STRAIGHT from the people who THOUGHT THEM UP, rather than the people who have no ideas of their own.
I am sure that you can guess just how THRILLED Daddy Richard would be to receive a really POSITIVE and HEART-WARMING message from the General Secretary of the Hard Labour Party.
Unfortunately, that's NOT what arrived in the post this week. Instead, and before the General Election campaign has even started, Hard Labour are already so PANICKED about the Liberal Democrats that they are using NEGATIVE CAMPAIGNING and DISTORTION to attack us!
So, once we'd peeled Daddy off the ceiling, we persuaded him to write a THANK YOU note, and maybe ask one or two little questions for clarification…
Daddy's HouseE1418 March 2010
Mr Ray Collins
General Secretary,
The Labour Party,
39 Victoria Street,
London
SW1H 0HA
Dear Mr Collins,
Thank you for the direct mail that I received from the Labour Party under your imprint on Wednesday 17th March with the headline "Lib Dem Leader: Thatcher Was Right".
Having read the full story, I now know that the correct quote was that Mrs Thatcher was right to take on vested interests. Mr Clegg continues that in her day this was in the form of the over-powerful Trades Unions who had caused so much disruption during the so-called "Winter of Discontent", and that today we should be taking on vested interests in the form of City bankers.
In 2007, Gordon Brown as Labour Leader and Prime Minister invited Lady Thatcher to Downing Street. He appeared on the doorstep with her and said that he admired her. He said:
"Whatever disagreements you have with her about certain policies […] we have got to understand that she saw the need for change."
I should therefore be grateful if you would answer me the following questions:
- Does the Labour Party not believe that we should take on the vested interests that cause inequality in Britain?
- Why has the Labour Party been in power for thirteen years and NOT tackled the vested interest of City bankers? Particularly given the recession that they have just caused?
- How can the Labour Party begin to oppose vested interests when it continues to remain heavily indebted to the Trades Unions? Is it not the case that the Party has received over £11 million from the Unite Union that is currently threatening so much disruption to people's holidays?
- Is it not fundamentally dishonest for the Labour Prime Minister to say Lady Thatcher was right about some things and for you then to distort the words of the Liberal Democrat Leader so that you can attack him for saying just the same? Why is the Labour Party already campaigning using deliberate distortions before a General Election has even been called?
I look forward to your reply, and shall be happy to forward it to the London Evening Standard and my local East London Advertiser, as I have with this letter.
Yours sincerely
Richard Flowers
PS: I assume that there will be no complaints from any member of the Labour Party about the use of bar-charts by any other Party since the one that you use on the reverse of your flyer so clearly distorts the relative percentages. I also see you have used the national average vote; were you perhaps afraid to use the ones for your formerly-safe seat in Tower Hamlets?
And here is the offensive… sorry offendING leaflet:
Lies...? Damned lies...?
...or statistics?
Incidentally, Chicken Yoghurt may have gotten there first with a very similar story.
Meanwhile, in COMPLETELY UNRELATED news, today Mr Balloon will – according to Conservatory Home – "invoke the spirit of Thatcher…" (this probably involves thirteen BLACK CANDLES and an unlucky GOAT – maybe Lord Pigby Jones or similar) "…in challenging the vested interests in the unions - and the big banks"
Hang on, that's practically a DIRECT QUOTE of Captain Clegg!
What does this involve?
"I can announce today that a Conservative government will introduce a new bank levy to pay back tax payers for the support they gave and to protect them in the future."
Hang on, that's practically a DIRECT QUOTE from Mr Dr Vince!
Look, it is perfectly simple: we welcome Mr Balloon's decision to campaign FOR Liberal Democrat Policies, and say this – it you WANT Liberal Democrat Policies, why not get them STRAIGHT from the people who THOUGHT THEM UP, rather than the people who have no ideas of their own.
Tuesday, December 22, 2009
Day 3278: We Wish You a Banking Christmas and a Bonus New Year
Tuesday:
As the Office of Fair Trading finally gives up hope of forcing the banks to trade fairly, let's hear the glass spires of the Square Mile ring out with those much loved ol' City carols…
"Away in a Mammon…"
"Once in Royal Bojo's City, Stood a Lofty Banking Shed…"
"While Shareholders Watched Their Stocks by Night…"
"We Three Kings of Orient Are… Looking for a Remortgage Deal for Dubai World…"
And of course
"Silent Night, Holy Night; Of the Regulator, Not a Sight…"
As Tiny Tim himself might say: God bankrupt you all, every one!
.
As the Office of Fair Trading finally gives up hope of forcing the banks to trade fairly, let's hear the glass spires of the Square Mile ring out with those much loved ol' City carols…
"Away in a Mammon…"
"Once in Royal Bojo's City, Stood a Lofty Banking Shed…"
"While Shareholders Watched Their Stocks by Night…"
"We Three Kings of Orient Are… Looking for a Remortgage Deal for Dubai World…"
And of course
"Silent Night, Holy Night; Of the Regulator, Not a Sight…"
As Tiny Tim himself might say: God bankrupt you all, every one!
.
Thursday, December 03, 2009
Day 3259: OK you bankers, I accept your resignations – if only Saint Vince were Chancellor
Thursday:
The Board of the Royal Bank-that-we-own of Scotland are behaving like a flock of Sir Desmond Glazebrooks, the incompetent but wily banker of "Yes, Monster" and "Yes, Prime Monster" fame, who would insist treating all the good chaps like good chaps because it wouldn't be being a good chap to do otherwise.
"We HAVE to give out a BILLION-and-a-HALF QUID in bonuses or the good chaps will leave," they whine. "And if you won't let us, we'll all QUIT!"
Well, HURRAY for Mr Dr Vince "the Power" Cable, Sage of Twickenham, calling their bluff: ok, he says, quit then!
Listen to Saint Vince on the The Today Programme. And yah boo to anyone who says politicians don't answer the question he answers each one straight.
Now, let's see if Mr Frown will "save the world" or save the bankers' bonuses.
The lovely Caron muses that the bankers should be more than a bit grateful that they've still GOT jobs rather than whinging that they are not being overpaid enough.
And even CGI (Charlotte Gore, Independent) is up for calling the bankers' bluff… on the grounds that they're venal Government quislings, naturally.
.
The Board of the Royal Bank-that-we-own of Scotland are behaving like a flock of Sir Desmond Glazebrooks, the incompetent but wily banker of "Yes, Monster" and "Yes, Prime Monster" fame, who would insist treating all the good chaps like good chaps because it wouldn't be being a good chap to do otherwise.
"We HAVE to give out a BILLION-and-a-HALF QUID in bonuses or the good chaps will leave," they whine. "And if you won't let us, we'll all QUIT!"
Well, HURRAY for Mr Dr Vince "the Power" Cable, Sage of Twickenham, calling their bluff: ok, he says, quit then!
Listen to Saint Vince on the The Today Programme. And yah boo to anyone who says politicians don't answer the question he answers each one straight.
TODAY: If you were Chancellor what would you do?Mr Dr Vince is, of course, RIGHT. It is about time someone called these ghastly bankers' bluff and told them that THEY have got to contribute something to cleaning up the MESS that THEY made.
St Vince: I'd accept their resignations and be very clear that this bank has to operate in the interest of the public.
TODAY: But what about the minority investors?
St Vince: Well, what about the MAJORITY investors – i.e. the Great British public who own 80% of this bank and have put in billions and billions of pounds. The minority shareholders were largely big institutions who sat passively by and allowed the crisis to develop.
TODAY: Won't the board argue that what they're doing IS in the public interest, making a profit to get the public's money back?
St Vince: Of course the taxpayer should get their money back but that's not the only objective. There's also restoring the flow of credit to small and medium sized British businesses who are still finding it very difficult to obtain credit.
TODAY: If they don't get "the going rate" won't the good staff will go to Goldman Sacked (to do "god's work", one guesses)
St Vince: Let's not forget the five-thousand people in the City earning over a million are all ultimately guaranteed by the taxpayer, the Government has effectively said they'll underwrite them. This is not "normal commercial business" in the sense most that people would understand it.
TODAY: Lord Mandeltine says that the Government is asking for restraint from the bankers but that RBS won't be singled out.
St Vince: Well, Darth Sideious, excuse me, Lord Mandeltine has got to be firm. The bank is effectively blackmailing the Government by saying do what we say or we will walk. The Government has put in billions of taxpayers' money and has got to exert some discipline.
Now, let's see if Mr Frown will "save the world" or save the bankers' bonuses.
PS:
Mr Stephen of the Glenn points out that that the Scottish Bankers are like the Scottish Nasties in their threat to toss their toys out of the pram if they can't spend public money their own way. He also shows that the total bankers at the Bank-that-we-own want to take a QUARTER of the profits for their own wallets. Not so much repaying the public investment there then.The lovely Caron muses that the bankers should be more than a bit grateful that they've still GOT jobs rather than whinging that they are not being overpaid enough.
And even CGI (Charlotte Gore, Independent) is up for calling the bankers' bluff… on the grounds that they're venal Government quislings, naturally.
.
Tuesday, November 24, 2009
Day 3250: Sixty-Two BILLION Pounds in Brown Envelopes, please
Tuesday:
Suppose you're running a business and it is time to prepare some accounts. Things are looking a bit TIGHT, so here's a trick: borrow a load of CASH from a friend of yours and give it back after the accounts are done. That way, if suppliers look at your balance sheet, they'll see that you have plenty of money to keep paying your bills and so will carry on giving you credit.
There's only ONE small snag – it's TOTALLY a fraud.
So how did the Government get away with doing EXACTLY THAT for those banks that we own: RBS and HBoS?
It's not even as though they WEREN'T drawing up accounts, because right in between the Bank of England suddenly going all "The Bank that Likes to Say Yes" and the money getting swiftly bunged back, Lloyds TSB were persuaded to buy the "strangely having plenty of cash on fluffy foot" HBOS group. So they MUST have prepared some accounts – it's the LAW you have to when you do a MERGER.
So you can understand that the Lloyds shareholders may be feeling a tiny bit deceived, not to mention slightly cross now that THEIR bank has gone swiftly down the plughole too.
Shouldn't someone ought to have at least MENTIONED it? Shouldn't the auditors have said: aye aye, what're all these piles of cash and an IOU to King Mervyn doing tucked down the back of the boardroom sofa?
This looks EXTREMELY DODGY – on the one fluffy foot, the Government were reassuring us that the British Banks were terribly well placed to weather the economic tsunami and that this was a terrifically good deal for the Lloyds shareholders, a once in a lifetime opportunity to buy a lovely bank. And all the while the OTHER fluffy foot was busily shoving more and more bundles of used tenners into the dyke in the hope that no one would notice!
Oh, and another thing: don't we also have some kind of TREATY OBLIGATION to ask the European Union if it's okay with them before we hand out megabucks in STATE AID to AILING INDUSTRIES? Aren't they going to be slightly cross with us? Fortunately it's not like the British EU Commissioner was in charge of Trade and Industry at all…
Oh…
Well, I do hope this doesn't mess up any important new job she might be up for.
.
Suppose you're running a business and it is time to prepare some accounts. Things are looking a bit TIGHT, so here's a trick: borrow a load of CASH from a friend of yours and give it back after the accounts are done. That way, if suppliers look at your balance sheet, they'll see that you have plenty of money to keep paying your bills and so will carry on giving you credit.
There's only ONE small snag – it's TOTALLY a fraud.
So how did the Government get away with doing EXACTLY THAT for those banks that we own: RBS and HBoS?
It's not even as though they WEREN'T drawing up accounts, because right in between the Bank of England suddenly going all "The Bank that Likes to Say Yes" and the money getting swiftly bunged back, Lloyds TSB were persuaded to buy the "strangely having plenty of cash on fluffy foot" HBOS group. So they MUST have prepared some accounts – it's the LAW you have to when you do a MERGER.
So you can understand that the Lloyds shareholders may be feeling a tiny bit deceived, not to mention slightly cross now that THEIR bank has gone swiftly down the plughole too.
Shouldn't someone ought to have at least MENTIONED it? Shouldn't the auditors have said: aye aye, what're all these piles of cash and an IOU to King Mervyn doing tucked down the back of the boardroom sofa?
This looks EXTREMELY DODGY – on the one fluffy foot, the Government were reassuring us that the British Banks were terribly well placed to weather the economic tsunami and that this was a terrifically good deal for the Lloyds shareholders, a once in a lifetime opportunity to buy a lovely bank. And all the while the OTHER fluffy foot was busily shoving more and more bundles of used tenners into the dyke in the hope that no one would notice!
Oh, and another thing: don't we also have some kind of TREATY OBLIGATION to ask the European Union if it's okay with them before we hand out megabucks in STATE AID to AILING INDUSTRIES? Aren't they going to be slightly cross with us? Fortunately it's not like the British EU Commissioner was in charge of Trade and Industry at all…
Oh…
Well, I do hope this doesn't mess up any important new job she might be up for.
.
Monday, July 20, 2009
Day 3123: Mr Oboe versus the Deckchairs on the Titanic
Monday:
Daddy Alex has already updated you on today's FLYING PIG headlines, though he DIDN'T mention the The Today Programme's interview with the man who should sort out all the confusion because he's in charge of Planning for Pandemics, or "Lord of the Pandemonium" to give him his full title. Erm…
Anyway, I'm going to tell you about the OTHER annoying BUG that's doing the rounds: Mr Balloon's apprentice chocolate button counter, Master Oboe.
Today he claims that he has a PLAN for SOUND BANKING… hmmm, Master Gideon is something that SOUNDS like BANKING? Whatever do you think THAT means?
Well, you would be RIGHT! It's a SILLY plan, which involves altering some brass nameplates and nothing of any substance.
The centrepiece is to tighten banking regulation by abolishing the banking regulator. No, bear with me… Master Gideon intends to get rid of the FSA (Financial Services Authority) and replace it with the BoE (Old Boy Network). This is the system that we had before Mr Frown was Chancellor, which successfully prevented the collapse of banks like BCCI and Barings… oh, hang on a minute…
At the moment, we have a tri-partite system of regulation: meaning everyone tries but no one does their part. With responsibility DIVIDED between the Bank of England and the FSA and the Office of Fair Trading, it's too easy for the actual DOING of regulation to fall into the gaps as no one takes responsibility.
What Mr Oboe wants to do is get rid of the FSA, take some powers away from the OFT, give some other powers to the Bank and bung the rest into a new body called the CPA. This will sweep aside the old, failed tripartite system and replace it with a new, modern, er, tripartite system… no, hang on again…
(Incidentally, that's CPA for "CONSUMER protection agency", not "CHILD protection agency", though the track record of Government Quangos with those initials is, let's say, UNCERTAIN.)
There IS a good case for saying there should be CLEAR lines of responsibility. Make the Bank of England ultimately RESPONSIBLE for the banking sector and then everyone knows where the buck stops. Assuming you CAN stop the buck before it disappears down the plug hole.
But if you want the Bank actually to ENFORCE the regulation, then they're going to need a whole load of new employees trained in inspection and investigation and where are they going to get them? Oh, look: here's a whole bunch or people recently made redundant from the only other inspector of banking in town… good golly gosh, all the same people would end up doing all the same jobs, only with a load of confusion and an expensive redundancy payment in the middle.
We listened to Mr Oboe trying to sell hispig in a poke scheme on the Andy Marrmite show… or at least we did until Daddy Alex turned it off to stop Daddy Richard's head EXPLODING!
(This was to do with Mr Oboe slightly exceeding Daddy's parameters for accepting the phrase "telling the truth", viz:
"…first of all, myself, David Cameron have come on this programme and warned consistently for months that there is a debt crisis…"
"Um, surely that was Mr Vince," interjected Daddy.
"…First of all, we have been the people who have highlighted this. We're also the people who've said the cupboard is bare…"
"No, that was Mr Vince, again," says Daddy.
"…that the country does not have limitless funds in the future. We opposed the temporary VAT cut…"
"No, no, that was definitely all Mr Vince!" repeats Daddy, going slightly purple.
"I think it's important because it is has established our credentials as people who are telling the public the truth"
"Grk! Urk! Strangulated-Growl!" says Daddy.)
Before we got to that, though, Mr Oboe had already ALARMED us with his somewhat casual attitude to what banking regulation is actually FOR.
"First of all…"
(Yes, he really DOES say "first of all" that many times. UNCHARITABLY I wonder if he can count to SECOND at all?)
"First of all, if this retail bank - a bank that's got branches in a high street taking your deposits or anyone else's - is engaging in very risky activities, very risky investment banking activities like large-scale proprietary trading or internal hedge funds, then it will have to set aside very large amounts of money as an insurance policy to protect the taxpayer."
Now, what worries me about this is how do you define "very risky activities"? And for that matter, why do you NEED to define "very" risky – shouldn't the banks be insuring their depositors against ORDINARY risks of banking?
It seems to me that the ORDINARY business of banking is to take deposits from investors and return them a rate of interest, then use that money to advance loans to other people and charge them a SLIGHTLY HIGHER rate of interest. The risks involved in this are that some of the loans go BAD because people can't always repay what they owe, if the business doesn't work out.
What is NOT the ordinary business of banks is gambling the deposits on the stock market or the 4.15 at Kempton Park or putting the lot on 26 Black.
People who WANT to put their money on 26 Black go to a CASINO. People who want to back a nag in the 4.15 go to a BOOKMAKER. And people who want to gamble on the Stock Market should go to a broker to do it and then they know what they are putting their money into and can accept the risks.
People going to a BANK want somewhere safe to put their money, with some reasonable interest on their savings.
What they DON'T want to do is discover (usually after the fact) that their high street bank went on a drunken bender down in the City of London and backed a whole super-casino's worth of options and securities and derivatives.
For many, many years following the INFAMOUS Wall Street Crash, America made their banks do EITHER stock market banking OR high street banking, but not BOTH. Then they stopped making the banks make that choice and then there was another massive banking crash.
I believe that this is called TESTING a theory to DESTRUCTION.
Mr Oboe appears to call it Business as Usual.
He spells it out for his chums in the City in the foreword to his plan:
"We must not allow ill-conceived or badly designed new regulations, either from home or abroad, to undermine the prospects of an internationally successful financial services industry based in London"
and
"We will defend the vital interests of Britain’s financial services sector in Europe."
This is not a difficult code to break: the Conservatories will not allow "ill-conceived new regulations" by opposing ALL new regulations; they will "defend vital interests" by preventing Europe from requiring banks to protect their CUSTOMERS' interests.
Finally, Mr Oboe is going to ask for a report from (i.e. pass the buck to) the Office of Fair Trading about the "effects of consolidation in the banking sector".
What he means is he's going to have to ASK someone to tell him if it's a BAD thing that we now have fewer, larger, riskier banks.
Is it very wrong of me to expect someone applying to be CHANCELLOR to understand that in a free market LESS competition IS automatically BAD?
.
Daddy Alex has already updated you on today's FLYING PIG headlines, though he DIDN'T mention the The Today Programme's interview with the man who should sort out all the confusion because he's in charge of Planning for Pandemics, or "Lord of the Pandemonium" to give him his full title. Erm…
Anyway, I'm going to tell you about the OTHER annoying BUG that's doing the rounds: Mr Balloon's apprentice chocolate button counter, Master Oboe.
Today he claims that he has a PLAN for SOUND BANKING… hmmm, Master Gideon is something that SOUNDS like BANKING? Whatever do you think THAT means?
Well, you would be RIGHT! It's a SILLY plan, which involves altering some brass nameplates and nothing of any substance.
The centrepiece is to tighten banking regulation by abolishing the banking regulator. No, bear with me… Master Gideon intends to get rid of the FSA (Financial Services Authority) and replace it with the BoE (Old Boy Network). This is the system that we had before Mr Frown was Chancellor, which successfully prevented the collapse of banks like BCCI and Barings… oh, hang on a minute…
At the moment, we have a tri-partite system of regulation: meaning everyone tries but no one does their part. With responsibility DIVIDED between the Bank of England and the FSA and the Office of Fair Trading, it's too easy for the actual DOING of regulation to fall into the gaps as no one takes responsibility.
What Mr Oboe wants to do is get rid of the FSA, take some powers away from the OFT, give some other powers to the Bank and bung the rest into a new body called the CPA. This will sweep aside the old, failed tripartite system and replace it with a new, modern, er, tripartite system… no, hang on again…
(Incidentally, that's CPA for "CONSUMER protection agency", not "CHILD protection agency", though the track record of Government Quangos with those initials is, let's say, UNCERTAIN.)
There IS a good case for saying there should be CLEAR lines of responsibility. Make the Bank of England ultimately RESPONSIBLE for the banking sector and then everyone knows where the buck stops. Assuming you CAN stop the buck before it disappears down the plug hole.
But if you want the Bank actually to ENFORCE the regulation, then they're going to need a whole load of new employees trained in inspection and investigation and where are they going to get them? Oh, look: here's a whole bunch or people recently made redundant from the only other inspector of banking in town… good golly gosh, all the same people would end up doing all the same jobs, only with a load of confusion and an expensive redundancy payment in the middle.
We listened to Mr Oboe trying to sell his
(This was to do with Mr Oboe slightly exceeding Daddy's parameters for accepting the phrase "telling the truth", viz:
"…first of all, myself, David Cameron have come on this programme and warned consistently for months that there is a debt crisis…"
"Um, surely that was Mr Vince," interjected Daddy.
"…First of all, we have been the people who have highlighted this. We're also the people who've said the cupboard is bare…"
"No, that was Mr Vince, again," says Daddy.
"…that the country does not have limitless funds in the future. We opposed the temporary VAT cut…"
"No, no, that was definitely all Mr Vince!" repeats Daddy, going slightly purple.
"I think it's important because it is has established our credentials as people who are telling the public the truth"
"Grk! Urk! Strangulated-Growl!" says Daddy.)
Before we got to that, though, Mr Oboe had already ALARMED us with his somewhat casual attitude to what banking regulation is actually FOR.
"First of all…"
(Yes, he really DOES say "first of all" that many times. UNCHARITABLY I wonder if he can count to SECOND at all?)
"First of all, if this retail bank - a bank that's got branches in a high street taking your deposits or anyone else's - is engaging in very risky activities, very risky investment banking activities like large-scale proprietary trading or internal hedge funds, then it will have to set aside very large amounts of money as an insurance policy to protect the taxpayer."
Now, what worries me about this is how do you define "very risky activities"? And for that matter, why do you NEED to define "very" risky – shouldn't the banks be insuring their depositors against ORDINARY risks of banking?
It seems to me that the ORDINARY business of banking is to take deposits from investors and return them a rate of interest, then use that money to advance loans to other people and charge them a SLIGHTLY HIGHER rate of interest. The risks involved in this are that some of the loans go BAD because people can't always repay what they owe, if the business doesn't work out.
What is NOT the ordinary business of banks is gambling the deposits on the stock market or the 4.15 at Kempton Park or putting the lot on 26 Black.
People who WANT to put their money on 26 Black go to a CASINO. People who want to back a nag in the 4.15 go to a BOOKMAKER. And people who want to gamble on the Stock Market should go to a broker to do it and then they know what they are putting their money into and can accept the risks.
People going to a BANK want somewhere safe to put their money, with some reasonable interest on their savings.
What they DON'T want to do is discover (usually after the fact) that their high street bank went on a drunken bender down in the City of London and backed a whole super-casino's worth of options and securities and derivatives.
For many, many years following the INFAMOUS Wall Street Crash, America made their banks do EITHER stock market banking OR high street banking, but not BOTH. Then they stopped making the banks make that choice and then there was another massive banking crash.
I believe that this is called TESTING a theory to DESTRUCTION.
Mr Oboe appears to call it Business as Usual.
He spells it out for his chums in the City in the foreword to his plan:
"We must not allow ill-conceived or badly designed new regulations, either from home or abroad, to undermine the prospects of an internationally successful financial services industry based in London"
and
"We will defend the vital interests of Britain’s financial services sector in Europe."
This is not a difficult code to break: the Conservatories will not allow "ill-conceived new regulations" by opposing ALL new regulations; they will "defend vital interests" by preventing Europe from requiring banks to protect their CUSTOMERS' interests.
Finally, Mr Oboe is going to ask for a report from (i.e. pass the buck to) the Office of Fair Trading about the "effects of consolidation in the banking sector".
What he means is he's going to have to ASK someone to tell him if it's a BAD thing that we now have fewer, larger, riskier banks.
Is it very wrong of me to expect someone applying to be CHANCELLOR to understand that in a free market LESS competition IS automatically BAD?
.
Thursday, March 19, 2009
Day 2999: Nick versus Barclays
Wednesday:
Mr Clogg battles on behalf of all citizens who pay our taxes and (nowadays) own our banks.
Yesterday, the Grauniad published a secret document from Barclays Bank on how best to AVOID TAX. They then UNPUBLISHED it when Barclays obtained a GAGGING ORDER on the grounds that revealing how they AVOID TAX might be commercially prejudicial.
Mr Clogg went into a meeting with the Barclays boss, Mr John Vastley, and gave him what for!
"It didn't come to a stand-up row," Mr Clogg told the The Today Programme, "because I used my JEDI POWERS to subdue him first. Ahem."
Mr Vince "The Power" Cable, Liberal Democrat Shadow Chancellor also weighed in.
"At a time when banks are receiving massive support from the Government, the public has a right to know if those same banks are also trying to avoid paying their tax bills," he said, pointing out that Barclays are looking for BIG BIG government guarantees at the same time as they are short-changing the Exchequer.
Personally, I think that any bank that has substantial support from the public purse, whether it is nationalised or just getting its loan book held afloat, should be subject to the same Freedom of Information laws as any other department that is spending public money. After all, WE OWN YOU NOW, Mr Bankers.
Of course, this news comes on the same day that Lord Airhead Turner, head of the banking regulator the FSA (Fully Subservient Authority), announced plans for tighter regulation.
Lord Airhead, and forgive me if this gets a bit technical, thinks that the rules should be: don't lend every last penny you've got to people who can never, ever pay it back.
But I'd like to make my own suggestion: DO NOT CHEAT THE TAXPAYING PUBLIC.
And that goes DOUBLE in the week you are asking them to pull your nuts out of the fire!
.
Mr Clogg battles on behalf of all citizens who pay our taxes and (nowadays) own our banks.
Yesterday, the Grauniad published a secret document from Barclays Bank on how best to AVOID TAX. They then UNPUBLISHED it when Barclays obtained a GAGGING ORDER on the grounds that revealing how they AVOID TAX might be commercially prejudicial.
Mr Clogg went into a meeting with the Barclays boss, Mr John Vastley, and gave him what for!
"It didn't come to a stand-up row," Mr Clogg told the The Today Programme, "because I used my JEDI POWERS to subdue him first. Ahem."
Mr Vince "The Power" Cable, Liberal Democrat Shadow Chancellor also weighed in.
"At a time when banks are receiving massive support from the Government, the public has a right to know if those same banks are also trying to avoid paying their tax bills," he said, pointing out that Barclays are looking for BIG BIG government guarantees at the same time as they are short-changing the Exchequer.
Personally, I think that any bank that has substantial support from the public purse, whether it is nationalised or just getting its loan book held afloat, should be subject to the same Freedom of Information laws as any other department that is spending public money. After all, WE OWN YOU NOW, Mr Bankers.
Of course, this news comes on the same day that Lord Airhead Turner, head of the banking regulator the FSA (Fully Subservient Authority), announced plans for tighter regulation.
Lord Airhead, and forgive me if this gets a bit technical, thinks that the rules should be: don't lend every last penny you've got to people who can never, ever pay it back.
But I'd like to make my own suggestion: DO NOT CHEAT THE TAXPAYING PUBLIC.
And that goes DOUBLE in the week you are asking them to pull your nuts out of the fire!
.
Friday, March 06, 2009
Day 2986: A Quantum of Easing
Thursday:
“Now, pay attention, 007! If you press this button, you’ll engage and then fire the Economic Ejector Seat, blowing the top off the Bank of England and shooting seventy-five billion pounds up your… fiscal rectitude…”
So, how does this “Quantitative Easing” thing work?
Well, imagine you’ve got seventy-five billion pounds… THAT’S how it works.
But this ISN’T like Zimbabwe or the Weimar Republic where they just printed money in order to pay its bills. Oh no! Here, the Bank of England is printing money to buy back the government’s I.O.U.s that they issued in order to pay their bills. Hang on, how does this work again?
Suppose you had ALL the sticky buns in Great Britain. Just suppose. [Sighs] Sorry. Back with you. Let’s say that all those sticky buns cost a billion pounds. Then suppose the Government creates a billion pounds out of nothing, just to spend on sticky buns. But you’ve still got THE SAME NUMBER of sticky buns. So now your sticky buns cost TWO billion pounds and you’ve invented HYPER-INFLATION.
On the other fluffy foot, people OUTSIDE Great Britain looking in will see this billion pound mountain of sticky buns and say, ah ha! That is worth quite a lot of Euros or a bit of a stack of Dollars or two-thirds of a Triganic Pu! But then the Government says abracadabra it’s now a two-billion pound mountain of sticky buns. And everyone else says, er no that’s still quite a lot of Euros or a bit of a stack of Dollars or two-thirds of a Triganic Pu; we’re just going to give you LESS of OUR currency for YOURS thank you very much. And you’ve invented a RUN ON THE POUND as well.
Good going, so far.
Fortunately, however, the REAL value of Great Britain is quite a lot MORE than a billion or even seventy-five billion pounds. In fact, the Bank is only magicking up a bit under 4% of our GDP (which is how you measure total sticky bun production).
That MIGHT cause a little bit of inflation… but that might just cancel out the DEFLATION that’s threatening at the moment. And anyway, Government’s think they know how to DEAL with INflation: they put the interest rates back up.
It MIGHT cause a bit of a fall in the pound. But the pound is already quite suppressed because there’s a CYCLE to this. The way the VULTURES circle the World Economy began with Americaland, and the dollar fell – remember that from early LAST year? – and then came to Great Britain and the Pound fell, and it will probably be the Eurozone next and the Euro will shift down in value, cancelling out it’s previous gains over the pound. And a falling pound HELPS our exports, as we found after the ERM fiasco. Though that is dangerously close to PROTECTIONIST thinking; remember it HURTS imports too, and world trade depends on BOTH import and export to really work.
So it’s SORT OF borrowing from the FUTURE. The Bank invents money NOW to buy the Government bonds; but when the economy is right again, they SELL the bonds back and vaporise the money again. We pay “interest” in the form of inflation and the cost is our money becoming worth a bit less.
But is it going to work?
No. Because it’s a sort of short term CONJURING TRICK, and you can’t keep doing it or the economy goes completely Mugabe.
We need to stop BORROWING to patch up the failed economy of the last few years and start BUILDING the economy of tomorrow.
Now, we’re off to Lib Dem Spring Conference. I wonder what Mr Clogg and Mr Cable will have to say about that…
“Now, pay attention, 007! If you press this button, you’ll engage and then fire the Economic Ejector Seat, blowing the top off the Bank of England and shooting seventy-five billion pounds up your… fiscal rectitude…”
So, how does this “Quantitative Easing” thing work?
Well, imagine you’ve got seventy-five billion pounds… THAT’S how it works.
But this ISN’T like Zimbabwe or the Weimar Republic where they just printed money in order to pay its bills. Oh no! Here, the Bank of England is printing money to buy back the government’s I.O.U.s that they issued in order to pay their bills. Hang on, how does this work again?
Suppose you had ALL the sticky buns in Great Britain. Just suppose. [Sighs] Sorry. Back with you. Let’s say that all those sticky buns cost a billion pounds. Then suppose the Government creates a billion pounds out of nothing, just to spend on sticky buns. But you’ve still got THE SAME NUMBER of sticky buns. So now your sticky buns cost TWO billion pounds and you’ve invented HYPER-INFLATION.
On the other fluffy foot, people OUTSIDE Great Britain looking in will see this billion pound mountain of sticky buns and say, ah ha! That is worth quite a lot of Euros or a bit of a stack of Dollars or two-thirds of a Triganic Pu! But then the Government says abracadabra it’s now a two-billion pound mountain of sticky buns. And everyone else says, er no that’s still quite a lot of Euros or a bit of a stack of Dollars or two-thirds of a Triganic Pu; we’re just going to give you LESS of OUR currency for YOURS thank you very much. And you’ve invented a RUN ON THE POUND as well.
Good going, so far.
Fortunately, however, the REAL value of Great Britain is quite a lot MORE than a billion or even seventy-five billion pounds. In fact, the Bank is only magicking up a bit under 4% of our GDP (which is how you measure total sticky bun production).
That MIGHT cause a little bit of inflation… but that might just cancel out the DEFLATION that’s threatening at the moment. And anyway, Government’s think they know how to DEAL with INflation: they put the interest rates back up.
It MIGHT cause a bit of a fall in the pound. But the pound is already quite suppressed because there’s a CYCLE to this. The way the VULTURES circle the World Economy began with Americaland, and the dollar fell – remember that from early LAST year? – and then came to Great Britain and the Pound fell, and it will probably be the Eurozone next and the Euro will shift down in value, cancelling out it’s previous gains over the pound. And a falling pound HELPS our exports, as we found after the ERM fiasco. Though that is dangerously close to PROTECTIONIST thinking; remember it HURTS imports too, and world trade depends on BOTH import and export to really work.
So it’s SORT OF borrowing from the FUTURE. The Bank invents money NOW to buy the Government bonds; but when the economy is right again, they SELL the bonds back and vaporise the money again. We pay “interest” in the form of inflation and the cost is our money becoming worth a bit less.
But is it going to work?
No. Because it’s a sort of short term CONJURING TRICK, and you can’t keep doing it or the economy goes completely Mugabe.
We need to stop BORROWING to patch up the failed economy of the last few years and start BUILDING the economy of tomorrow.
Now, we’re off to Lib Dem Spring Conference. I wonder what Mr Clogg and Mr Cable will have to say about that…
.
Wednesday, February 11, 2009
Day 2963: When Sorry is the EASIEST word to say
Tuesday:
Oh, so the four senior bankers are "sorry" are they?
Not sorry for their business practices having got us into this mess, of course. Not sorry for their greed or megalomania. And certainly not sorry for all the innocent people who will lose their homes or their livelihoods because of the financial CHAOS that they have caused.
No, they're sorry that the "situation arose". Sorry for their shareholders. Sorry for themselves. Sorry that the value of all those shares that they should never have been given has fallen flat.
But not sorry enough to do anything about it, apparently.
Well "sorry" doesn't mean A SINGLE FLUFFY THING unless you put right the think you horlicksed up in the first place.
People say that there is a lot of BLAME to SPREAD around: why didn't the regulator stop them? Why didn't Mr Frown enforce the regulator? Why did Parliament make Mr Frown act? Why didn't all of us elect a better Parliament?
Well, BLAME doesn't work like that. It doesn't get LESS because someone else is also involved; it doesn't get THINNER the further you SPREAD it.
These people were SPECIFICALLY and PERSONALLY to blame for the harm this crash has done, and they personally benefited from doing that harm.
The punishment seems perfectly simple. They should be stripped of their assets. All of them. Let them live in Council Housing. And if there isn't Council Housing… well, these people were, apparently, community leaders. Let them see where they've LED!
As for their banks: we own the RBS now. We own the Northern Rock. We have a large chunk of the Lloyds/HBoS super-bank. They should all be broken up. Torn up. Take their assets, the physical buildings of their banks and their cash (formerly OUR cash) and split them into six hundred local banks, and then sell them to local councils or consortiums of local businessmen and unions. Have a local lottery and give away the shares to the winners. Apportion them by lot. Give them away to schoolchildren with a pint of milk; fluffy goodness knows schoolkids couldn't make a WORSE hash of running a bank.
Nobody above branch manager level would be needed anymore so they could all be SACKED. Save the billions in bonus payments and use that money instead to form a "rescue fund" to try and save as many people from losing their homes as possible.
You think I'm a bit CROSS? Of course I'm CROSS – there are times when THERE JUST AREN'T ENOUGH CAPITAL LETTERS!!!
These smug bas...bad-words have destroyed lives with reckless abandon for their own enrichment and aggrandizement (of the WORST "my bank's bigger than your bank, I bought ABM Amrose" kind). With names like "Fred the Shred" they've even been PROUD of it! And the HARSHEST punishment they can get is A MILD WIGGING from a panel of MPs.
And I'm FED UP of the Liberal Democrats being "just another political party". Shouldn't we be tearing up the system? SHOULDN'T we be ENRAGED!
Let's see something REALLY RADICAL for once. Let's see some Liberalism RED in Tooth and Claw... and TUSK and FLUFFY FOOT!
.
Oh, so the four senior bankers are "sorry" are they?
Not sorry for their business practices having got us into this mess, of course. Not sorry for their greed or megalomania. And certainly not sorry for all the innocent people who will lose their homes or their livelihoods because of the financial CHAOS that they have caused.
No, they're sorry that the "situation arose". Sorry for their shareholders. Sorry for themselves. Sorry that the value of all those shares that they should never have been given has fallen flat.
But not sorry enough to do anything about it, apparently.
Well "sorry" doesn't mean A SINGLE FLUFFY THING unless you put right the think you horlicksed up in the first place.
People say that there is a lot of BLAME to SPREAD around: why didn't the regulator stop them? Why didn't Mr Frown enforce the regulator? Why did Parliament make Mr Frown act? Why didn't all of us elect a better Parliament?
Well, BLAME doesn't work like that. It doesn't get LESS because someone else is also involved; it doesn't get THINNER the further you SPREAD it.
These people were SPECIFICALLY and PERSONALLY to blame for the harm this crash has done, and they personally benefited from doing that harm.
The punishment seems perfectly simple. They should be stripped of their assets. All of them. Let them live in Council Housing. And if there isn't Council Housing… well, these people were, apparently, community leaders. Let them see where they've LED!
As for their banks: we own the RBS now. We own the Northern Rock. We have a large chunk of the Lloyds/HBoS super-bank. They should all be broken up. Torn up. Take their assets, the physical buildings of their banks and their cash (formerly OUR cash) and split them into six hundred local banks, and then sell them to local councils or consortiums of local businessmen and unions. Have a local lottery and give away the shares to the winners. Apportion them by lot. Give them away to schoolchildren with a pint of milk; fluffy goodness knows schoolkids couldn't make a WORSE hash of running a bank.
Nobody above branch manager level would be needed anymore so they could all be SACKED. Save the billions in bonus payments and use that money instead to form a "rescue fund" to try and save as many people from losing their homes as possible.
You think I'm a bit CROSS? Of course I'm CROSS – there are times when THERE JUST AREN'T ENOUGH CAPITAL LETTERS!!!
These smug bas...bad-words have destroyed lives with reckless abandon for their own enrichment and aggrandizement (of the WORST "my bank's bigger than your bank, I bought ABM Amrose" kind). With names like "Fred the Shred" they've even been PROUD of it! And the HARSHEST punishment they can get is A MILD WIGGING from a panel of MPs.
And I'm FED UP of the Liberal Democrats being "just another political party". Shouldn't we be tearing up the system? SHOULDN'T we be ENRAGED!
Let's see something REALLY RADICAL for once. Let's see some Liberalism RED in Tooth and Claw... and TUSK and FLUFFY FOOT!
.
Wednesday, January 14, 2009
Day 2936: Is it just me or are the banks taking over the government?
Wednesday:
Call me old fashioned, but I thought that the banks were now owned by US (i.e. the Great British taxpayer).
But it seems that the directors of OUR banks think that they're going to carry on treating us with the same amount of CONTEMPT with which they usually regard their shareholders.
Far from accepting that they've trollied the economy and now ought to JOLLY WELL DO WHAT THEY ARE TOLD! and help put things right again, it appears that they have to be BRIBED to lend money.
And the Hard Labour Government are so CRAVEN that they'll cough up!
As Mr Dr Vince "the Power" Cable says:
"…the Government seems to lack the bottle to break the banks' lending strike."
The nub of Lord Mandy's wheeze is that he will put up the cash to cover any debts that go bad. So the bank can go ahead and loan out the money, and if the debt goes bad then WE will pay up.
Some people might think that this means that we take all the risk and the bank takes all the reward… and they'd be right!
Of course, the POINT of the plan is to get the banks to do EXTRA lending. But do you think that the crafty bankers are going to go along with that? Or do you suspect (as I do!) that with the right fluffy foot they will extend shiny new loans to get the benefits of the Governments free cash offer, while with the left fluffy foot they are foreclosing on as many loans NOT covered by the guarantee as they can get away with. Net effect: little or no new lending (so no boost to the economy); bankers get mink-lined one way bet.
(Did I say "mink-lined"? "Oooh, that's real cat, Mr Lord Mandy!")
That's the BAD news; the WORSE news is that this is exactly the same as the Conservatories plan. So we know it's not going to work!
Actually, the Conservatories have a fancy claim that THEIR scheme wouldn't cost the taxpayer any money, because they would allow the bank to charge a FEE for the guaranteed loan. Or "charging a higher interest rate" as we used to call it before suggesting that putting up interest rates during a credit crunch became an obvious sign of being a MORON.
Which reminds me… Mr Lord Mandy's new announcement has left young Master Gideon Oboe reduced to whinging that "Hard Labour stole my loan scheme". Welcome to OUR world, Lib-Dem-Policy-stealing Tory-boy!
And now, to add further evidence of a banking takeover, Mr Frown's appointed replacement at the Cabinet table for Lord Pigby Jones is to be… yet another merchant banker.
Never mind poacher turned gamekeeper, surely this is letting the lunatics take over the asylum!
.
Call me old fashioned, but I thought that the banks were now owned by US (i.e. the Great British taxpayer).
But it seems that the directors of OUR banks think that they're going to carry on treating us with the same amount of CONTEMPT with which they usually regard their shareholders.
Far from accepting that they've trollied the economy and now ought to JOLLY WELL DO WHAT THEY ARE TOLD! and help put things right again, it appears that they have to be BRIBED to lend money.
And the Hard Labour Government are so CRAVEN that they'll cough up!
As Mr Dr Vince "the Power" Cable says:
"…the Government seems to lack the bottle to break the banks' lending strike."
The nub of Lord Mandy's wheeze is that he will put up the cash to cover any debts that go bad. So the bank can go ahead and loan out the money, and if the debt goes bad then WE will pay up.
Some people might think that this means that we take all the risk and the bank takes all the reward… and they'd be right!
Of course, the POINT of the plan is to get the banks to do EXTRA lending. But do you think that the crafty bankers are going to go along with that? Or do you suspect (as I do!) that with the right fluffy foot they will extend shiny new loans to get the benefits of the Governments free cash offer, while with the left fluffy foot they are foreclosing on as many loans NOT covered by the guarantee as they can get away with. Net effect: little or no new lending (so no boost to the economy); bankers get mink-lined one way bet.
(Did I say "mink-lined"? "Oooh, that's real cat, Mr Lord Mandy!")
That's the BAD news; the WORSE news is that this is exactly the same as the Conservatories plan. So we know it's not going to work!
Actually, the Conservatories have a fancy claim that THEIR scheme wouldn't cost the taxpayer any money, because they would allow the bank to charge a FEE for the guaranteed loan. Or "charging a higher interest rate" as we used to call it before suggesting that putting up interest rates during a credit crunch became an obvious sign of being a MORON.
Which reminds me… Mr Lord Mandy's new announcement has left young Master Gideon Oboe reduced to whinging that "Hard Labour stole my loan scheme". Welcome to OUR world, Lib-Dem-Policy-stealing Tory-boy!
And now, to add further evidence of a banking takeover, Mr Frown's appointed replacement at the Cabinet table for Lord Pigby Jones is to be… yet another merchant banker.
Never mind poacher turned gamekeeper, surely this is letting the lunatics take over the asylum!
.
Thursday, November 06, 2008
Day 2867: Bank of England: By "Steady as She Goes" we actually meant "PANIC! PANIC NOW"
Thursday:
The UK central bank has cut its interest rate by a THIRD, that's a one-and-a-half percent reduction from 4.5% to 3%.
The last similar reduction was a two-percentage-point cut in 1981, at the height of a RECESSION. Surely no coincidence!
In their full statement, the Bank admits that while they HAD thought that the rise in fuel and food prices would continue to push inflation up, they now realise that the complete collapse of the housing market means we'll all be living in caves and bartering with beads and necklaces by Christmas, so they may as well stuff it!
A spokesvampire for the banking industry said that the banks would be responding to the cut in base rates by increasing the cost of mortgages and tripling bonuses all round… hang on, that can't be right?!
The UK central bank has cut its interest rate by a THIRD, that's a one-and-a-half percent reduction from 4.5% to 3%.
The last similar reduction was a two-percentage-point cut in 1981, at the height of a RECESSION. Surely no coincidence!
In their full statement, the Bank admits that while they HAD thought that the rise in fuel and food prices would continue to push inflation up, they now realise that the complete collapse of the housing market means we'll all be living in caves and bartering with beads and necklaces by Christmas, so they may as well stuff it!
A spokesvampire for the banking industry said that the banks would be responding to the cut in base rates by increasing the cost of mortgages and tripling bonuses all round… hang on, that can't be right?!
Friday, October 10, 2008
Day 2838: Why not just BUY the banks already?
Wednesday:
Let me see: twenty-four billion pounds will buy you Barclays Bank; another fifteen will get you the Royal Bank of Scotland. Add on fourteen billion for Lloyds TSB and chuck in five billion pounds for HBoS. At today's fire-sale everything-must-go oh-it-already-has prices, that's only* fifty-eight billion to buy the lot.
So if you're going to spend fifty billion anyway… why NOT just buy them all?
Well, the obvious answer is because that is NOT where you want the money to GO. Buying the EXISTING shares puts billions into the pockets of shareholders but leaves the banks no better off. Investing in NEW shares gives the banks new money to play with. Hmmm, "play with": putting it that way it doesn't sound so reassuring, does it. But a half-share of a bank that is a going concern has got to be a better idea than the whole of a bank that is bust.
It is taking the markets some time to work out whether this was a good thing or not.
The roller-coaster began when Sooty popped up on Tuesday morning to say that HE wasn't going to make the mistake the Americans had made of announcing a plan and then dithering about it. He then spent the day dithering about it and wiped out upwards of a quarter of the value of British banks.
Come Wednesday morning and he's telling us the plan… and seeing the markets crash further. Lunchtime startles them out of their plummet with the news of a coordinated cut in interest rates, but by mid afternoon they've lost their nerve again and so down they go. And again on Thursday, with a rally on Wall Street starting the day off on an up, before a renewed bout of nerves sends it down again.
The political roller-coaster appears to have taken another switchback too, with Mr Frown's fortunes rising almost as the economy goes under.
Daddy Alex wonders if this isn't because as events unfold it becomes more and more apparent that this truly IS a GLOBAL event, that people are now more willing to FORGIVE Mr Frown because it doesn't look like his FAULT.
He has the biggest SCAPEGOAT in the world, of course, because it genuinely looks like we're all caught up in the inevitable consequences of putting the World Economy in the hands of the Monkey-in-Chief… like sticky-taping the monkey's hands to the steering wheel of a shiny silver rocket ship has the inevitable consequences of a huge smouldering crater.
Now of course, you and I know that ACTUALLY Mr Frown really IS to blame for not controlling the housing boom or the explosion of credit here in Great Britain. His idea of "light touch" regulation of the City turns out to asking the good chaps if they're all behaving like good chaps and never doubting the good chaps' word when they said that they were because after all a good chap wouldn't.
But it may be that he's going to get away with that not just because matters in Americaland are so much more SPECTACULARLY WORSE, but because of the huge popularity of saying: "not our fault, blame America"!
On the other fluffy foot, I suggest to Daddy that it may ALSO be that people have taken the opportunity to size up the alternative in the form of the response to the crisis by Her Majesty's Loyal-but-completely-unnecessary Opposition and in particular Master Gideon Oboe.
To extend my METAPHOR: it may look like we have a MONKEY at the steering wheel, but the alternative in the passenger seat is a FISH. Probably a FLOUNDER.
Like Senator Oven-Chip in America, the Conservatories have had to perform a SCREAMING hand-brake turn, about-facing their position from "even light-touch regulation is too onerous; let slip the dogs of MORE" to "we must defend the interests of the common man from these rapacious beasts, (no, not you daddy)."
And like Senator Oven-Chip they find it difficult saying the words.
Notice how their UNNATURAL position leads them to be over-cautious at a time when we need BOLDNESS to counteract the FEAR that is driving down the economy. Having opposed independence for the Bank of England, they're now caught out opposing a much-needed interest rate cut, saying: "no, no, no! We mustn't interfere to tell the Bank to lower interest rates; you cannot compromise the Bank's independence except in the GRAVEST of economic crises!"
Hello! Wake up and smell the COFFEE (subject to your Starbuck having been closed)! This IS the gravest of economic crises.
Even Sooty realises this, as he indicated with his typically unsubtle hints on the The Today Programme, telling nice Mr Evan:
"ooh, the Bank of England act says that the Bank must set interest rates with consideration for inflation AND the wider economic situation. That's the WIDER ECONOMIC SITUATION! Do you see what I'm saying? WIDER… SITUATION… oh look there's going to be a rate cut at lunchtime, all right?"
And even Mr Balloon's usual nose for the bandwagon deceives him, so when he calls for assurances that taxpayers' money won't be spent on "rewards for failure" he's missing the point big time.
As Mr Clogg says:
"When a ship is sinking you send out the lifeboats - you don't argue about who has steered it into an iceberg. That's a debate for another day."
It looks like Mr Balloon is too busy pinning the blame on the RATS to help man the buckets.
*this, by the way, is using the word "only" in the ECONOMIC context of being a "mere" one thousand pounds per person living in Great Britain.
Having said that, it's not that you actually have to cough up ALL the dough.
In theory, the Government will borrow a thousand pounds on your behalf and in return buy your something that is worth a thousand pounds, if not more in the long term.
In PRACTICE, though, what will happen is that the government will have to pay interest on the extra borrowing – of which there is tonnes and tonnes and TONNES… seriously, Sooty is going WAAAAAY past Fatty Clarke this time – and that interest will have to be PAID out of current earnings i.e. TAX, while the return on the asset, either in dividends or a profit when they get sold, might not be realised for some time (at least not until after the credit crunch is over) meaning that even if we make a gain in the long term, taxes may have to go UP in the meantime to cover the NEGATIVE CASH FLOW.
Say 5% interest to pay on a grand a head… so "only" fifty quid a year each worse off then. Enjoy your bank. Ho, very ho.
Let me see: twenty-four billion pounds will buy you Barclays Bank; another fifteen will get you the Royal Bank of Scotland. Add on fourteen billion for Lloyds TSB and chuck in five billion pounds for HBoS. At today's fire-sale everything-must-go oh-it-already-has prices, that's only* fifty-eight billion to buy the lot.
So if you're going to spend fifty billion anyway… why NOT just buy them all?
Well, the obvious answer is because that is NOT where you want the money to GO. Buying the EXISTING shares puts billions into the pockets of shareholders but leaves the banks no better off. Investing in NEW shares gives the banks new money to play with. Hmmm, "play with": putting it that way it doesn't sound so reassuring, does it. But a half-share of a bank that is a going concern has got to be a better idea than the whole of a bank that is bust.
It is taking the markets some time to work out whether this was a good thing or not.
The roller-coaster began when Sooty popped up on Tuesday morning to say that HE wasn't going to make the mistake the Americans had made of announcing a plan and then dithering about it. He then spent the day dithering about it and wiped out upwards of a quarter of the value of British banks.
Come Wednesday morning and he's telling us the plan… and seeing the markets crash further. Lunchtime startles them out of their plummet with the news of a coordinated cut in interest rates, but by mid afternoon they've lost their nerve again and so down they go. And again on Thursday, with a rally on Wall Street starting the day off on an up, before a renewed bout of nerves sends it down again.
The political roller-coaster appears to have taken another switchback too, with Mr Frown's fortunes rising almost as the economy goes under.
Daddy Alex wonders if this isn't because as events unfold it becomes more and more apparent that this truly IS a GLOBAL event, that people are now more willing to FORGIVE Mr Frown because it doesn't look like his FAULT.
He has the biggest SCAPEGOAT in the world, of course, because it genuinely looks like we're all caught up in the inevitable consequences of putting the World Economy in the hands of the Monkey-in-Chief… like sticky-taping the monkey's hands to the steering wheel of a shiny silver rocket ship has the inevitable consequences of a huge smouldering crater.
Now of course, you and I know that ACTUALLY Mr Frown really IS to blame for not controlling the housing boom or the explosion of credit here in Great Britain. His idea of "light touch" regulation of the City turns out to asking the good chaps if they're all behaving like good chaps and never doubting the good chaps' word when they said that they were because after all a good chap wouldn't.
But it may be that he's going to get away with that not just because matters in Americaland are so much more SPECTACULARLY WORSE, but because of the huge popularity of saying: "not our fault, blame America"!
On the other fluffy foot, I suggest to Daddy that it may ALSO be that people have taken the opportunity to size up the alternative in the form of the response to the crisis by Her Majesty's Loyal-but-completely-unnecessary Opposition and in particular Master Gideon Oboe.
To extend my METAPHOR: it may look like we have a MONKEY at the steering wheel, but the alternative in the passenger seat is a FISH. Probably a FLOUNDER.
Like Senator Oven-Chip in America, the Conservatories have had to perform a SCREAMING hand-brake turn, about-facing their position from "even light-touch regulation is too onerous; let slip the dogs of MORE" to "we must defend the interests of the common man from these rapacious beasts, (no, not you daddy)."
And like Senator Oven-Chip they find it difficult saying the words.
Notice how their UNNATURAL position leads them to be over-cautious at a time when we need BOLDNESS to counteract the FEAR that is driving down the economy. Having opposed independence for the Bank of England, they're now caught out opposing a much-needed interest rate cut, saying: "no, no, no! We mustn't interfere to tell the Bank to lower interest rates; you cannot compromise the Bank's independence except in the GRAVEST of economic crises!"
Hello! Wake up and smell the COFFEE (subject to your Starbuck having been closed)! This IS the gravest of economic crises.
Even Sooty realises this, as he indicated with his typically unsubtle hints on the The Today Programme, telling nice Mr Evan:
"ooh, the Bank of England act says that the Bank must set interest rates with consideration for inflation AND the wider economic situation. That's the WIDER ECONOMIC SITUATION! Do you see what I'm saying? WIDER… SITUATION… oh look there's going to be a rate cut at lunchtime, all right?"
And even Mr Balloon's usual nose for the bandwagon deceives him, so when he calls for assurances that taxpayers' money won't be spent on "rewards for failure" he's missing the point big time.
As Mr Clogg says:
"When a ship is sinking you send out the lifeboats - you don't argue about who has steered it into an iceberg. That's a debate for another day."
It looks like Mr Balloon is too busy pinning the blame on the RATS to help man the buckets.
*this, by the way, is using the word "only" in the ECONOMIC context of being a "mere" one thousand pounds per person living in Great Britain.
Having said that, it's not that you actually have to cough up ALL the dough.
In theory, the Government will borrow a thousand pounds on your behalf and in return buy your something that is worth a thousand pounds, if not more in the long term.
In PRACTICE, though, what will happen is that the government will have to pay interest on the extra borrowing – of which there is tonnes and tonnes and TONNES… seriously, Sooty is going WAAAAAY past Fatty Clarke this time – and that interest will have to be PAID out of current earnings i.e. TAX, while the return on the asset, either in dividends or a profit when they get sold, might not be realised for some time (at least not until after the credit crunch is over) meaning that even if we make a gain in the long term, taxes may have to go UP in the meantime to cover the NEGATIVE CASH FLOW.
Say 5% interest to pay on a grand a head… so "only" fifty quid a year each worse off then. Enjoy your bank. Ho, very ho.
Tuesday, September 30, 2008
Day 2829: the Lesser of Two Evils? More like the Lesser of Two Eejits!
Monday:
So, Mr Evan Davies gave a good SPANKING to both Chancellor Sooty and Master Gideon on the The Today Programme on the radio this morning.
Far be it for fluffy little me to think that Sooty's MYSTERIOUS unavailability to talk about the IMPLOSION of another British Bank until after 8am was some insanely inappropriate SPOILER TACTIC for Master Gideon's big interview, but… presumably the Labour were assuming that when Sooty INEVITABLY shot himself in the foot, he might wing Gideon at the same time.
As it was, Mr Evan played the "Vince Cable" card and trumped BOTH of them.
Anyway, they're both MORONS.
For a start, Sooty has decided to split up the assets and the liabilities of the Badly and BunglingBuilding Society Bank.
I have to admit that Daddy Richard is being driven slightly NUTTY by all the reporting of this: in the first place, they keep taking about the bank's "savings business" and it's "mortgage business" as if these are not the front and back end of the same PANTOMIME HORSE. You wouldn't say that Tesco has a "getting food from farmers" business and a "selling food to people" business, now would you?
Sooty has clearly encouraged them in this by treating the assets and liabilities separately. Which is why HE is an eejit. He's essentially left the bank with a whole load of loans to collect, but no savings end means no new business means, in the end, no bank. It's like cutting a WORM in HALF. You do NOT get two worms, you get one half of a dead worm and ANOTHER half of a dead worm. Eejit.
But then, the reporting keeps implying that it is the GOVERNMENT that is getting the bank's LIABILITIES – saying that the taxpayer will be "responsible for £41billion worth of mortgages" – while they are handing over the bank's £20 billion of deposits to the Spanish as if these are ASSETS.
Quite obviously, the mortgages that the government is keeping are the ASSETS (i.e. the mortgages are money that is OWED to the bank and represent a future cashflow INTO the treasury coffers). And what they are handing over are the LIABILITIES (i.e. the liability to repay all the deposits that the bank owes back to its savers).
Now, you would have to ask, why would anyone "buy" the exciting right to have to repay twenty billion bucks?
The answer is because Sooty is going to pay them twenty billion bucks to do so. (This is a win for the Spanish, because most banks will have debts way larger than what they have in READY CASH; so although their debt goes up, the cash they get in exchange is a much bigger proportion of what they had on hand. This is called "improving their gearing" by smart City types who talk JARGON to stop you understanding that they don't know what they're talking about.)
So it LOOKS like Sooty has just had all of us, the Great British public, settle ALL of Badly and Bungling's debts at a stroke. Except… EXCEPT… actually, what has happened is this: the bank went BUST so the brand new bank-insurance-against-going-bust scheme ought to kick in. Except, begin brand new, it hasn't had any time to accumulate reserves and so, ironically, if it paid out then it would, er, go bust. So Sooty has "loaned" the insurance scheme the money to pay out to the Spanish. It's fiendishly complicated, this.
So what we are left with is RISK – not a bill right now, but the RISK that those £41 billion worth of mortgages are not worth £41 billion pounds.
As Mr Dr Vince "the Power" Cable pointed out, there's always a chance that they might actually turn out to be a GOOD deal for the taxpayer; those mortgage assets could be worth a lot MORE than we're going to pay for them, assuming that most of the people who borrowed the money manage to keep up with their repayments.
Nationalisation is BAD because Governments are not very good at running businesses. Although it turns out that sometimes businesses are much, much WORSE at running businesses.
Accepting that it is only a LEAST WORST option, though, a temporary Government ownership can be a safe harbour whilst the tempest passes.
As with the Northern Rock-and-a-Hard-Place Bank – to which these mortgages will probably get added – if the government just holds onto them for a while until the economy starts to swing up again, they SHOULD be able to sell them for good value. After all, people are always going to need houses.
Master Gideon, of course, is against this. It's not JUST that he is in opposition, and so against what Sooty is doing just because. No, he thinks that the Badly and Bungling should be sold privately. This is because (a) obviously people are just gagging to buy a bank that the market has valued as worthless; and (b) clearly there are just so many banks out there flush with cash at the moment anyway…
Or maybe he's an eejit too.
Take his idea to have the Bank of England "step in" whenever they think that a bank's lending is getting a bit risky. Can you, in fact, think of a clearer signal that a bank is going down than that? The minute the Bank of England says ANYTHING, the City goes into headless-chicken mode, the share price flatlines and the bank is as dead as Master Gideon's fashion sense.
Then there’s his WHEEZE to FREEZE: celebrating the Conservatories policy of returning power to local councils by, er, imposing on them a centralised, Big Government decision overriding their power to choose the level of their own Council Tax. Behold the Joined-up-Government in waiting.
But as if that wasn't bad enough, he's now going round writing articlessaying:
"We can no longer afford an economy built on debt"
"An economy built on debt is not an economy built to last"
It sounds like a good sound-bite, doesn't it?
And yet, if you take him at his word, it betrays a FUNDAMENTAL and TOTAL lack of understanding about how capitalism works.
Everything, EVERYTHING about our economy depends on the idea of DEBT.
What is MONEY itself, but a "promise to pay"? It is a note of a DEBT owed, that we use in order to swap our debts about. Does Master Gideon expect us to go back to BARTER?
You work for a living? The boss OWES you a DEBT for every minute that you work. Yes, even when Googling on FaceSpace. You LEND him (or her) your services and that debt is settled at the end of the week or the month.
And who could possibly afford a house without using DEBT to match the payments for your home over your working life?
(Although, these day, practically nobody can afford a house anyway, and for that matter the banks seem to have given up lending.)
But at a higher level, debt is what makes INVESTMENT possible.
If you want to start a business you have EXACTLY two options: (A) be very rich; (B) borrow some money.
Responsible is a word that Mr Balloon suddenly likes. RESPONSIBLE lending means advancing money to people who are able to repay the debt AND make a bit on top.
This allows people who have got good ideas and hard work but NOT Mr Balloon's inherited fortune to set up in business. This is how ALMOST ALL the businesses in Great Britain start, businesses that make and sell things, that pay taxes and even grow to employ other people.
A responsible level of debt is exactly what we need. It is the GRIT in the capitalist OYSTER. It is the OIL that lubricates the GREAT MACHINE.
It is the very HEART of the Credit Crunch Crisis that we have gone from FAR TOO MUCH debt to ABSOLUTELY NONE AT ALL.
It's like going from a hundred-and-ten miles-an-hour on the motorway to nothing (and that is a good analogy because a hundred-and-ten miles-an-hour is irresponsibly out of control, and nothing will get you nowhere): the only way you can achieve this is with a NASTY CRUNCH.
Far be it for fluffy little me to remind everyone that Mr Dr Vince was saying for quite some time that we needed a careful and cautious but above all MANAGED reduction in overall borrowing to a RESPONSIBLE level… so I'll just remind you that Mr Evan told everyone that this morning.
So, Mr Evan Davies gave a good SPANKING to both Chancellor Sooty and Master Gideon on the The Today Programme on the radio this morning.
Far be it for fluffy little me to think that Sooty's MYSTERIOUS unavailability to talk about the IMPLOSION of another British Bank until after 8am was some insanely inappropriate SPOILER TACTIC for Master Gideon's big interview, but… presumably the Labour were assuming that when Sooty INEVITABLY shot himself in the foot, he might wing Gideon at the same time.
As it was, Mr Evan played the "Vince Cable" card and trumped BOTH of them.
Anyway, they're both MORONS.
For a start, Sooty has decided to split up the assets and the liabilities of the Badly and Bungling
I have to admit that Daddy Richard is being driven slightly NUTTY by all the reporting of this: in the first place, they keep taking about the bank's "savings business" and it's "mortgage business" as if these are not the front and back end of the same PANTOMIME HORSE. You wouldn't say that Tesco has a "getting food from farmers" business and a "selling food to people" business, now would you?
Sooty has clearly encouraged them in this by treating the assets and liabilities separately. Which is why HE is an eejit. He's essentially left the bank with a whole load of loans to collect, but no savings end means no new business means, in the end, no bank. It's like cutting a WORM in HALF. You do NOT get two worms, you get one half of a dead worm and ANOTHER half of a dead worm. Eejit.
But then, the reporting keeps implying that it is the GOVERNMENT that is getting the bank's LIABILITIES – saying that the taxpayer will be "responsible for £41billion worth of mortgages" – while they are handing over the bank's £20 billion of deposits to the Spanish as if these are ASSETS.
Quite obviously, the mortgages that the government is keeping are the ASSETS (i.e. the mortgages are money that is OWED to the bank and represent a future cashflow INTO the treasury coffers). And what they are handing over are the LIABILITIES (i.e. the liability to repay all the deposits that the bank owes back to its savers).
Now, you would have to ask, why would anyone "buy" the exciting right to have to repay twenty billion bucks?
The answer is because Sooty is going to pay them twenty billion bucks to do so. (This is a win for the Spanish, because most banks will have debts way larger than what they have in READY CASH; so although their debt goes up, the cash they get in exchange is a much bigger proportion of what they had on hand. This is called "improving their gearing" by smart City types who talk JARGON to stop you understanding that they don't know what they're talking about.)
So it LOOKS like Sooty has just had all of us, the Great British public, settle ALL of Badly and Bungling's debts at a stroke. Except… EXCEPT… actually, what has happened is this: the bank went BUST so the brand new bank-insurance-against-going-bust scheme ought to kick in. Except, begin brand new, it hasn't had any time to accumulate reserves and so, ironically, if it paid out then it would, er, go bust. So Sooty has "loaned" the insurance scheme the money to pay out to the Spanish. It's fiendishly complicated, this.
So what we are left with is RISK – not a bill right now, but the RISK that those £41 billion worth of mortgages are not worth £41 billion pounds.
As Mr Dr Vince "the Power" Cable pointed out, there's always a chance that they might actually turn out to be a GOOD deal for the taxpayer; those mortgage assets could be worth a lot MORE than we're going to pay for them, assuming that most of the people who borrowed the money manage to keep up with their repayments.
Nationalisation is BAD because Governments are not very good at running businesses. Although it turns out that sometimes businesses are much, much WORSE at running businesses.
Accepting that it is only a LEAST WORST option, though, a temporary Government ownership can be a safe harbour whilst the tempest passes.
As with the Northern Rock-and-a-Hard-Place Bank – to which these mortgages will probably get added – if the government just holds onto them for a while until the economy starts to swing up again, they SHOULD be able to sell them for good value. After all, people are always going to need houses.
Master Gideon, of course, is against this. It's not JUST that he is in opposition, and so against what Sooty is doing just because. No, he thinks that the Badly and Bungling should be sold privately. This is because (a) obviously people are just gagging to buy a bank that the market has valued as worthless; and (b) clearly there are just so many banks out there flush with cash at the moment anyway…
Or maybe he's an eejit too.
Take his idea to have the Bank of England "step in" whenever they think that a bank's lending is getting a bit risky. Can you, in fact, think of a clearer signal that a bank is going down than that? The minute the Bank of England says ANYTHING, the City goes into headless-chicken mode, the share price flatlines and the bank is as dead as Master Gideon's fashion sense.
Then there’s his WHEEZE to FREEZE: celebrating the Conservatories policy of returning power to local councils by, er, imposing on them a centralised, Big Government decision overriding their power to choose the level of their own Council Tax. Behold the Joined-up-Government in waiting.
But as if that wasn't bad enough, he's now going round writing articlessaying:
"We can no longer afford an economy built on debt"
"An economy built on debt is not an economy built to last"
It sounds like a good sound-bite, doesn't it?
And yet, if you take him at his word, it betrays a FUNDAMENTAL and TOTAL lack of understanding about how capitalism works.
Everything, EVERYTHING about our economy depends on the idea of DEBT.
What is MONEY itself, but a "promise to pay"? It is a note of a DEBT owed, that we use in order to swap our debts about. Does Master Gideon expect us to go back to BARTER?
You work for a living? The boss OWES you a DEBT for every minute that you work. Yes, even when Googling on FaceSpace. You LEND him (or her) your services and that debt is settled at the end of the week or the month.
And who could possibly afford a house without using DEBT to match the payments for your home over your working life?
(Although, these day, practically nobody can afford a house anyway, and for that matter the banks seem to have given up lending.)
But at a higher level, debt is what makes INVESTMENT possible.
If you want to start a business you have EXACTLY two options: (A) be very rich; (B) borrow some money.
Responsible is a word that Mr Balloon suddenly likes. RESPONSIBLE lending means advancing money to people who are able to repay the debt AND make a bit on top.
This allows people who have got good ideas and hard work but NOT Mr Balloon's inherited fortune to set up in business. This is how ALMOST ALL the businesses in Great Britain start, businesses that make and sell things, that pay taxes and even grow to employ other people.
A responsible level of debt is exactly what we need. It is the GRIT in the capitalist OYSTER. It is the OIL that lubricates the GREAT MACHINE.
It is the very HEART of the Credit Crunch Crisis that we have gone from FAR TOO MUCH debt to ABSOLUTELY NONE AT ALL.
It's like going from a hundred-and-ten miles-an-hour on the motorway to nothing (and that is a good analogy because a hundred-and-ten miles-an-hour is irresponsibly out of control, and nothing will get you nowhere): the only way you can achieve this is with a NASTY CRUNCH.
Far be it for fluffy little me to remind everyone that Mr Dr Vince was saying for quite some time that we needed a careful and cautious but above all MANAGED reduction in overall borrowing to a RESPONSIBLE level… so I'll just remind you that Mr Evan told everyone that this morning.
Thursday, September 25, 2008
Day 2825: Credit Crisis – Church Takes Action
Thursday:
The Beardy-Weirdy of Canterbury and Mr Dr John Sent-to-Moo, the Archpillock of York have joined forces to attack MERCHANT BANKERS.
Apparently the Bishops condemn people for investing faith in an INVISIBLE POWER that inexplicably acts for BENIGN reasons, and for selling a product that is of no MATERIAL benefit to anyone…
…hang on; this is a JOKE, isn't it?
The Beardy-Weirdy of Canterbury and Mr Dr John Sent-to-Moo, the Archpillock of York have joined forces to attack MERCHANT BANKERS.
Apparently the Bishops condemn people for investing faith in an INVISIBLE POWER that inexplicably acts for BENIGN reasons, and for selling a product that is of no MATERIAL benefit to anyone…
…hang on; this is a JOKE, isn't it?
Wednesday, September 24, 2008
Day 2818: Ban My Shorts
Thursday:
So we return home from Conference. Has anything been happening in the World? Oh crumbs…
The current scores on the (repossessed) doors appear to be as follows:
Of the "Big Five" American Investment Banks, Bear Sterns went under last March; Merrill Lynch was quietly bought out by Bank of America; Lehman Brothers went spectacularly bust*; and Morgan Stanley and Goldman Sachs are busily turning themselves into ordinary banks to try and get some depositors to shore up their remaining assets. That leaves NONE.
Meanwhile, Great Britain has lost another bank and competition law was chucked out of the window to let Halifax Bank of Scotland get gobbled up by Lloyds TSB.
(*Hilariously, the Financial Times was reporting the collapse of Lehman Brothers as the biggest banking failure since, er, the LAST time Lehman Brothers went bust back in the 1980s)
All of this is being blamed on City Traders who have had the fluffy foot pointed at them as Scapegoat du Jour, for their habit of making money off of shares that are plummeting in value – so called SHORT SELLING.
The problem is that they aren't really the problem. They are just the buzzy insects come to swarm over the bleeding wounds of the broken animal that is the financial industry. Not very nice, it is true, but just taking advantage of bigger problems, and swatting a few flies is not going to get the banks back on their fluffy feet.
Equally, there seems to be developing a TREND to identify KEY players – like Mr Dick Fuld, chairperson of fallen Lehman Bros. – and blame them INDIVIDUALLY. The word HUBRIS has been flying about a lot. Clearly, the idea is to say that "no, no, we bankers are good and true, and it is only these few madpersons who have ruined it all for all of us, please give us some more money…"
It just won't do.
The root of the problem remains the fact that the banks got too big and too greedy. They loaned out more money than they should to people who couldn't pay it back. When the price of houses fell, the security for those loans got smaller, making the loans more RISKY and therefore worth less. Or in all too many cases worthless. That was the Halifax's problem – suddenly and uncontrollably they had fewer assets to balance against their borrowings.
(It didn't help that their attempt to raise more capital was a flop, meaning that underwriters AIG – yes, them – ended up with a huge bill for unwanted HBoS shares.)
The investment banks thought that they could do something terribly clever to make bad debts less bad by mixing them with good debts. Instead they have made the good debts just as bad as the bad ones.
That is why the American government's offer to buy ALL of the mortgage debts cuts the Gordian Knot – take all the mixed up good and bad debt out of the system and start again. Fair enough, if you are a bank, but jolly free with other people's money of you are a taxpayer who didn't gain squillions during the banking boom.
Because this is NOT the fault of one or two too-clever-by-five-and-three-quarters individuals. Nor is it down to City Sharks picking off the weakest swimmers. It is endemic in a system that allows banks to get bigger and bigger, making bigger and bigger loans and calling it a "profit" because they borrower MIGHT one day pay back the silly-money interest.
This isn't even ORIGINAL. The Midland Bank, once the biggest in the World, blew itself to pieces by loaning titanic sums to Latin America and then hitting the iceberg of them all defaulting. Natwest almost went the same way.
And allowing Lloyds and HBoS to merge into a Super-Bank is about as far from a solution as we are going to get. It just puts us all at even MORE risk that there will have to be a VAST Government bailout if this far-too-big-to-let-fail bank does something unspeakably silly. Because bankers, it would appear, have NO track record of NOT doing something unspeakably silly, if the opportunity for a fast buck arises.
What we want is SMALLER banks, banks that are less likely to overextend themselves precisely because they have a smaller asset base, banks that are easier to regulate because they are not vast sprawling empires with tentacles in pies all over the globe, banks where there are fewer depositors so the government can afford to rescue the depositors in the event that the bank does go bust.
If political power should be devolved to local levels, then so should FINANCIAL power.
Break up the banks!
So we return home from Conference. Has anything been happening in the World? Oh crumbs…
The current scores on the (repossessed) doors appear to be as follows:
Of the "Big Five" American Investment Banks, Bear Sterns went under last March; Merrill Lynch was quietly bought out by Bank of America; Lehman Brothers went spectacularly bust*; and Morgan Stanley and Goldman Sachs are busily turning themselves into ordinary banks to try and get some depositors to shore up their remaining assets. That leaves NONE.
Meanwhile, Great Britain has lost another bank and competition law was chucked out of the window to let Halifax Bank of Scotland get gobbled up by Lloyds TSB.
(*Hilariously, the Financial Times was reporting the collapse of Lehman Brothers as the biggest banking failure since, er, the LAST time Lehman Brothers went bust back in the 1980s)
All of this is being blamed on City Traders who have had the fluffy foot pointed at them as Scapegoat du Jour, for their habit of making money off of shares that are plummeting in value – so called SHORT SELLING.
The problem is that they aren't really the problem. They are just the buzzy insects come to swarm over the bleeding wounds of the broken animal that is the financial industry. Not very nice, it is true, but just taking advantage of bigger problems, and swatting a few flies is not going to get the banks back on their fluffy feet.
Equally, there seems to be developing a TREND to identify KEY players – like Mr Dick Fuld, chairperson of fallen Lehman Bros. – and blame them INDIVIDUALLY. The word HUBRIS has been flying about a lot. Clearly, the idea is to say that "no, no, we bankers are good and true, and it is only these few madpersons who have ruined it all for all of us, please give us some more money…"
It just won't do.
The root of the problem remains the fact that the banks got too big and too greedy. They loaned out more money than they should to people who couldn't pay it back. When the price of houses fell, the security for those loans got smaller, making the loans more RISKY and therefore worth less. Or in all too many cases worthless. That was the Halifax's problem – suddenly and uncontrollably they had fewer assets to balance against their borrowings.
(It didn't help that their attempt to raise more capital was a flop, meaning that underwriters AIG – yes, them – ended up with a huge bill for unwanted HBoS shares.)
The investment banks thought that they could do something terribly clever to make bad debts less bad by mixing them with good debts. Instead they have made the good debts just as bad as the bad ones.
That is why the American government's offer to buy ALL of the mortgage debts cuts the Gordian Knot – take all the mixed up good and bad debt out of the system and start again. Fair enough, if you are a bank, but jolly free with other people's money of you are a taxpayer who didn't gain squillions during the banking boom.
Because this is NOT the fault of one or two too-clever-by-five-and-three-quarters individuals. Nor is it down to City Sharks picking off the weakest swimmers. It is endemic in a system that allows banks to get bigger and bigger, making bigger and bigger loans and calling it a "profit" because they borrower MIGHT one day pay back the silly-money interest.
This isn't even ORIGINAL. The Midland Bank, once the biggest in the World, blew itself to pieces by loaning titanic sums to Latin America and then hitting the iceberg of them all defaulting. Natwest almost went the same way.
And allowing Lloyds and HBoS to merge into a Super-Bank is about as far from a solution as we are going to get. It just puts us all at even MORE risk that there will have to be a VAST Government bailout if this far-too-big-to-let-fail bank does something unspeakably silly. Because bankers, it would appear, have NO track record of NOT doing something unspeakably silly, if the opportunity for a fast buck arises.
What we want is SMALLER banks, banks that are less likely to overextend themselves precisely because they have a smaller asset base, banks that are easier to regulate because they are not vast sprawling empires with tentacles in pies all over the globe, banks where there are fewer depositors so the government can afford to rescue the depositors in the event that the bank does go bust.
If political power should be devolved to local levels, then so should FINANCIAL power.
Break up the banks!
Thursday, March 20, 2008
Day 2633: Bear (Sterns) Market
Monday:
Bear Sterns was Wall Street's fifth largest bank and, a year ago, it was worth eighteen BILLION dollars. Which is a LOT even in devalued dollars.
This week it was sold for one-quarter of a billion dollars and a promise of a lot of love from the Federal Reserve.
Quite simply, the bank ran out of cash.
They had invested heavily in the distinctly dodgy "capital instruments" that supposedly turned sub-prime mortgages into Triple-A quality assets. Their depositors no longer trusted them, wanted their money back and that, as they say, was that.
Does any of this sound familiar?
Yes, it's the Northern Rock saga all over again. At least it'll stop young Master Gideon braying that "only Britain has had a run on a major bank" as though he knows ANYTHING about money.
Just as in the case of Northern Rock, the so-called "credit crunch", which means banks are no longer willing to lend money to each other, meant that Bear Sterns didn't have access to enough ready funds – and when they had to go and ask the government for an emergency loan to bail them out, it immediately panicked everyone else with money deposited there.
In fact, Bear Sterns' losses of $3 billion are CHICKEN FEED compared to the amount of money that America's biggest banks, Citigroup and Merrill Lynch, have had to write off - $18 billion and £14 billion respectively.
But once a RUMOUR had taken flight that they were sinking, the rats could not have been quicker in grabbing any CHEESE they could and trading it in for a GOLDEN life raft.
The only difference is that the American central bank cut its (or rather Bear Sterns') losses, nationalised the worthless debt and found a new private buyer without all of that shilly-shallying that Mr Frown and Sooty have done leaving the British public as joint owners of a bank.
The underlying problem remains the same.
The Monkey-in-Chief went on a massive spending spree subsidised by cheap loans from abroad and a whole load of not-very-well-off Americans were persuaded to do likewise. The banks thought that they had the magic formula for never losing and as money kept rolling in they congratulated themselves with triple bonuses all round. But as with all good things it had to come to an end and, one nasty oil shock later, end the good times did. (And conducting a WAR on top of a third of the World's oil reserves is hardly a good way to keep the oil price stable!) Suddenly the Chinese want to spend their money on oil and wheat for their own economy rather than funding America's ongoing CAVALCADE of WHIMSY and – ooh dear – borrowing gets just that little bit more sticky and – oops – all of those "sub-prime" mortgages that are coming up for refinancing are now out of reach of the people living in those homes. Welcome to default city.
And now people who've GOT money don't trust the banks. People don't trust their investments – they don't put their money into stocks or deposit it – instead they are buying commodities (oil, gold, orange juice and the like). So there is less money in the banks, but that money – or LIQUIDITY – is the LUBRICATION that keeps the economy going: banks loan it out to people to buy houses, (which means that there are jobs in building and in making furnishings and paint and stuff) or to businesses to fund expansion (which means that there are more jobs doing whatever it is that the business does, or making the machinery or producing the raw materials that they want to buy). No money keeping the wheels turning: no new jobs, homes, businesses, etc.
Basically, the US economy is tanking.
The Monkey-in-Chief's Treasury Secretary has admitted as much saying that they now face a "sharp decline" but that he is hopeful of recovery before the year is out.
Translation: I'm hoping that I learn to fly before I have to learn to bounce.
Speaking of bounces, the Fed cut interest rates again to cheer up the economy and indeed the Dow Jones bounced back from earlier losses.
Not a CLASSIC "dead cat-monster bounce" (based on the principle that even a dead cat-monster will bounce if it crashes HARD ENOUGH!) since this was a response to intervention. But there is only so much further that the Fed CAN cut interest – they're down to 2¼% now which obviously leaves them less and less room for manoeuvre.
Not that WE'RE so much better off. Our interest rates are higher here in Great Britain, but that's nothing to gloat about: our mortgages and borrowing cost us more but it doesn't necessarily give the Bank of England more freedom to act. For us, high interest rates are a bulwark against rising inflation; the bank won't want to cut them as they'd risk losing the battle to hold inflation under the Prime Monster's 2% target. Well, actually they've ALREADY lost that battle, but they'd REALLY be giving up if they let low interest loans fuel yet another consumer spending boom.
What CAN we do?
It often seems that we are POWERLESS in the face of these huge global economic events. Chancellor Sooty certainly seems to think so, and it might be worth REMEMBERING that next time you come to vote for who is supposedly in charge of the country's cashbox. But we are NOT.
Bear Sterns was Wall Street's fifth largest bank and, a year ago, it was worth eighteen BILLION dollars. Which is a LOT even in devalued dollars.
This week it was sold for one-quarter of a billion dollars and a promise of a lot of love from the Federal Reserve.
Quite simply, the bank ran out of cash.
They had invested heavily in the distinctly dodgy "capital instruments" that supposedly turned sub-prime mortgages into Triple-A quality assets. Their depositors no longer trusted them, wanted their money back and that, as they say, was that.
Does any of this sound familiar?
Yes, it's the Northern Rock saga all over again. At least it'll stop young Master Gideon braying that "only Britain has had a run on a major bank" as though he knows ANYTHING about money.
Just as in the case of Northern Rock, the so-called "credit crunch", which means banks are no longer willing to lend money to each other, meant that Bear Sterns didn't have access to enough ready funds – and when they had to go and ask the government for an emergency loan to bail them out, it immediately panicked everyone else with money deposited there.
In fact, Bear Sterns' losses of $3 billion are CHICKEN FEED compared to the amount of money that America's biggest banks, Citigroup and Merrill Lynch, have had to write off - $18 billion and £14 billion respectively.
But once a RUMOUR had taken flight that they were sinking, the rats could not have been quicker in grabbing any CHEESE they could and trading it in for a GOLDEN life raft.
The only difference is that the American central bank cut its (or rather Bear Sterns') losses, nationalised the worthless debt and found a new private buyer without all of that shilly-shallying that Mr Frown and Sooty have done leaving the British public as joint owners of a bank.
The underlying problem remains the same.
The Monkey-in-Chief went on a massive spending spree subsidised by cheap loans from abroad and a whole load of not-very-well-off Americans were persuaded to do likewise. The banks thought that they had the magic formula for never losing and as money kept rolling in they congratulated themselves with triple bonuses all round. But as with all good things it had to come to an end and, one nasty oil shock later, end the good times did. (And conducting a WAR on top of a third of the World's oil reserves is hardly a good way to keep the oil price stable!) Suddenly the Chinese want to spend their money on oil and wheat for their own economy rather than funding America's ongoing CAVALCADE of WHIMSY and – ooh dear – borrowing gets just that little bit more sticky and – oops – all of those "sub-prime" mortgages that are coming up for refinancing are now out of reach of the people living in those homes. Welcome to default city.
And now people who've GOT money don't trust the banks. People don't trust their investments – they don't put their money into stocks or deposit it – instead they are buying commodities (oil, gold, orange juice and the like). So there is less money in the banks, but that money – or LIQUIDITY – is the LUBRICATION that keeps the economy going: banks loan it out to people to buy houses, (which means that there are jobs in building and in making furnishings and paint and stuff) or to businesses to fund expansion (which means that there are more jobs doing whatever it is that the business does, or making the machinery or producing the raw materials that they want to buy). No money keeping the wheels turning: no new jobs, homes, businesses, etc.
Basically, the US economy is tanking.
The Monkey-in-Chief's Treasury Secretary has admitted as much saying that they now face a "sharp decline" but that he is hopeful of recovery before the year is out.
Translation: I'm hoping that I learn to fly before I have to learn to bounce.
Speaking of bounces, the Fed cut interest rates again to cheer up the economy and indeed the Dow Jones bounced back from earlier losses.
Not a CLASSIC "dead cat-monster bounce" (based on the principle that even a dead cat-monster will bounce if it crashes HARD ENOUGH!) since this was a response to intervention. But there is only so much further that the Fed CAN cut interest – they're down to 2¼% now which obviously leaves them less and less room for manoeuvre.
Not that WE'RE so much better off. Our interest rates are higher here in Great Britain, but that's nothing to gloat about: our mortgages and borrowing cost us more but it doesn't necessarily give the Bank of England more freedom to act. For us, high interest rates are a bulwark against rising inflation; the bank won't want to cut them as they'd risk losing the battle to hold inflation under the Prime Monster's 2% target. Well, actually they've ALREADY lost that battle, but they'd REALLY be giving up if they let low interest loans fuel yet another consumer spending boom.
What CAN we do?
It often seems that we are POWERLESS in the face of these huge global economic events. Chancellor Sooty certainly seems to think so, and it might be worth REMEMBERING that next time you come to vote for who is supposedly in charge of the country's cashbox. But we are NOT.
- Try to spend just a little bit less and save just a little bit more – every penny in a savings account is just that little bit more liquidity for the banking system and we'll be that little bit closer to getting through this.
- Now might be the time to see how much money you can save by taking some Green economy measures around the house – check out your insulation and your low energy light bulbs.
- And if you think your finances are in trouble, try to get some help – the fewer people there are in difficulty the sounder the economy will be.
Friday, March 17, 2006
Day 1899: Sue Your Bank; Prizes to be Won
Wednesday:
I am SURE that banks are just as nice as any other people, so I do not know why this story has made both of my Daddies cheer.
Like RHINOS (who are VERY thick!), banks are fond of CHARGES.
You bank is supposed to CHARGE you CHARGES to cover their own costs. For example, they charge you £35 when their robot computer sends you a letter for going £1 overdrawn because they have VERY POSH EXPENSIVE computers – good enough to play STAR WARS LEGO on!
Some people might think that the banks making more than THIRTY-THREE SQUILLION pounds of profit might HINT that they are doing QUITE WELL out of this arrangement. And it turns out they would be RIGHT!
But now you have the SOLUTION! Send in the BAILIFFS!
Those biros on chains have got to be worth SOMETHING, haven’t they!
I am SURE that banks are just as nice as any other people, so I do not know why this story has made both of my Daddies cheer.
Like RHINOS (who are VERY thick!), banks are fond of CHARGES.
You bank is supposed to CHARGE you CHARGES to cover their own costs. For example, they charge you £35 when their robot computer sends you a letter for going £1 overdrawn because they have VERY POSH EXPENSIVE computers – good enough to play STAR WARS LEGO on!
Some people might think that the banks making more than THIRTY-THREE SQUILLION pounds of profit might HINT that they are doing QUITE WELL out of this arrangement. And it turns out they would be RIGHT!
But now you have the SOLUTION! Send in the BAILIFFS!
Those biros on chains have got to be worth SOMETHING, haven’t they!
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