Brexit to where?
The attempted Brexit is a prime example of the saying ‘A Camel is a Horse designed by a Committee’. We were sold the promise of a graceful and sleek thoroughbred ready to jump out of the starting gate but what we have instead is a broken-down old camel with nowhere to go.
But our Brexit comedy hasn’t been all bad because we have learned a great deal.
Firstly, we have learned that Westminster is too big. Too many MPs with too many opinions and too much pathological self-interest.
Secondly, that ghastly Westminster mélange of lawyers, councillors, teachers, union men, media people, public school retards, political researchers, hedge fund managers, celebs, graduate socialists and professional nationalists is no longer fit for purpose….and forget that ‘Parliament has to reflect Society’ mantra. If that is indeed the case, we have to bear in mind that the average UK citizen is a knuckle-dragging thicko who cannot calculate percentages and struggles to put together a sentence (in English). Just watch any vox pop on the evening news.
Thirdly, we have learned that leadership is not an option. It is a necessity and parliament does not have it (on any side).
Fourthly, it has once again been confirmed that Analyticals rarely make good leaders. Our Prime Minister is a Geography graduate and ex-Bank of England wonk who finds it impossible to create a consensus. Gordon Brown was the last analytical leader and his decision-making and leadership credentials are equally legendary.
Finally, the most overused phrase in politics is ‘We need to……’ as in ‘We need to show some consensus’ or ‘We need to do something about knife crime.’
What the United Kingdom really needs is a new cheerleader, some joined-up management and an urgent cull in and around London’s SW1A postcode.
Government Strategies For A Dead Horse
I have been studying the decision-making and initiative delivery record of Theresa May’s government and as far as I can see, she manages by delivering statements of intent , plus a very clever device which appears to be problem-solving action but in fact, is totally meaningless.
It begins with three words: “We have allocated…..” This phrase is followed by a large number.
Grenfell? “We have allocated……….”
NHS? “We have allocated…..”
This muddly and often protracted management method can be explained by analogy and the wisdom of those without PPE degrees, MBAs and other letters after their names.
The well-known and slightly modified analogy below should also be studied carefully by the real experts in dead horse flogging – Tory High Command – especially when choosing Party leaders.
The tribal wisdom of the Dakota Indians, passed on from one generation to another is that if you find yourself riding a dead horse, the best strategy is to dismount.
However, in modern government, because of the heavy
investment and re-election factors to be taken into consideration, other strategies
need to be tried with dead horses, including the following:
Remember Hale and Pace when they were funny? This isn’t about them – but it is about Management, Organisation and Decision Making – with maybe a quick nod to Leadership.
The context? The ramshackle mélange of lawyers, doctors, local government employees, lecturers, teachers, journalists, farmers, political organisers and city types which makes up the UK Parliament.
Some of them even end up running Departments of State with massive resources and budgets which are measured in tens or even hundreds of millions. Many are unsuitable for management and even less suitable for leadership but………. with a system which promotes from within a very limited talent pool, the strangest of people rise to the sort of power which those of us who grew up in a mostly meritocratic and competitive corporate environment can only marvel at.
Four out of our five most recent Chancellors were either Lawyers or History graduates! Our present Prime Minister studied Geography. Our Foreign Secretary is an Oxford Classics graduate (that’s Latin and Greek to you and me) and our Defence Secretary has a degree in Social Sciences!
There are English graduates and Philosophy degrees. There’s a medical doctor and even a media person. There’s a statistical sprinkling of those ubiquitous Politics, Philosophy and Economics graduates but some say that PPE graduates never quite learn enough about any one subject…….ideal MP fodder!!
But you may ask ‘What has a degree got to do with anything?’
On the face of it – nothing at all….but it is Organisation and Management which run departments with Leadership showing the way…..and if there is no leadership and an inability or unwillingness to take decisions, there is a lack of progress with decisions being consigned to investigations, reviews, inquiries and commissions – which in reality are no more than misused government devices which cleverly disguise intransigence and moribund passivity into action.
The only other place I have seen such a disparate band of individuals attempting to act as a team was a motley crew of so-called ‘middle management’ in a very well-known company’s marketing department. There were graduates of every flavour imaginable – but they neither had to lead, manage nor take decisions. The corporate damage that they could inflict was negligible.
The clue as to the unsuitability of many (most) MPs to administer billions of pounds on our behalf is to be found in the type of individual who chose to study a particular subject…..but there’s more…..
So-called ‘Communication Skills’, exemplified by an ability to talk whilst being insulted is certainly not related to any ability to lead or manage and yet, it is the skill which is prized above all others.
Currently, (as always) there is talk of future reform of the House of Lords reform and hopefully that is where any reform will remain….in the future.
Before training its beady eye on the Other Place, the House of Commons would do well to pause and think about its own fitness for purpose.
Q: How many MPs work at the House of Commons?
A: About 10% of them.
Tokenism in the Cabinet
Without sounding disingenuous or racist, I was very disappointed that Mrs May chose her new Home Secretary with an all-too-obvious reference to the Dulux Autumn Shades Colour Chart.
Sajid Javid is only average but of course, he does have the advantage of being of Pakistani extraction. He was quite at home being bland and keeping out of trouble in low key ministerial jobs as well as providing the Cabinet with its token Asian.
He is an ineffectual ‘good guy’ who had already been promoted to well above his level of incompetence – an attribute he shares with Mrs May.
However, he does NOT deserve the poisoned chalice of the Home Office.
George ‘Greed is Good’ Soros is at it again.
Writing in the Guardian, currency speculator George Soros has said sterling would “decline precipitously” if the Leave camp won Thursday’s referendum vote. Once again, he is talking as if sterling will be throwing itself over a cliff. Nothing could be further from the truth.
In effect what he is doing is putting the United Kingdom on notice.
Currencies such as sterling do not fluctuate by themselves. They fluctuate because people such as Soros and their armies of Forex screen monkeys bet against the currency in the pursuit of profit.
Nothing in the UK will have changed by midnight on Thursday – except Soros and his ilk kicking off a worldwide currency trading orgy : “Let the sell-off begin!”
We voters should understand that everything bad that Cameron and the Remain camp have been prophesying in the event of Brexit will have its roots in the future behaviour of the banking community. It is they and heads of companies who owe them money who are calling the shots – not the politicians. Just think back at the ‘suits’ who have been squealing the loudest for a Remain outcome!
Soros has warned of “serious consequences” for British jobs and finances if the country leaves the EU.
It is time we all called the bankers’ and the financiers’ bluff. They could quite easily have said that in the event of either a Remain vote OR Brexit, they would offer full support to our economy.
Even the Governor of the Bank of England has failed to confirm that he and his bank will do everything that they can to support the British economy irrespective of the referendum outcome.
They have failed us yet again.
Carney in the Cameron Corner?
The (hired by Chancellor Gideon) totally impartial Governor Mark Carney of the oh-so independent Bank of England said today that if the United Kingdom left the Bruderschaft of the oh-so economically-stable #EU, the risk of leaving “could possibly include a technical recession”……….which by implication suggests that if we stay firmly wedged in Bundeskanzlerin Merkel’s ample #EU cleavage, the risk of recession will be gone! Good news !!
David Cameron then said the warning amounted to “a very clear message” of the dangers of Brexit.
Some have declared that the Governor was spouting unwarranted and unmitigated bollocks with several calling for him to be sacked.
In reply, the Governor’s spokesperson said the Bank had “a duty to make its judgments known.”
As the Bank of England has been so incisive and accurate in all of its previous economic judgments and predictions – the 2008 economic collapse, the subsequent recession and the collapse of RBS, to name but a few – I cannot think of any reason why we should not take Governor Carney’s latest prophecy (it’s NOT a prediction!) VERY seriously. 🙂
Ill Gotten Gains, Dave?
Let’s not beat around the bush……London is the money-laundering capital of the world. In addition to that, it is Britain which has all those ex-colonial islands and protectorates scattered all over the world. They have become the tax-free-no-questions-asked home to all the world’s drug and crime proceeds as well as the repository for a sizeable chunk of the aid money the West continues to dish out to the Third World …..in the full knowledge that much of it will eventually land in a Swiss numbered account while it waits to be properly buried in some obscure Caribbean offshore trust.
London is the crossroads of such a high percentage of the ill-gotten gains of corrupt politicians and criminals, that if our government genuinely had the stomach to legislate in order to clean-up all this cash-trafficking, it would put such a large hole in our Gross Domestic Product that our economy would collapse.
Our manufacturing represents only 15% of our GDP. The rest relies far too heavily on virtual as well as illegal money….but unfortunately, after so many years, the economy has become totally addicted to it. All that our senior politicians can offer is the traditional mixture of fine words, promises and inaction.
Cameron’s family is the personification of the moral-free, double-standard, innocence-feigning disgrace that Britain has become.
….and the consequences? The odds are that once again, nothing will change. The media will have lots of fun, the Panama Papers will be milked until we all become bored, the politicians will find something else to distract us with.
Anyone for blini?
The Panama Papers reminded me of something that I have been thinking about for many years. What makes senior, specifically LEADER politicians so rich? Very often, all they have had is a career in politics, which as we all know, does not pay very well and yet they suddenly appear at the top of the pile with both the A-list film-star lifestyle as well as the mega-bloated bank account plus the services of sleazy bankers and agents for offshore tax havens.
As far as I can see, the only advantage they have over normal mortals is not ability, diligence, a business sense or even an entrepreneurial spirit. The only thing they do have is proximity to tax payer cash. For instance, the salary of a KGB colonel is not all that great and neither is the salary of a President-Prime Minister-President measured in millions. How then is that individual managing to measure his wealth in BILLIONS? It’s a conundrum.
There has been some criticism of UK Prime Minister David Cameron because his father was in the offshore tax-optimisation game. Of course, it is manifestly unfair to blame DC because, even though his school fees may have been paid out of an offshore Trust Fund ‘run’ by Nominee Directors of a Brass Plaque ‘Company’ located somewhere in a Central American Banana Republic , he cannot be held responsible for his father’s actions – anymore than the son of a bank robber can be held responsible for being clothed and fed on the proceeds of a bank heist………although bank robbers are often stripped of assets and their offspring allowed to go hungry. But hey….!
UK Credit Card Debt.
In the United Kingdom, total Credit Card debt now stands at about £61,000,000,000. Approximately 2,000,000 people are in arrears or have defaulted and another 2,000,000 are struggling to repay their debt…..The Financial Services Authority says: “Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.” (Not sure what that means.)
THE DEFICIT MYTH – We’re STILL underperforming the #EU ……..#GE2015
THE DEFICIT has been a constant in our ears ever since someone at Conservative HQ discovered that because the GDP was exceptionally low in 2010, THE DEFICIT was a high percentage of it.
In fact, it was about 10%.
Gradually, because the GDP has increased, THE DEFICIT has gradually become a lower percentage of the GDP.
It is now of the order of 5%……..or as Messrs Cameron and Osborne prefer: “We have HALVED the deficit!”.
Yes…from 10% to 5%.
The graph above shows that as far as THE DEFICIT is concerned, the United Kingdom continues to UNDERPERFORM the European Union.
(If you click on the “EXPLORE DATA” link on the above graph, you will land on the official Eurostat page where you can add other countries to the graph for comparison and have as much fun with statistics as our Coalition Government did!)
The Bank Job and Hatton Garden.
The signs so far indicate that the Hatton Garden safety deposit heist was loosely based on the 2008 Jason Statham movie “The Bank Job”, which was itself based on the 1971 Baker Street Lloyds Bank job. The main differences appear to be that in the Hatton Garden caper, the police alarm was set-off and ignored and the thieves were Health and Safety conscious – wearing both high-viz jackets and hard-hats! Just to strike a slightly political note: It is very likely that if it is shown that a burglar alarm WAS ignored, insurance companies will ensure that the Plod is soon standing in the dock , being sued for MILLIONS. However, as the taxpayer funds the Plod, it will be the taxpayer who ultimately pays the bill (as usual)!
Camron and Karney the Head Banker – A Fable
(A government FAILS to persuade bankers to lend to the common people.)
The Gates to Economic Recovery and New Prosperity were being guarded by the Bankers.
A tired and bedraggled band of travellers stood before them. They were led by Camron, the legendary economic illusionist and Prime Minister of the Ukshire.
The Chancellor Gideon, the Cabinet and other Uks were busying themselves with trying to appear invisible – an ancient trick modeled after the mythical Bank Elders.
Camron raised his pink chin so as to appear less terrified than he really was. He tried one of his famed rictus-like smiles. “Please let us in! We have cleared The Mess!” .
After he had spoken, he looked round to his band of followers for their approval – for that was their job. They made the customary grunting and “Hear! hear! The Mess! The Mess!” noises of approval.
The Bankers were confused and even a little frightened but nevertheless, were obliged to follow their elders’ orders.
“You have to pay to come in,” oozed the Banker as he counted heads and flicked at his abacus. His fingers were a blur as he remembered: “…then there’s the insurance…..and other charges”. The abacus was smoking.
“But we have already collected and given you all the gold that we could find. And you did promise than when our coffers were empty, we could come in. It is getting so cold out here. We are tired and hungry and we can see that behind the gates there is sunshine and the New Prosperity. If you will not let us in, would you please lend us a little of our own gold back, so that we can eat . Many are dying – even the hard-working people”
” That is not our problem. WE hear that there are Food Banks for the poor! You enjoyed the Old Prosperity when we gave you more than we had and now, we have no more to lend. Anyway, you look as if you would not be able to repay it.”
” But who are all those smiling happy people who I can see through the gates?”
” They are the Bankers. It is the time of the Feast of Bonus and they are celebrating and making merry. Are you a Banker?”
” No I am not but there are occasions when I am speaking to an audience – I imagine that I can hear a whisper in the audience.”
” And what is this ‘whisper’ ?”sneered the Banker.
” It seems that there are some who think that I am a Banker – because that is the sacred word that imagine I hear. On some occasions, I can hear it several times. There must be many who think that I am a banker. Can I at least come in? Just to see?”
” Why should anyone think that you are a Banker? Do you receive a bonus? Do you have large expense account? How big are your share options?”
” I have none of the Sacred Trappings – I am merely the Prime Minister of the Uks but there are those who see me nearly as important as a Banker. In fact, sometimes I hear whispers which make me think that the people wish me to be in charge not only of the Cabinet, the country but of even …………………the Bankers.”
Camron immediately looked down at his feet because he sensed that he may have gone too far. His entourage cowered.
The Chancellor Gideon tried to make himself even more invisible and only just stopped himself from laughing by biting so hard into the back of his own forefinger that blood flowed from the wound. As you would expect, it was a clear liquid.
Shocked, the two Gatekeeper Bankers took a step back. They had never heard such a preposterously outrageous claim. “In charge of the Bankers???? Who? You?!!”
They knew in that instant that they were dealing with a “Dangerous” but decided to continue the dialogue and try to learn more.They didn’t usually have contact with people.
They had heard the legend that one day, a simple creature would come to the Gates and become “In Charge”. No-one quite knew what this strange phrase meant but they wanted to be sure.
Was this “The One?”. They doubted it because the legend of the god Euro suggested that the one who would one day be in charge, was to be a red-headed female called Merkil from the Land of the Goths.
But the pink-faced stranger had just used the sacred “In Charge” words!
It was a joke among Bankers because they knew that no-one but a Banker could be “in charge”…… They were the chosen ones. They used to serve the people but now the people served them.
” Are you ill? What are the people saying?” The Banker took out his Magic Blackberry and punched at some buttons. His eyes did not leave Camron’s pink face, who continued:
” Sometimes when I am speaking in riddles to the people of The Deficit and suchlike – I seem to hear not just “Banker” but also “King” Banker. That is the phrase! They call me a “Right King Banker”. That is the phrase I hear.”
” But can you talk in riddles? Can you make money disappear? Are you so self-serving, selfish and thick-skinned that you can ignore the criticisms of all those around you? How good are you at offering help to those who do not need it? Were you unpopular at school? Have you ever given money and then changed your mind and taken it back? Well…… have you. Do you have the Gift of Sneer ?”
It was like a bolt of lightning. Camron knew! He was The One !!
He tried his smile once again. Some recoiled in disgust but there were those within earshot who were also beginning to believe that perhaps Camron was “The One”.
Camron certainly believed it. He would ask for an Inquiry – just to be sure. He liked an Inquiry – that most holy of Ministerial Sacraments. Meanwhile, he decided to take the bull by the horns – he would assert himself.
” Bring the Head Banker to see me here at the Gates. Tell him that David of Camenor (for that was his real name) wishes to see him!”
There were gasps. Humans, Uks and Bankers looked at each other. For what seemed like an eternity, there was a cold, dark silence – just like the one which would follow a joke made by the Prophet Milibrand the Younger!
Just as suddenly, the beyond-dead atmosphere was broken by a commotion inside the Gates. Word had been sent to the Head Banker. There was no going back!
Eventually, a short man in a black silk pinstriped suit appeared at the gates. His gold tooth and diamond in his chunky gold pinkie ring flashed as he removed his Fedora. The black overcoat remained draped over his shoulders as he approached Camron.
Camron noticed that the Head Banker’s white silk tie matched the handkerchief tumbling out of his breast-pocket. He briefly imagined his own finger in the Head Bankers chunky ring!
They stood toe-to-toe. It was the Banker who spoke.
Camron felt more resolute than he had ever done in his life. This was his destiny! He would be the saviour of the people. This was his time. He cleared his throat.
” On behalf of the people, I command you to lend them the money so that they may enter the Gates of Prosperity.”
It was the briefest and most “to the point” statement that Camron had ever made – and he’d managed it without an Inquiry! He felt quite exhilarated and just in case someone was sketching this historic moment, he struck a heroic pose and focused his bloodshot piggy eyes on the horizon.
Karney the Head Banker moved even closer. They exchanged knowing smiles, although the Head Banker’s eyes retained all the charm of two bullet holes .
Almost imperceptibly, as Camron leaned to wards him, the Banker’s expression changed.
Swiftly, he brought his knee up.
The Bank Bonus Saga……..
In September 2009, Prime Minister Gordon Brown said that there SHOULD be a “clawback” system for bankers’ pay.
In February 2013, the EU was POISED to cap banker bonuses.
In January 2014, Prime Minister David Cameron said that a bonus COULD be clawed back but not basic pay.
In November 2014, Mark Carney, the Governor of the Bank of England said that bankers’ pay MAY need to be clawed back.
It would seem that life on the two planets which exclusively orbit only each other….Planet Bank and Planet Westminster….life moves slowly and is mostly populated by Modal Verbs….a sort of Mañana in suits!
Meanwhile, Investment Bankers continue to gorge themselves…..and all we can do is ….well…..nothing.
The primary reason for the outrageously high payments to the designer-labelled barrow-boy City slickers is the over-simple reward system. The City rewards the “ups” but does not penalise the “downs”. That encourages short-term risk-taking. A trader can make a large bonus from the profit on a deal but when that deal collapses or the share price falls, there are no sanctions.
In the good old days when life was simple, every day was sunny and back doors were left unlocked, a Life-Assurance salesman (remember those?!) would be paid what was known as “indemnity commission” on any contracts that he sold…… (Incidentally, all the large Pensions and Life salesforces were trashed because of mis-selling! The job was then handed to the banks)
If the salesman sold a £100-per-month policy to a client , he earned say £1,000 in “up-front” commission. Over the next twelve months, the client paid his £100 per month and at the end of the year, the salesman’s commission had been paid for. However, if the policy lapsed in the meantime, the commission was “clawed back” pro rata. That simple system discouraged selling policies to high-risk clients who were likely to lapse their policies.
That method of advance payment was called Indemnity Commission…..a sort of loan against future earnings.
With the sophisticated systems that all financial services companies now operate, it would be simple to create a payment system which took into account the often negative consequences of trading. Bonuses could be paid but with a “clawback” period during which the deals which had been made would be monitored.
It is now time for those nice people at the Bank of England, the Financial Conduct Authority’s latest incarnation to bare their teeth and take control.
The argument of having to pay obscene bonuses in order to hire “the best” has been used before. “The best” used to mean the most aggressive and most ambitious and the most likely to take shortcuts.
We now have the opportunity to enter an era where “the best” means the best-qualified, the most knowledgeable and the most professional. NOT the most crooked.
Mind you, the opportunity has already been around for a few years…… Perhaps tomorrow……
Cameron in the “you know what”…..Again!
The judge in the British phone-hacking trial criticised Prime Minister David Cameron for not waiting until all verdicts were in before commenting on Andy Coulson, his former media chief who is facing jail.
Less than two hours after yesterday’s verdict, Cameron issued what he called a “full and frank” apology, saying he had taken Coulson’s assurances of innocence at the time at face value, something he now realised was a mistake.
The jury was however still deliberating on two further charges on Coulson.
“I asked for an explanation from the Prime Minister as to why he had issued his statement while the jury were still considering verdicts” the judge, John Saunders, said in court.
“My sole concern is to ensure that justice is done. Politicians have other imperatives and I understand that. Whether the political imperative was such that statements could not await all the verdicts, I leave to others to judge.”
In addition, the Leader of the Opposition, Ed Miliband, referred to Coulson as “a Criminal” !
The jury was discharged today after failing to reach agreement on whether Coulson was guilty of authorising illegal payments and it would now seem that Coulson will NOT be tried on the two remaining charges against him because of the premature outbursts by clueless politicians.
In spite of Cameron’s very dramatic waving-about of the Leveson report during PMQs, like some executive Teddy Bear or talisman designed to protect him from any suggestion of wrongdoing in hiring Coulson….he still doesn’t get it!
The Root Cause of this mess is not “I am innocent of negligence because I was given ASSURANCES ” but in the amateurish recruitment procedures on Planet Politics.
“I hear that he’s a good bloke”……….” I knew his father”………… We were at the same school”…….”I shagged his sister”….etc…. STILL take precedence over ability.
Coulson was “recommended”…..and of course, the Conservatives needed to please their benefactor Rupert Murdoch.
( It was Chancellor Osborne who did the recommending…….. What’s his game?)
FALLING INFLATION with Rising Prices?
When you are told that inflation is falling, you would naturally expect prices to be falling . That ain’t necessarily so!
Many years ago, when I worked for a very large bank, I sent a team of people into town in order to find out whether the average British adult understood percentages. The answer was a resounding “No!”
MOST of the people we interviewed had NO IDEA about percentages!
Banks, supermarkets and even the government know very well that most people are either thick or at best borderline thick as far as simple arithmetic is concerned and they take full advantage.
Supermarkets “mix and match” their prices, so that you need to have the brain of a Stephen Hawking to decide whether it would be cheaper to buy three bags of crisps for the price of two or perhaps two at a different price with one free or maybe six bags with 10% extra. By the time you’ve made several purchases like this, you can leave a supermarket mentally exhausted.
Banks will be paying you interest at anything from 0 .01% p.a to 3.00% with maybe an introductory offer of three months with an additional 1.5%. Interest on credits is calculated from the day AFETR your deposit but debit interest on withdrawals is applied on the day of the debit. When a bank returns a wrongly applied charge, will it also re-credit the debit interest? If it does – then at what rate? You don’t know? You’re not alone.
The Government will throw statistics at you through the medium of television, delivered by double-first Oxbridge Economics graduates who have absolutely NO idea how to explain economics concepts – except to other economists. Percentage increases in GDP, percentages out of work, percentage decreases in the annual inflation rate. Percentage, percentages and even more percentages!
Which is better? a 10% discount and then VAT added or would you prefer the VAT to be added first and THEN take the 10% discount? If your energy bill tells you that the discount on your Gas is 5% and the discount on the Electricity is 5%, how many percent savings will you me making in total? What is 12% of £60?
Today, we have been told that annual inflation is on the decrease BUT we all know that prices are on the increase. How is this possible?
I am going to try and explain but in very simple terms.
Assume you bought a radio in January 2013 and you paid £95.70. If you then went to the same shop in January 2014 (a year later) and the price of the same radio had increased to £100, the price would have increased or INFLATED by £4.30. which is an increase of 4.5%.
Let’s now go back to February 2013 when the price of the same radio was £100 and assume one year later, in February 2014, the price increased yet again, this time to £104. That means that the radio would have increased in price or INFLATED by £4, which is 4.o%.
So, coming back to this year, between January and February 2014 (in one month), the radio’s price has INCREASED by £4 but at the same time, inflation has DECREASED from 4.5% to 4.0%!
Therefore, we have a rising price but simultaneously, we see falling inflation.
The media are already mumbling something about “falling food prices etc” having caused the present fall in inflation.
It is nothing of the sort : Yes, falling prices do contribute but the way that the calculations are made can be the major contributor to the figure because it is calculated in discontinuous annual slices. Today’s inflation figure depends on what the inflation figure was a year ago.
Having said all that, on this occasion, the CPI has actually decreased in one month
Mind you, as usual, whatever the basis of the inflation calculation, it will still not stop the politicians from claiming all the credit.
(Unless, of course, the inflation rate goes up too drastically, which is when those pesky “external factors out of our control” come into play!
The odds are that a chunk of YOUR pension fund is invested by a Fund Manager (on your behalf) in Bank Shares. Over the years, lower dividends, as a result of those comedy bank bonuses will have an appreciable effect on your retirement fund. Who cares? You should. http://www.theguardian.com/business/2014/feb/13/lloyds-bank-ceo-antonio-horta-osorio-bonus-profit
2014 Predictions – PART ONE
Predicting the future has always been a mug’s game. For instance, I continue to believe that the markets are all in the wrong place and overpriced and I predicted the FTSE at about 4500 – but then again, I could not have predicted the collective madness of Quantitative Easing and the real fear that politicians have of the banks. I used to understand investment…but not any more. Cheap virtual cash continues to fund the markets and to keep them artificially high.
The politicians feel that they have to please the banks first and only then the voter. Governments are no longer in control of events. Nowadays, finance drives politics and politicians have become the bankers’ lackeys.
For as long as banks and governments continue to mutually gorge themselves on virtual cash and governments do not have the courage to increase interest rates and taxes in order to join us in the real world, there is a very real possibility that the current economic situation will become the status quo.
These predictions are in no particular order.
1. The disconnect between economic data and the quality of life is fueling populism. It is also fueling right-wing extremism and anti-government sentiment. I fully expect the equivalent of the Arab Spring sometime during 2014 , in the UK and some other European states.
2. South Sudan will provide the next African bloodbath.
3. The Scots will vote “No” to independence.
4. The recently-adopted self-congratulatory air will desert both UK and European politicians as it is realised that the “virtual” economic recovery is unsustainable.
5. There will be a substantial increase in China’s birth rate (the new “one child plus” policy), contrubuting TWO MILLION children to the 2014 economy, boosting consumer motivation.
6. China will continue to build and accelerate its natural resource monopoly in Africa. (One million Chinese already live there).
7. As the West cuts its military budgets, China will continue to do exactly the opposite.
8. David Cameron will continue to tell us what MUST and SHOULD be done, one a whole range of issues.
9. Anaemic growth in the advanced economies will see government debt continue to climb.
10. The US $ will continue its decline. Instead of Quantitative Easing Infinity accelerating economic growth, its effect will be to shrink the $’s buying power.
11. The sudden (and unexpected) pick-up in UK growth, followed by the indication of a reversal in the final quarter of 2013 suggests that businesses were adding to their inventories rather than selling their goods. Expect the reversal to continue in 2014.
12. Germany currently represents approximately 30% of the Eurozone economy and will continue to enjoy the fruits of a weak euro and ramp-up exports.Germany has the world’s highest current account balance as a percentage of GDP. During 2014, Germany’s economic success will continue to accelerate and will represent over ONE THIRD of the Eurozone’s output.
13. Japan will continue to prosper. Its economic output is not 75% of China’s. although it is 4% of China’s size with 9% of China’s population. “Abenomics” has provided the “jump-leads” which Japan needed.
14. The USA will enter another recession in 2014. Currently it is still on “below-2%” growth.
15. A Populist movement will become increasingly vocal here in the UK (and in certain Eurozone countries), with sudden impetus being generated AFTER the European Parliamentary Elections when the main traditional parties will be decimated by the Left and Right.
16. In spite of the Eurozone’s economic “recovery”, unemployment will remain at current record heights (Over 12%).
17. Deflation will accelerate within the Eurozone and economic forecasts will once again be downgraded.
18. The European Court of Auditors (ECA) will publish the 2013 EU accounts and once again, confirm that the continuing “errors” in all of the EU’s spending areas have finally crossed 5%(!) of expenditure.
19. The UK government will do well to prepare for the possibility of social unrest which is driven by the rapid growth of the “have nots”. The financial hangover caused by Christmas 2013 will be far more extreme than in previous years.
20. The Federal Reserve will announce and implement the end of its massive bond-buying programme. This will have a substantial effect on the markets.
21. The full-extent of the banking industry’s Pension and Life Assurance mis-selling will become apparent.
22. There will by an explosion in Teacher Militancy as the government continues to fiddle with our childrens’ education.
23. The price of Crude Oil will fall to about $75 per barrel. The decrease will be primarily caused by oversupply as a result of new production methods.
24. The European Union will fail to deal with its members’ collective debts. Again.
25. The Global Recovery will falter.
26. On January1st, Greece will take over the Presidency of the EU – at a cost to itself of €50 MILLION. This exemplifies the madness of the European Union when a de facto bankrupt state with zero clout is allowed to be burdened such a “spend”. Prediction: Greece will make a “pig’s ear” of its Presidency. Hopefully Subway and MacDonald’s are bidding for the catering contract.
27. Twitter, Amazon etc will be recognised as part of yet another totally unsustainable bubble.
28. In the UK, there will be yet more calls for House of Lords reform. Hopefully, as more and more of their Lordships’ financial “indiscretions” come to light, the debate will snowball, eventually leading to an elected Upper House. Turkeys may well HAVE to vote for Christmas.
29. Once South Africa has recovered from Mandela’s death, there is a real danger of a return to what I can only describe as “Reverse Apartheid”. Violence.
30. Syria will continue to generate substantial profits for the world’s Arms producers as it has become increasingly apparent that there is NOT the political will to even attempt to end this butchery.
(I am NOT a Global Warming mullah but the image above shows all the world’s water and air to scale.)
I’ve often written about the impact of Chaos Theory on modern economics. Usually, it is an unforeseen catastrophe or surprise which impacts negatively on the numbers. Today’s Vodaphone announcement is yet another unplanned-for event…but one which will have a very POSITIVE impact on the UK economy. The pound has already moved positively against the Dollar. Once the institutional shareholders get their hands on their dividends, they will use that cash to reinvest!! For once, it’s ALL good news! Chancellor Gideon can put down those Rosary beads!!
Chancellor Gideon says: “In the housing market outside the centre of London … there is not some kind of housing boom or some dramatic increases in house prices.”……..The Royal Institution of Chartered Surveyors says: “We are experiencing the fastest growth in house prices since 2006, with homes in London increasing in value by more than 8 percent compared with a year ago.”……….You choose.
THIS WEEK’S BANK RIP-OFF: The Financial Conduct Authority (FCA) said it had reached a deal with insurer CPP and 13 high street banks and credit card issuers to pay customers compensation of up to 1.3 billion pounds for mis-sold credit card insurance.
It is the latest mis-selling scandal to hit Britain’s banks, which have been forced to increase their capital buffers partly because of huge compensation payments.
“Seven million customers, who between them bought and renewed about 23 million policies, will soon receive a letter from CPP giving more information on the process,” the FCA said in a statement .
Banks are still paying out compensation for mis-selling payment protection insurance (PPI), which so far has totalled well over 10 billion pounds.
The Financial Services Authority, which was replaced by the FCA in April, fined CPP 10.5 million pounds in November for mis-selling. Card protection insurance costs about 30 pounds a year, with identity protection about 80 pounds annually.
The FCA said customers were given misleading and unclear information about the policies and ended up buying protection they did not need.
The banks, credit card issuers and CPP have agreed to a “scheme of arrangement” which seeks to make processing claims simpler and easier, subject to High Court approval.
The banks and credit card issuers are Bank of Scotland, Barclays, Canada Square Operations, Capital One, Clydesdale Bank, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide, Santander, RBS and Tesco Personal Finance.
The FCA said the first payments were not due until spring 2014.
The new Deputy Governor of the Bank of England is to be JOHN CUNLIFFE. Currently, he’s the British Permanent Representative to the EU. As Head of the European and Global Issues Secretariat from 2007, he used to be Gordon Brown’s Advisor on International Economic Affairs and on the EU. He remained in the post until 2012 when he moved to Brussels.
Have you noticed that almost imperceptibly, the world has split along a 2008-weakened fault line. It is now a world of two halves. In 2008, governments rushed to the aid of their sick banks and five years later they’re still at their bedside. Like a bad parent who gives too much attention to one child, most of the politicians’ thoughts remain with the banks while we languish “Home Alone”.
The rest of us continue to feel like an organ donor being kept alive – but only just …….for no other reason than the benefit of the sick patient. At any moment there may be yet another call for a cash transplant but increasingly, it seems as if the patient’s needs are without end.
One thing we do know for sure is that the bond between politician and banker is now so profound that the politician would even sacrifice himself before he would even consider turning off the life support.
The European Union is drafting a law which will make losses for larger savers a permanent feature of any future banking crises. (They looked at Cyprus and they liked what they saw!!). However, they also say “Depositors should be the very last to suffer losses when a bank collapses.” This type of “double-think” is another example of the legislators failing to deal with fundamentals. The Root Cause of past , present and future banking crises is very straightforward. It is the banks’ headlong rush for profits which can only be achieved through sucking cash out of the real economy. Banks should NOT be making such vast profits – all they really need is a reasonable operating margin. Banking is a business whose only TWO functions are to protect and redistribute money. Currently, they are doing neither very successfully.
(Reuters) – Five years after the onset of the global financial crisis, the world economy is in such a chronic condition that the European Central Bank might cut interest rates this week and the Federal Reserve is likely to indicate no let-up in the stimulus it is providing the U.S. economy…. http://reut.rs/Y6R8sk
Economic Recovery: Fact or Faith?
Whenever man has struggled with solutions to big problems, he has turned to his God, who has consistently said that if man endures deprivations and suffering on this Earth, he will get his just reward in Heaven.
The weird thing is that here we are in the Year 5PL (Post Lehman) and our politicians are behaving just like those prophets of old. WITHOUT any proof and relying solely on faith, they say “Endure the austerity and soon you will be transported to the economic heaven.” Meanwhile they (the prophets) search for “signs”. For instance, a small statistical variation in economic data is seized upon as a “sign” that all will soon be well. (Chancellor Osborne did it again yesterday when he announced “encouraging signs that the economy is healing” HERE In fact, he repeats the holy phrase.)
Is that true? Have we been offered any proof? Do we have to accept the words of the prophets without question or are we being heretical and behaving like Doubting Thomases?
If the New Religion is true, then we have been witnessing the longest Resurrection ever!
There is much talk of “positive sentiment” and Central Bankers accept gifts and many sacrifices from the people and prophets….but, is there really room for faith in economic thinking?
Currently, it would appear that it is all we have.
(As you listen to the Chancellor, notice the total lack of numbers and dates in the affirmation of his faith)
“Sorry” seems to be the easiest word.
The head of Barclays investment bank, Rich Ricci is about to retire after having received an £18 MILLION bung from the company. The payment was announced on the last Budget day – probably to ensure that the news was well-and-truly “buried”, with the Chancellor taking on the role of temporary Barclays shield.
Mr Ricci was at the helm when the LIBOR-rigging scandal broke but it would seem that a quiet gold-plated exit rather than recrimination, continues to be the favoured option for senior bankers.
No-one has suggested any “naughtiness” on Mr Ricci’s part – but at worst, the LIBOR stitch-up was a major breakdown in management – by him, by his boss (Bob Diamond) and the Barclays Board. That begs the inevitable questions:
What does a senior banker have to do to face sanction or prosecution? What exactly is the message which the Government and the Regulation Industry wish us all to hear?
It’s probably: “Screw the system, screw the clients, say sorry and piss off with a handful of wedge.”
Or are we missing something?
Here’s a Mirror assessment of Mr Ricci from two years ago: http://www.mirror.co.uk/news/uk-news/inside-the-life-of-barclays-banker-rich-115678
Government Debt: “We’re all in this together.”
Never mind all that “Debt as a percentage of GDP” nonsense. Here’s a picture of government debt on a simple picture, courtesy of ukpublicspending.co.uk.
It is OUT OF CONTROL.
All steep graphs are scary, no matter which way they’re pointing. Make no mistake, the above graph is so scary and the Chancellor is running out of options so fast, that we are about to reach a very significant and critical moment in Britain’s social and economic history.
Because Chancellor Gideon has well-and-truly painted himself into a corner and is greedy for cash, he will soon become like a schoolkid with his nose pressed up against the sweet-shop window. But what will he be looking at? Surely, there’s nothing left to plunder.
Currently, our savings are languishing in banks, gradually losing their value. Investment rates are lower than inflation and currently it seems as if the differential will continue to increase. THAT will erode our savings at an accelerated rate.
Dormant bank savings accounts have already been looted in order to fund one of the Chancellor’s rapidly growing array of “schemes” to stimulate the economy. On this occasion, the booty (up to £400 MILLION) will be destined for the Big Society Bank (remember?) which has now been rebranded BIG SOCIETY CAPITAL (BSC). Forty percent of BSC shares are owned by Barclays, HSBC, Lloyds Banking Group and RBS (They are preference shares which means that in the event of a collapse, the banks will have preference over other shareholders).
So what could the Chancellor and the banks be planning next? What happened in Cyprus ought to give us a clue.
As a country, we are not spending enough. One way to encourage us to spend would be to threaten our savings either by way of a levy (tax) or seizure.
You may be thinking “Yes, but surely, our savings are protected?” Yes, they are. The capital is protected but our cash is not protected against taxes.
Within four to five years, the government will have to find about £70 BILLION per year JUST in order to fund the interest payments on the money it owes. So where will it find the money?
It is there somewhere. Here’s a clue:
The richest 1% of our population, many of whom famously squirrel away their cash offshore, won’t be affected and neither will the large corporations – they pay tax when they want to plus they are also lucky enough to be able to decide how much to pay.
That leaves the ordinary Saver and Depositor.
The only thing that the government needs to decide is how to present the raid on our money so as to disguise what essentially will be a tax. There are several ways in which the exercise can be delivered.
For instance, a Cyprus-like levy. Simple and straightforward.
There may be some sort of government share-offer, designed to relieve us of our cash or even a mandatory Government Bond which those with a certain level of savings will be bound to purchase.
I would suspect that even Pension Funds are no longer safe.
But the really scary thing is that because this will be a concerted and choreographed international assault by governments and banks, there will be nowhere to run.
We are well and truly “All in this together”………well….most of us.
What’s happened to PROPER Investment Banking?
As recently as 2009, banks’ investment fees were higher in Europe than in the United States. Nowadays, Europe is delivering only about a quarter of total investment activity, with the corresponding collapse in fee income.
Mergers and Acquisitions (M&A) used to be the investment banker’s bread and butter but nowadays, European bankers appear to be either dozing at the wheel or they’ve left the building! Or perhaps they’ve forgotten how to do it!
In the last year American acquisitions were up by about a third whereas in Europe, they appeared to be too busy sitting on their cash, playing the markets and endlessly “rebuilding balance sheets”.
Before the 2007 crisis, the European dealmaking level was about three times as high as today. In the last year, only about $750 billion in deals was announced. Six years ago, it was over 2 TRILLION!
Europe’s global share of M&A activity is now less than one third – the lowest in 10 years. In fact NINE OUT OF TEN of the largest deals in the last 12 months have been executed by US teams.
Equity Capital Markets are showing the same trend.
In EMEA (Europe Middle East and Africa), issuance (offering securities in order to raise funds) over the last 12 months has been about $145 billion. That is well down on last year. Compare that to an increase of nearly 50% in the USA!
Even Asia has overtaken EMEA which is now delivering only about 20% of global issuance. As recently as five years ago, it was nearly 40%.
The conclusion? European Corporates are waiting (they do have cash) and the banks have become lazy and preoccupied with their political debt games.
So what are the politicians doing to make the banks on this side of the Atlantic more profitable? Very little.
Unsurprisingly, subsidiarisation (breaking up or threatening to break up banks), “ringfencing”, bonus caps and financial transaction taxes are all serving to make Europe a structurally much less profitable region.
You see, the banks too are being made to suffer their own kind of austerity by the politicians.
Add to all that the 2013 craze of blatantly robbing bank depositors and the outlook continues to feel depressingly negative.
The Eurocrisis isn’t just Financial.
The Eurozone crisis has managed to morph from a plain old currency crisis to a debt crisis, an economic crisis and now, a full-blown political crisis – although no-one seems to have noticed…….. and it’s not just the Eurozone:
In the United Kingdom, people are making increasingly indiscreet noises about the Prime Minister’s leadership capabilities and the Chancellor’s questionable competence, as the cold hand of political instability makes a (so far) half-hearted grab for No 10. Currently it looks as if there is already a swing to the right. Nigel Farage and UKIP no longer look like a bunch of extremist Right-wing loonies and as they gain respectability and seats, they will pose a genuine threat to the status quo.
Here’s a quick Grand Tour:
Greece’s political problems are well-documented and this is where the recent polarisation of national politics began with the success and increasing support of the right-wing Golden Dawn Party. Greece is on its knees.
In France there’s the scandal of a Minister and his secret Swiss Bank account with the consequent investigation of all Ministers – shades of the UK’s MP expenses outrage. President Hollande is keeping a very low profile because , let’s face it….he came to the table without any ideas. His mere presence has allowed Marine le Pen and her Right-wingers to re-emerge blinking into the sunlight, ready to build on her father’s legacy.
Germany’s Bundeskanzlerin Merkel is no longer odds-on to win her autumn election and so, in order to placate her detractors, countries such as Cyprus are being put through the debt-wringer and effectively having to bail themselves out! All in the cause of extra Brownie points for the Merkelator.
Many are anticipating more resignations from within the Cypriot government. Michalis Sarris, the Cypriot finance minister who negotiated Cyprus’s bailout agreement with international creditors has already gone.
Portugal’s Constitutional Court has kicked into touch some of the austerity measures imposed on the country by the Eurozone moneylenders. Now the politicians are wondering about how to plug the fiscal gap and Prime Minister Coelho may resign.
Belgium took 535 days to form a government after its last election and now has a 6-party Cabinet.
Italy is struggling to form a government and will most likely hold another election after President Napolitano comes to the end of his tenure as Head of State on May 15th. Goodness only knows what the reaction of not only the Eurozone but of the Markets would be should Silvio Berlusconi (again) rise from the dead! Italy’s political scene has become so surreal that ONE QUARTER of the vote in the recent election went to a protest movement headed-up by Beppe Grillo – a comedian!
Spain’s politicians, including its Prime Minister are mired in corruption scandals – and now there are anti-Royalist demonstrations as a direct result of the king’s daughter being implicated in a government financial rip-off. Mind you, affluent Spaniards have already pulled about $100 billion out of their Spanish bank accounts. They started running early. It’s only a matter of time before the Basques and Catalans start to make their separatist noises.
The difficulty is that one would normally expect the emergence of the Right to be counterbalanced by a strong showing from the political Left. But what Europe has are weak governments , compounded by even weaker oppositions. No European political party in government has over 50% of the vote……. and the less said about the European Union’s politicians, the better! They seem to have elevated ineptitude into an art form.
Currently, Britain’s Left is being driven by Ed Miliband and the New-Old-New-Who-Knows-Who-Cares Labour Party. They earn their salaries through the medium of being critical. They have shown themselves to be totally bereft of a coherent, cohesive strategy and will be directly responsible for the future success of UKIP.
Leadership (or a lack of it) within Germany’s Social Democratic Party will be the main factor which could give Merkel another few years of power. If that happens, the rest of the Eurozone should begin to consider itself as no more than a motley collection of Vassal States……there to do Germany’s bidding. Unless of course, Germany accepts George Soros’ advice and leaves the Euro.
France does not enjoy having a Socialist President and it is right to be sceptical. President Hollande is now totally ignored by Merkel and is doing what he does best – he keeps out of the way as Germany tightens its stranglehold.
Hollande could have been the Eurozone’s great hope but unfortunately is way out of his depth. France now has a negative bond rating by all three rating services and has lost much of its international respect. It’s precarious banking system is just waiting (like many others) to go “pop!”
The Main Event this year will be Merkel’s re-election so the Eurozone states must not expect any major policy changes until then – and when she wins? More of the same – but without the compassion!
What of Europe’s medium to long-term future? Without some sort of political quantum leap, it will inevitably descend into a collection of Third World states but with running water, TV and a banking system totally independent of its economy and probably with its own flag.
Maggie’s Big Bang.
Although, in common with many others, I feel a sadness for the passing of Margaret Thatcher, there is one major part of her legacy which recent history has shown to have been an over-sold concept – The Big Bang.
That was the day – 27th October 1986 – when London Stock Exchange rules changed. Jobbers and Brokers became one and the stock market free-for-all began.
It also signaled the coming of the modern Investment Bank.
That was also the day that the City of London became Americanised. The day that the MBAs and the suits showed up and eventually turned an old marketplace into a money-circus.
In 1986, I remember walking into an old Stockbroking firm called Scrimgeour Vickers as part of a Citicorp acquisition team. We had bought it and wanted to see exactly what it was that we had bought! I remember lots of frightened pale-looking people sitting in a sea of dark mahogany and typed paper, looking at us as if we had landed from another planet.
The contrast between us in our sharp suits with our management jive talk and these honest folk was striking.
One of them attempted to break the ice by saying: “This building was condemned in 1948!!” How he and his friends laughed! We didn’t. We were far too important for all that!
We fired most of them and installed new procedures, modern desks and computer screens. We were Gods and, without realising it at the time, a real metaphor for what was happening to the whole of financial services; an almost indiscriminate “Out with the old and in with the new!”
A white collar Revolution!
Margaret Thatcher had been unhappy about TWO main things. Firstly, London was in very real danger of losing its position as a major world finance hub and secondly, the City was ruled by an “Old Boys Network”. In place of the elitist public school stranglehold, Margaret Thatcher meant well when she had dreamed of it being replaced by the mythical “Meritocracy” – a place where people with talent and not necessarily “connected” could play their part.
She also wanted unrestrained competition and ultimately total deregulation, leading to more product innovation and the establishment of London as THE world’s financial centre.
Twenty seven years later, London is still the place to make deals and invest …..and still is the world’s biggest financial centre – but at what cost?
The Labour Government’s deregulation of the banks in 1997 unleashed a Frankenstein which was not recognised by the Financial Services Authority (FSA) until all the damage had been done. The FSA had been too busy looking through the filing cabinets of provincial insurance brokers whilst the banks had been trusted to carry on being as honest and straightforward as they had always been.
No-one appeared to appreciate that those Bankers were different bankers. In fact, most of them weren’t bankers at all.
They were a strange hybrid of Corporate Entrepreneur, pre-programmed to take risks with other people’s money as if it was their own…..and…..they are still doing it!
The global financial crisis certainly cannot all be blamed on Margaret Thatcher’s hopes and aspirations for Britain. But the creation of increasingly complex and convoluted financial products, deregulation and a total failure of successive governments and their regulators to spot bank wrongdoing, is very much part of her legacy.
HBOS: An accident waiting to happen.
There will be a lot of analysis and debate about HBOS and the findings of the Banking Standards Commission – mostly by journos with economics degress who will produce excellent but very technical (and sometimes incomprehensible) remedies and causes for the collapse of what used to be the UK’s 5th largest bank. I was managing a Building Society Head Office is my twenties and have been observing the gradual mutation of the Building Society/Banks for over 30 years. (both from the inside and the outside). I have also spoken to several ex-HBOS managers. Here is it in plain English:
The Banking Standards Commission wants the three men responsible for the demise of HBOS to be prevented from ever again working in the financial services industry and it has told them off! What a punishment! These incompetents should be standing shoulder-to shoulder in the dock and made to answer questions.
Terminal stupidity is not a defense in Law, so they should be prosecuted.
Here are the three main players:
Sir James Crosby is a mathematician and Actuary who landed at the Halifax to run its insurance arm – a business in which many would argue, they should not have been participating in the first place. Five years later, in 1999, he became CEO of Halifax plc. Ironically, in 2008, the then Chancellor, Alistair Darling appointed Sir James to head up a Working Group of mortgage industry experts to advise the Government on how to improve the functioning of the mortgage market.
Andy Hornby was appointed Chief Executive of Halifax Retail in 1999 and finally HBOS Group CEO in 2006 – after the merger wit the Bank of Scotland. He was not a banker as most of his training was at Asda. Currently (and appropriately) he is Chief Executive of Coral, the bookies.
Lord Stevenson was appointed Chairman of HBOS in 2001 – the time of the Halifax/Bank of Scotland merger. He was yet another non-banker who clearly demonstrated at his appearance before the Treasury Select Committee of the House of Commons in February 2009, that he had absolutely no idea of what had happened and the best that he could offer was “Sorry.”
Before its collapse, HBOS was lending at such a ridiculous rate that some of us could already see what was going to happen three years before the final implosion.
For instance, they were using their own valuers to value-up properties so that they could lend 100% (and above). “Lend, lend, lend” and “Sell, sell, sell” were their slogans. If a mortgage case was not up to scratch, the application would be fiddled-with until it was. If a mortgage did not meet in-branch criteria, the prospective borrower was often sent (by the branch) to a mortgage broker whose lending criteria were more generous…..and so on. At the time, you could also walk into a branch, open a current account and be granted an immediate £10,000 overdraft!
In the final weeks of the lending orgy, when management finally realised that the whole house of cards was about to collapse, Halifax branches were being phoned on almost an hourly basis, in order to see how much money was coming in through the front door in deposits! That’s how desperate management became.
They were out of cash.
At the other end of the business – incompetent HBOS “bankers” were making increasingly risky investment decisions with HBOS investors’ cash until they lost most of their bets.
This was a fine old Building Society playing at being a bank!
But why was all this going on? It has been pretty-well established that the management was technically incompetent…but there is another factor which contributed to all this silliness. It was the Government’s promise to safeguard investors’ cash. These executives thought that they were operating in a totally risk-free environment! They could not lose! If they screwed-up (which they did), the government would step in and bail-out HBOS and its depositors out with a pile of taxpayers’ cash – and that is exactly what happened.
The present Coalition government has clearly demonstrated its “Do Nothing” policy in respect of anything at all to do with banking. The odd fine here and there, is purely cosmetic and hardly makes a difference to the operation of either the institution of banking or of its individual members.
It will be interesting to see whether this report by the Banking Standards Commission will generate any government action or whether it will join all the other reports in the poubelle of soon-forgotten examples of banking-industry fraud and monumental incompetence.
Those Teflon Banks.
If the economy was purring along, companies were forming and not going bust, banks were lending properly (not statistically) and the government didn’t regard any GDP growth above zero as an achievement, most of us would not have any problem with those banker salaries and bonuses.
However, it is not sunny, manufacturing is down and we have a government which appears to be indulging in “Government by Accounting” as an increasingly panicked Chancellor justifies Welfare Butchery (in a newly-acquired Estuary English accent), to an assembled band of Morrison’s workers.
Meanwhile, senior bankers continue to pay themselves more than many of the largest and most successful corporations (the ones that make and export stuff).
As Chancellor Gideon might say these days: “Something ain’t right, innit?”
Since the largely-forgotten catastrophe of 2008, the incomes of many bank directors have increased by up to 60%!
So what else has happened to the banking industry since those far-off days? Oh yes………..they’ve had bailouts totaling BILLIONS, they have mis-sold an array of financial products and the Bank of England has handed-over BILLIONS in Quantitative Easing for a variety of reasons, ranging from the perennial “rebuilding of Balance Sheets” to “Lending to Small and Medium businesses” to “Increased Mortgage Lending” ……(Notice I have placed those increasingly creative QE euphemisms in inverted commas!).
Admittedly, the effect of credit defaults on the banking system leading to those 2008 issues was devastating but the problems were self-inflicted and a direct result of the banks’ reckless leveraging with financial instruments, such as mortgage-backed securities and credit-default swaps. Virtual money……just like Quantitative Easing.
The final straw should have been the LIBOR-fixing scandal…but the Quantitative Easing meant that the banks could easily afford the fines and legal settlements and still maintain those eye-watering incomes.
That wouldn’t be so scandalous if it were not for the fact that LIBOR is used to determine interest rates on student loans, mortgages and many other lending vehicles — and was “adjusted” in whatever direction benefited the banks’ bottom lines and the resultant profits upon which many of those bonuses were based.
The question is – what do the banks have to do in order to stop being the government’s poster boys?
They certainly do not have the confidence of the ordinary investor, because , let’s face it, they don’t really NEED savers and depositors because they can either make cash by “adjusting” and then plundering the equities and bond markets or be given it by indulgent and clueless governments. Small businesses are wary of them because they (quite rightly) fear being ripped off.
There will be further scandals, more fraud, more “faux-outrage” from government Ministers but no meaningful legislation, culture change or reorganisation.
They are truly The Untouchables.
Equity Euphoria. Why?
The Markets are in the wrong place. For about two years, I have been suggesting that market sentiment bears absolutely no relation to what is really happening in the real economy.
Yesterday’s Markit manufacturing figures clearly show that Europe’s manufacturing sector is in a mess. At 12% , Eurozone unemployment is at an all time high with further austerity measures to follow.
In spite of all that and with increasing hand-wringing from economists, the markets are buoyant at near-record and record highs, the euro is showing only modest losses and for Bond investors it’s business as usual!
What is going on?
One thing that we can see from the manufacturing figures is that there is quite a marked divergence between Germany and the rest. Although manufacturing activity is shrinking to 5-6 month lows, the so-called “financial fragmentation” across the Eurozone has become increasingly obvious. The Eurozone does NOT have a uniform monetary policy which means that Italian and Spanish banks, for instance, pay much higher funding costs than Germany. That means that certain manufacturers are paying much more than German ones for their cash. On the face of it, that seems to be anti-competitive – but that unfortunately is just one of the many anomalies of the Eurozone – in fact of the entire European Union.
“The poorer you are, the more you pay for your heating fuel.”
This is the backdrop to a largely blinkered , almost “autistic” equities market where we appear to have reached the stage of self-amplification where , because of the abysmally low bank rates, EQUITIES is the only game in town. Self-amplifying? Yes – as more and more investors pile into stocks – mainly because they don’t want to lose out on a rally which they themselves are now fuelling.
The only cautionary note should be for investors who are only just coming into the market to ask themselves “What is the real likelihood of me making a profit?”
When will it stop? History shows us that rallies such as the current one can stop pretty suddenly!
There will come a point at which traders, especially those with short positions will decide “Enough!” – in spite of the fact that currently, there is no obvious level at which to climb out and possibly take a loss.
Once one jumps, the rest are sure to follow.
CYPRUS: Help me to understand this : Bank Depositors are clobbered in one bank but not the other. Then, cross-border money movement is restricted as are withdrawals from individuals’ own accounts. Finally, a large swathe of the population is condemned to many years of unemployment and grinding economic austerity. My question is this: Why is it called “Monetary Union” ? Herman Van Rompuy believes that the Eurocrisis has been averted. IT HAS JUST STARTED.
The Budget: George IV
Yesterday’s Budget had all the marketing qualities of a statement which is already anticipating the next General Election.
A few give-aways, something for the housebuyer, a little bit for the businessman and of course, a catch phrase!. In fact , the Chancellor provided three:
The Saatchiesque “Aspiration Nation” , another “nod” to Margaret Thatcher in the shape of the “Help to Buy” and of course, “Britain is open for business!”
This was the Budget of a Chancellor who either does not fully appreciate the scale of the United Kingdom’s economic decline or who is trapped but feels that he ought to show willing and fiddle at the peripheries.
Bitter past experience has shown that direct Government interference in the housing/mortgage market always ends in tears. On the face of it, it now looks as if the government may be encouraging house purchase by those who may not be able to afford it. That is what cause the 2008 banking meltdown. Luckily for the Chancellor, there is unlikely to be a big take-up of the “interest-free up to 20%” additional loans which the government is offering. Depending on how the £130 billion in “loan guarantees” is dispensed, it may just be more Quantitative Easing in disguise. Previous form suggests that once cash is handed to the banks by government, the difficulties arise when attempts are made to prise the money from their cold grasping hands. We’ll see!
Let us hope that on this occasion, some of the cash does end up in the hands of the house buyer rather than in Stocks or Commodity speculation by the banks.
The Chancellor’s “Rabbit out of the Hat” 20% Corporation Tax Rate already applies to businesses earning up to £300,000 with a marginal rate being paid by those earning up to £1,500,000. So, for several years, this will mean very little. Yesterday’s CT announcements were for big business only.
The Chancellor’s headline-writers may have had a good day but in reality, commerce has NOT received the shot in the arm which it needs TODAY.
Finally, here’s a bit of lateral thinking: How about the government having the courage to make a massive investment in agriculture. The returns would be in the Exchequer’s coffers far sooner that having to wait for those “forced entrepreneurs” to contribute.
p.s. Gideon……sack your voice coach.
For 24 hours, the world has been focused on the Cypriot small savers who are likely to lose a slice of their cash to the god Euro. However, there are others who may lose a lot more.
According to Moody’s, the Cyprus debt crisis has endangered many Russian banks who work with companies owned by Russian oligarchs who are registered in Cyprus. They stand to lose BILLIONS if the Cypriot government defaults.
HERE’S what Spiegel said about all this last November.
As usual, Eurozone politicians have allowed a drama to develop into a potential tragedy.
We hear a lot about company pensions and their “shortfalls”. So what’s it all about? Many company pension schemes, worried about the UK’s economic volatility decided to invest a larger proportion of their pension funds into bonds. Unfortunately, the Bank of England then decided to try and kick-start the economy by producing lots of new money through Quantitative Easing. That, in turn created a sharp drop in bond yields which forced the pension funds to allocate even more of their investments to bonds in order to try and make up the shortfall in their liabilities. Equity market returns are , on the face of it attractive – but they can also be dangerous by virtue of their unpredictability, especially as many fund managers are expecting a downward “adjustment”. To give you an idea of the scale of the problem, several FTSE100 companies have pension commitments GREATER than the value of their funds. Pension liabilities (money which companies need and will be needing to pay pensions to their retired and retiring ex-employees} are approaching £60 billion. Bond yields, as well increased life expectancy of a company’s retirees are now becoming a major problem. The upshot is that companies will somehow have to make up the shortfall. THAT is why they are reluctant to hire people or invest in their businesses. They cannot afford it!
Banking Reform – A Lack of Will?
When will groups such as The Parliamentary Commission on Banking Standards wake up and realise that this government has NO real intention of reorganising the banks.
The talk has moved from buffers to firewalls, ring-fencing, electrified ringfencing , shocks and any number of excruciatingly bad metaphors. As the Commission must have realised by now, the government is cherry-picking its recommendations in order to mollify the Banking Lobby – which is probably the most influential in Westminster.
Today the Banking Reform Bill is being debated in the Commons, no doubt with the ultimate objective of yet more procrastination by a government which seems unable to either manage or take those “tough decisions” which it is always banging-on about. Unless , of course those tough decisions are aimed at and affect the less privileged.
Andrew Tyrie, the Chairman of the PCBS says “”The government rejected a number of important recommendations. We have concluded that the government’s arguments are insubstantial.”
He added: “There remains much more work to be done to improve the bill.”
JUST what the Chancellor and Prime Minister wanted to hear…..and just as long as the argument can continue until at least May 2015.
Banking reform is in the future – and that is exactly where the government intends to let it stay. Indefinitely.
Forgotten Economic Lesson?
“Yet it is also true that small events at times have large consequences, that there are such things as chain reactions and cumulative forces. It happens that a liquidity crisis in a unit fractional reserve banking system is precisely the kind of event that can trigger-and often has triggered-a chain reaction. And economic collapse often has the character of a cumulative process. Let it go beyond a certain point, and it will tend for a time to gain strength from its own development as its effects spread and return to intensify the process of collapse. Because no great strength would be required to hold back the rock that starts a landslide, it does not follow that the landslide will not be of major proportions. “
(Milton Friedman & Anna Schwartz)
A Monetary History of the United States, 1867-1960 P207 HERE
The Greek question. It’s all Greek.
So, what are its chances of successfully issuing the bond in the international bond markets?
Quite good! OTE is 40% owned by Deutsche Telecom – although that is NOT the only reason.
CONFIDENCE is the new Euro buzzword.
Even Greece’s Central Bank Governor Provopolous is feeling it. He says that the worst of Greece’s crisis is over because Greek 10 year bond yields have no dropped below 10%! That’s a bankers measure of “confidence!!
In spite of a falling GDP (a further contraction of 4% is expected this year) , unemployment at 26% (and rising), strikes and a very cold Greek winter, according to Mr Provopolous “There is improved confidence” and “We have turned the corner”.
The bank Governor seems to be confusing the ECB’s promise to “do what it takes” to save the Eurozone with internal “confidence”.
In fact, as a result of last year’s declaration of love for the Eurozone by Mario Draghi, ALL Eurozone bond yields have fallen. Greek economic policies have had very little to do with what so far, appears to be the “Miracle of 2013” ……..when Markets are rising and bond yields are falling. The Athens Stock Exchange (ASE) has risen by over 10% since the beginning of the year!
In reality, all the unusual market activity further reinforces that fact that the dislocation between the REAL economy and the virtual money-printing-driven economy is more-or-less complete. The Markets are performing in spite of the economy and NOT because of it.
“Confidence” is all very well…but confidence in what exactly?
Economic recovery or the ability to borrow more?
Whilst Greek politicians are pointing to the fact that Greek bank deposits are increasing, have they forgotten the 50 billion euro recapitalisation which Greece’s largest four banks are still awaiting?
Only THREE MONTHS ago (October 29th 2012), the Greek banking sub index tanked by 13.59% as a result of the unresolved recapitalisation. It remains unresolved.
The only change has been the European Union’s temporary rescue fund which has “earmarked” about 50 billion euros for the Greek banks….and there will be another delay in paying the money over. There always is. June 2013 is the latest estimate.
The “confidence” cannot possibly be related to any future growth of the Greek economy because that cannot happen until the banks have been mended.
Apart from the bank recapitalisation, there is another EU-IMF allocation of 31.5 billion euros for the banks to “restore their balance sheets” so that they can at least think about participating in Greece’s economic recovery.
Greek bankers and politicians may well be feeling “confidence” but can they honestly say when Greece’s 5-year recession (depression) will be coming to an end?
It looks as if Greece’s recovery is firmly embedded in the future . Permanently.
The Silence of the Auditors.
In the Good Old Days, when every day was sunny, there were only two TV channels and Bank Managers weren’t anonymous, every Debit used to have a Credit. Unfortunately, in Banking, this is no longer the case…..but is it only the bankers who were to blame for the hugely creative accounting which resulted in the 2008 banking meltdown?
While we’re all busy vilifying bankers for their greed an incompetence, there is still one group of professionals which has managed to remain silent since 2008.
Here is a table (by no means complete) which shows companies and the results of their 2008 Audit Reports.
|COMPANY||AUDITOR||AUDIT DATE||AUDIT RESULT||AUDIT FEE (Millions)|
|Abbey National||D &T||4.3.2008||Unqualiﬁed||£2.8|
|Bear Stearns||D &T||28.1.2008||Unqualiﬁed||$23.4|
An “Unqualified Audit” is also known as a complete audit. That’s an audit that has been performed and researched so thoroughly that the only possible remaining discrepancies stem from information that could not be obtained by the auditor.
An unqualified audit analyses both the internal systems of control, as well as all of the details in the organisation’s books.
Unfortunately, an audit has to rely on the information provided by the company and as there is often a “relationship” between senior bankers and senior auditors, the auditors have always assumed that the information that they are being given by their clients and chums is accurate and honest.
You can see from the table above that in 2008, every audit signed off every bank as “Unqualified”. A QUALIFIED audit would have meant that a “qualified” opinion would have been given. THAT would have outlined the auditor’s reservations concerning the organisation’s financial statements.
However, so complete was the conspiracy and fraudulent reporting by the banks, that experienced Audit Companies just sailed-by the morass of deceit and misreporting.
Note the fees in the right-hand column. They are in MILLIONS………..NOT that fees measured in so many zeros would EVER have any influence on the outcome of an audit!
So the FIRST question is VERY simple: Should the Bankers AND their Auditors be standing shoulder-to-shoulder in the dock?
The SECOND question is also very straightforward: Shouldn’t the Regulators be working with the Auditors and NOT with the Banks?
BTW, if you’re investing in Equities, do take the time to read J.K Galbraith’s (very short) book entitled “A Short History of Financial Euphoria”. Hopefully, it will help you to realise exactly where Markets are headed and on the day after the banks have climbed out, you won’t be one of the many unable to sell your investments.
These are the GDP figures per quarter since Q4 2010, the time from which we can assume that the government’s policies “kicked-in”.
Q4 2010: -o.4%
Q1 2011: +0.4%
Q2 2011: +0.1%
Q3 2011: +0.6%
Q4 2011: -0.3%
Q1 2012: -0.2%
Q2 2012: -o.4%
Q3 2012: +o.9%
Q4 2012: -0.3%
If we now look at a “Moving Year”, that is to say, starting a year at Q4 2010, taking the four figures in blue and then adding them…..and then taking the next four numbers, starting with Q1 2011 etc, we have these GDP figures for the Moving Year:
+0.7% +0.8% +0.2% -o.3% zero zero
WE HAVE BEEN IN RECESSION or “FLATLINING” SINCE THE YEAR BEGINNING Q3 2011
The OECD statistics are HERE.
As you can see from the table, no matter how our government dresses-up the figures, we are the worst performing nation in this list (apart from Spain and Portugal).
The basic solution is simple. The Chancellor of the Exchequer needs to prioritise Growth ahead of Credit Rating.
Incidentally, much has been claimed by the government in respect of how many jobs they’ve created , WITHOUT any significant increase in GDP or “tax take”.
This could be the reason:
When the Coalition took power in May 2010, the number of unemployed people was 2.51 million. See HERE.
The latest figure shows that there are still 2.51 million unemployed in the United Kingdom. See HERE.
……….and no-one appears to have noticed!
All this banging-on about “THE MILLION JOBS we have created” since coming to power?
(Once again, the government appears to have been “economical with the actualité”.)
Dave Camenor and the Banker – a Fable
The Gates to Economic Recovery and New Prosperity were being guarded by the Bankers.
A tired and bedraggled band of travellers stood before them. They were led by Flashman, the legendary illusionist and Prime Minister of the Ukshire. The Chancellor, the Cabinet and other Uks were busying themselves trying to appear invisible – an ancient trick modeled after the mythical Bank Elders.
Flashman raised his pink chin so as to appear less terrified than he really was. He tried one of his famed rictus-like smiles. “Please let us in!” .
After he had spoken, he looked round to his band of followers who made the customary grunting and “Hear! hear!” noises of approval.
The Bankers were confused and a little frightened but nevertheless, were obliged to follow their elders’ orders.
” You have to pay to come in,” oozed the Banker as he counted heads and flicked at his abacus. His fingers were a blur as he remembered: “…then there’s the insurance.”
” But we have already collected and given you all the gold that we could find. And you did promise than when our coffers were empty, we could come in. It is getting so cold out here. We are tired and hungry and we can see that behind the gates there is sunshine and the New Prosperity. If you will not let us in, would you please lend us a little of our own gold back, so that we can eat . Many are dying”
” That is not our problem. You enjoyed the Old Prosperity when we gave you more than we had. We have no more to lend. Anyway, you look as if you would not be able to repay it.”
” But who are all those smiling happy people who I can see through the gates?”
” They are the Bankers. Are you a Banker?”
” No I am not but there are occasions when I am speaking to an audience – I imagine that I can hear a whisper in the audience.”
” And what is this ‘whisper’ ?” sneered the Banker.
” It seems that there are some who think that I am a Banker – because that is the sacred word that imagine I hear. On some occasions, I can hear it several times. There must be many who think that I am a banker. Can I at least come in? Just to see?”
” Why should anyone think that you are a Banker? Do you receive a large bonus? Do you have ridiculously large expense account? How big are your share options?”
” I have none of the Sacred Trappings – I am merely the Prime Minister of the Uks but there are those who see me nearly as important as a Banker. In fact, sometimes I hear whispers which make me think that the people wish me to be in charge not only of the Cabinet, the country but of even …………………the Bankers.”
Flashman immediately looked down at his feet because he sensed that he may have gone too far. His entourage cowered.
The Chancellor tried to make himself even more invisible and tried to stop himself from laughing by biting so hard into the back of his own forefinger that blood flowed from the wound. As you would expect, it was clear liquid.
The two Bankers both took a step back. They had never heard such an preposterously outrageous claim. “In charge of the Bankers???? Who? You?!!”
They knew in that instant that they were dealing with a “Dangerous” but decided to continue the dialogue.
They had heard the legend that one day, a simple creature would come to the Gates and become “In Charge”. No-one quite knew what this strange phrase meant but they wanted to be sure. Was this “The One?”. They doubted it because the legend suggested that the one who would one day be in charge, was to be a red-headed female called Merkin from the Land of the Goths.
But the pink-faced stranger had just used the sacred “In Charge” words!
It was a joke among Bankers because they knew that no-one but a Banker could be “in charge”. They were the chosen ones.
They used to serve the people but now the people served them.
” Are you ill? What are the people saying?” The Banker took out his Blackberry and punched some buttons. His eyes did not leave Flashman, who continued:
” Sometimes when I am speaking in riddles to the people – I seem to hear not just “Banker” but also “King” Banker. That is the phrase! They call me a ”….King Banker”. That is the phrase I hear.”
” But can you talk in riddles? Can you make money disappear? Are you so self-serving, selfish and thick-skinned that you can ignore the criticisms of all those around you? How good are you at offering help to those who do not need it? Were you unpopular at school? Have you ever given money and then changed your mind and taken it back? Well…… have you. Do you have the Gift of Sneer ???????”
It was like a bolt of lightning. Flashman knew! He was The One !!
He tried his smile once again. Some recoiled in disgust but there were those within earshot who were also beginning to believe that perhaps Flashman was “The One”.
Flashman certainly believed it. He would ask for an Inquiry – just to be sure. He liked an Inquiry – that most holy of Ministerial Sacraments. Meanwhile, he decided to take the bull by the horns – he would assert himself.
” Bring the Head Banker to see me here at the Gates. Tell him that David of Camenor (for that was his real name) wishes to see him.”
There were gasps. Humans, UKs and Bankers looked at each other. For what seemed like an eternity, there was a cold silence – just like the one which would follow a joke made by the Prophet Milibrand the Younger!
Just as suddenly, the beyond-dead atmosphere was broken by a commotion inside the Gates. Word had been sent to the Head Banker. There was no going back!
Eventually, a short man in a black silk pinstriped suit appeared at the gates. His gold tooth and diamond in his chunky gold pinkie ring glistened as he removed his Fedora. The black overcoat remained draped over his shoulders as he approached Flashman.
Flashman noticed that the Head Banker’s white silk tie matched the handkerchief tumbling out of his breast-pocket. He briefly imagined his own finger in the Head Bankers chunky ring!
They stood toe-to-toe. It was the Banker who spoke.
Flashman felt more resolute than he had ever done in his life. This was his destiny. He would be the saviour of the people. This was his time. He cleared his throat.
” On behalf of the people, I command you to lend them the money so that they can enter the Gates of Prosperity.”
It was the briefest and most ” to the point” statement that Flashman had ever made – and he’d managed it without an Inquiry. He felt quite exhilarated and just in case someone was sketching this historic moment, he struck a heroic pose and focused his bloodshot piggy eyes on the horizon.
The Head Banker moved even closer. They exchanged a knowing smile.
Almost imperceptibly, the Banker’s expression changed.
Swiftly, he brought his knee up.
Central Banks – The FOUR big lies.
The first lie you’ll hear this year from central bankers is that they intend to stop minting cash to buy government debt. Moreover (and more blatantly), they will announce their intention to start selling back to the market government bonds they’ve already bought. That’s impossible at this stage of the crisis… but a lie the markets need to be told nonetheless.
The second lie is that these asset purchases will be small and limited in scope. But from day one, the size and scope (ie, the type of debt they’re buying) has ballooned. Actions that seemed unimaginable just a few years ago are now the norm. Market players have been hypnotised into thinking this is all very normal.
The third lie is that there’s a considered time scale to all of this. In fact, it was a release from the Fed that suggested the reversal is coming sooner than many think that sent the precious metals into a spin just after Christmas. Of course there is no exit strategy and no timeline here. These guys are making up policy on the hoof. And to my mind it’s only going one way – and that is more of the same and for as long as they can get away with it.
The fourth lie they’ll tell is that they’re fighting deflation. But if that were really true, how can they also say that QE will be reversed? That would surely be to welcome deflation down the line.
No, these guys are pursuing inflationary policies and they use the four lies to send the markets the wrong way.
They have to! I mean, if the inflation indicators – gold, silver and oil – took off, then the game would be up. Their precious bonds would get crushed under their own weight of debt.
So what happens is that whenever the inflation indicators turn up, the banks come up with some rhetoric to pull them down. And if the paper markets take a turn for the worse, they throw in some easing to pull them up.
This is what’s causing the big market swings.
(with thanks to Moneyweek)
World Economy: The lunatics ARE running the Asylum!
Today, I was asked what I thought about this year’s European economic outlook. It isn’t great!
One factor which I have consistently underestimated is the ability of politicians to “wheelbarrow” a tragic set of circumstances from one meeting to another without even aiming for a holistic solution. Plus, I have always been conscious of the symbiotic relationship between politicians and bankers but, like an illicit love affair, it has grown over the years. Not into a mature loving relationship but instead, it has acquired all the charming qualities of an incestuous shotgun marriage.
I have been feeling very pessimistic about the world’s banking system for years – even before the 2007/2008 crisis. HERE!
Today, the ENTIRE financial system remains in crisis with both bankers and politicians apparently reduced to the role of observer. Their well-timed occasional “good news” is both ritualistic, orchestrated and largely illusory.
The problem is most acute in Europe where all major banks are barely managing to contain gut-busting levels of very bad government bonds.
Asian banks are at risk as Japan has begun to print and we all owe them money. Plus, we been in the habit of paying for their goods with money which they’ve lent us.
As a result of the sharp decrease in world demand, Asian economic growth has slowed very sharply.
Meanwhile, the United States was becoming addicted to the easy “fix” of Quantitative Easing, but nevertheless, in spite of the supply of virtual money, many of its institutions remain on life support.
Now we have the frightening prospect of the Fed stopping its money printing and the U.S economy having to go “cold turkey”. That won’t be a pretty sight!
Because nothing has really been done post the 2008 banking system collapse, I fear that we may be soon heading for an action replay.
The so-called “stress tests” which various governments have been performing on the banks have been less than useless as an indicator of banking “health” because the entire banking industry has been dispensing the wrong information to those who dare to try and measure what they’re doing and what they’ve got.
Bankers have only ever told us what they feel we ought to hear.
We are all aware of how badly the Rating Agencies managed to mess things up prior to 2008 and guess what…………the likelihood is that they’re still doing it! It is clear that, for instance, the Eurozone is about to suffer Cardiac Arrest but the Agencies are still telling us that everything is (more-or-less) fine!
The Rating Agencies have a history:
In a landmark 1994 study of the rating agencies, the U.S Government Accountability Office (GAO) concluded that Standard & Poor’s didn’t issue a “vulnerable” rating for one of the biggest failed companies, Fidelity Banker’s Life, until SIX DAYS before the failure … and for another, Monarch Life, until 351 days AFTER the failure! Similar instances of outright neglect were true of Moody’s as well as A.M. Best .
The Enron Failure of 2001: The New York Times reported that ratings agencies saw signs of Enron’s deteriorating finances but did little to warn investors until at least five months later – long after more problems had emerged and Enron’s slide into bankruptcy had already accelerated. It wasn’t until four days before Enron filed for Chapter 11, that the major agencies first lowered their debt ratings below investment grade!
What about the U.S mortgage meltdown of 2007 and 2008? EVERYONE now agrees that triple-A ratings on mortgage-backed securities grossly overestimated the investments’ credit quality and that this played a pivotal role in the debt crisis and that the primary factor behind their inflated ratings were multiple conflicts of interest between them and the issuers.
In the United Kingdom, the collapses or near-collapses of Northern Rock, HBOS, RBS etc were also a surprise to everyone except a few impotent accountants and auditors.
Do you remember anyone commenting on the “ratings” of the companies which had been bankrupt for months or even years? Me neither.
Nearly all ratings issued by the major agencies are paid for by the issuers — in other words, by the companies that are supposedly being rated!
In addition, the ratings agencies have often earned substantial additional consulting fees to help structure the very Securities which they rate!
To add insult to injury, it’s been proved that the major ratings agencies have often revealed their ratings formulas to issuers, helping their clients to pre-manipulate their data and “adjust” reporting in order to achieve the highest rating.
During the first phase of the financial crisis (2008), and largely because of the inherent conflicts of interest, the major ratings agencies continued to feed investors disinformation. (b******t).
For example, on the day of Bear Stearns’ failure, Moody’s maintained a rating on the company of A2 — the same rating it had published from June 1995 through to June 2003.
S&P was equally generous, giving the firm an A rating until the day of failure.
And Fitch assigned Bear Stearns an A+ rating for 18 straight years all the way up until the day it imploded!
The same basic facts apply to Lehman Brothers and all the other companies that either went belly up or were acquired for pennies.
The major ratings agencies have failed time and again to provide adequate warnings on collapses in all kinds of stocks, bonds, and even entire companies.
The scariest thing today is that European banks are now on the verge of being decimated just like Lehman, Bear Stearns and other firms were back in 2008.
The world economy is slowing from one end of the globe to the other. With massive debts piling up, unemployment rates soaring and the world’s banks still HIGHLY leveraged (overborrowed), it’s only a matter of time before the entire system blows up.
Nowhere is the crisis more acute than in Europe — and nowhere are the risks so great.
The key reason is that European banks are so HUGE relative to their home economies.
The aggregated European economy is roughly equivalent to that of the USA. However, European banks have almost THREE TIMES the assets of our American cousins. Now THAT’s disproportionate power!
That makes it all but impossible for European countries to successfully bail out their banks without jeopardizing their own credit standing and crushing their citizens under the weight of massive tax increases.
Greece, Spain, Portugal, Italy and soon France, have been lined up like fairground ducks under the jackboot of austerity by tax-starved governments.
That’s why we’re seeing sovereign credit ratings fall, bank share prices decline, and policymakers scrambling from one end of the continent to the other in a desperate attempt to find some kind of workable solution!
The problem? THERE ISN’T ONE!
The perfect recipe for an epic, global financial collapse that will sweep up major banks around the world!
50 Predictions for 2013
Last year’s predictions are HERE.
Some were right, some were nearly right whilst others were nowhere near! That’s because most forecasting is a mixture of extrapolation, conjecture, wishful-thinking and luck…………..apart, that is, political and economic divination , which also includes an unhealthy slice of blind optimism.
My interests are mainly political and economic although the list below contains a few random “fun” ones!
I have not included too much of the blindingly obvious, such as the 2013 Eurovision Song Contest in Malmö, where the United Kingdom will be in the bottom THREE and the most likely winner will be Scandinavian.
Wishful thinking has been avoided. For example I do wish that Mo Farah would stop sticking his hands on his head and doing an impression of a demented Pretzel in a vest!
Conjecture, based on past performance suggests that there will NOT be any banking reorganisation because of vested interests and political cowardice. Governments have it within their power to keep that particular pot boiling for years!
All Eurozone Crisis predictions of the last four years vastly underestimated politicians’ capacity for procrastination, ineptitude and political self-interest.
However, I do perceive that European countries with reasonably strong economies will begin to see the advantage of NOT prolonging the Euro agony and once again, striking out on their own, setting their own interest rates and returning to the Lira or Peseta!
These are my predictions:
1. Gold will skyrocket in value.
2. Brazil will finally become THE place to invest(shares and currency)….but see 41 & 42 below.
3. Germany will accelerate the sale of its Bunds, in spite of the fact that it hopes to sell about only about €250 billion Euros’ worth which is lower than in 2012.
4. As predicted last year, Silvio Berlusconi will reappear in Italian Politics – much to Frau Merkel’s chagrin.
5. Pressure will increase on Chancellor George Osborne to be replaced (It’s the ONLY way that the Coalition can move to Plan B without too much loss of face).
6. The banks will continue to rebuild their balance sheets as the value of their assets diminishes, resulting in an increase of non-bank lending. Credit Unions, peer-to-per lending, asset leasing, community finance organisations and invoice finance will all accelerate as the banking system continues its introspection.
7. United Kingdom property prices will fall by 25%.
8. Frau Merkel will be re-elected and continue as Germany’s Chancellor.
9. Italy will talk about leaving the Euro and readopting the Lira…………..and Berlusconi will be accused of blackmailing Europe.
10. People-power will win-out in Greece and it too will (finally) seriously consider leaving the Euro as its austerity programme is given a violent “thumbs down” by its people.
11. The theoretical €30 billion in French tax hikes will have a negligible effect on its tax “take”. High net worth individuals and businesses will continue the exodus which began in late 2012.
12. Greek banks will begin to totter as loan defaults by Greek borrowers (both personal and commercial) continue to accelerate.
13. The “restructuring” of Spanish banks will fail.
14. David Cameron and other members of the UK Coalition Government will continue to add 100,000 to the ” number of new jobs we have created in the Private Sector” every time they make a speech. By mid-2013, the “figure” will have swollen to over 1.5 million. Unfortunately without the associated increase in tax-take which one may be forgiven for having expected.
15. Japan printing money will result in a currency battle, primarily involving the American dollar.
16. Greek Tax authorities (in spite of all those reorganisation noises!) will still fail to collect the taxes.
17. David Cameron will realise that UKIP is a clear and present danger and will begin the fight-back by the only way possible. He will adopt their policies and reinforce that by continuing to spray copious volumes of testosterone in Brussels.
18. Mario Monti will stand for election in Italy in a last-ditch attempt to maintain the stranglehold on European politics by Goldman Sachs old boys.
19. The Euro will make its annual journey “to the brink”.
20. Protests will accelerate across Europe – into the United Kingdom….as voters wake-up to the politicians’ ineptitude, procrastination and complacency. Voting-out incompetent governments and merely replacing them with incompetent outfits of another flavour will no longer be viewed as the solution.
21. In France, Francois Hollande will continue to demonstrate why the French don’t really appreciate Presidents who are Socialist.
22. The ECB’s Mario Draghi will once again tell the world that he will do “all it takes” to keep the Euro intact…..including the ruination of millions of Euro lives.
23. Someone, somewhere will wake up to the fact that the banking system is not working and has morphed into a fat, ever-hungry cash cow which no longer executes the functions which it was designed for (to support individuals, commerce and government).
24. Youth Unemployment in Greece and Spain will approach 60%.
25. By the end of 2013,the Catalans and the Basques will decide on their self-determination.
26. There will be a massive surge in the Spanish anti-Royalist movement and the Spanish Royal family will feel “unloved” as demands are made for the abdication of King Juan-Carlos.
27.The Franco-German Euro Axis will be consigned to the poubelle of history as Frau Merkel finds herself another “favourite”.
28.There will be an exodus of high-earners from France in protest to the Socialist-style “Politics of Envy” taxes on those earning over €1 million.
29. British P.M David Cameron will continue to bang-on about “the mess that Labour left behind” – THREE years after coming to office. That will remind the electorate that in spite of the PR, the Coalition still has no idea about how to deal with the budget deficit, except to adopt the bad part of the Merkel Model.
30. Japan’s money-printing programme will drive up its inflation, to match (and exceed) that of the USA, possibly achieving “hyper” levels. Then, they’ll print some more!
31. USA: There will be no “Fiscal Cliff”. The cracks in policy will be papered over by compromise and political expediency………. as America lurches towards the next crisis.
32. In the UK, the Church of England will continue to fret about sex-related matters such as gays, gay marriage and lady bishops. Hopefully, some of them will find a bit of time for their God and congregation!
33. The winners of the X-factor and Britain’s got Talent will have no discernible…………talent. (That’s my annual, sure-fire, 24-carat banker!)
34. In Europe (as usual), neither Barroso nor Van Rompuy will say anything REMOTELY interesting or pertinent.
35. Europe will continue to TALK of fiscal and political integration………but that’s what it will remain…..TALK. Why? Because one of the by-products would have to be some form of Debt-Mutualisation which so far, remains a deal-breaker.
36. German resistance to European supervision of the banks will result in the smaller banks remaining unsupervised.
37. In Italy, Mario Monti has clearly demonstrated the usefulness of a government of Technocrats: they have pushed through economic reforms and budget cuts which a properly-elected government would have NO CHANCE of implementing. However, the honeymoon appears to be over and Italy will return to a Berlusconi-led coalition.
38. Bundeskanzlerin Merkel will strengthen her position as de facto European leader as other (weaker, male) European leaders (half of who are on their way out – including the UK administration) continue to defer to her.
39. After the German elections, Mrs Merkel’s Christian Democrats will form a new coalition with the Social Democrats.
40. Stagnation, Recession and Depression will continue in Europe. Greece will remain in depression (yes!), as will Spain and Portugal.
41. If you’re an investor, you could do worse than keep an eye on Mongolia’s mining boom which will pick up speed in 2013.
42. If you’re a gambling person, here’s an interesting “double”. Lord Patten to resign as BBC Chair . Then, invest your winnings on anything in Macau whose economy is booked to grow by about 15% in 2013.
43. The “in denial” UK Coalition Government will continue to spout meaningless statistics as the retail trade continues its slow-motion collapse and accelerating volumes of businesses go into administration and bankruptcy.
44. The Protestant Church will begin to turn more to Bible-centred Christianity – away from the airy-fairy, trendy, unleaded and flaccid Christianity of the Rowan Williams era. More “splintering”.
45. Last year I predicted a dismembering of the UK’s Coalition government but now realise that it was just wishful thinking. I underestimated how much Tory crap Nick Clegg could swallow. Last year, his capacity seemed infinite. However, for 2013, I predict that Europe will provide the catalyst for an all-out Coalition Civil War.
46. Unless the Chancellor can sell 5G, 6G and all the other “G” Futures and assuming he collects for 4G, there will be a massive government Welfare Review designed to further butcher Public Spending. ( He has no choice because of his rather stunted economic repertoire). That will finally shake the Libdems from their collective coma and fight the Tories. Otherwise…….Libdem Oblivion.
47. “Dead-tree” journalism will continue to atrophy and die with an announcement that at least one major newspaper is to go exclusively digital. (My money is on the Guardian).
48. Massive Solar storms may envelop the Earth which, according to NASA, could render the above predictions both irrelevant and obsolete. Keep an eye on www.swpc.noaa.gov
49. Andrew Mitchell MP will make a return appearance in the Cabinet after the nonsense of allowing the police to investigate themselves in what is increasingly looking like the fit-up of the year.
50. William Hague and Hillary Clinton will keep-on “condemning” the Syrian Authorities as they continue to murder with impunity. Western powers have learned that when they intervene in the Middle East – only one group ever benefits: The Construction Industry.
Europe: Read the small print.
European leaders have agreed a timetable during which they will produce (only) the legal framework for a Eurozone Banking Regulator.
Critical words? Timetable and Legal Framework.
NO BANKING REGULATOR.
Implementation will be “during 2013”. (Nothing AT ALL to do with the pure coincidence of the September 2013 German Elections.)
That sort of crap deserves a Nobel Prize!
Good job they managed to crank up the markets earlier this week…….
An Early Vince Christmas
In the last FOUR YEARS, the British taxpayer bailed-out the banks and insured them against failing and the government has TALKED about reorganising them. It has also TALKED about excessive bank profits and bonuses.
So it is only natural that as the banks are busy “rebuilding their Balance Sheets” – which is already one of the longest construction jobs on record, the UK Government undertakes to lend more TAXPAYERS CASH to Small and Medium Enterprises. (THIS time, £1 BILLION is the headline figure.)
Meanwhile, during this recession-without-end, Banks are booking profits at pre-banking-crisis levels!
….and how will this cash be distributed to SMEs?
Through “intermediaries” and small banks…..although the Business Secretary is still a bit light on detail. That signals MORE meetings, MORE forms, MORE reorganisation, MORE training, MORE Treasury Select Committee…etc.
You know the drill.
….and by the way, it is no coincidence that Vince Cable has been allowed to announce this latest initiative during the Libdem Conference.
p.s. How many more businesses will go to the wall while the politicians continue to meet, ruminate and pronounce?
Money printing – a simple question.
Today, the Head of Germany’s Bundesbank, Jens Weidmann, has asked a very simple but critical question about Quantitative Easing and its cousin, the Unlimited Bond Purchase:
“If a central bank can create unlimited money from nothing, how can it ensure that money remains sufficiently scarce to retain its value?”
Money is a commodity and was invented when someone did not have goods or skills to trade in return for a commodity he wanted. He was able to offer “money” which could be redeemed at a later date for something that the original “seller” wanted or needed.
However, if there is a too much of a commodity, its price goes down.
So, if there is too much money, its price WILL go down.
THAT is why Central Bankers are playing a very dangerous game.
The simple answer to Herr Weidmann’s question is that a Central Bank CANNOT ensure that by increasing the money supply, it can even begin to ensure that the money will retain its value.
What they’re doing is the equivalent of fixing a stalled car engine by painting the car…..again….and again….and again…..
Eurozone: Decisions Decisions
LONDON: Global stocks and the euro dipped yesterday as investors cashed in some of last week’s sharp gains ahead of a German ruling on the euro zone’s new bailout fund, Dutch elections and potential new stimulus from the US Federal Reserve.
The European Central Bank’s statement last week, indicating that it was prepared to buy an unlimited amount of strained euro zone government bonds pushed European shares to a 13-month high and the euro to a four-month peak on hopes it could mark a turning point in the bloc’s 2-1/2 year crisis.
Investors started the week by taking some of that profit off the table. The MSCI index of top global shares was down 0.1 ahead of the opening bell on Wall Street, with the euro and stock markets in London, Paris and Frankfurt all slightly lower.
US stock index futures also pointed to a lower open on Wall Street, with futures for the S&P 500, Dow Jones and Nasdaq 100 all down just over 0.2 percent.
Europe faces another testing week, with Dutch voters going to the polls and Germany’s constitutional court set to rule on new powers for the European Stability Mechanism, the euro zone’s new bailout fund, both on Wednesday.
Since ECB President Mario Draghi first mooted the ECB’s new crisis plan on July 26, world stocks have rallied more than 8 percent, euro zone blue chips have jumped almost 20 percent and the euro has risen more than 4 percent. Analysts are wondering whether the gains can continue.
“The Draghi effect obviously helped the markets hugely, so people are likely to be a bit more hesitant this week,” said Hans Peterson, global head of investment strategy at SEB private banking.
“Risk appetite is likely to be on the way up, but we have to clear some hurdles, and the things in Europe have to go according to plan. The key issue this week is the approval of the ESM by the German constitutional court.”
Strategists at Goldman Sachs also issued an upbeat note on equities, saying that while there were worries over China’s wobbling growth, the brighter European news and signs of gradual improvement in the US were both positives.
There is still room for market rallying,” they said, citing their target for the Eurostoxx 50 to hit 2,700 points in the next 12 months. “From current levels, however, we expect further gains through to year-end, but at a slower pace,” they added.
The euro followed the downward trend, easing against the dollar, but stayed close to a near four-month high hit on Friday after below-forecast US jobs data fanned speculation the Federal Reserve may launch more monetary stimulus this week.
Hopes that powerful ECB intervention in Italian and Spanish bond markets could finally draw an end to the seemingly endless euro crisis has seen massive upward shifts across global markets, from European stocks and treasuries to commodity-reliant economies.
Spanish 10-year yields have tumbled more than two percentage points from an unsustainably high 7.8 percent to around 5.6 percent, while the reduced demand for safe-haven German debt has pushed equivalent yields up 36 bps from their record lows to stand at 1.48 percent.
Spain’s borrowing costs hit a fresh five-month low on Monday while German Bund futures bounced around in choppy conditions, supported initially by worries over Greece’s fiscal repair plans and Fed aid hopes before going into negative territory around midday.
U.S markets are waiting eagerly to see whether the latest data have convinced the Federal Reserve that more stimulus is required.
The benchmark S&P 500 index rose 2.3 percent last week, its biggest weekly gain in three months.
SEB’s Peterson said it was still uncertain whether the US central bank would act and cautioned that any new support was likely to provide a temporary rather than a long-term lift.
“What is really important here is the wider macro picture, whether the euro zone sorts itself out and what happens in China and Asia,” he added.
Fresh data from China on Monday showed exports grew at a slower pace than forecast last month while imports surprisingly fell, underlining weak domestic demand as the global economic outlook dims.
Oil markets are riding high, underpinned both by hopes that economic stimulus around the world will fuel growth and geo-political tensions in parts of the Middle East, the world’s most important oil-producing region.
Brent crude futures for October delivery were trading 46 cents higher at $114.71 per barrel by 1248 GMT, after settling up 76 cents on Friday. US crude was trading up 7 cents at $96.49 per barrel.
“Chinese data had been expected to be weak, so to some extent it has been taken into account in oil prices, but having said that, it basically caps the upside,” said Masaki Suematsu, energy team sales manager at Newedge Japan.
Copyright spygun/Reuters, 2012
ECB Mario Draghi’s Statement……….. 6th September 2012
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and by the Commission Vice-President, Mr Rehn.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. Economic growth in the euro area is expected to remain weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation.
It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area. OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.
In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building. At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective. Details of the Outright Monetary Transactions are described in a separate press release.
Furthermore, the Governing Council took decisions with a view to ensuring the availability of adequate collateral in Eurosystem refinancing operations. The details of these measures are also elaborated in a separate press release.
Let me now explain our assessment in greater detail, starting with the economic analysis. Recently published statistics indicate that euro area real GDP contracted by 0.2 percent, quarter on quarter, in the second quarter of 2012, following zero growth in the previous quarter. Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.6 percent and -0.2 percent for 2012 and between -0.4 percent and 1.4 percent for 2013. Compared with the June 2012 Eurosystem staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The risks surrounding the economic outlook for the euro area are assessed to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. These risks should be contained by effective action by all euro area policy-makers.
Euro area annual HICP inflation was 2.6 percent in August 2012, according to Eurostat’s flash estimate, compared with 2.4 percent in the previous month. This increase is mainly due to renewed increases in euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could turn out somewhat higher than expected a few months ago, but they should decline to below 2 percent again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.4 percent and 2.6 percent for 2012 and between 1.3 percent and 2.5 percent for 2013. These projection ranges are somewhat higher than those contained in the June 2012 Eurosystem staff macroeconomic projections.
Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, particularly resulting from a further intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all euro area policy-makers, such intensification has the potential to affect the balance of risks on the downside.
Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 increased to 3.8 percent in July 2012, up from 3.2 percent in June. The rise in M3 growth was mainly attributable to a higher preference for liquidity, as reflected in the further increase in the annual growth rate of the narrow monetary aggregate M1 to 4.5 percent in July, from 3.5 percent in June.
The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained weak at 0.5 percent in July (after 0.3 percent in June). Annual growth in MFI loans to both non-financial corporations and households remained subdued, at -0.2 percent and 1.1 percent respectively (both adjusted for loan sales and securitisation). To a large extent, subdued loan growth reflects a weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks continue to weigh on credit supply.
Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.
lthough good progress is being made, the need for structural and fiscal adjustment remains significant in many European countries. On the structural side, further swift and decisive product and labour market reforms are required across the euro area to improve competitiveness, increase adjustment capacities and achieve higher sustainable growth rates. These structural reforms will also complement and support fiscal consolidation and debt sustainability. On the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. In this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. Finally, pushing ahead with European institution-building with great determination is essential.
We are now at your disposal for questions.
Eurozone Meetings Merrygoround
This week, Angela Merkel meets Herman Van Rompuy, Mario Monti meets Francois Hollande who also meets David Cameron.
The new Meeting Season seems to indicate that Eurozone leaders have decided that meeting in plenary will be punctuated by the new craze of meeting in pairs.
I thought that it may be useful to compute how many meetings 0f TWO, could be managed by 20 politicians.
They are: the 17 Eurozone leaders + Van Rompuy + Barroso + Cameron = 20.
So, how many meetings would 20 politicians generate if they met in pairs?
Using the formula n!/(r!(n-r)!)……… (n = number of leaders and r = 2, as they meet in pairs)
The total number of “pair meetings” achievable by 20 politicians is 20!/(2!(20 – 2)!) = 190
We have to double that, because they each will want to meet twice so that each one has TWO meetings with every one. (One Home and one Away).
Therefore 20 politicians can generate 380 meetings – if they confine themselves to meeting TWO at a time.
That of course is on TOP of the monthly Eurozone Crisis Meetings, EU meetings and special meetings – for instance, when Spain decides to take the €500 billion we all know it needs or the next time Greece is (once again) about to go down the Grexit toilet.
We can see therefore that any attempt to solve the European Crisis would only serve to interfere with what is already a very heavy meeting schedule.
Buy or Rent?
Remember, if you take a mortgage to “buy” a house, you are effectively RENTING from your bank – but YOU are taking the capital risk plus YOU pay for the maintenance and insurance of the BANK’S asset. If you fall behind with your “rent” to a bank, you have less legal protection that you would have if you were renting from a private landlord.
Nevertheless, we Brits continue to be OBSESSED by “ownership” – or should I say, BORROWING in order to invest in a house. If you think about it, we are doing EXACTLY what the banks are doing – BORROWING in order to invest – except that they may call it “leveraging”.
However, not all nationalities are the same………
For instance while Brits buy, the Germans rent. A town such as Hamburg has 20% home ownership, whereas the German average is only about 40%.
Ever heard of a German Housing Bubble?
(Germany has the HIGHEST proportion of people renting in the European Union.)
Gideon’s latest Wheeze!
Banks will fail, more housing markets will collapse and panicked governments will attempt to raise taxes from the survivors as they borrow even more in a vain effort to create yet more economic stimuli.
Today, in the UK, after Project Merlin (“a great success!”), the National Loan Guarantee Scheme (“a great success!”), we have the launch of the Funding for Lending scheme.
This latest scheme, is potentially worth £80 billion but to the trained eye, looks suspiciously like rebranded Quantitative Easing.
This scheme , like most “schemes” promises no economic outputs or goals and the wording is very interesting (and flabby):
“Funding for Lending aims to encourage banks to lend to both businesses and households”.
It “aims to encourage”.
Give it a rest, Gideon.
Germany reports the biggest fall in new business orders since records began, manufacturing in France is at a three-year low with Italy experiencing the fastest rise in unemployment for three years. On the other hand, Ireland’s output is beginning to increase – although they did start from a lower base.
The Eurozone’s overall manufacturing activity is at a three-year low although the markets continue their comatose drift whilst traders try to make the best of a bad job.
Expect more fine Eurowords over the next few days with a market rise towards the end of the week if Draghi manages to pull a rabbit out of the ECB hat.
On Thursday 2nd Auguust 2012, in order for the Eurozone to have any sort of mid-term future, the ECB’sMario Draghi has to pull something out of the hat. Because of the political procrastination and everyone else’s expectation, this cannot just be a “rabbit out of the hat”. This has to be the biggest rabbit EVER!
The Eurozone’s Déjà vu Economics
For years, regulators have been trying to control bad banking. Governments have been failing to control bad sovereign fiscal governance. That’s the nature of the Eurozone. This flawed approach has only left one solution – at some stage, both the banks and sovereigns will have to be properly underwritten by the European Central Bank (ECB).
One day soon, the ECB will become the lender-of-last-resort.
However, possibly for reasons of either dull-wittedness or maybe just some good old-fashioned showmanship, the ECB never makes a move until there is a proper danger of a crisis. (Think Superman grabbing that train on a railway bridge just seconds before it falls into the ravine.)
Unfortunately, this economic scenario appears to be played out on a perpetual “loop”.
Déjà vu Economics.
Currently, markets are once again applying severe pressure to Eurozone public debt and Euro politicians are repeating the “We are determined” and “Whatever it takes” mantras. The markets continue to fluctuate “in vacuo” with little regard to the “real” conditions, further confusing the politicos who, for some unknown reason, believe that the solution to everything lies in greater Eurozone union and organisational changes. (Bless them! It’s all they know!)
The next stage is simple (and it began last week): a few mealy-mouthed statements from Euro leaders which attempted to shove the crisis-cursor forward a few weeks until after the end of the Summer Holidays – whilst Spain and Italy (both standing on the trapdoor) have issued “holding statements”.
The well-worn and rapidly failing policy response from the Euro Gods is those potentially explosive “Austerity Measures” – the only other technique in their repertoire. Yet another case of the cure being more painful than the disease. Ask Greece.
In 2010, the Greek Government (just before it lost access to the markets) po-pooed the idea of needing help. “We are not Latin America!” they scoffed. Now it’s Spain’s and Italy’s turn: “We are not Greece!”
Oh yes you are – only bigger, hungrier and therefore more dangerous – and remember this, when you too lose access to the markets, you will need a bailout.
Euro politicians do play with a very limited repertoire, so Spain and Italy will have yet more austerity. That will accelerate the deterioration of their economies – although their politicians will talk (a lot) about “growth”.
This (just like in Greece) will result in lower tax revenues and austerity targets being missed (although the “Troika” continues to believe that, contrary to all the evidence, an economic miracle will manifest itself . Suddenly, as if by magic, they hope that the Perpetual Spring of Eternal Economic Growth will materialise out of the ashes of Austerity!!).
Then, the banks will need yet more and we’ll end up discussing when Spain and Italy will leave the Eurozone. Then France…..
That will return the cycle to Square One with the politicians once again being “Determined” and promising to do “Whatever ir takes”.
Another dose of Déjà vu Economics.
Meanwhile, should the crisis look really dangerous, the ECB’s Marion Draghi will find a telephone box, change and fly-in to save the day. “To calm the Markets”
The banks have spent four years watching and secretly hoping that this ridiculous loop continues forever, Why? Because once the ECB steps in and protects sovereign debt, those debts will have a price. Banks will have to revalue any debt they are holding (downwards), resulting in quite a few of them going to the wall.
There will be yet more “haircuts” for private investors too!
Just like a rapidly expanding non-working retired population needs more and more support from an increasingly taxed but shrinking working population, so the Eurozone is becoming an arrangement whereby more and more non-producing and increasingly reliant countries have to be supported by a rapidly shrinking collection of fully-functioning states.
The tipping point is not too far away – the point at which there are more (economically) broken states than those in reasonable health which can continue to support them.
Meanwhile, let’s have some more Déjà vu. Again.
Whatever It Takes (WIT)
Every European politician is now resorting to the “Whatever it takes” mantra. This week they will do whatever it takes to safeguard the sacred cow that is the Eurozone. That pampered sacred cow which feeds and feeds without actually producing much in return.
The politicians don’t appear to realise that this is a nonsense phrase but they certainly DO realise that it is a phrase which excites the traders because it is code, designed to convey the fact that the ECB , the Fed and all the other usual suspects will once again indulge the banks by creating yet more cash for them to play with.
Another Central Bank Bonanza!
That is why the markets have risen today. This is how it works:
As soon as Central Banks start handing out cash, the investment banks use a proportion of that cash to purchase equities. That in turns “ups” prices. So, if investors convince themselves that next week, the banks will start splashing money like a lonely Chardonnay-fueled celibate on ebay, they also realise that NOW is the time to buy.
Anything they buy today is bound to increase in price, once the Central Banks open the Banking “All-you-can-eat” Buffet.
In fact, the banks will be buying today in anticipation of Central Bank handouts. Once again, there’s the heady whiff of “empty profit” in the air.
Last week, the ECB’s Mario Draghi said that he would do “Whatever. It. Takes”. Today it was the latest Euro double-act of Merkel and Monti who joined the W.I.T chant.
The next stage will be expressions of “confidence”, followed by “meetings”, the establishment of a “by the end of the year” deadline and then the announcement of “reforms”.
(Reforms are good because they give the illusion of progress.)
One such reform is rumoured to be the granting of banking licences to the EFSM, EFSF, ESM and any other European quango or organisation beginning with Capital “E”.
That will enable them to print yet more money to distribute among the needy….er…banks!
When they say “WHATEVER it takes” – they mean it!
This is the way that it’s going to work over the next few weeks:
The markets, in spite of the fact that they’re going up and down like a whore’s drawers, should really be DOWN (like a whore’s drawers).
However, BECAUSE the markets are way too high and will once again start to tumble, (mostly because of the €500 billion Spain needs and the Eurozone does not have), large amounts of “empty-calorie” cash will be generated by Central Bankers. (Take a bow Ben, Mario, Mervyn etc.)
They will call it QUANTITATIVE EASING – which is a nonsense phrase invented by bankers. However, they may call it something else on this occasion.
A large proportion of that cash will be used by the banks to buy stocks and increase commodity prices by investing in them, although the myth of “Rebuilding our Balance Sheets” and “Creating a Firewall” may also be deployed in order to excuse the continued silliness.
THAT will once again make everyone believe that all is OK because this “faux-euphoria” will make the markets rise, in spite of the fact that whole economies are collapsing.
However, the banking industry will continue to book huge profits which after all, is the real “name of the game”.
Que les jeux commencent!
Some may be wondering about the timing of Bob Diamond’s decision to “walk” from what is the best-paid and most high-profile banking job in the UK. Some may believe that he was hounded out by the banking establishment.
I reckon that he walked in order to free himself-up ahead of the ridiculous inquisition by the Treasury Select Committee. I sincerely hope that they leave their briefcases on the table in front of them and remember to wear tin hats – because Barclays Bob is going to give them hell. They will be forced to listen to a few home truths about the conduct of not-only Barclays but the entire politico-banking establishment.
Believe me, Bob knows where ALL the bodies are buried and he’s the first guest at the Wake.
As usual, we’ve had the puerile Punch and Judy exchange between the Prime Minister and the Leader of the Opposition. Both have diminished themselves through their conduct over the last wee. (If that was at all possible)
Meanwhile, the media (and I include the Social Media) have seen an outpouring of hysteria by individuals who hadn’t heard of Libor before last Wednesday. Mob hysteria at its worst.
Mind you, that is so typical here in the UK. First we “denounce”, then the Inquisition, followed by the Inquiry and then it’s back to normal as we look for the next victim.
If there have been transactions which have inflated profits, I hope that in their haste, government Ministers have not forgotten that there may be billions in the Exchequer which will have to be repaid if tax has been generated on illicit transactions. Inflated bonuses have also been subject to millions in taxation.
It’s not only the banks who are going to have a lot to unravel – but of course, these days no-one thinks before they act.
Starting with the baying politicians and media, a breathtaking lack of understanding of complex banking processes has clearly been demonstrated. The same lack of understanding which was exhibited by the Directors of Banks prior-to, during and certainly after the last bank crisis.
Make no mistake both the Bank of England as well as the Financial Services Authority have been complicit. Those pre-Lehmans LIBOR deals, probably saved the British Government from having to bail out Barclays and as other banks have also doubtless been guilty of the same misdemeanours, the Government will have saved billions on the 2008 bailouts.
(What I mean to say is that the banks were bailed out – but they weren’t bailed out enough. The last four years of “rebuilding balance sheets”, non-lending etc have clearly demonstrated that as usual, the government only did half of the job)
It is the Bank of England, the Financial Services Authority and the grubby British Bankers Association which should be standing shoulder-to-shoulder in the dock and hopefully after Bob Diamond has said what he really thinks and knows, they’ll be lined up and taken down.
Today, Mr Diamond, I’m on your side.
Show them Hell!
Barclays out of CONTROL?
A few years ago, I moved away from teaching and coaching the “soft” skills of management and have been concentrating much more on the “hard” skills.
One of the hard skills of management, which everyone running a department or process should know, is one which appears to be missing in MOST businesses. It is the art of Business Control.
It is very straightforward: POPS.
POPS is a very simple but effective method of structured management thinking.
If the POLICY, ORGANISATION, PROCEDURES, SUPERVISION Business Controls had been applied to the Banking Industry, we would never have had a financial crisis.
“POLICY” is the high-level control and is the responsibility of the Board and Senior Management. They not-only put together the Policy but their duty is to ensure that everything which happens within the organisation is in keeping with Company Policy.
For instance, if traders fiddle with interest rates and interest rates have been fiddled-with for years without anyone being brought to book – they may be forgiven for assuming that fiddling with interest rates is part of the bank’s Policy and culture.
“ORGANISATION” is about the people. Are the right people doing a particular job? Have they been trained? Have they been communicated with? Do they know what they can and cannot do? Is there a good Management Structure which can report up to Board level?
“PROCEDURES” : For instance, is a trade or block of trades recorded and checked? Are there “snap” checks and audits designed to check that company Procedures are being adhered to.
SUPERVISION is a day-to-day control (so is the Procedures Control). This control is the responsibility of the “one-up” manager. The one who is there – not the one at meetings. Very often , things happen without day-to-day supervision. For instance, if a trader makes a few dodgy deals, a good manager’s responsibility is to (at least) make the trader know that he could be caught.
Here’s an example of how a thorough Management Audit which looks at specific Business Controls can unearth the REAL cause of an issue. It is also surprising how many breakdowns and corporate crises are the result of a bad or non-existent high-level POLICY control.
In 1987, the car-ferry, The Herald of Free Enterprise sank in Zeebrugge Harbour and 193 people died. There appeared to be a very simple explanation for the “accident”. The loading doors at the front of the boat (through which cars entered the boat) had been left open.
However, a proper structured investigation designed to identify the Root Cause of the disaster was needed.
The doors were left open because one man was asleep when he should have pressed the button to close the doors. Therefore, the PROCEDURES control had broken down. The procedure was that when the boat was about to move, a button would be pressed on the bridge. That would trigger the man to press the button to close the doors.
The direct SUPERVISION control was was non-existent because the man who should have pressed the button was managed by a senior man who was only in charge of ferry car-parking and not door-closing.
In addition, there was no PROCEDURE for anyone to confirm to the bridge whether the doors were closed or not. It was assumed that once the “close the doors” button had been pressed, that the doors were closed.
The ORGANISATION control is about the people involved in the process. In this case, the organisation consisted of just ONE lowly manual worker who, on this occasion, was asleep. The First Officer who pressed his button, immediately assumed that once he had pressed it, his job was over.
The last Control is the highest-level – POLICY. This control is administered right at the top of an organisation – by the Senior Management and the Board of Directors.
One may be forgiven for thinking that there is absolutely no way that such a high-level control could possibly have anything at all to do with someone forgetting to close the loading-doors on a ferry.
However, the Root Cause of the Herald Of Free Enterprise disaster WAS a breakdown in the POLICY control.
The Company’s POLICY was to turn the ferry around in 15 minutes.
Consequently, the man who should have pushed the button was tired because he had not slept properly for two days and was already asleep when the boat had docked.
As is often the case, the ultimate responsibility for the sinking belonged to the management.
Today, Barclays banks has a very similar situation in respect of its traders who are alleged to have manipulated LIBOR for purposes of profit!
Was there proper SUPERVISION? Were PROCEDURES in place to guard against improper behaviour? Was the ORGANISATION right? Were the traders only (as far as they understood) acting within Barclays’ POLICY? Did Barclays have a “SELL, SELL, SELL!!!” Policy which encouraged short-cuts and cheating?
A measured, thought-through approach is needed.
The reaction by the media and politicians already suggests that instead, there will be a free-for-all, accusatory, disorganised non-process, preceded by the customary witch-hunt and a Lawyer Benefit in the shape of an inquiry.
What is REALLY NEEDED is a Management Audit delivered by a team of sceptics NOT PAID FOR by Barclays.
That is to say –NOT Pricewaterhouse Coopers and certainly NOT those Muppets at the Financial Services Authority.
New Banks for Old!
There is little doubt that a brand new Banking Act is a little overdue. However, instead of spending 5 years on inquiries, commissions, debate and law-writing, why don’t we just “rewind” and “tap-in” to some of the old banking legislation.
Banks HAVE become too big but only as a result of Retail, Institutional, Investment etc arms coming together to produce a Gordian Knot of “impossible to unpick” financial mystery.
This week’s favourite word is “firewall”. All we need is a buffer (or firewall) between a Retail bank and the Investment Bank. THAT’s an accounting exercise. Separate reporting , separate balance sheet, separate shares and separate management.
Once we see distinct organisations, we’ll know who we’re dealing with.
The Retail Bank’s job SHOULD BE to store and look after our money. The Investment Bank is a completely separate playground and is not proper banking at all. It is Stockbroking with additions such as crazy people who believe that they walk on water.
We need to return to the good old days when banks would finance themselves with equity and not with debt. Mind you, there’s absolutely nothing wrong with properly managed debt. In fact, without debt, there is no Capitalism.
Forget the “too big to fail” nonsense. The rationale should be simpler – a smaller institution is easier to control and inspect,with fewer nooks and crannies in which to hide “naughtiness”. Plus a small bank which “goes down”, is not going to bring an economy crashing in the same way as the banking behemoths of today can (and will).
Certainly, the British government should be looking at helping to create scores of small independent banks, rather than be held to ransom by a few huge ones.
Mind you, we once had a ready-made structure in place. The Building Societies. Unfortunately, most have now been consigned to the Skip of History. Shame.
The Building Societies would have provided a useful model because they were limited as to where they could invest depositors cash. They used to have a series of “caps” enshrined in legislation.
Today, a cap should be put on the Retail bank’s ability to invest in equities, plus a cap on liabilities as well as a strict limit on leverage.
Currently, Investment “banks” operate in a very highly leveraged way – with very little equity and masses of debt. By no stretch of the imagination is that “banking” as we used to know it. Plus the sheer volume of total bank debt places an unacceptable level of cost and stress on an economy. The current Eurozone crisis is a manifestation and perfect example of that phenomenon.
This is the very simple model we need to rediscover:
The Retail Bank holds deposits which belong to the consumers. The bank is empowered to lend that money to private individuals and small business.
The Investment Bank raises money for commerce through the Stock and Gilt markets.
Historically, there came a time when the banks weren’t happy with those simple arrangements and gradually, through the medium of legislation, government took the brakes off and so began an orgy of leveraging (borrowing) by the banks. Then they overleveraged (overborrowed) with the straw that broke the camel’s back, being the banks’ decision to leverage (borrow against) their sub-prime mortgage assets. Effectively, borrowing against something whose value collapsed because it was bound to collapse.
The surprising thing is that they’re still doing it. Why? Because, they know that there’s no risk to them because standing behind them are tired and bankrupt governments who have foolishly promised to bail them out.
Banks have now completed their journey from being keepers and stewards of community assets to scary insatiable monsters in constant pursuit of profit. Not for the community but for shareholders and executives.
Unfortunately, they are not very good at it – and yet, they are allowed to continue their rampage by uneducated and naive politicians who in truth, should have closed them all down four years ago.
However, there’s another problem. Western communities do NOT save as they used to. That means that there is never enough to lend to consumers from meagre bank deposits. (We spend more than we earn). Is there a solution?
Yes there is.
Retail banks could sell all the debt which private individuals needed. Those debts could be securitised through investment banks. (The concept of loans backed by securities is not a bad one, except when it is abused as it was in the United States.)
The down-side? Banks would never again be as profitable as they are today.
The Investment bank would concentrate on finding capital for companies and controlled speculative trading but without any government-guaranteed bailouts if things went wrong.
We need the traditional (Retail) bank because it is the foundation of an economy and where the entrepreneur goes for money so that he can become a capitalist .
The investment bank is where the capitalist goes to party, with money that has already been earned.
Time to turn back the clock?
Greek Texas Hold ‘Em
The Greek Syriza leader has the measure of the Eurozone sheep.
You may not agree with his politics but Alexis Tsipras is THE ONE that Eurozone leaders do NOT want to negotiate with.
They have been bluffing that they’re “ready” for a Greek Euro exit. It’s all talk!
They are NOT ready and Tsipras KNOWS IT . He also knows that a Greek exit (forced or otherwise ) would not-only create economic and banking havoc but that the after-shocks would be felt all around the world.
He’s willing to call their bluff because he realises that countries such as China & Russia are standing-by and would immediately move in with investment.
FCNK – Fur Coat, No Knickers
British politics are cyclical and there are two views as to the nature of the cycle. One is that Labour is in power for a bit and then the Conservatives come along with lots of shovels and clear up the mess. The other view is that it is Labour politicians who wield the shovels after the Conservatives’ turn.
There is another other great political constant , not-only in British politics but worldwide. Ultimately, all party leaders fail – as do their parties. Then the other lot make an attempt. Then the shovels come out etc. etc.
This is an unbreakable cycle. The cycle can only be broken by totalitarianism . However, totalitarian States always have a “sell-by” date because the chaos of the democratic party-based cycle is always waiting in the wings to deliver its own flavour of damage. Totalitarianism often degenerates into tyranny, followed by the chaos of either imposed or self-imposed democracy. Just look at Iraq.
The root cause of chaos in democracy is always created by the impact of political ideology on economics. The latest change in the United Kingdom government is an excellent example.
There is no doubt that the British economy is in chaos and that the Conservatives believe that their policies are the only way to hose away the Labour mess.
Chancellor George Osborne is standing where he started two years ago. In the economic foothills of a great 5-year economic and political climb. Unfortunately, the peak towards which he is guiding us will not remain still and two years after the journey began, the ultimate goal has moved.
If he is a good Chancellor, he will not be afraid to change direction as we travel. Let us hope that he does not repeat Labour’s mistake and refuse to shed the shackles of ideology when the going gets tough. To put it in political terms, there will be times when he will need to think as a Socialist and other times when he will need to be even more right-wing than currently seems healthy.
That is why it is good for him to have a few Liberals in tow – although, ideally a few left wing Labourites may have been preferable.
Adam Smith is his Wealth of Nations (1776) referred to the United Kingdom as “a nation that is governed by shopkeepers“. Subsequently, Napoleon said “‘Angleterre est une nation de boutiquiers.” In typical French fashion, neither original nor accurate but we understand what he meant. He thought that he was being disparaging whereas Adam Smith’s original quotation was more about the Britain expanding its Empire for the sole purpose of establishing new markets of customers for its own economy. Like shopkeepers would.
Had Napoleon foreseen what the British economy was to become in the 21st century, he may have said, “Angleterre est une nation d’administrateurs, fonctionnaires et conseillers en gestion”
England is a country of administrators, Civil Servants and Consultants.”
If there is one good reason for the present change in government, then that is it.
There are jobs which create wealth and there are jobs which are the so-called “Cost Centres” – the jobs which only spend. Administrators, both public and private who don’t actually contribute to production are a drain on an economy. Any organisation which is heavy on administration compromises its ability to generate a surplus – the same applies to a State.
Under New Labour, organisations such as the NHS experienced an massive influx of administrators and there has been a mushrooming of Quangos. More and more inquiries have cost the economy millions, as have the gradually expanding mini-Westminsters that are our Local Authorities. Empire-building has become the Public Sector’s favourite contact sport.
Obviously being politicians, the Conservatives are not able to say that there are too many non-productive civil servants but that is exactly what they do mean when they point out that the so-called Public Sector needs some rationalisation – but the gradual expansion of the administrative classes is nothing new.
My first job many years ago was in the Scientific Civil Service. Our establishment had just over 200 of us researching and more than 400 administrators. We were in prefabricated temporary structures whereas the pen-pushers had a modern office block. The argument was that as we were spending taxpayers’ money, no cost was too great in order to ensure that every single penny spent was controlled and accounted-for. Plus ça change.
Until very recently, there has been a “no expense spared” attitude among both public servants and politicians with little or no incentive for either of them to control expenditure. A case of rampant accelerating Cost Centre growth.
That is why the Chancellor announced a freeze on Public Sector pay and launched a probe into public service pensions and why the budgets of government departments will be cut by 25%. In addition, the Civil List has been frozen at £7.9 million p.a. and the Government will dispose of some of its assets in order to raise cash – notably, the air traffic organisation NATS, the Tote and the student loan book.
However, in spite of the banking system remaining one of the government’s major creditors, it has been “clobbered” with an annual levy which will probably only collect about £2 billion per year. Compare that with the total cost (so far) of rescuing our banking system, which is well-in-excess of £850 billion.
Unfortunately, the government is also committed to hand-outs to a long queue of advisers and consultants. Notably, Slaughter & May, the international law firm will be paid nearly £33 million for commercial legal advice and Pricewaterhouse Coopers over £11 million for its work on asset protection.
The government is also paying Credit Suisse at least £500,00 per month for advice on the asset protection scheme with a similar amount being paid to Deutsche Bank.
Needless to say, there are other government “advisers” on the payroll so the final total cost of the government’s bank rescue activities is far from established because it is open-ended.
In spite of the crippling government (and therefore taxpayer) expenditure on the banks, they are still declaring weirdly high profits, paying themselves bonuses and not delivering the commercial lending agreed with the previous Chancellor.
The government has not been able to fund all this purely from the income that it generates from taxation so it has had to borrow more and more. Hence the huge deficit and the international pressure to do something about it.
That explains the increase in VAT, the quite major changes to the benefits system, the various “tweaks” to personal taxation, the sell-offs and cuts in public expenditure.
That has all had to be counterbalanced by an encouragement for business to produce more, hire more people and thereby generate not-only more tax for the government but also stimulate us all to spend more in order to maintain the “produce-sell-buy-spend” cycle.
The Chancellor has taken a bit of a risk because he is assuming that the “produce” stage of the cycle will ultimately act like a defibrillator applied to a dying patient’s heart. He believes that ultimately it is business which makes an economy function. On the other hand, the Socialists believe that the cycle begins with “spend”. Hence their concept of , for instance spending on roads, railways and other government-driven projects in the hope that “spend” creates employment plus income for the individual, which in turn stimulates demand which drives production. Same principle but a fundamentally different starting point.
It has been shown many times that Cost Centres (mostly support functions) do not generate direct profit. The drivers of any economy are Profit Centres – the ones that make something and then sell it at a profit.
The current debt-ridden economic climate needs the harsh but correct approach favoured by the Chancellor. For the moment, the Profit Centres have it. Although that does NOT mean that the “Austerity Method” cannot be tempered with a bit of good old-fashioned government spending when necessary.
Ideology must never be a bar to sound economic common sense.
Finally, the government has the one major Cost Centre and that is the Benefits System. The system has been abused – of that there is no doubt. As part of its strategy, the last Labour government needed to massage its unemployment statistics. Encouraging more and more individuals to avoid the dole queue by remaining in education is an example of a transparently obvious ploy. The other was an over-generous benefits system especially the blatantly abused Disablities Allowance which cost the taxpayer over £11 billion per year.
The Disabilities Allowance was introduced 20 years ago by a Conservative government when under 1 million people were eligible. In the intervening years, the number of claimants has grown to approximately 3 million which represents a substantial percentage of the working population.
The Chancellor’s approach of proper medical testing for Disabilities Allowance claimants may sound Draconian but absolutely necessary because in spite of the fact that unemployment statistics will doubtless be adversely affected, there will be a corresponding increase in those eligible for work. Once again, an example of Cost Centres being converted into potential Profit Centres.
What of normal productive workers, entrepreneurs and those engaged in support functions which are designed to keep the economy going? Have we escaped intact?
The answer is that we are all subject to collateral damage, either through increased living costs or unemployment. The real unemployment figure has been approaching 3 million for a few years and it is only now that Gordon Brown’s Canute-like posturings have been consigned to the poubelle of history , that an accurate picture has emerged.
The picture is this:
None of us is as well-off as we imagined during the New Labour years of illusory plenty. Many have been screwing the system for too long. It started with the politicians and it is now our turn to realise that the days of “Fur Coat , No Knickers” are well and truly over.
The altruistic Goldman Sachs!
One thing we should understand about former Goldman Sachs employee Greg Smith who has achieved notoriety for his resignation letter attempting to destroy his former employer’s already shaky reputation.
GS is not known as the “Vampire Squid” for nothing and its reputation is certainly not as good as it once was.
However, Mr Smith is only a “vice-president” and apart from his 15 minutes of fame, will have achieved nothing.
Criticism from a VICE PRESIDENT, though!! The title sounds VERY impressive to British ears.
American companies dish out vice-presidencies as generously as the US Military dishes out Purple Hearts. There are thousands and thousands of “vice-presidents” working for American corporations. VP is a corporate title and is only a couple of levels above clerk. Below the vice-president is the “Resident Vice-President” or something very similar. Above that, we have the Senior Vice-President, then the Executive Vice President. The title means nothing except an indication of your pay-grade. A Number Two or Number Three in Human Resources can have the title “vice-president”. It means nothing.
So , Goldman Sachs has been criticised by a lowly grade (the LOWEST grade at GS). To them, it’s a bit like being assaulted with a feather. Certainly a featherweight.
Nevertheless, THIS is worth a read!!
Holding Bank Shares? Think again.
Another week, another bank rip-off…
The Payment Protection Insurance (PPI) mis-selling scandal has only just come to a head. Banks are facing compensation claims of as much as £6bn from customers duped into buying insurance they didn’t need.
And now big UK banks will be all over the papers again – this time for mis-selling another sort of insurance, this time to small businesses.
Here’s how it works…
You’re a small business and you take out a loan with a bank. And just like with PPI, the bank wants to hit you with some “insurance”. Making interest on a loan isn’t enough for these guys. They want to optimise !!!
With a small business, banks cannot sell critical illness or redundancy insurance. So they have to be a little more imaginative.
The idea went a little like this: “Hey, that loan you’re taking… Now you’d be a fool not to want to protect your business against interest rate moves. Look, we’ll put together an interest rate swap contract. Basically, if rates move against you, this contract will pay out…”
But what many business owners didn’t realise was that if interest rates moved down (which of course they did) then they’d be on the hook for potentially hundreds and thousands of pounds.
And you can bet the banks were keen on shifting these policies. This from the Sunday Telegraph:
“The case of Adcocks (a small electronics retailer) highlights just how much of an edge the banks had. Following 12 months of what Mr Adcock describes as “encouragement” from his local Barclays relationship manager, the company in February 2007 took out an interest rate hedge on its £970,000 of borrowings from the bank. Unbeknownst to Mr Adcock, on the day he signed the agreement, Barclays Capital, the bank’s investment banking arm that structured the deal, is likely to have booked a profit of as much as £100,000 from the sale of the hedge.”
These interest rates swaps have driven some businesses into administration. The banks have been siphoning cash straight out of business accounts as a result of ‘adverse moves’ in the interest swap.
Professor Michael Dempster of the University of Cambridge’s Centre for Financial Research said: “I liken it to going to bet on a horse race having fixed the result. You’re not guaranteed to win, but you have a heck of an edge on the punters.”
All this could mean more huge claims against the banks. Prof. Dempster said “I think this could be at least the same size as PPI.”
So it’s clearly another savage blow for the UK’s retail banks. If you aren’t already out of the banking sector, then these sorts of shenanigans ought to make you think twice about holding bank shares.
HSBC – 2011 – $22billion.
Steve Slater (Reuters) 5:19 a.m. EST, February 27, 2012
HSBC Holdings, Europe’s biggest bank, predicted growth in Asia and other emerging markets would outweigh sluggish European economies this year as it posted a $21.9 billion profit for 2011, the best outturn by a western bank so far.
HSBC added, however, that success in emerging markets was becoming increasingly expensive, with costs rising 10 percent, or $3.9 billion – a third of that due to higher pay.
Banks across Europe have been posting billions of dollars of losses as the euro zone sovereign debt crisis has eroded the value of their government bond holdings and hit their trading operations, and as they strive to meet tough new rules aimed at preventing a repeat of the 2007-09 banking crisis.
HSBC has been relatively unscathed because it makes more than three quarters of its profits outside Europe and north America. It remained upbeat on Monday about prospects for emerging markets despite fears that some are overheating and could see an abrupt slowdown in growth this year.
“We remain comfortable with the emerging markets (outlook) and are confident that GDP growth in emerging markets will be positive and China will have a soft landing,” Chief Executive Stuart Gulliver told reporters on a conference call.
“We think there’s some recent buoyancy in the U.S., so the real issue of negative focus is how the euro zone plays about,” he added, predicting the euro zone economy would flatline this year, with “marked recessions” in some southern countries.
HSBC, with around 7,200 offices in 80 countries, said pretax profit rose 15 percent to $21.9 billion in 2011, just below analysts’ average forecast of $22.2 billion in a Reuters poll.
The figure fell short of the group’s record profit of $24.2 billion in 2007, but beat all other western banks that have reported so far for last year, including U.S. rival J.P.Morgan which made a $19 billion profit.
The world’s most profitable banks in recent years have been China’s ICBC , which made $32 billion in 2010, and China Construction Bank , which made $26.4 billion.
HSBC’s profits were boosted by a $3.9 billion accounting gain on the value of its debt. Stripping that out, underlying pretax profit fell 6 percent to $17.7 billion, due in part to rising wages in emerging markets and to restructuring costs.
CUTS AND BONUSES
Gulliver, who is reshaping HSBC to cut annual costs by $3.5 billion, lift profitability and sharpen its focus on Asia, said he would step up his plan this year.
He said HSBC would continue to pay higher wages in emerging markets, where there is strong competition for bankers among international and local rivals, adding higher revenue from those areas showed the investment was worthwhile.
At 0945 GMT, HSBC shares in London were down 1.5 percent at 566.1 pence, lagging a 0.7 percent decline in the UK’s benchmark FTSE 100 index . The shares have beaten the STOXX Europe 600 banking index by 15 percent over the past year.
“They’ve had a good run so I can’t get too enthusiastic, but they’re (HSBC) going in the right direction and it’s a good bet in a difficult sector,” said Brown Shipley fund manager John Smith, who holds HSBC shares in his portfolio.
HSBC said profits at its investment bank fell 24 percent to $7 billion, hurt as the euro zone debt crisis slowed capital markets activity in the second half of last year.
Loan impairment charges and other credit risk-related provisions, however, fell $1.9 billion to $12.1 billion.
The group said it paid out $4.2 billion in bonuses, down 2 percent on 2010. Banks are coming under intense pressure from politicians and the public to rein in pay awards because of the role of the sector in the world’s economic problems.
HSBC said it paid one of its bankers, whom it declined to name, 8 million pounds ($12.7 million) last year. Gulliver was the second-highest paid employee, getting 7.2 million pounds — including a 2.2 million bonus — down from 8.4 million in 2010 when he ran the investment bank.
($1 = 0.6306 British pounds)
(Additional reporting by Sarah White and Sudip Kar-Gupta; Writing by Mark Potter; Editing by David Holmes)
Copyright © 2012, Reuters
It was Gordon Gekko who said that “Greed is good” and currently it is that greed which is popularly believed to be the root cause of the current economic downturn. But who was it that said that “Change is Good”? What if the real root cause of the crisis is poor governance , jump-started and caused by the new Change mantra?
Nowadays, the word “Change” appears on a very high percentage of job descriptions. There are “Change Gurus”, “Change Agents”, “Change Trainers”, “Change Management” and a hundred other delicious flavours of Change.
“Change” has become synonymous with progress but very often the consequence of constant change is a company which never quite achieves stability or Steady State. It has been believed for nearly thirty years that a company which does not change, risks being “left behind”. However, there may be certain industries which should embrace the Steady State Theory and not the constant-change environment. Change not-only appears to feed progress but during transitional periods, it also provides opportunities for corporate mistakes to be buried. Because a constantly-changing company never achieves Steady State, management errors and holes in accounts are always regarded as just temporary.
A mere thirty years ago, there were four columns supporting the Financial Services Industry: Banking, Insurance and the Building Societies were the highly visible threesome and their City cousin was the Stockbroker. He was the mysterious one who spoke in a strange tongue and dealt in financial mysteries and abstracts. The sort of stuff that Bankers did not understand.
A few predicted that these four venerable institutions would, one day become indistinguishable from each other. And so it has come to pass.
Thirty years ago, Banks lent short-term unsecured money, issued chequebooks and most branches had a manager who was accessible both to the private individual as well as the local businessman. It was a “people business”. Eventually, Change decreed that Bank Managers were not skilled enough to recognise the subtle shades of risk hidden in propositions which landed on their desks. “Systems” were created. Decision-making was taken from the branches and handed to the system. Credit Scoring was the way forward.
Did credit-scoring work? Yes, but only when it was applied.
Building Societies were still true to their 19th Century roots. They lent money which enabled private individuals to buy a home after they had accumulated a deposit. There were only two types of mortgage. Gross of Tax and Net of Tax. There were savings accounts which were called Paid-up share accounts and there were only two types of these – the only difference being that you could either add interest annually of half-yearly. There were also deposit accounts which paid slightly less interest but allowed the depositor first crack at the funds in the unlikely event of a run on the Society’s funds. The products were simple.
The in the late 80s when MIRAS ( Mortgage Interest Relief At Source) was removed and the green light was given to all sorts of strange hybrid mortgages and accounts. New systems meant that even the most complicated and incomprehensible products could be administered.
Originally, Insurance companies sold peace of mind and would pay either a lump sum or an income to a family in the event of the breadwinner’s death. The first inkling of change was in the mid-seventies when the Royal Insurance Group introduced the first low-cost endowment plan – the G-plan. It sold like hotcakes. In the long term, these contracts produced hundreds of thousands of unhappy mortgagors and many red-faced Actuaries.
Stockbrokers lived in large (sometimes condemned) buildings in the City and they practiced their dark arts without too much interference from anyone.
In the good old days, the lending of money to an individual had never been a profession – it was more of a “trade” because it was simple. Consequently, the money-lending business (nowadays it is called “banking”) was run by ordinary honest folk who could gradually work their way to the top of their organisation. Not a Degree or MBA in sight. The same applied to the Building Societies and Insurance companies.
The Directors would make sure that they kept the bank or building society on an even keel and well within the liquidity rules plus they would vary interest rates when instructed by the Bank of England and they NEVER went bust because it was nigh on impossible to go bust. There was one occasion many years ago when the Chelsea Building Society was forced to revalue its assets in order to comply with liquidity rules but otherwise – no problems.
There were no executive bonuses because the word “profit” was not in their dictionary – but they would strive to make a small surplus. Likewise, there were no golf days, conventions or any other executive freebies.
But dark clouds were already gathering. Even 25 years ago, the Banks wanted to become Building Societies, the Building Societies thought that it would be a good idea to become Banks and the big Insurance Companies wished that they too could become all things to all people.
The high priests of Change were beginning to take a foothold.
Then, in the 1980s, laws were changed and the “suits” came.
Until then, Directors of lending institutions used to be a crustily venerable lot and tended to be unqualified businessmen who strangely enough, were more entrepreneurial than the MBAs that are running the show these days. Typically, they were senior partners in Accountancy Companies, Estate Agencies or Solicitors. They were men in their 50s and 60s who were REAL businessmen who had created their own wealth.
That is where the seeds of destruction were planted – in the panelled boardrooms of provincial England. The Old met the New and were dazzled by the following: (perm any two from six) MBA, Oxford, Cambridge, Harvard, Degree, University.
The pipe-smoking unqualified old duffers were dazzled and seduced by the shiny new boys with MBAs and incomprehensible management jive talk. They all wanted one!
Once laws had been changed and the new boys were let loose, Building Societies issued chequebooks, Insurance Companies bought Estate Agents, banks bought Stockbroking firms, Insurance Companies introduced savings accounts dressed-up as life assurance (remember Unit-lined whole-of life policies?), Stockbrokers morphed into Investment Banks, Banks bought Estate Agents – in fact, everyone bought (and sold) Estate Agents.
Foreign banks arrived in the UK and began buying-up bits and pieces. It was all about Change through acquisition and the ugly phrases “client-bank optimisation” and “cross-selling” were born.
The price that the industry paid for all this change was an imperceptibly gradual loss of management control and increasingly lengthening reporting lines. That in turn, resulted in two things: A sudden growth in regulation (SIB, LAUTRO, FSA) and the emergence of dictatorial and “entrepreneurial” management.
It was in 80s USA that the cult of the “corporate entrepreneur” had been born and transplanted rather uncomfortably into the gut of the UK’s financial industry.
A corporate entrepreneur is a man who takes risks with other peoples’ money and is rewarded for his “entrepreneurship” through the medium of the profit-related bonus.
The Financial Services industry became a testosterone-fuelled orgy of Change, Acquisition, Growth and an accelerating race towards more and more profit. Several CEOs would not have looked out-of-place in a James Bond villain’s lair.
The charismatic, dictatorial Chief Executive with a Messiah complex had arrived. This type of individual was comfortable in the company of millionaires and billionaires and his word was always final.
Many real entrepreneurs took advantage and high-level CEO-administered Vanity Lending was born.
Thirty years of change have created a Financial Services Industry which has become a Frankenstein and our Government is keeping very busy patching it up here and there.
Currently, there is little else that can be done but thirty years of increasingly accelerating change may eventually need radical solutions and perhaps a return to the old ways. Simple products for what is essentially a simple process.
The Change Experiment has not been successful because current economics now owes more to the Chaos rather than the Keynes theory.
Is it time to go Back to the Future?
Greek party leaders seek deal as bankruptcy looms
By NICHOLAS PAPHITIS
ATHENS, Greece (AP) — Greek party leaders on Tuesday will seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.
Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new income cuts and job losses, which Greece’s eurozone partners and the International Monetary Fund are demanding to keep the country’s vital rescue loans flowing.
A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.
Police said up to 14,000 people took part in two peaceful anti-austerity demonstrations in Athens. The separate marches were to converge on central Syntagma Square, outside Parliament, which has been the focus of demonstrations over the past two years of economic pain.
On Monday, Prime Minister Lucas Papademos’ government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.
Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.
Among the measures the EU and IMF are pressing Greece for is a cut in the euro750 ($979) minimum wage to help boost the country’s competitiveness. This reduction would have a knock-on effect in the private sector – because private companies also base their salaries on the minimum wage – and even unemployment benefits. Unions and employers’ federations alike have deplored the measure as unfair and unnecessary.
“It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people,” Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.
He called on coalition parties to work more closely together.
“To save Greece … will involve a huge social cost and sacrifices,” Venizelos said. “On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices.”
“No one is as strong as Hercules on his own to face the Lernaean Hydra,” a swamp monster in Greek mythology, he said. “We must all, together, fight this battle, without petty party motives and slick moves.”
A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal.
But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc’s digital policies, said Greece’s exit wouldn’t be a disaster.
Kroes told Dutch newspaper De Volkskrant that “It’s always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true.”
Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.
As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive euro100 billion ($131.6 billion) in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.
Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.
The EU-IMF bailout will also provide an estimated euro40 billion ($52 billion) to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country’s privately-owned debt.
However, the bailout has to be secured for the deal with private investors to go ahead as about euro30 billion from the bailout will be used as the cash payment in the bond swap deal.
Greece’s coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.
The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product – about euro3.3 billion ($4.3 billion) – improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.
Creditors are also demanding spending cuts in defense, health and social security.
European Commission spokesman Amadeu Altafaj Tardio said Monday that Greece was already “beyond the deadline” to end the talks.
Also Monday German Chancellor Angela Merkel warned that “time is pressing,” and “something has to happen quickly.”
While Greece remains cut off from international bond markets – where it would have to pay interest of about 35 percent to sell 10-year issues – it maintains a market presence through regular short-term debt sales.
On Tuesday, the public debt management agency said Greek borrowing costs dropped slightly as the country raised euro812 million ($1.06 billion) in an auction of 26-week treasury bills. The coupon was 4.86 percent, compared to 4.90 percent in a similar auction last month, while the auction was 2.72 times oversubscribed.
Derek Gatopoulos in Athens and Gabriele Steinhauser in Brussels contributed to this report.
EU official: Greece needs extra $20 billion
BRUSSELS (AP) — Greece needs about an extra euro15 billion ($20 billion) to get its debt down to manageable levels — and the rest of 17-country eurozone is being asked to help foot the bill.
Debt-ridden Greece is close to a deal with private investors to reduce its debt burden by about euro100 billion and that — plus an agreement to enact deep spending cuts — could pave the way for a euro130 billion bailout from its European partners and the International Monetary Fund. But on Thursday a European Union official said this plan was not enough to help fix Greece’s problems, which are getting worse as the effects of the recession take hold.
In order to bring Greece’s debt burden to a sustainable level — 120 per cent of its economic output in eight years’ time — the country’s international debt inspectors calculate that Greece needs an additional euro15 billion — a shortfall it believes should be made up by the rest of the 17-country eurozone, the European official. The official spoke on condition of anonymity because of the sensitivity of the matter
The extra money, in theory, could come either from the other euro countries or by having the European Central bank, its national counterparts and state-owned banks like France’s Caisse de Depots taking a loss on their Greek bond holdings, the official said. Analysts estimate that the European Central Bank holds euro50 billion to euro55 billion in Greek bonds by face value but it can’t simply write them down without breaking the EU treaty, which prohibits the bank from financing governments. Writing off a debt would be, in effect, transferring money directly to a government.
The new push for Greece’s public and government creditors to take a cut on their investments — dubbed the official sector involvement, or OSI — is a new front in the battle to save the country from a potentially devastating default. So far the eurozone and the International Monetary Fund have given billions in bailout loans to the struggling country, but they haven’t been asked to take losses.
It is also an acknowledgment that Greece’s economy is in such a dire state that the country’s debt inspectors — the so-called troika of the Commission, the European Central Bank and the IMF — are having a hard time finding more ways in which Athens can save money.
Greece has been at the heart of Europe’s debt crisis since it revealed in 2009 that its debt was far larger than its official estimates. It piled on the debt during a decade in which the government overspent and its economy was growing. Those fortunes turned when the world went into recession in 2008.
The challenge now is reducing the debt at a time when the economy is shrinking. Spending cuts, tax increases and the general uncertainty of the crisis have already pushed Greece into a deep recession, which in turn has eliminated many of the gains from the austerity measures.
Asking private creditors like banks and investment funds to share the burden of saving Greece was the first reaction to this problem; getting the public sector creditors involved is the next.
The official said a deal with private creditors to take losses on their holdings will have to be announced before the end of the week to make sure it can be implemented before Athens has to pay back euro14.5 billion in bonds on March 20.
Experts from national finance ministries will examine the details of the deal on the so-called private sector involvement — or PSI — on Friday, and will likely also discuss how the euro15 billion gap can be closed, the official said.
People familiar with the tentative deal have said it would see investors take losses of more than 70 percent of their holdings. On top of having to accept a 50 percent cut in the face value of their bonds, investors will also receive lower interest rates of between 3.5 per cent and 4.5 per cent and give Greece 30 years to pay back the debt.
If agreed, the deal would end negotiations with bondholders that started this summer and have become increasingly tenuous in recent weeks.
Getting public creditors like central banks or sovereign wealth funds to take a hit may be even more controversial, since any losses or foregone profits ultimately come out of taxpayers’ pockets. Germany, the strongest economy in the eurozone, is also one of the strongest opponents of OSI.
Germany’s finance minister, Wolfgang Schaeuble, said on n-tv television Thursday that he didn’t see the need for “any extra contributions from the public sector; we’re carrying everything anyway.”
Schaeuble didn’t address the issue of the euro15 billion funding gap.
The majority of the ECB’s Greek bonds were bought at a discount in the summer of 2010, when the central bank was trying to stabilize their prices. Even though it is bound by the rules of the EU treaty, it could find a way to give up the substantial profit it would earn by holding the bonds to maturity. It could do that by selling the bonds to the eurozone bailout fund or to Greece at the knockdown prices it bought them for.
However, the ECB has so far given no indication that it is willing to do so, with some of its governing board members saying that giving up on profits would clash with the bank’s ban.
Alternatively, eurozone states could boost their bailout loans beyond the promised euro130 billion, or provide some, more-limited, relief by further lowering interest rates on these loans.
Analyst Carsten Brzeski at ING in Brussels said the ECB and President Mario Draghi might be open to giving up the profits on the bonds. But the bank will wait to take action so it does not appear to be acting at the request of politicians.
The bank is legally independent and the EU treaty forbids it to take instructions from government officials.
“I think Draghi could live with it, but they will not bow very easily,” said Brzeski. “It has to look like it is their own idea, their own initiative.”
While officials have stressed the need for Greece’s financing to be set before the bailout goes through, the main players have been flexible before and “it’s not as hardball as it looks.”
On the official side, “someone will have to bite the bullet, or everyone,” he said. European officials are trying “to have everyone take part in the burden sharing and thereby get the ECB involved.”
The euro130 billion second bailout package also still depends on labor market reforms that the EU and IMF are asking Greece to implement. Unions and employers resumed talks on Thursday over troika demands to lower wage costs in the private sector and possibly lower the minimum wage.
AP Business Writer David McHugh contributed from Frankfurt.
Copyright © 2012 The Associated Press. All rights reserved.
Fred Goodwin in good company!!
Fred Goodwin has never been convicted of anything, he has not been censured by any regulator, yet the very obscure and to most of us, hitherto unknown Forfeiture Committee has recommended to the Queen that he be stripped of his knighthood. This committee (apparently) is non-political and consists of several high ranking civil servants as well as the head Treasury lawyer.
But what motivated this cruel and unusual punishment? Why exactly was Fred Goodwin stripped of his Knighthood?
In the absence of concrete reasons, it seems that Fred Goodwin was tenderised by the media, before being served up to the baying mob. A sacrificial lamb with our howling political leaders elbowing themselves to the front of the queue.
Deputy Conservative Chairman,Michael Fallon says, “Ministers don’t control the timings of the forfeiture committee, this is an entirely independent committee of civil servants.”
So why did these independent free spirits make the decision? What motivated them? Why wait THREE years?
We may well agree that Fred Goodwin is an odious little man who had been promoted to well above his personal level of incompetence but that is nothing unusual within the Financial Services Industry. He was merely one among the many.
He was Chief Executive of a huge bank which was chaired by Sir Tom McKillop – a chemist. Goodwin himself was no more than an accountant who was nowhere near ready to run an international bank. He was not a banker – yet at the time, EVERYONE had decided that he was as close to a banking deity as was possible.
The laughs in this financial farce are amplified by the names of some other Sir Knights who have been unfortunate enough to be stripped of their knighthoods: Robert Mugabe, Nicolae Ceaucescu and Benito Mussolini are just three. Then you add “Fred Goodwin” to the list and suddenly realise that it just doesn’t scan!
In December 2011, the Financial Services Authority produced a report into the RBS failure. There was one section which Fred Goodwin’s lawyers asked to be removed from that report.
It was the bit which criticised his lack of banking experience.
Here is the 450-page FSA report into the RBS collapse. If you scroll down to Page 223, you will see that it is The RBS Board which has been found to be lacking and NOT just Fred Goodwin: http://www.fsa.gov.uk/static/pubs/other/rbs.pdf
There is a very simple rule in management which always applies, especially to the Board of a company: ” If you hired the wrong man and he screwed up, it’s YOUR fault. If you hired the right man and he screwed up, it’s DEFINITELY your fault.”
It is the RBS Board of Directors which ought to be standing shoulder-to-shoulder in the dock and being stripped of honours. NOT their overpromoted hireling.
So why was Fred Goodwin stripped of his Knighthood?
Petty Political Revenge.
German Chancellor Angela Merkel is one of the Euro leaders who appears to be slightly too relaxed about the fact that the Greek government has not yet finalised an agreement with creditors in respect of its Sovereign Debt. Now there is the rumour of a German Government memo indicating that Eurozone Banks are just about ready and able to cope with a Greek default. If that is the case then it would seem that the Greeks have been “played” while Euro reorganisation has been taking place behind their backs. The latest wheeze is the IMF expressing dissatisfaction about Greece’s progress in implementing those draconian austerity measures. That means that Greece’s next tranche of bailout money is nowhere near being agreed. It is now possible that even if Greece does capitulate and agree to everything that the IIF demands, it is still not guaranteed a bailout. Tempus Fugit.
It’s Different Attitudes……….
American father to his son: ” See that man son? That’s Stephen Hester. He’s Chief Executive of the Royal Bank of Scotland. That’s a VERY big bank and the British government hired Mr Hester to put things right after it was left in a bit of a mess. He’s very successful and if YOU study and work hard, perhaps one day you can be as successful and as well-known as Mr Hester.”
English father to his son: “See that man son? That’s Stephen Hester. He’s a fat greedy capitalist bastard who thinks he’s better than us. It’s hard-working people like me who pay his wages. We work and he just sits behind a big shiny desk and gets millions. Make sure that you don’t turn out like him.”
In defence of Stephen Hester!
RBS Chief Executive Stephen Hester has a very challenging job. He has to get to grips with the quagmire of accounting and organisational disorder bequeathed to the taxpayer by his predecessor Sir Fred Goodwin. So far, Stephen Hester does not appear to have put a foot wrong but in spite of that, he is fast becoming as much of a pariah as Fred the Shred.
Why is that?
At the highest levels of the Financial Services Industry, especially Banking, , there is a staggering shortage of REAL management talent.
In 2008, when the Labour government realised (too late ) that the entire industry was in trouble and that changes needed to be made at the highest level, the pool of talent on which the then Chancellor could call, was extremely limited.
Prior to taking over at RBS , Hester had been appointed non-executive deputy chairman of the newly-nationalised Northern Rock. He had been appointed by Chancellor Alistair Darling. Subsequently (in September 2008), he was asked to take a non-executive position on the board of Royal Bank of Scotland.
Throughout his tenure at Northern Rock and right up until November 2008, his “day job” was Chief Executive at British Land. However, the vast bulk of his career had been in banking – 19 years at Credit Suisse First Boston followed by three years as Chief Operating Officer at Abbey. His knowledge of banking and the debt markets was beyond question – although at the time , there was some question as to his political skills – which he would certainly need in his new RBS job.
His job was to turn around what has once been a bank with a share price of 700p, which , at the time of his accession, had tumbled to a mere 50p. That was in 2008 when the British Government bought about £45 billions’-worth of stock, giving it a 84% share of the bank.
The job which he was being asked to do was by far the most daunting and high-profile within the the broken banking industry.
In addition, both the politicians and regulators had begun the process of taking the focus off their own shortcomings and ineptitude by creating the Banker Bogeyman. The Fatcat. The incompetent Greedy Bastard who only cared about his bonus.
Unfortunately, even the white-hatted good guy saviours such as Hester were also tainted.
At no time did a politician stand up in his defence and point-out that Hester was a government hireling and was on their (our) side.
The Labour government of the 2000s, as well as the unfit-for-purpose Financial Services Authority had failed in their duty and had all but lost control of the banking industry. The bankers had involved themselves in products that not-only they but even the Bank of England did not understand. Chief Executives such as Fred Goodwin had begun to believe in their own infallibility and the government believed that the good days would roll-on forever.
This highly combustible scenario was overseen by a collection of Bank Directors who had developed lack of understanding and incompetence into an art-form. Most of them have been quietly retired when, in actual fact, many should have been prosecuted for not doing their job.
For those of you who may not understand, in the average bank boardroom, there is a culture of what can best be described as that of self-congratulatory Gentlemen’s Club Machismo . When a Chief Executive breezes into a Boardroom – especially a highly-technical accountant CEO such as Fred Goodwin, there are dangers. Not to him – but to the directors.
The director is expected to question him but he knows that he has no real idea of what the CEO talking about. The director also knows that the CEO could expose his total lack of knowledge to the other directors. There is an unspoken understanding: ” Try to f*** me over in front of the Board at your peril!”
Exactly the same applied (still applies) to the politicians.
Credit Derivative? The Zero Lag Stochastic Indicator? The Abnormal Earnings Valuation Model? What do they all mean? Best not to ask……………………..
So it was in this post-Lehman atmosphere of surprise, shock and ignorance that Stephen Hester was headhunted by Alistair Darling and Gordon Brown. Although details are not in the public domain, he (Hester) negotiated himself a legally-binding contract – and along with it, a remuneration agreement. (If any politician feels the urge not to honour that contract, one suspects that by the time the matter had been dealt with by the Courts, it would have been far cheaper to have maintained the status quo.)
In late 2008, the bankers had already “spooked” the politicians and obtained a total bailout of £450 billion. Because the politicians were still in shock, Hester would have been able to name his price – and who could blame him? He was on a shortlist of ONE.
Meanwhile, the politicians needed to take the pressure off themselves – so very soon a campaign was started. Its primary purpose? To vilify all bankers. The most visible aspect and most populist aspect to focus on was the “unacceptable level of remuneration” – and so the headlines and political bleating began.
The fact is that banks are NOT the Civil Service – they are constituted as companies which issue shares. We, the taxpayers are NOT shareholders.
A bank such as RBS is a shareholder-owned company but none of them have any legal right to demand when, how or what a Chief Executive is paid. That is between the CEO and his Board.
Shareholders can be as unhappy as they want to be but the best that they can do is to make their views known. A Bank Board is under no obligation to take any notice of moaning shareholders.
That, in fact is the only reason why senior politicians such as Cameron, Clegg and Cable can do nothing but whinge.
Finally, the government did not “bail out the bankers”. It bailed out the banks in order to ensure that you and I did not lose any money. Hopefully they also hired competent people to sort-out the mess and effectively, start again.
Stephen Hester is part of that renewal process. He is paid what appears to be an obscene amount of money primarily because of his technical know-how but also for his scarcity value.
Therefore it is most unfair for him to be referred-to as a “fat-cat” or any other derogatory label that we have been brainwashed into applying to all bankers.
Had he said on Day 1 : ” My fee to unravel this multi-billion pound mess will be £20 million. Take it or leave it,” the politicians would have snatched his arm off!
This year, he has received a bonus of £1 million and the political bandwagon is beginning to creak as they all jump on to criticise his “greed”. (The bandwagon is creaking particularly enthusiastically now that Boris Johnson has also joined the moaning political posse!!)
To add some perspective to the incredible complexity and scope of Hester’s task, you may be surprised to hear that the RBS annual legal “spend” is about £200 million!!
Stephen Hester deserves every single penny that he has managed to screw out of RBS and its carping political custodians.
Central Bankers – The Fifth Estate.
Nowadays, the bank to government to Central Bank and back to bank cross-border flows of money (both real and imaginary), the constant borrowing and re-borrowing , the bond auctions etc. appear to be behaving as if controlled by a separate, non-governmental , non-economic entity.
Sovereign bond auctions have now become a weekly sport, generating the sort of interest formerly reserved only for TV soap operas.
European banks gather around the European Central Bank like pigeons at feeding time.
Rather worryingly, this new pseudo-economic essence behaves as if it is more-or-less dislocated from what we call “the Global Economy”.
It is the Macro Banking System. The FIFTH ESTATE.**
It is behaving as a totally separate, self-perpetuating, high-level mutant economy which exists for its own sake and is presided over by senior bankers and financiers with politicians merely fetching and carrying.
One of the symptoms which we are currently witnessing is the demise of democratically-elected officials. Their status seems to be diminishing day-by-day, to the extent that their job is simply to row the boat according to the drumbeat set by very senior bankers – the New Rulers.
The very people who created this financial crisis four years ago have gradually created a brand-new debt-fuelled edifice which has become anchored both in the economy as well as in our collective psyche. We have come to see the Debt Mountain as our Saviour with Central Bankers in the role of its High Priests.
The concept has become so embedded, that we have grown to believe that only they (the High Priests) can save us.
This new entity appears divorced from the old-fashioned concepts of growth, production and distribution and now only needs sovereign economies to feed it occasionally.
This gradual power-shift has only occurred in the last year-or-so and so, imperceptibly, we have entered an age where politicians have finally become subservient to the bankers.
The jury is still out as to whether the development of this new ruling financial class is good or bad or even sinister. The Conspiracy Theorists have notions of Bilderbergers, a New World Order and all sorts of other conspiracies – I do NOT subscribe to that view.
Politicians have shown that they do not have the intellectual or technical capacities to deal with a multi-causal, multi-faceted, vastly complicated economic crisis, borne more out of greed-conceived chaos, rather than the usual rules of Keynesian economics.
We have to take a leaf out of the politicians’ book.
Heads bowed, we wait.
** First Estate – Clergy. Second Estate – Nobility. Third Estate – Commoners. Fourth Estate – the Press.
More European Unforeseen Consequences?
For 3 years, (since the 2008 crisis) banks have been acquiring equity stakes in British companies.
That is grinding to a halt.
Banks will be cutting losses in order to get their money out – especially from weak companies, resulting in more businesses going into administration.
Maturing Private Equity Loans will be a major problem for both British and Euro economies.
There are nearly £300 billion Euros in Private Equity Loans.
How much of that will the banks go after?
……..and is it yet another example of the Law of Unforeseen Consequences?
The Merkozy Love-in.
This week sees yet another meeting of Eurozone leaders. On previous form, I would bet that the only outcome will be a series of half-measures and promises which will be primarily designed to reassure fund managers, investors and to placate the banks. The fate of the Euro will yet again, be postponed as millions of Europeans continue to stand in the fast-growing unemployment queue.
Theoretically, Euroleaders (or should I say Frau Merkel) will be deciding not-only the fate of the Euro but the fate of every economy in what used to be known as the “advanced industrial world”.
Austerity has become the new growth with the INEVITABLE result of ever-lengthening unemployment queues and increasingly turbulent currents of social unrest.
Received wisdom is that deficit reduction is more important than job creation through fiscal stimulus. The downside is that for countries which have already launched themselves on a deficit reduction programme, it is beginning to look as if there can never be quite enough deficit reduction because of rapidly decreasing tax revenue.
There will always be that no-man’s land between deficit reduction and fiscal stimulus. Not a single economy has arrived there yet.
However, what is even more worrying, is that there isn’t a single politician, banker or economist who can even begin to put a time frame on the process. Currently, it looks like an open-ended arrangement.
One thing that the average punter does NOT realise that there are initiatives and money movements within the banking system which he knows nothing about – unless of course, it is such a big move that the banking authorities decide that would be prudent to go public. Last week’s sudden announcement by central banks that they would “assist” European banks which needed US dollars was a case in point.
The coordinated move was so huge that the most likely cause was that one or two major European banks must have made THE phone-call to their own Treasury to say that they were about to go under. The U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada lowered their rates for borrowing dollars from each other by a 0.5 percentage point to “ease strains in financial markets.” (a meaningless phrase).
They went on: “At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise,”
Even China took steps to stimulate domestic demand by lowering its central bank interest rate.
Make no mistake – there was a crisis.
Every action so far by central banks and politicians has been a temporary fix. They are still trying to figure out the cure – if indeed there is one.
Last week, the central banks merely threw a rope for Eurobanks to cling onto – but that does NOT solve – or even begin to solve the still-spreading sovereign debt crisis.
This week, communiques are being written, meetings are being conducted and financial horse-trading is taking place as under-qualified politicians attempt to put together a package which, in one fell swoop should solve the global financial crisis.
The whole circus will culminate in a December 9th Brussels summit ( another one) during which the 17 Eurozone leaders will be joined by the 10 non-Euro-participants and a series of agreements will be promulgated.
The ONLY agreement that they really need to pull out of the hat is a “contract” to coordinate Eurozone fiscal policies.
Merkel’s dream of a Federal Europe will have taken its first faltering step.
So far , the Markets have tended to play ball with the floundering politicians but even those eternal optimists are fast running out of patience.
The latest rally has no legs because the current assumption is that somehow (for the first time ever), Eurozone leaders will provide a solution.
So, what is the likelihood of a TARP (Toxic Asset Relief Programme)? What is the likelihood of a coordinated programme to recapitalise ALL the banks? What is the likelihood of Germany changing its mind on ever-increasing austerity programmes which are driving weak Euro economies to Depression (these days, mere Stagnation seems like an attractive alternative – an aspiration!)
So far, the Eurointransigence has been destructive: Unemployment, demotivated and desperate countries, amplifying hardship, collapsed governments.
The evidence so far suggests that those believing that this week will provide the Miracle in Brussels will be disappointed.
The weeks events began with today’s meeting between Chancellor Merkel and Nicolas Sarkozy – The Merkozy Meeting. The output was predictable with an early hint of further postponement.
German Chancellor Angela Merkel has called for “structural changes” after the keenly-watched meeting with French President Nicolas Sarkozy in Paris today. The two leaders said that they had agreed on a “comprehensive” agreement to be proposed on Friday at the summit. (What he meant was is that he had agreed with everything that Frau Merkel had proposed)
“This package shows that we are absolutely determined to keep the euro as a stable currency and as an important contributor to European stability,” said Merkel.
Among the proposals were that the European Court of Justice will have a say when countries break the legally established limit for public debt of 3% of GDP. Also, both leaders rejected the need for the joint issuance of European debt by member states, adding that socialising debt burdens is no solution. (Another Merkel victory).
Sarkozy has added that he expects all of the necessary negotiations to be finalised by March (no surprises there!) and that changes to the Treaty will be ratified in France, following the next national elections in March.
The pair indicated that it is yet to be seen if the changes will be adopted by all 27 European nations or simply the 17 Euro states.
Lastly, they also made it clear that it is their intention to continue working with the International Monetary Fund and to bring forward the implementation of the permanent rescue fund by a full year, to 2012.
Here in the United Kingdom, where politicians have recently voiced concerns on how EU treaty changes could affect Britain, Downing Street has said that there will be no referendum on the EU treaty changes.
A spokesman for Prime Minister said, “What is being talked about is a new set of rules for the Eurozone and how those countries that are members of the euro organise themselves on fiscal policy. There is no proposal on the table for a transfer of powers from the UK to Brussels. That is not what is being talked about…No-one has put that on the table and I don’t think it is likely to be on the table.”
At the end of the first day, it seems that we are about to be served-up yet another portion of bland European procrastination – but what an object lesson in Blatant Brinkmanship from the Germans!
World Markets Rally!!!!
A move to boost lending by six central banks including the Bank of England has triggered a rally on world markets.
The banks, also featuring the European Central Bank and US Federal Reserve, agreed to lower interest rates on US dollar loans, which should encourage lending and help to stave off another credit crunch.
The FTSE 100 Index surged as soon as the measure was announced, rising 3.3% or 176 points to 5513.
In the US, the Dow Jones Industrial Average was up by a similar level in early trading, while the Dax in Germany rose 4% and the Cac-40 in France was 3% higher.
Before the announcement was made London’s leading shares index saw gains of up to 1%, amid hopes European leaders would make headway expanding the region’s bailout fund to help shore up confidence in the eurozone.
Banks led the charge despite some of the sector’s biggest UK players suffering a credit ratings downgrade from Standard & Poor’s.
Lloyds was ahead 7%, or 1.6p at 24.8p, Royal Bank of Scotland was 1.4p higher at 20.9p and Barclays rose 11p to 179.9p.
Miners also surged on the news, with South American copper miner Antofagasta topping the risers’ board, up 96p at 1180p.
Cairn Energy was the biggest faller after it reported more disappointing results from its exploration activities in Greenland. Cairn shares were 8.3p lower at 266.9p, a drop of 3%.
The Edinburgh-based firm said it had failed to find oil in two more wells, following the closure of three other wells earlier this year.
Copyright © 2011 The Press Association. All rights reserved.
United Kingdom and Miracle-Gro?
“Growth” is a word which is used far too rarely in all the messages and communiques which we have become accustomed to hearing emanate from the million-and-one Euromeetings.
Consequently, it is refreshing to see something (anything) written-down which indicates some intent from our own government.
On the face of it, a raid on Pension Funds (see below) does not look like a good plan and none of the goals (below) have dates attached to them. If they did have dates , we would probably realise that this is not a plan for an immediate growth-explosion but something which first needs to be created, drawn, discussed, re-discussed before the first spade is ever sunk into the ground. Neither is it an integrated plan – on the contrary, it can best be described as a series of disparate initiatives.
These projects will NOT make the country any richer, because they represent a “spend” rather than an “earn”, that is to say, they are not something which we can exchange for goods or cash with other countries. These are job-creation schemes which are often confused with proper growth.
Nevertheless, it’s a start. We have lift-off!
The Chancellor of the Exchequer, George Osborne, and the Business Secretary, Vince Cable, have announced a wide-ranging package of more than 140 reforms to build a stronger and more balanced economy. These measures include actions from the second phase of the Government’s Growth Review Phase II and the National Infrastructure Plan.
These measures are supported by an infrastructure package of £30 billion. This includes unlocking up to £20 billion of private investment through signing a Memorandum of Understanding with two groups of UK pension funds, an additional £5 billion of infrastructure spending in this Spending Review period, and commitments to £5 billion of capital projects in the next Spending Review period. In addition, the Government is supporting around a further £1 billion of investment by Network Rail.
To make the UK’s infrastructure fit for the 21st century, the Government has published its National Infrastructure Plan 2011. The plan sets out a critical analysis of the state of the UK’s infrastructure and sets out a pipeline of over 500 infrastructure projects. It commits to clear ambitions to address the key challenges in each major infrastructure sector – energy, transport, telecommunications, waste and water.
The key measures in the National Infrastructure Plan include:
- introducing a new approach to financing infrastructure, by leveraging £20 billion of private investment from pension funds;
- giving local authorities more flexibility to support major infrastructure by considering local borrowing to fund the Northern Line extension to Battersea, and exploring new sources of revenue, such as options for tolling on the A14.
- investing over £1 billion to tackle areas of congestion and improve the national road network, including £270 million for two new managed motorway schemes at congested times on the M3 and M6.
- investing more than £1.4 billion in railway infrastructure and commuter links, including £270 million for a rail link between Oxford and Bedford and £390 million on enhancement and renewal works to improve stations and infrastructure.
- investing £100 million to create up to ten ‘super-connected cities’ across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile coverage.
- The Chief Secretary to the Treasury, Danny Alexander, will chair a new cabinet committee on infrastructure, to push through the delivery of the top 40 priority projects and programmes that are critical for growth.
The second phase of the Government’s Growth Review has been led jointly by HM Treasury and the Department for Business, Innovation and Skills (BIS). The Autumn Statement announces a set of further reforms building on this, including:
- creating a £20 billion National Loan Guarantee Scheme, to lower the cost of loans to small businesses, and a £1 billion Business Finance Partnership, which will lend to mid-sized businesses and small and medium sized businesses in the UK through non-bank channels.
- increasing the Regional Growth Fund by £1 billion to provide ongoing support to grow the private sector in areas currently dependent on the public sector.
- an extra £600 million to fund 100 additional Free Schools, and an additional £600 million to deliver an additional 40,000 school places.
- introducing a new build mortgage indemnity scheme which will help up to 100,000 families to buy their own home, and launching a new £400 million Get Britain Building investment fund to progress stalled developments.
- providing £45 million of support to UK firms wishing to export, doubling from 25,000 to 50,000 the number of SMEs supported, and making similar support available to 500 mid-sized businesses.
- making 100 per cent capital allowances available in six Enterprise Zones (Black Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley).
- making available around £250 million from 2013 to support energy intensive industries manage the costs of electricity, including increasing the relief from the climate change levy on electricity for Climate Change Agreement participants to 90 per cent.
- an additional £200 million for science capital investment.
- investing £55m into the Strategic Rail Freight Network to help deliver schemes that remove bottlenecks and improve capability and longer term connectivity to the UK’s major ports.
- giving a bigger role to businesses in purchasing vocational training programmes. In the New Year employers will be invited to bid for a share of a new £250 million government fund. This will route public investment directly to employers.
- taking decisive action to remove barriers to hiring by making reforms to streamline employment law.
- investing £10 million over five years from 2013-14 in Project Enthuse, matched by investment from the Wellcome Trust, to improve the quality of science teaching in schools
- announcing how the Government will maximise the value of public sector data.
The Chancellor of the Exchequer, George Osborne, said:
“We are committed to making Britain the best place to start, finance and grow a business. The measures I am announcing today will help us to achieve this by creating an environment in which businesses are easy to set up, have access to credit when they need it and are able to grow without being held back by red tape. This action supports our deficit reduction plan and the Government’s monetary activism as we build a balanced economy.”
Business Secretary, Vince Cable, said:
“These measures are an important element of the Government’s work to create the right conditions for business to start up, invest, grow and create jobs. They sit alongside our deficit reduction plan and work to increase the supply of credit.
“I attach particular importance to infrastructure and Government capital spending, including that on innovation and science, and the credit easing initiative. Speedy and effective implementation is now required, building on the major progress that has been made implementing phase one.”
The first phase of the Growth Review was published in March 2011. Work has started on all 137 commitments and substantial progress has been made. The Government has published an update on every single measure announced in The Plan for Growth.
EFSF Accounting Gymnastics.
Last night , Eurozone finance ministers (sort of) agreed a deal to increase the firepower of the European Financial Stability Facility (EFSF).
Unfortunately, this time it really IS a case of too little too late or perhaps, someone didn’t get his sums quite right. Some of the €440 which the EFSF has to play with has already been allocated to help Portugal and Ireland. There is also the small matter of the EFSF contribution to the next Greek bailout.
Nevertheless, it was agreed that the EFSF will guarantee 20 to 30% of the value of any bond issued by a Eurozone member, allowing the fund’s “assets” to be “leveraged”. That, in effect means that say, €1 billion of EFSF assets can underwrite about €3 billions’ worth of Eurobonds. A dangerous game – especially as the EFSF’s real apacity is so limited.
In reality the EFSF’s capacity might only be between €500 and €700 billion, which is not really even big enough to bailout Italy and Spain. Meanwhile, Greece will run out of cash in two weeks’ time and is already standing in the wings, hands out, awaiting its next €8 billion bailout.
Also embedded in the backdrop to all this accounting wizardry, is a secret Euro report which states that Italy will need to beef-up its austerity measures , otherwise it will soon become insolvent.
The ECB has its own issues, centering around its difficulty in securing support from banks in respect of balancing its sovereign bond purchases. Because banks are so unsure of what is going to hit them next, they wish to maintain liquidity. That means that they are no too keen on even depositing short-term money with the ECB.
When agreeing such initiatives, it is quite normal to “test the water” by soliciting the views of investors. Chris Frankel CFO and Deputy CEO of EFSF said ‘Following extensive discussions with investors covering all types and geographical regions, “a number of them” have given their positive views and signalled their willingness to participate.’
That simply means that institutions which are already government-underwritten will invest in lower-risk bonds as a result of centralised underwriting. Consequently, they will be willing (in theory) to accept lower bond yields.
All of the above is being promulgated as a “done deal” but others believe that the whole arrangement is far to complex and too difficult to understand. It certainly smacks of desperation.
What is really needed is a fund which can operate quickly and simply.
In spite of very strong opposition from Germany, it would seem that the only eventual way forward will be not-only for the ECB to start printing Euros. but to become European lender of last resort.
One thing is definite – the whole thing is hanging by a thread and just one more “Eurosurprise” would be devastating.
And the IMF? Another statement declared: “The 17 Euro Finance Ministers have agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility.” Make of that what you will.
One thing is for sure, everything MUST be done to boost the EFSF’s effectiveness and for the “stop-gap accords” to stop. So far, all the temporary “fixes” and retro-crisis-management have failed to protect Italy and Spain from surging bond yields and both Standard and Poors as well as increasingly cynical investors now have France in the crosshairs.
Today is a big day for the Eurozone.
The uncertainty is not helped by statements such as the one from EFSF Chief Executive Officer Klaus Regling who said “It is “impossible to give one number” for the total firepower of the EFSF because market conditions change over time.”
Or ECB President Mario Draghi saying that the ECB’s 18-month- old bond-buying program is “temporary and limited.”
In spite of all the meetings, organisational complexity and communiqués, there are still two vital ingredients missing – a coherent strategy and leadership with direction.
Send for the taxpayer!
In those long-gone antediluvian years before electronic calculators, personal computers, Subway sandwiches, alcopops , female managers and the morning-after pill, there were dusty institutions with mahogany desks, huge ledgers, pound notes and dour-looking men in shiny suits with fountain pens in the breast pocket.
Those venerable institutions were called Building Societies.
They took money from their saving members and lent it to their borrowing members who wished to purchase a home. That’s what they did – and they did it all with real money. Leveraging (borrowing), Gearing (borrowing) and Bonds (borrowing) had not been invented – and if they had, it wasn’t the sort of thing that they needed (or wanted) to know about. Life was simple plus there was the bonus of a typing pool full of straight-backed sexy young typists whose drumbeat was set by the old crone at the front!
Here’s how money was lent and how they managed to lend MORE than the 70% maximum that Banks are currently lending. In those days, banks weren’t even allowed to lend for house purchase (just washing machines and refrigerators).
The mortgage underwriter (in those days, they he was called the mortgage “assistant” ) would decide on whether the “basic” maximum loan that the Building Society was willing to lend was 70% or 75%. Simple! (In very extreme cases – for instance, for properties which were only standing because the woodworm were holding hands – the maximum could be as low as 65% of the valuation).
However, there were MANY occasions when a borrowing member would be granted a mortgage of 90 or even 95%.
“How did they manage that?” I hear you ask.
Let us say that the borrower wanted to buy a nice big five-bedroomed house for £10,000 but could only find a 10% deposit. That meant that the Building Society needed to lend him £9000 (90% of the valuation).
The valuer would recommend a basic loan of say 75% which was £7,500. If the Building Society wanted to lend the borrower the full £9000, it would lend – but only after arranging a form of insurance for the difference – in this example £1,500. In this way, the risky top-part of the mortgage was insured by the Building Society.
So, if the mortgage went wrong, the insurance company would stump up any shortfall if the Building Society needed to dispose of the property in a forced sale.
It used to be called the Insurance Guarantee or I.G.
Why all this rheumy-eyed nostalgia?
David Cameron has just announced a new scheme in which banks will be able to lend more than they are comfortable with – and presumably, borrowers will be able to borrow more than they are comfortable with.
The risky top-part of the mortgage will be insured but, in keeping with modern ways, it will be the taxpayer (who else)? and not an Insurance Guarantee company who will accept the risk.
( I wonder who is advising Cameron these days? I bet he has a couple of fountain pens in the breast pocket)
Virgin on the Ridiculous.
“Bend over, George”
A huge slice of the financial services industry is under taxpayer control – or so we all thought. The truth is that a phrase such as “owned by the taxpayer” is a nonsesnse. “
“Bailed-out with taxpayer cash” is the only truth.
The Royal Bank of Scotland, Lloyds Bank, as well as Bradford and Bingley have been bailed-out using taxpayer money but in truth, there is nothing that we, the taxpayers can do , even if the Treasury decides to sell all of the the taxpayer bank holdings to say, Poundstretcher – for a pound.
The Eurozone is about to go “pop” so it must be a good idea for the government to take steps to remove the taxpayer from what promises to be a bloodbath and to put all the bailed-out banks back into private hands – at the same time remembering that demutualisation and placing bank ownership into private hands is what caused the problem in the first place.
The Chancellors USP appears to be that the sale of the good part of Northern Rock to the Virgin Group will inject much needed new competition into the banking sector.
No it won’t.
If Branson has any sense (which he undoubtedly has), the new Virgin Bank will be tarted-up and floated within a few years. No matter what Branson does, the fact remains that “the taxpayer” has been royally screwed to the tune of of up to £700 million. Once again, an example of professionals negotiating with politicians and Civil Servants.
As far as “injecting competition into the High Street” is concerned – that is no more than a tacit admission by the government of its failure to control the banks during their 20-year gorge-fest. Even now, banks continue to profit while economies “tank” and they do it with taxpayer money PLUS a government guarantee! The classic “We win, you lose because we cannot lose” scenario.
The remaining piece of Northern Rock – the quaintly-named Northern Rock Asset Management (NRAM) is still “owned” by the taxpayer. The pattern is as follows:
The Treasury gives away the profit-making bits and is forced to keep the remaining dross, ultimately taking yet another “hit”. Companies such as NRAM, Bradford and Bingley with their very poor mortgage books will deteriorate and become moribund as a result of their customers’ increasing unemployment and the consequent accelerating mortgage delinquencies. A classic “lose lose” situation.
Here’s something to spell out to all governments: There is no such thing as a profitable exit from taxpayer-funded government interventions in the financial sector. (As the Eurozone is beginning to find out.)
Politicians don’t “do” profit. Otherwise they wouldn’t be politicians. Ask Gordon Brown and his gold sale.
The Chancellor is patting himself on the back that (subject to FSA approval) he has managed to extract £747 from Virgin and that, in addition, he appears to have been paid 90% of the book value of Northern Rock (the bank’s assets minus its debts). Once the ink has dried on the contract, just watch Virgin Money revalue those assets – if they haven’t done so already!!
There are supposed to be a few additional payments to the government from Virgin. For instance – another £50 million by the middle of 2012 and a similar amount if the company is sold-on within five years. Best keep an eye on that!
Northern Rock used to be a great Newcastle-based Building Society – so it is a great shame to see yet another former fat northern lass stripped and screwed in such an undignified way.
Not-0nly has the Government lost at least £400 million on the deal (that’s in less than three years) but the mortgage delinquencies within the remaining piece of our former Geordie Giant will ensure further mega-losses for the hapless taxpayer.
No doubt, the government will soon want to do some more “businessing”.
For instance, our 83% stake in RBS plus our 40% stake in Lloyds add up to a cool £40 billion.
(Lloyds is currently the MOST likely bank to experience something akin to the 2007 run on the Northern Rock – especially as it is increasingly reliant on the rapidly seizing-up wholesale money markets. Its share price has dropped by over 15% in the fortnight since its CEO, Horta-Osório took stress-related sick leave. One to watch closely!).
It is only a matter of time before the Chancellor will appear on our screens to tell us that his sale of RBS and Lloyds at a £20 billion loss was a “good deal” for the taxpayer.
Billionaire Wall Street Investor Wilbur Ross as well as an Abu Dhabi investment fund are Virgin Money backers . Other participants in the Northern Rock auction were NBNK and American private equity company JC Flowers. For apparently no good reason, Branson has bought Northern Rock at a knockdown price. In 2008, he was willing to plough millions into Northern Rock for a 30% equity share. Once again the politicians have been stitched up.
‘The taxpayer will see its outstanding loans to Northern Rock repaid in full, with interest.’ ………. Alastair Darling, February 2008
‘At the end of the day banks will be paying money to the British public, not the other way round.’…….Gordon Brown, November 2009.
The Chancellor has flogged Northern Rock to Richard Branson’s Virgin Money with a potential LOSS of £700million to the British taxpayer. Why? Who were the other bidders? I feel yet another Freedom of Information request coming on. George Osborne believes that a potential loss of this magnitude represents “good value for money”. WTF?
It is certainly NOT good value for money. Most losses are not. Is this guy REALLY running our economy?
This weekend’s goings-on in Greece and Italy have bought maybe two or three days of calm. The usual pattern is for another crisis to surface or for another set of tragic trading figures to materialise and once again, it will be back to square one. No matter how many noughts are added to various bailout schemes, it is the structural and political issues which need to be attacked. Putting bankers and Eurowonks in charge in Greece and Italy does not guarantee anything – in fact it looks like a very high-risk strategy with as much possibility of a positive outcome as there was under the previous regimes. The basic underlying numbers are exactly the same today as they were last week.
The moves by both Greece and Italy towards a Technocratic -style government are both reassuring and frightening. The increased complexity of global economics has really exposed elected politicians as being incapable of making the right decisions, except at the most superficial level. The worrying thing is that Austerity Economics has become a modern Mantra and so has come to be viewed as a modern divine truth. In fact, Stimulus Politics is what is needed. Currently, the cure is killing the patient. The United Kingdom experience is an excellent example of a policy which clearly demonstrates that austerity measures gradually KILL economic growth but that political dogma always wins out. Greece has been an extreme example where austerity has done little more than accelerate economic collapse. Italy has followed and now French austerity economics are set to cause even more economic havoc.
European Union Economic and Monetary Affairs Commissioner Olli Rehn has said that Belgium, Cyprus, Hungary, Malta and Poland are not doing enough to cut their deficits. How DO these people know?
The good news is that Italy has managed to shift 5 billion euros-worth of one-year bonds at a rate of 6.087%. That means that in 12 months, the Italian government will have to repay those bonds at over 5.3 billion. By then, it will have to borrow more in order to redeem the 5.3 billion etc etc.
This bond issue is, of course is a mere drop in the ocean if set against the 1.4 TRILLION which they will probably need for a bailout.
Within a few weeks, Italy’s president Giorgio Napolitano will attempt to form a new government. With Italy’s past electoral history, the creation of a new administration will make the Greek efforts look like a W.I. meeting.
October 2011 Eurozone Output
This is what they said:
1. Over the last three years, we have taken unprecedented steps to combat the effects of the world-wide financial crisis, both in the European Union as such and within the euro area. The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation, support to countries in difficulty, and a strengthening of euro area governance leading to deeper economic integration among us and an ambitious agenda for growth. At our 21 July meeting we took a set of major decisions. The ratification by all 17 Member States of the euro area of the measures related to the EFSF significantly strengthens our capacity to react to the crisis. Agreement by all three institutions on a strong legislative package within the EU structures on better economic governance represents another major achievement. The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are co-ordinated at European level, with co- ordination at EU level now taking place before national decisions are taken. The euro continues to rest on solid fundamentals.
2. Further action is needed to restore confidence. That is why today we agree on a comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties and take the necessary steps for the completion of our economic and monetary union. We fully support the ECB in its action to maintain price stability in the euro area. Sustainable public finances and structural reforms for growth
3. The European Union must improve its growth and employment outlook, as outlined in the growth agenda agreed by the European Council on 23 October 2011. We reiterate our full commitment to implement the country specific recommendations made under the first European Semester and on focusing public spending on growth areas.
4. All Member States of the euro area are fully determined to continue their policy of fiscal consolidation and structural reforms. A particular effort will be required of those Member States who are experiencing tensions in sovereign debt markets.
5. We welcome the important steps taken by Spain to reduce its budget deficit, restructure its banking sector and reform product and labour markets, as well as the adoption of a constitutional balanced budget amendment. Strictly implementing budgetary adjustment as planned is key, including at regional level, to fulfil the commitments of the stability and growth Pact and the strengthening of the fiscal framework by developing lower level legislation to make the constitutional amendment fully operative. Further action is needed to increase growth so as to reduce the unacceptable high level of unemployment. Actions should include enhancing labour market changes to increase flexibility at firm level and employability of the labour force and other reforms to improve competitiveness, specially extending the reforms in the service sector.
6. We welcome Italy’s plans for growth enhancing structural reforms and the fiscal consolidation strategy, as set out in the letter sent to the Presidents of the European Council and the Commission and call on Italy to present as a matter of urgency an ambitious timetable for these reforms. We commend Italy’s commitment to achieve a balanced budget by 2013 and a structural budget surplus in 2014, bringing about a reduction in gross government debt to 113% of GDP in 2014, as well as the foreseen introduction of a balanced budget rule in the constitution by mid 2012. Italy will now implement the proposed structural reforms to increase competitiveness by cutting red tape, abolishing minimum tariffs in professional services and further liberalising local public services and utilities. We note Italy’s commitment to reform labour legislation and in particular the dismissal rules and procedures and to review the currently fragmented unemployment benefit system by the end of 2011, taking into account the budgetary constraints. We take note of the plan to increase the retirement age to 67 years by 2026 and recommend the definition by the end of the year of the process to achieve this objective.
We support Italy’s intention to review structural funds programs by reprioritising projects and focussing on education, employment, digital agenda and railways/networks with the aim of improving the conditions to enhance growth and tackle the regional divide. We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment. Countries under adjustment programme
7. We reiterate our determination to continue providing support to all countries under programmes until they have regained market access, provided they fully implement those programmes.
8. Concerning the programme countries, we are pleased with the progress made by Ireland in the full implementation of its adjustment programme which is delivering positive results.Portugal is also making good progress with its programme and is determined to continue undertaking measures to underpin fiscal sustainability and improve competitiveness. We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.
9. We welcome the decision by the Eurogroup on the disbursement of the 6th tranche of the EUIMF support programme for Greece. We look forward to the conclusion of a sustainable and credible new EU-IMF multiannual programme by the end of the year.
10. The mechanisms for the monitoring of implementation of the Greek programme must be strengthened, as requested by the Greek government. The ownership of the programme is Greek and its implementation is the responsibility of the Greek authorities. In the context of the new programme, the Commission, in cooperation with the other Troika partners, will establish for the duration of the programme a monitoring capacity on the ground, including with the involvement of national experts, to work in close and continuous cooperation with the Greek government and the Troika to advise and offer assistance in order to ensure the timely and full implementation of the reforms. It will assist the Troika in assessing the conformity of measures which will be taken by the Greek government within the commitments of the programme. This new role will be laid down in the Memorandum of Understanding. To facilitate the efficient use of the sizeable official loans for the recapitalization of Greek banks, the governance of the Hellenic Financial Stability Fund (HFSF) will be strengthened in agreement with the Greek government and the Troika.
11. We fully support the Task Force on technical assistance set up by the Commission.
12. The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.
13. Greece commits future cash flows from project Helios or other privatisation revenue in excess of those already included in the adjustment programme to further reduce indebtedness of the Hellenic Republic by up to 15 billion euros with the aim of restoring the lending capacity of the EFSF.
14. Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks.
15. As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.
16. All other euro area Member States solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole. Stabilisation mechanisms
17. The ratification process of the revised EFSF has now been completed in all euro area Member States and the Eurogroup has agreed on the implementing guidelines on primary and secondary market interventions, precautionary arrangements and bank recapitalisation. The decisions we took concerning the EFSF on 21 July are thus fully operational. All tools available will be used in an effective way to ensure financial stability in the euro area. As stated in the implementing guidelines, strict conditionality will apply in case of new (precautionary) programmes in line with IMF practices. The Commission will carry out enhanced surveillance of the Member States concerned and report regularly to the Eurogroup.
18. We agree that the capacity of the extended EFSF shall be used with a view to maximizing the available resources in the following framework: • the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF. These measures are needed to ensure financial stability and provide sufficient ringfencing to fight contagion; • this will be done without extending the guarantees underpinning the facility and within the rules of the Treaty and the terms and conditions of the current framework agreement, operating in the context of the agreed instruments, and entailing appropriate conditionality and surveillance.
19. We agree on two basic options to leverage the resources of the EFSF: • providing credit enhancement to new debt issued by Member States, thus reducing the funding cost. Purchasing this risk insurance would be offered to private investors as an option when buying bonds in the primary market; • maximising the funding arrangements of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purpose Vehicles. This will enlarge the amount of resources available to extend loans, for bank recapitalization and for buying bonds in the primary and secondary markets.
20. The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances. The leverage effect of each option will vary, depending on their specific features and market conditions, but could be up to four or five.
21. We call on the Eurogroup to finalise the terms and conditions for the implementation of these modalities in November, in the form of guidelines and in line with the draft terms and conditions prepared by the EFSF.
22. In addition, further enhancement of the EFSF resources can be achieved by cooperating even more closely with the IMF. The Eurogroup, the Commission and the EFSF will work on all possible options. Banking system
23. We welcome the agreement reached today by the members of the European Council on bank recapitalisation and funding (see Annex 2). Economic and fiscal coordination and surveillance
24. The legislative package on economic governance strengthens economic and fiscal policy coordination and surveillance. After it enters into force in January 2012 it will be strictly implemented as part of the European Semester. We call for rigorous surveillance by the Commission and the Council, including through peer pressure, and the active use of the existing and new instruments available. We also recall our commitments made in the framework of the Euro Plus Pact.
25. Being part of a monetary union has far reaching implications and implies a much closer coordination and surveillance to ensure stability and sustainability of the whole area. The current crisis shows the need to address this much more effectively. Therefore, while strengthening our crisis tools within the euro area, we will make further progress in integrating economic and fiscal policies by reinforcing coordination, surveillance and discipline. We will develop the necessary policies to support the functioning of the single currency area.
26. More specifically, building on the legislative package just adopted, the European Semester and the Euro Plus Pact, we commit to implement the following additional measures at the national level:
a. adoption by each euro area Member State of rules on balanced budget in structural terms translating the Stability and Growth Pact into national legislation, preferably at constitutional level or equivalent, by the end of 2012;
b. reinforcement of national fiscal frameworks beyond the Directive on requirements for budgetary frameworks of the Member States. In particular, national budgets should be based on independent growth forecasts;
c. invitation to national parliaments to take into account recommendations adopted at the EU level on the conduct of economic and budgetary policies;
d. consultation of the Commission and other euro area Member States before the adoption of any major fiscal or economic policy reform plans with potential spillover effects, so as to give the possibility for an assessment of possible impact for the euro area as a whole;
e. commitment to stick to the recommendations of the Commission and the relevant Commissioner regarding the implementation of the Stability and Growth Pact.
27. We also agree that closer monitoring and additional enforcement are warranted along the following lines:
a. for euro area Member States in excessive deficit procedure, the Commission and the Council will be enabled to examine national draft budgets and adopt an opinion on them before their adoption by the relevant national parliaments. In addition, the Commission will monitor budget execution and, if necessary, suggest amendments in the course of the year;
b. in the case of slippages of an adjustment programme closer monitoring and coordination of programme implementation will take place.
28. We look forward to the Commission’s forthcoming proposal on closer monitoring to the Council and the European Parliament under Article 136 of the TFEU. In this context, we welcome the intention of the Commission to strengthen, in the Commission, the role of the competent Commissioner for closer monitoring and additional enforcement.
29. We will further strengthen the economic pillar of the Economic and Monetary Union and better coordinate macro- and micro-economic policies. Building on the Euro Plus Pact, we will improve competitiveness, thereby achieving further convergence of policies to promote growth and employment. Pragmatic coordination of tax policies in the euro area is a necessary element of stronger economic policy coordination to support fiscal consolidation and economic growth. Legislative work on the Commission proposals for a Common Consolidated Corporate Tax Base and for a Financial Transaction Tax is ongoing. Governance structure of the euro area
30. To deal more effectively with the challenges at hand and ensure closer integration, the governance structure for the euro area will be strengthened, while preserving the integrity of the European Union as a whole.
31. We will thus meet regularly – at least twice a year- at our level, in Euro Summits, to provide strategic orientations on the economic and fiscal policies in the euro area. This will allow to better take into account the euro area dimension in our domestic policies.
32. The Eurogroup will, together with the Commission and the ECB, remain at the core of the daily management of the euro area. It will play a central role in the implementation by the euro area Member States of the European Semester. It will rely on a stronger preparatory structure.
33. More detailed arrangements are presented in Annex 1 to this paper. Further integration
34. The euro is at the core of our European project. We will strengthen the economic union to make it commensurate with the monetary union.
35. We ask the President of the European Council, in close collaboration with the President of the Commission and the President of the Eurogroup, to identify possible steps to reach this end. The focus will be on further strengthening economic convergence within the euro area, improving fiscal discipline and deepening economic union, including exploring the possibility of limited Treaty changes. An interim report will be presented in December 2011 so as to agree on first orientations. It will include a roadmap on how to proceed in full respect of the prerogatives of the institutions. A report on how to implement the agreed measures will be finalised by March 2012.
Ten measures to improve the governance of the euro area There is a need to strengthen economic policy coordination and surveillance within the euro area, to improve the effectiveness of decision making and to ensure more consistent communication. To this end, the following ten measures will be taken, while fully respecting the integrity of the EU as a whole:
1. There will be regular Euro Summit meetings bringing together the Heads of State or government (HoSG) of the euro area and the President of the Commission. These meetings will take place at least twice a year, at key moments of the annual economic governance circle; they will if possible take place after European Council meetings. Additional meetings can be called by the President of the Euro Summit if necessary. Euro Summits will define strategic orientations for the conduct of economic policies and for improved competitiveness and increased convergence in the euro area. The President of the Euro Summit will ensure the preparation of the Euro Summit, in close cooperation with the President of the Commission.
2. The President of the Euro Summit will be designated by the HoSG of the euro area at the same time the European Council elects its President and for the same term of office. Pending the next such election, the current President of the European Council will chair the Euro Summit meetings.
3. The President of the Euro Summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits. The President will also inform the European Parliament of the outcome of the Euro Summits.
4. As is presently the case, the Eurogroup will ensure ever closer coordination of the economic policies and promoting financial stability. Whilst respecting the powers of the EU institutions in that respect, it promotes strengthened surveillance of Member States’ economic and fiscal policies as far as the euro area is concerned. It will also prepare the Euro Summit meetings and ensure their follow up.
5. The President of the Eurogroup is elected in line with Protocol n°14 annexed to the Treaties. A decision on whether he/she should be elected among Members of the Eurogroup or be a full-time President based in Brussels will be taken at the time of the expiry of the mandate of the current incumbent. The President of the Euro Summit will be consulted on the Eurogroup work plan and may invite the President of the Eurogroup to convene a meeting of the Eurogroup, notably to prepare Euro Summits or to follow up on its orientations. Clear lines of responsibility and reporting between the Euro Summit, the Eurogroup and the preparatory bodies will be established.
6. The President of the Euro Summit, the President of the Commission and the President of the Eurogroup will meet regularly, at least once a month. The President of the ECB may be invited to participate. The Presidents of the supervisory agencies and the EFSF CEO / ESM Managing Director may be invited on an ad hoc basis.
7. Work at the preparatory level will continue to be carried out by the Eurogroup Working Group (EWG), drawing on expertise provided by the Commission. The EWG also prepares Eurogroup meetings. It should benefit from a more permanent sub-group consisting of alternates/officials representative of the Finance Ministers, meeting more frequently, working under the authority of the President of the EWG.
8. The EWG will be chaired by a full-time Brussels-based President. In principle, he/she will be elected at the same time as the chair of the Economic and Financial Committee.
9. The existing administrative structures (i.e. the Council General Secretariat and the EFC Secretariat) will be strengthened and co-operate in a well coordinated way to provide adequate support to the Euro Summit President and the President of the Eurogroup, under the guidance of the President of the EFC/EWG. External expertise will be drawn upon as appropriate, on an ad hoc basis.
10. Clear rules and mechanisms will be set up to improve communication and ensure more consistent messages. The President of the Euro Summit and the President of the Eurogroup shall have a special responsibility in this respect. The President of the Euro Summit together with the President of the Commission shall be responsible for communicating the decisions of the Euro Summit and the President of the Eurogroup together with the ECFIN Commissioner shall be responsible for communicating the decisions of the Eurogroup.
Consensus on banking package
1. Measures for restoring confidence in the banking sector (banking package) are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector. These measures should address: a. The need to ensure the medium-term funding of banks, in order to avoid a credit crunch and to safeguard the flow of credit to the real economy, and to coordinate measures to achieve this. b. The need to enhance the quality and quantity of capital of banks to withstand shocks and to demonstrate this enhancement in a reliable and harmonised way.
2. Guarantees on bank liabilities would be required to provide more direct support for banks in accessing term funding (short- term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions.
3. A simple repetition of the 2008 experience with full national discretion in the setting-up of liquidity schemes may not provide a satisfactory solution under current market conditions. Therefore a truly coordinated approach at EU-level is needed regarding entry criteria, pricing and conditions. The Commission should urgently explore together with the EBA, EIB, ECB the options for achieving this objective and report to the EFC.
Capitalisation of banks
4. Capital target: There is broad agreement on requiring a significantly higher capital ratio of 9 % of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer, which is justified by the exceptional circumstances. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial reporting rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy and taking into account current exposure levels of the group including their subsidiaries in all Member States, cognisant of the need to avoid undue pressure on credit extension in host countries or on sovereign debt markets.
5. Financing of capital increase: Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of Eurozone countries. State Aid
6. Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis
Might as well make it £200 billion, Merv .
Below is the statement issued yesterday by the Bank of England’s Monetary Policy Committee. It defies comment because it runs out of facts after Line 2 of the first paragraph.
Paragraph 2 is no more that the usual retrospective “No shit, Sherlock” statement which has become the Bank of England’s trademark.
Within the statement, I have highlighted the words which give a clear indication of the overall wishy-washy tone which Mervyn King and the Monetary Policy Committee have made their own.
The £75 billion which is being pumped into the system is more-or-less an arbitrary figure and purely cosmetic – because it was deemed time for someone to take action.
Why Quantitative Easing? Because this is the only item remaining in the monetary toolbox.
Politicians and Central Bankers are out of ideas. This latest initiative is the Bank of England’s own version of Pin the Tail on the Donkey.
An increasing number of individuals who understand the mechanics of the global economic system agree that we are rapidly approaching a time when governments should simply guarantee bank customers’ deposits and allow certain banks to finally fail and introduce a more direct form of QE to stimulate production and encourage consumers to consume.
Attempts to stimulate an economy by filtering cash into moribund banks merely pushes the recovery horizon further into the distance.
MPC STATEMENT 6TH OCTOBER 2011:
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.
The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.
In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.
CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.
The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.
THIS is yesterday’s letter from the Governor of the Bank of England to the Chancellor of the Exchequer. Perhaps the letter-writing ceremony, together with ribbons on MPs’ coathooks into which they can hang their swords, ought to be consigned to the poubelle of history!
This statement about the British: ” Crap food but such LOVELY manners” should be rewritten: “Crap economic policy but such LOVELY letters and statements”
Greece and the Deutschebond
Hopefully, Europe is NOT relying on yesterday’s conference call between Angela Merkel, Nicolas Sarkozy and Greek Prime Minister, George Papandreou.
Lets not beat around the bush. The Greek government lied in order to gain entry to the Eurozone. It did it with the connivance of Goldman Sachs who were paid $190 million for their trouble. CLICK HERE.
Euro auditors ought to be in Athens performing Due Diligence in order to make sure that the numbers stack-up and more importantly, that Athens really is making progress and reducing its budget deficit.
The days of “My word is my Bond” are over.
Greece is an economic Basket Case which will be a drag on the Eurozone economy for ever. Historians will also know that Greece tends to make a habit of going bust and defaulting.
The destructive influence of Greece is now causing rifts within Europe and there is now a very real danger of the German government disintegrating.
Finally, empty pronouncements by senior European officials which are designed to manipulate Stock Market prices MUST stop.
The ONLY morsel of common sense was delivered yesterday by Guido Westerwelle, Germany’s Foreign Minister. He said: “….we believe you can’t fight debt in Europe by making it easier to take up debt.”
We all know that economic GROWTH is the answer. That’s something that Greece will not be capable of for years – if ever.
I pointed out a few days ago that it seemed as if there was an orchestrated effort by politicians and bankers to put-out weekly or bi-weekly “Statements of Intent” — purely in order to placate the Markets as well as to postpone the inevitable collapse of the Euro. That means NOT actually doing anything but promising to do something, sometime in the future. It’s the new “Weapon of Choice” for politicians whose ideas have run out.
THIS week is shaping up as a very special example of this comparatively new phenomenon.
Today, the Markets have responded well to yet more wind and wee from a politician. So whose turn was it THIS time?
None other than European Commission President himself – Jose Manuel Barroso!
Let’s have a close look at what he said and maybe ascertain whether his statement actually contains any “doing” words.
He said that he will put forward moves to tackle the Eurozone crisis. “Put forward”? “Moves”? What moves?
He will urge the Eurozone countries to issue joint bonds. “Urge”? “Joint Bonds”? How will he “Urge”?
Unsurprisingly, Italian Finace Minister Giulio Tremonti supports Eurobonds. Italy is vastly over-borrowed – to the extent that its attempt to borrow even more from China was given very short shrift by the Chinese – even though the Italians were offering security.
The fact that George Soros (no less) has backed the concept of Eurobonds was weaved into the equation. Ancient George’s ONLY motivation is to save Uncle Sam – not Greece or Italy.
The main player in the Eurofarce , Germany, is NOT even remotely interested in the Eurobond because, effectively, it with be the “Deutschebond”. German Charity.
Barosso wants a United States of Europe. Pure and Simple.
He went on:
“I want to confirm that the Commission will soon present options for the introduction of Eurobonds.” Soon? How “soon”, Jose? “Options”? WTF?
Jose does NOT give up easily: “Some of these could be implemented within the terms of the current treaty, and others would require treaty changes.” “Treaty changes“, Jose?
That’s lots of meetings and could take years. That might just keep the markets interested!
He really declared his hand when he said that “the measure” on its own was not enough to solve the Eurozone debt crisis. (What “measure”, Jose? So far,we’ve only heard Eurobullshit)
He said Europe needed a “Federalist Moment” to rescue it. He argued that the solution to the crisis would have to involve the “Community method” which presumably, like the Rhythm Method involves someone being screwed. For instance: the Taxpayer and the Investor?!
( Isn’t it amazing how few NUMBERS there are in a statement about fiscal deficits?)
Dans la merde or in der Scheiße?
I just have a look at the European stock markets and on the surface everything appears to be quite normal.
The banks are doing especially well!
Today’s showing in the markets is the most clear indicator so far, as to the utter confusion generated by the intransigence and incompetence of senior politicians.
Today President Nicolas Sarkozy of France and Chancellor Angela Merkel are involved in pointless discussions with Greek Prime Minister George Papandreou. Why pointless? Because they probably all began their telephone conference chat with this afternoon’s communique already written.
Chancellor Merkel has expressed the schizophrenic views of the Eurozone. She has stated that the Eurozone will not allow Greece to default but on the other hand Greece will not secure access to the next 8 billion euro bailout unless new budget cuts are made.
Greece will be running out of cash in about three weeks.
Everyone, understandably, is beginning to feel frustrated and impotent at the pace of the so-called rescue package.
If the Eurozone is serious about the Greek bailout, the cash should be handed over today. That more than anything will placate the markets which must by now be feeling as if they’re on a bad acid trip. The current situation is certainly a candidate for the old 1960s hippie slogan ‘Stamp out reality’.
In reality though, the politicians will wish to leave all options on the table rather than make a move which could be catastrophic. The fact is that whichever move they make, there is bound to be either a national catastrophe or a pan-European catastrophe. More likely both.
That in turn will generate an American catastrophe ; the U.S has been teetering on the edge for many months.
There is only so much time that we can all just stand staring into the abyss.
Currently we are all keeping an eye on Ben Bernanke and the Federal Reserve, because we fully expect them to start printing money at any minute.
In fact we should be looking at the French because it cannot be too long before they make a similar decision – and they will probably ink their printing presses well ahead of the Americans.
If the French go ahead and print money in order to provide a cushion for the French banks against a Greek default and the Greek default overhead anyway, it will be the equivalent of them having unnecessarily dumped billions of euros.
Unfortunately, that’s the ONLY plan which the French government has.
Today, the United Kingdom has announced another 80,000 unemployed between May and July. That is NOT the sign of an economy in recovery. THAT is the sign of an economy still in recession. The official unemployment figure in now in excess of 2.5 million. In fact, the actual number has probably been in excess of 3 million for quite a while.
In recent months there has been a bit of Schadenfreude-induced gloating from the United Kingdom’s senior politicians and commentators in respect of the Eurozone’s woes. That will stop very soon – as our meagre exports dry up because no-one in Europe has the cash to pay for them.
It is not just the Eurozone which is crumbling, it is EUROPE.
It is NOT just the European Economic Class System which is going to be everyone’s downfall. It is NOT because the “HAVES” dictating to the “HAVE-NOTS”.
On a macro level, the vast socio-economic differences within the Eurozone do no more than reflect socio-economic differences within individual states.
They tried an experiment whereby the poor (countries) were expected to compete with the rich and as we should all know by now, this type of “Faux cross-border Socialism” can never work.
There can always be “liberté” and “fraternité” between such disparate states but there can never ever be anything even vaguely resembling “égalité” between the rich and the poor.
In the Eurozone, some are definitely more “égal” than others.
Currently, the more equal are terrified that the less equal will take them down.
(Personally, I believe that Greece will be allowed to default. Glad I kept those Drachmas!)
The Greek Entry.
Last week I predicted that it was Sarkozy’s turn to deliver yet another mealy-mouthed statement. Looks as if it’s this afternoon!
The question is CAN he save the French Banks whilst convincing an increasingly cynical public and sceptical markets that it’s all about saving Greece?
Money Market Funds have been selling French Bank Shares for about a year, during which time they have reduced their holding in French banks by about 50%.
After Sarkozy (or Angela Merkel) tells us that Greece is “doing the right things” or that ” it is making good progress“, it will be interesting to see what the markets make of it all.
The MOST likely outcome of today’s meeting between Sarkozy, Merkel and Greek Premier Papandreou is a statement indicating that Greece needs more time.
The Euro and the Eurozone both need time – another commodity which is fast disappearing.
Today’s summit has an interesting sub-plot. Rating agency Moody’s has just downgraded France’s two major banks. Credit Agricole has been busted down from Aa1 to Aa2 and Société Générale from Aa2 to Aa3.
Once again, this has come as both a surprise and relief to the experts because the downgrades were “not as bad as expected“. It seems that these days, NOTHING is as expected.
For politicians and most economists, these are indeed The Days of Mystery!
The seriousness of not-only the Greek but the entire Eurozone situation is exemplified by the fact that The US treasury secretary, Tim Geithner, will be attending Friday’s meeting of EU finance ministers.
Even the Americans can see that Greece is the No1 domino!
The hard fact is that Greece ought never have been allowed to join the Euro. It was a predictable accident waiting to happen.
As many politicians will attest – especially those who attended boarding school, the “Greek Entry” was always going to be painful.
After three years, the scales have fallen from our eyes and finally, the light has flooded in. It has been long time coming but suddenly – an Epiphany!
The politicians, bankers, economists and even the Central Bank astrologers have absolutely NO IDEA as to how to deal with the gradually building waves of a massive economic crisis which is about to sweep the world. They’ve been gambling that random fiscal and economic measures would somehow provide a solution and make everything well again!
Money has been printed and distributed, bonds have been issued, promises have been made, false political visions have been shared and yet the self-amplifying problem continues to self-amplify.
Some of us finally realised that the Eurozone had run out of ideas when the German authorities temporarily banned “naked short selling” of Eurobonds. The action had absolutely NO effect. However, it did demonstrate that the politicians (who initially blamed the bankers for the pit of shit that they had help to create) were now turning a rheumy eye on everyone’s new bête noire – the SPECULATORS!
Bankers were greedy bastards with large bonuses but now it was the turn of the “casino-banking” speculators. Spit!
In any crisis, it is always a good idea to look for the root or initial cause. In the case of the Euro and the Eurozone it was an ill-conceived plan which , without tighter integration of fiscal policies between states was doomed to failure.
Make no mistake, the increasingly pathetic bleating of the French and Germans in respect of the looming Greek collapse and default has absolutely NOTHING to do with Greece.
It is all about their joint delusive attempt to prevent the inevitable collapse of their banks – which are holding billions in Greek IOUs. Nothing at all to do with Franco-German altruism.
As the French and Germans intertwine, hug each other and panic, their assault on the “speculators” and the markets , although understandable is also ironic. Why? Because eventually, the Western-European begging bowl will be waved at the markets and the “speculators” – in the vain hope that they will lend the impoverished Eurozone BILLIONS so that the sacred Euro cow can be reprieved.
Biting the hand that could feed you is never a good plan but currently, the markets are dealing with increasingly desperate politicians who have painted themselves into a Euro corner with absolutely NO way out.
Euro and Western economies in general are in debt – both in the public and private sectors. Several countries are bankrupt.
The only REAL solution is GROWTH which unfortunately is NOT achieved by insisting that the weakest economies attempt to restore growth through the unusual and meritless medium of The Austerity Plan.
Austerity gains you a lot of points with the rating agencies, makes it easier for you to borrow more but in the long-term, it is NOT a sustainable strategy – as we in the West are ALL about to discover. Overborrowing is what caused the problem in the first place.
The economic affliction is the mire of public and private sector debt and uncompetitiveness into which the weaker economies of southern Europe have sunk.
The cure should be to create an atmosphere for economic growth.
Unfortunately, the generally accepted (unproved but imposed) speculation is to force broken countries to try and balance their budgets and restore economic growth whilst slashing expenditure and demotivating taxpayers through increased unemployment, inflation and the resultant decimation of tax-revenues.
It will NOT be long before the inevitable wake-up call is heard!
Casino economics does not work.
Wondering where real decisions are made? This is a list of attendees at this year’s Bilderberg Conference.
The conference is held annually with about 140 participants. This year the conference was on 11th June at the Suvretta hotel in St. Moritz, Switzerland.
If you scroll down the list, you will see familiar names. The Great Britain delegates’ list is particularly interesting. George Osborne was an attendee for a few years before he became Chancellor.
The list is incomplete because certain delegates requested anonymity.
· Coene, Luc, Governor, National Bank of Belgium
· Davignon, Etienne, Minister of State
· Leysen, Thomas, Chairman, Umicore
· Fu, Ying, Vice Minister of Foreign Affairs
· Huang, Yiping, Professor of Economics, China Center for Economic Research, Peking University
· Eldrup, Anders, CEO, DONG Energy
· Federspiel, Ulrik, Vice President, Global Affairs, Haldor Topsøe A/S
· Schütze, Peter, Member of the Executive Management, Nordea Bank AB
· Ackermann, Josef, Chairman of the Management Board, Deutsche Bank
· Enders, Thomas, CEO, Airbus SAS
· Löscher, Peter, President and CEO, Siemens AG
· Nass, Matthias, Chief International Correspondent, Die Zeit
· Steinbrück, Peer, Member of the Bundestag; Former Minister of Finance
· Apunen, Matti, Director, Finnish Business and Policy Forum EVA
· Johansson, Ole, Chairman, Confederation of the Finnish Industries EK
· Ollila, Jorma, Chairman, Royal Dutch Shell
· Pentikäinen, Mikael, Publisher and Senior Editor-in-Chief, Helsingin Sanomat
· Baverez, Nicolas, Partner, Gibson, Dunn & Crutcher LLP
· Bazire, Nicolas, Managing Director, Groupe Arnault /LVMH
· Castries, Henri de, Chairman and CEO, AXA
· Lévy, Maurice, Chairman and CEO, Publicis Groupe S.A.
· Montbrial, Thierry de, President, French Institute for International Relations
· Roy, Olivier, Professor of Social and Political Theory, EUI
· Agius, Marcus, Chairman, Barclays PLC
· Flint, Douglas J., Group Chairman, HSBC Holdings
· Kerr, John, Member, House of Lords; Deputy Chairman, Royal Dutch Shell
· Lambert, Richard, Independent Non-Executive Director, Ernst & Young
· Mandelson, Peter, Member, House of Lords; Chairman, Global Counsel
· Micklethwait, John, Editor-in-Chief, The Economist
· Osborne, George, Chancellor of the Exchequer
· Stewart, Rory, Member of Parliament
· Taylor, J. Martin, Chairman, Syngenta International AG
· David, George A., Chairman, Coca-Cola H.B.C. S.A.
· Hardouvelis, Gikas A., Chief Economist, Eurobank EFG
· Papaconstantinou, George, Minister of Finance
· Tsoukalis, Loukas, President, ELIAMEP Grisons
· Almunia, Joaquín, Vice President, European Commission
· Daele, Frans van, Chief of Staff to the President of the European Council
· Kroes, Neelie, Vice President, European Commission
· Lamy, Pascal, Director General, World Trade Organization
· Rompuy, Herman van, President, European Council
· Sheeran, Josette, Executive Director, United Nations World Food Programme
· Solana Madariaga, Javier, President, ESADE
· Trichet, Jean-Claude, President, European Central Bank
· Zoellick, Robert B., President, The World Bank Group
· Gallagher, Paul, Senior Counsel; Former Attorney General
· McDowell, Michael, Senior Counsel, Law Library; Former Dep. P.M
· Sutherland, Peter D., Chairman, Goldman Sachs International
· Bernabè, Franco, CEO, Telecom Italia SpA
· Elkann, John, Chairman, Fiat S.p.A.
· Monti, Mario, President, Univers Commerciale Luigi Bocconi
· Scaroni, Paolo, CEO, Eni S.p.A.
· Tremonti, Giulio, Minister of Economy and Finance
· Carney, Mark J., Governor, Bank of Canada
· Clark, Edmund, President and CEO, TD Bank Financial Group
· McKenna, Frank, Deputy Chair, TD Bank Financial Group
· Orbinksi, James, Professor of Medicine and Political Science, University of Toronto
· Prichard, J. Robert S., Chair, Torys LLP
· Reisman, Heather, Chair and CEO, Brookings Institution
· Bolland, Marc J., Chief Executive, Marks and Spencer Group plc
· Chavannes, Marc E., Political Columnist,Professor of Journalism
· Halberstadt, Victor, Professor of Economics, Leiden University
· H.M. the Queen of the Netherlands
· Rosenthal, Uri, Minister of Foreign Affairs
· Winter, Jaap W., Partner, De Brauw Blackstone Westbroek
· Myklebust, Egil, Former Chairman of the Board of Directors SAS
· H.R.H. Crown Prince Haakon of Norway
· Ottersen, Ole Petter, Rector, University of Oslo
· Solberg, Erna, Leader of the Conservative Party
· Bronner, Oscar, CEO and Publisher, Standard Medien AG
· Faymann, Werner, Federal Chancellor
· Rothensteiner, Walter, Chairman of the Board, Raiffeisen Zentralbank
· Scholten, Rudolf,Board of Executive Directors, Oesterreichische Kontrollbank AG
· Balsemão, Francisco Pinto, Chairman and CEO, IMPRESA, S.G.P.S.
· Ferreira Alves, Clara, CEO, Claref LDA; writer
· Nogueira Leite, António, Member of the Board, José de Mello Investimentos
· Mordashov, Alexey A., CEO, Severstal Schweden
· Bildt, Carl, Minister of Foreign Affairs
· Björling, Ewa, Minister for Trade
· Wallenberg, Jacob, Chairman, Investor AB
· Brabeck-Letmathe, Peter, Chairman, Nestlé S.A.
· Groth, Hans, Senior Director, Healthcare Policy & Market Access, Pfizer
· Janom Steiner, Barbara, Head of the Department of Justice
· Kudelski, André, Chairman and CEO, Kudelski Group SA
· Leuthard, Doris, Federal Councillor
· Schmid, Martin, President, Government of the Canton Grisons
· Schweiger, Rolf, Ständerat
· Soiron, Rolf, Chairman of the Board, Holcim Ltd., Lonza Ltd.
· Vasella, Daniel L., Chairman, Novartis AG
· Witmer, Jürg, Chairman, Givaudan SA and Clariant AG
· Cebrián, Juan Luis, CEO, PRISA
· Cospedal, María Dolores de, Secretary General, Partido Popular
· León Gross, Bernardino, Secretary General of the Spanish Presidency
· Nin Génova, Juan María, President and CEO, La Caixa
· H.M. Queen Sofia of Spain
· Ciliv, Süreyya, CEO, Turkcell Iletisim Hizmetleri A.S.
· Gülek Domac, Tayyibe, Former Minister of State
· Koç, Mustafa V., Chairman, Koç Holding A.S.
· Pekin, Sefika, Founding Partner, Pekin & Bayar Law Firm
· Alexander, Keith B., Commander, USCYBERCOM; Director, NSA
· Altman, Roger C., Chairman, Evercore Partners Inc.
· Bezos, Jeff, Founder and CEO, Amazon.com
· Collins, Timothy C., CEO, Ripplewood Holdings, LLC
· Feldstein, Martin S., George F. Baker Professor of Economics, Harvard
· Hoffman, Reid, Co-founder and Executive Chairman, LinkedIn
· Hughes, Chris R., Co-founder, Facebook
· Jacobs, Kenneth M., Chairman & CEO, Lazard
· Johnson, James A., Vice Chairman, Perseus, LLC
· Jordan, Jr., Vernon E., Senior Managing Director, Lazard Frères
· Keane, John M., Senior Partner, SCP Partners; General, US Army, Retired
· Kissinger, Henry A., Chairman, Kissinger Associates, Inc.
· Kleinfeld, Klaus, Chairman and CEO, Alcoa
· Kravis, Henry R., Co-Chairman and co-CEO, Kohlberg Kravis, Roberts & Co.
· Kravis, Marie-Josée, Senior Fellow, Hudson Institute, Inc.
· Li, Cheng, Senior Fellow and Director of Research, Brookings Institution
· Mundie, Craig J., Chief Research and Strategy Officer, Microsoft Corporation
· Orszag, Peter R., Vice Chairman, Citigroup Global Markets, Inc.
· Perle, Richard N., Resident Fellow, American Enterprise Institute for Public Policy Research
· Rockefeller, David, Former Chairman, Chase Manhattan Bank
· Rose, Charlie, Executive Editor and Anchor, Charlie Rose
· Rubin, Robert E., Co-Chairman, Council on Foreign Relations
· Schmidt, Eric, Executive Chairman, Google Inc.
· Steinberg, James B., Deputy Secretary of State
· Thiel, Peter A., President, Clarium Capital Management, LLC
· Varney, Christine A., Assistant Attorney General for Antitrust
· Vaupel, James W., Founding Director, Max Planck Institute
· Warsh, Kevin, Former Governor, Federal Reserve Board
· Wolfensohn, James D., Chairman, Wolfensohn & Company
Neo Mushroom Management
The standard of senior management in the United Kingdom appears to be deteriorating at an alarming rate and it seems to be a comparatively new phenomenon.
It all started about four years ago.
Bank Directors had no idea that their banker-underlings were dealing in financial products that neither they nor their employees understood.
Lords as well as senior politicians were blind to the fact that fraud was rife in Westminster .
Senior Newspaper executives did not have an inkling that their reporters were resorting to criminal methods in order to obtain a story.
For a while, Government has not felt able to make a major decision without the involvement of lawyers and inquiries. Gordon Brown started THAT craze and it appears to have caught on.
Elsewhere, politicians continue to dance between the shower-drops because they have NO IDEA when something horrendous is coming down the economic pipe.
Senior Military officers don’t know that squaddies are brutalising and murdering prisoners.
Once a month, the Bank of England soothsayers come blinking into the sunlight to deliver their traditionally mysterious but fallacious prophesies.
Directors are directing but they cannot be doing it efficiently because they do not have the information or even the knowledge.
A Stygian blackness has descended.
We have what can only be described as a “Reverse Mushroom” management problem.
Nowadays, it is not just ordinary people who are kept in the dark and fed shit.
We sit shoulder-to-shoulder with our leaders.
The above is representative of the perennial management dilemma – especially after the solids have come into contact with the air-conditioning. Does a leader :
A. Admit that he or she DID know what was going on and accept responsibility?
B. Allow the self-preservation instinct to kick-in i.e. plead ignorance, deny everything, apportion blame and live with the impression that they’re a lousy leader.
MOST OPT FOR OPTION B.
Bend Over, America!
We have all known for some time that the ongoing banking crisis was originally started by some sort of banker-naughtiness and what we have in common with the vast majority of Bank Directors is that we don’t really understand WHAT happened. But we do know that someone somewhere is guilty and needs to be spoken to very severely.
It was good to hear that the US government via its regulator (Federal Housing Finance Agency), has filed suit against seventeen financial institutions. Specifically, they want answers as to why $200 billion in bad mortgage-backed securities was sold to mortgage companies Fannie May and Freddie Mac.
They made their announcement just as the Stock market closed last Friday afternoon – their timing was exactly what you would expect but nevertheless totally wasted. Today will be the day when their proposed action will shake out on the markets. Fortunately for the stock prices, the Swiss have moved to protect their own currency which has had a small positive impact on equities.
So what did the bankers do?
Imagine that a bank grants a $100,000 mortgage which results in the borrower repaying say, $1000 per month. Now imagine 1000 such mortgages. If the mortgages were pooled , you’d have a “product” which generates an income $1,000,000 per month. Then you sell shares in the product to investors such as other financial institutions. Here comes the good bit: You omit to tell the institutions buying shares in your new product that the mortgagors (the borrowers) have absolutely no chance of making the $1000 per month repayments. Thus, the banks sold and also invested in worthless products because they could not generate any income.
These were the famous Sub-prime Bonds. The term “sub-prime” describes the borrowers – the so-called NINJAS to whom the banks lent billions. NINJAS? No Income, No Job or Assets.
(That was a very simplified explanation but it does demonstrate the principle of dealing in debt – you create debt by lending and then sell shares in it).
Embarrassed financial institutions then either sold-on these “investments” and/or attempted to hide their mistakes through the medium of creative accounting, by keeping these items “off balance sheet”.
The US Government’s move on the banks is perfectly justified but any legislation will take years and so leave the banks with permanently damaged balance sheets and income.
The other downside will be that banks, having been bitten once by their OWN greed are unlikely to ever lend money for house purchase as aggressively ever again.
The Fed now fully expects the banks to pay for mortgages which they granted five or six years ago.
Fannie May (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) guaranteed most of the dodgy mortgages and are currently the subject of a Federal takeover and have been placed into conservatorship, which in US law is a form of temporary nationalisation
US banks have so far benefited from a $700 billion Federal bailout but nevertheless both Obama as well as the Federal Reserve have been accused of being too easy on the banks.
In fairness to the American banks, most of the money that they were handed by the Fed has been repaid. However, the rescue of Fannie and Freddie could cost the government as much as $350billion.
To add to the banks’ headaches, they are not only being sued by the US Government but also by many private investors who have also lost money.
So, at a a time when the banking industry is trying to rebuild whilst at the same time being urged to lend, it is having its share values decimated. Then there’s the inevitable and customary Lawyer Bonanza which could add BILLIONS more to their expenses.
The principle of the legal actions is simple: The banks screwed-up through near-fraudulent activities and pushed all Western economies into recession.
Someone HAS to pay.
The FHFA claims that banks were negligent and misrepresented the mortgage-based bonds they were selling because of sloppy underwriting, that is to say, they did NOT carry out proper checks on the people to whom they were lending money.
That is going to be a very difficult defence for the banks.
The FHFA further argues that the Sub-Prime Bonds should NEVER have been marketed because the underlying “assets” did not conform to normal investor criteria. Yet another difficult position to defend.
Meanwhile, some bankers are attempting to shift the blame to Fannie May and Freddie Mac, while others are hoping to settle the claims in order to limit litigation. Our own RBS intends to fight any action. RBS is being sued for over £30 billion.
The most sensible outcome will be for all lawsuits to be settled. That would generate another outflow of cash from the banks but would also draw a firm line under the shenanigans leading up to the 2008 crash.
In the United States, the banks are not just being sued by the government for marketing questionable financial products. They are also being sued in respect of bad foreclosure practices and evictions as well as lawsuits over mortgage debt losses.
Such bank payouts will reduce and weaken their capital levels – further harming banks’ ability to lend.
With politicians everywhere pointlessly (and theatrically) screaming for banks to enable economic growth as well as stimulate housing markets, the road to full economic recovery looks more impossible than ever.
Over here in the UK, we are still awaiting ANY indication from the government of ANY litigation.
So far, the best that we can do is PPI – but even after being TOLD to pay out, our banks continue to drag their feet and not distribute refunds as fast as they might.
It seems that here in the UK, the promise and lure of fat post-Westminster banking directorships is far too strong – as well as the rather ambiguous relationship between our bankers and politicians.
Nowadays, even on the world stage, politicians become bankers and bankers become politicians – especially in Europe.
It’s the ONLY logical reason for our politicians to sanction not-only immunity to our bankers but even after such catastrophic failures, to continue rewarding them with the glittering prize of the over-inflated, stock-market-generated bonus.
Between Gold & a Hard Place.
2011 will be remembered as the year when the gold price really took off. It will also be remembered as the year of the PIIGS.
That’s Portugal, Italy, Ireland, Greece, Spain.
So what would happen if we combined the two? What would happen if the PIIGS decided to sell their gold in order to clear their debt? (As recently suggested by Germany’s Vice Chancellor).
And while we’re at it, let’s get away from expressing sovereign debt in percentages of GDP. No-one understands that anyway.
Let’s be different and look at it all in cash terms:
The total gold holding of the PIIGS is about 3250 tonnes. At current prices that’s worth about 132 billion euros. That’s 132,000,000,000 euros.
Unfortunately their combined outstanding sovereign debt is about 3,300 billion euros. That’s 3,300,000,000,000 euros
For instance, Portugal has about 390 tonnes of gold, currently worth about 15 billion euros. That is about 20% of its latest bailout package.
The biggest Eurozone gold hoarder is Italy. It is also the world’s fourth-largest owner of the metal . Italy’s 2,450 tonnes is worth about 95 billion euros at today’s prices. That’s 95,000,000,000 euros.
Italy’s government has $2.45 trillion dollars in debt. That’s 2,450,000,000,000 euros.
It is estimated that as a result of inevitable defaults, banks will LOSE £200 billion euros. That’s 200,000,000,000.
Hence all that nervousness around bank shares.
It’s all theoretical anyway because gold is not the property of the PIIGS’ governments to sell. Gold is part of a country’s Foreign Exchange Reserves which are managed by central banks and cannot be used to finance the public sector – except apparently, in certain Middle Eastern states.
What a mess!
Finally, in case you’re still wondering why the politicians have not actually put into place a plan to sort-out the debt-related issues, it is because they don’t really know what to do. Plus, they are playing the NOMW game.
NOMW? Not On My Watch.
President Sarkozy has an election to fight in 2012 and Bundeskanzlerin Merkel has one in 2013.
Can they possibly keep it all going until then?