Congratulations to Nick Macpherson, Permanent Secretary at the Treasury on an annual salary of £196,400 and friend of Gordon Brown, who has been knighted for his handling of the banking crisis.One small problem, the crisis hasn't yet been solv...
Wednesday, December 31, 2008
Tuesday, December 23, 2008
Statistics
The Times reports:"Britain's economy shrank during the third quarter of the year for the first time since 1992 and endured the worst single quarter since 1990, it was revealed today. The Office for National Statistics (ONS) said gross domestic product (GDP) from July to September was down 0.6 per cent on the previous quarter. The contraction came at a faster rate than previously thought, and was down from last month’s initial estimate of a 0.5 per cent contraction."Given the fact that the figures supplied by the ONS are, more often than not, unreliable...
Monday, December 22, 2008
Slow Witted
The Times reports:"The Bank of England's Deputy Governor for Financial Stability has admitted that the central lender failed to grasp the full scale of Britain’s economic problems before the current financial crisis erupted. In an edition of Panorama, to be screened tonight, Sir John Gieve tells the BBC that the Bank was aware that a bubble was developing in the housing market, as well as in the price of other assets, and that it was being fuelled by “crazy borrowing”. However, it failed to comprehend how serious the problem really was and what...
Friday, December 19, 2008
Sink or Swim Together
As the recession deepens, it is "heartwarming" to note that it is not just the ordinary citizens and businesses of Britain that are deeply in debt but also the government.The Times reports that the Treasury plunged a record £16BN into the red in November. Given that the recession is still in its early stages, this does not bode well for government finances.However, at least the government now knows the pain that the rest of the country fee...
Thursday, December 18, 2008
National Lending Scheme
Alistair Darling, exasperated by the banks' refusal to resume lending, is (according to The Times) considering a national lending scheme.Under the scheme the government would guarantee new lending to businesses, on the condition that it is genuine new lending and not an attempt by the banks to reschedule old loans/debt.Ironically figures from the Office for National Statistics (ONS) show an unexpected rise of 1.5% in retail sales in the UK last month. Needless to say, the veracity of the figures are being called into question.Like it or not, unless...
Wednesday, December 17, 2008
Virtual Zero
The Federal Reserve put its money where its mouth is, wrt making all efforts to kick start the economy, by cutting interest rates to between zero and 0.25% yesterday. This puts pressure on the laggardly Bank of England to do what it should have done before, and cut rates further. Ironically it seems that the Bank of England did consider a larger rate cut, but was worried about the destabilising effects of such a cut (source The Times).Does the MPC not realise that the recession and collapse of the banking system is in itself destabilising?The Fed's...
Tuesday, December 16, 2008
L&G Play Ostrich
Legal & General (L&G) have been acting like an ostrich recently, as they have put off telling investors in their structured products backed by Lehman Brothers that they may lose up to 20% of their investment.L&G finally told 2,300 individuals the "good" news last week. This is of course a tad tardy, as Lehman Brothers went into liquidation three months ago. Indeed, the delay is even more surprising given that other structured products providers such as Meteor, NDFA and Arc warned investors within weeks of Lehmans' failure that their...
Monday, December 15, 2008
Barclays Warns On House Prices
John Varley, CEO of Barclays, gave a stark warning about the length and depth of the recession; by saying that house prices could fall by 30% to the end of 2009 compared with their peak, and that unemployment could top 7.5%.He gave this warning during an interview to be broadcast on Sky News this evening. During the interview he expressed some remorse for the culpability of the banks in the ongoing collapse of the economy, noting that mortgages of 100% or more were madness.The Times quotes him from the Sky interview:"I think if you look at the...
Thursday, December 11, 2008
Egg Fined by FSA
Egg, the Internet bank, has been fined £721K by the FSA for serious failings in the way it sold payment protection insurance (PPI) to its credit card customers. The FSA has also ordered it to pay compensation, which could cost £10M.The FSA found that Egg had instructed sales staff to use hard-sell techniques on those who proved reluctant buyers.These included over-emphasising the benefits of the cover, or telling customers they could take it out for free for a limited period and then cancel. The Guardian notes that Egg, in some cases, applied the...
Tuesday, December 9, 2008
The Gloves Come off
The Times reports that Michael Coogan, director general of the Council of Mortgage Lenders, made a scathing attack on the government:"To different degrees lenders are facing conflicting pressures to recapitalise against possible future losses, service government's preference shareholdings at 12 per cent, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive...
Monday, December 8, 2008
The Trillion Dollar Plan
Good luck to President elect Obama and his trillion dollar plan.The money may well help ease the recession, if it is carefully targeted. However, the key to kick starting economic recovery is confidence. Fortunately Obama is starting from a very good position, as no one (at this stage) believes that he will be worse than the outgoing administration wrt competen...
Friday, December 5, 2008
Banks Refuse To Pass on Rate Cut
Unsurprisingly many banks have refused to pass on yesterday's interest rate cut of 1%. The Times reports:"Hundreds of thousands of borrowers will be denied the full benefit of yesterday’s cut in interest rates because many banks are refusing to pass on the whole one-point cut to all mortgage customers. Britain's biggest mortgage bank, which received billions of pounds in taxpayers' money, failed to respond in full to the latest move by the Bank of England. Halifax cut its standard variable rate (SVR) by only 0.25 percentage points, while Nationwide...
Thursday, December 4, 2008
Bank Cuts Rates
Banks across the world have made a series of co-ordinated interest rate cuts today (eg Sweden's Riksbank cut rates by 1.75% to 2%)in an attempt to ease the pain of the recession and to restart the engine of liquidity.The Bank of England also cut rates by 1% to 2%, they are now at 1951 levels.As already noted, we are heading towards zero rates.The question is, will the banks willingly pass on these cuts and start lending again or are more drastic measures requir...
Bonds
Question - When is a bond not a bond?Answer - When it is a "Guaranteed Equity Bond".The definition of a bond (as per Wikipedia) is "a debt security, in which the authorised issuer owes the holder's a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity".How strange then that various "respected" financial organisations in the UK are marketing "Guaranteed Equity Bonds" which do not pay any interest, but merely guarantee to underpin the capital invested and offer the chance of a modest capital appreciation...
Wednesday, December 3, 2008
Halifax Collar Unenforceable
The Times reports that the 3% mortgage "collar" imposed by Halifax on over 500,000 of their tracker mortgage customers, which allows Halifax to evade passing on rate cuts below 3%, may in fact be unenforceable.Jon Pain, the FSA's retail market manager, said that collars should be included in a lender's key facts illustration (KFI). Halifax, rather oddly, removed the details of its collar from its key facts in 2005. Mr Pain told the Council of Mortgage Lenders (CML): "If it is not [included] you run the real risk of both breaching our disclosure...
Tuesday, December 2, 2008
Rates Heading To Zero
Ben Bernanke, the Chairman of the Federal Reserve, gave a clear signal to the markets that rates are moving towards 0%.Mr Bernanke is quoted in The Times:"Although conventional interest-rate policy is constrained by the fact that nominal rates cannot fall below zero, the second arrow in the Federal Reserve’s quiver, the provision of liquidity remains effective.Secondly, the Federal Reserve can backstop liquidity not only to financial institutions but also directly to financial markets, as we have recently done for the commercial paper market."That...
Monday, December 1, 2008
London Scottish Fails
London Scottish Bank (LSB) went into administration this morning.LSB specialises in offering fixed rate savings accounts and loans to customers with poor credit histories. Its structure was somewhat top heavy, it had only 10,000 savers, £250M in deposits but employed 700 people. In the six months to April 2008, it made a loss of £7.4M.The Treasury issued a statement guaranteeing all deposits (even those above the FSCS £50K limit):"The Chancellor has put in place arrangements to ensure that all eligible retail depositors in London Scottish Bank...
