Search This Blog

Tuesday, 24 November 2009

So now we know: £60 BILLION

The Bank of England announcement that they lent this huge sum off-balance-sheet to RBS and HBOS in the autumn and early winter of 2008 is not really surprising: there were doubtless similar mood-calming moves in other countries.
What is remarkable is that it was replaid by the end of January. So it is no wonder that the banks had no cash to support their customers with, during an after the repayment period.
It shows that the banks have been preferred to their users, because the banks are 'too big to fail': so small businesses have been allowed to fail for the lack of cash.
Banks don't innovate: small businesses develop ideas, and the best of them become big businesses.

Wednesday, 11 November 2009

Britain Threatened by Discredited Agency

Fitch - one of the less-disreputable Rating Agencies - has indicated that the UK could soon loose its AAA rating, and thus be seen as a worse credit risk than any other leading economy.
There is no surprise in the observation that the British Treasury is creating so much debt that British Government securities may become devalued. But it is very sad that the media can take the comments of any rating agency seriously. The agencies' collective failure adequately to value a huge range of financial 'products' - or the companies that issued them - was a major factor is allowing the credit bubble to develop, which ended in the credit crunch; which in turn created a crisis for the 'real economy' that will take years to work itself out.
Notwithstanding the agencies' disastrous impact ,government and regulators - not least our very own FSA - use agency ratings of businesses and of financial assets because without them they would have no systematic valuation medium at all.
Just as governments have to use the businesses that made the bubble as the means of getting out of the consequential mess, so they have to accept as authoritative agency ratings that can directly harm them.
Truth really is stranger - and even sadder - than fiction.

Tuesday, 10 November 2009

No Surprise about Barclay's

Barclays has surprised nobody with the huge profits that have been announced today. This company cleverly stayed out of the tighter government 'safety net', while benefitting from effectively-unlimited almost-free credit that the government and the Bank of England made available to maintain the whole banking sector.
They bought the US operations of Lehmans for a  token sum, without having to accept any of the embedded liabilities.
Their management is tough and intelligent.They have done absolutely nothing wrong; but they are widely reported as having somehow abused their resources and opportunities. That nonsense doesn't hurt the company, or reduce the principals' pay.
Attention will now focus on bonuses to be awarded to the people who do the clever stuff in 'casino banking'. They have a huge turnover, doing things that make no contribution at all to the material economy; but which are intellectually demanding and institutionally stressful. Their pay comes from the profits that are made on 'retail' - real world - banking, and from the corporate banking area that manages corporate mergers, acquisitions, share issues and bond sales; these also require intelligence, attention to detail and huge investment in contacts.

Sunday, 8 November 2009

China in Africa

The most important economic news of the weekend was not the G20 meeting at Saint Andrew's [where Gordon Brown's advocacy of a 'Tobin Tax' on financial transactions received a loud raspberry], but a piece of back-room business that accompanied the African Economic Summit at Sharm-el-Sheikh. China agreed contracts of at least six billion dollars - very likely, much more - with several mineral-rich but poverty-stricken African countries.
While the West has fretted about doing any deal with an undemocratic or corrupt regime, over the past decade China has gone for access to the oil and minerals that it will need for the next stages of industrialisation.
The news reports include the fact that at least 50 'clean' power stations are to be part of the deal; enabling millions of Afircans to become users of Chinese computers and TV sets.
While Britain lags behind the field even in escaping from a 'technical' recession, former colonies that used to get all their manufactures from the UK are now Chinese clients [though some of them still receive assistance from the Department for Overseas Development in London].
While imperialism on the old pattern is unacceptable in this century, Britain could have retained much more positive relations with former colonies - as France has done, with considerable success. This is another glaring instance of the incompetence of the entire British political class over the past two generations. For a realistic perspective on all of this, click on to Nuclean Economy via this site.

Friday, 6 November 2009

RBS Losses and Bonuses

Royal Bank of Scotland today announced another huge loss on its overall activities. No surprise there!

It is equally unsurprising that RBS claims to have billions of pounds in funds allocable - and allocated - to SMEs that are not taking up the loans they have been offered. They do not add the truism that this is because the terms are too onerous. The banks have access to incredibly cheap money: but they screw their customers in the hope of rebuilding their balance sheets quickly. Quite rightly, the customers who have survived - in the main - are telling the bankers where to stack their funds.

The Corporate Banking area continues to produce disastrous results of Goodwin-era excess.

The Casino Banking operation is bringing in oodles of lovely profit; but the owner, the government, has told RBS that it cannot pay the going rate for the traders' high-pressure activity. It is expected that when this is confirmed - people in that world cannot yet believe that they may not be paid the top slice of the cream that they generate in their cyberspatial transactions of ephemera - they will resign. The speed with which the resignees will get equivalent jobs elsewhere will be an interesting indicator of the real degree of vitality in the City casino: and that will be the one really useful piece of information to emerge from the RBS Group results.

Thursday, 5 November 2009

Quantitative Easing

So, to nobody's surprise, it was announced to day that the Bank of England has decided to spend another £25 billion buying 'old' government bonds, to put the cash into the hands of firms that will use it buy new bonds and maybe a few old shares.
Meanwhile the government is selling the 'new' bonds at an unprecedented rate for peacetime.
The release of at least £200 billion of 'new money' into the economy from the QE programme will inevitably cause inflation of costs and prices at some time in the next few years.
The people who should be most concerned about this 'financial engineering' are those in employment who plan to become pensioners - with company pensions or personal pensions - in the next few years. The value of their 'pension pots' has been eroded massively over the past decade, and the trend of the last  few years for fund trustees to hold bonds has set fund members up for further significant losses. The consensus of commentators has decreed that it will probably never be knowable whether quantitative easing has 'worked' or not, at the macro-economic level: it is certain at the micro-economic level that it will be disastrous for members of pension funds.
It is probable that a majority of members of pension funds who are old enough voted for Thatcher in the 'eighties, and for Blair-Brown in 1997: so did they in so doing earn the misfortune that the succession of governments has brought upon them?

Monday, 2 November 2009

Banks 'Bailed-out and Broken-up'

Although the latest steps in the rehabilitation of RBS and the LLoyd's Group are being announced by British ministers, the decisions were taken in Brussels. In most EU countries [including the eastern states, before they were captured by the communists] smallish banks, often run on a mutual or local basis, were the norm. The megacorporations have largly been for corporate banking business, while personal account-holders and mortgagees have been with the smaller banks.
Thus the changes that may seem to be a little eccentric to the British are definitely intended to move the picture nearer to parity with the 'old' EU.
The fifty-odd billions of pounds that are to be added to the two banks' balance sheets are a [largish] drop in the ocean on top of what the public have committed to 'saving' the banks over the past fifteen months. RBS and Lloyd's will still be massively bigger than the new spin-off banks; so 'competition' will only be assured by an active regulatory regime.
We won't see the full picture for months.