The Bank of England can cut rates as much as it wants: it won't be able to protect all the people who borrowed too much during the years of easy credit from some serious pain. All of the banks, including Northern Rock, have now sworn off lending more than 100% of the value of mortgaged properties. Some, including Nationwide, are imposing stricter conditions and higher rates on borrowers with less than 25% equity. As house prices edge lower, more and more people will find themselves in negative equity, even if they didn't start out that way. It's not at all clear who they will turn to, apart from the Bank of Mum and Dad, when the time comes to refinance.
Interestingly, this state of affairs disproves two completely contradictory assertions that have been made about Northern Rock: that removal of NR from the market would not affect the overall availability of mortgage credit (Kaletsky et al), and that nationalising it would go some way toward stabilising the credit crisis (Darling et al). The fact is that NR was never the problem: it was only the most obvious symptom of the severe problems created by the unbridled supply of cheap credit over the past half-dozen years.
It would be serious enough if the problems were confined to housing, but of course they're not. The hedge fund types have been meeting in the UK this week to bemoan the difficulties they are facing, now that banks are not throwing money at ropey deals; the airports operator BAA may have to flog of some of its assets because its debt burden has become unmanageable; the American owners of Liverpool FC may have to sell out because they can't finance their plans for a new stadium....the list is growing by the day. It's hard to feel sorry for any of the principals in these particular examples, but they all reflect the excesses of the recent past. Unfortunately, it's likely that a lot of less blameworthy people will suffer as this crisis continue to play itself out.
Wednesday 27 February 2008
Wednesday 20 February 2008
Northern Rock non-dom shock horror
It's quite clear that most of the politicians and media pundits who bang on about the UK's non-dom tax rules don't have a clue about what those rules actually are. It turns out that the two senior executives appointed by the Government to run the company, Ron Sandler and the astoundingly named Ann Godbehere, are both non-dom: Sandler has a German passport and Ms Godbehere a Canadian one.
This led the Lib-Dem leader Vince Cable, who is normally better than this, to remark that Sandler was now the second-best paid man in Newcastle, "after Michael Owen, but at least Owen pays taxes in this country". Look, Vince and all you other cheap-shot artists, if Ron and Ann are paid money in this country, they pay tax on it like everybody else. It's only their earnings outside the UK that are exempt. It's pretty simple really -- do try to keep up.
This led the Lib-Dem leader Vince Cable, who is normally better than this, to remark that Sandler was now the second-best paid man in Newcastle, "after Michael Owen, but at least Owen pays taxes in this country". Look, Vince and all you other cheap-shot artists, if Ron and Ann are paid money in this country, they pay tax on it like everybody else. It's only their earnings outside the UK that are exempt. It's pretty simple really -- do try to keep up.
Cuba libre -- on Washington's terms?
The always-lovable John Bolton was on the BBC news last night, giving his reaction to the news that Fidel Castro is stepping down as President of Cuba. Would the US now ease its economic blockade of the island? "No", said Bolton winningly: before that can happen, "Castro has to die". He explained that he expected the communist state in Cuba to fold like a pack of cards once Csatro was out of the way, but in the meantime the US would have no truck with a regime that had spent the last couple of years trying to rig the succession. Quite right, I say: how can you possibly deal with leaders who try to get their close relatives into positions of power?
Bolton went on to say with an undisguised sneer that the future of Cuba would not be decided "by the people who are proud of their healthcare system" (i.e. those who actually live there), but by "people who value freedom" -- i.e. the emigres in Florida, who will presumably be expecting to return "home" soon and take up where they left off. It sort of reminds me of a comment by a State Department hack at the time of the US invasion of Iraq in 2003: "the first action of an independent Iraqi government will be to recognise the state of Israel". Clearly this is a different definition of "independent" from the one that most of us use.
There should certainly be plenty of work for the lawyers as the emigres try to regain the property that they abandoned when they fled. The people who stayed behind won't stand a chance. It's probably unlikely that Cuba will revert to the kind of gangster paradise that provoked Castro's revolution in the first place, but if Bolton and his amigos get their way, it's a pretty safe bet that Cuba's literacy rate and longevity statistics will be significantly lower in ten years time than they are today.
Bolton went on to say with an undisguised sneer that the future of Cuba would not be decided "by the people who are proud of their healthcare system" (i.e. those who actually live there), but by "people who value freedom" -- i.e. the emigres in Florida, who will presumably be expecting to return "home" soon and take up where they left off. It sort of reminds me of a comment by a State Department hack at the time of the US invasion of Iraq in 2003: "the first action of an independent Iraqi government will be to recognise the state of Israel". Clearly this is a different definition of "independent" from the one that most of us use.
There should certainly be plenty of work for the lawyers as the emigres try to regain the property that they abandoned when they fled. The people who stayed behind won't stand a chance. It's probably unlikely that Cuba will revert to the kind of gangster paradise that provoked Castro's revolution in the first place, but if Bolton and his amigos get their way, it's a pretty safe bet that Cuba's literacy rate and longevity statistics will be significantly lower in ten years time than they are today.
Monday 18 February 2008
Vultures on a Rock
Ahead of Sunday's announcement that Northern Rock would be nationalised, Philip Richards of the hedge fund RAB, one of the funds that have been hoovering up the stock in the last few months, pronounced thusly: "You really would think that the government would want to take responsibility for a company that has got into financial difficulties and to recapitalise and rebuild it for the benefit of all stakeholders".
Wow, would you really? Some of us might think that those things were the responsibility of the shareholders. Then again, RAB and its ilk are not real shareholders, unless your definition of shareholding is being obstructive and litigious in the hope of making a quick profit by shaking down the taxpayer. It's a shame, now that it's come down to nationalisation, that the decision has taken so long, because this has allowed these vultures to get their claws in pretty deep.
It's still Lent, so I'm sticking to my vow of not slagging off Anatole Kaletsky, but it would be remiss not to draw attention to some awesome work by one of the Times sub editors. Anatole's rant in response to the nationalisation decision, both in the print version and on the Times website, is introduced with the words "Kaletsky: Absolutely, incredibly, utterly wrong!". See, it's not just me that thinks that.
Wow, would you really? Some of us might think that those things were the responsibility of the shareholders. Then again, RAB and its ilk are not real shareholders, unless your definition of shareholding is being obstructive and litigious in the hope of making a quick profit by shaking down the taxpayer. It's a shame, now that it's come down to nationalisation, that the decision has taken so long, because this has allowed these vultures to get their claws in pretty deep.
It's still Lent, so I'm sticking to my vow of not slagging off Anatole Kaletsky, but it would be remiss not to draw attention to some awesome work by one of the Times sub editors. Anatole's rant in response to the nationalisation decision, both in the print version and on the Times website, is introduced with the words "Kaletsky: Absolutely, incredibly, utterly wrong!". See, it's not just me that thinks that.
Thursday 14 February 2008
The Nondomoviches
The latest mysterious death in the UK of a plutocrat from the former USSR has triggered a slew of press articles about just how many of these folks have settled here. More than 100,000, apparently.
The Times has a piece today about how London came to be their bolthole of choice, but it doesn't actually throw any light on that question. I think it's pretty obvious why they choose London: the non-dom tax rules. These may have been put in place to encourage foreign bankers to locate here, but the rules are totally non-discriminatory. The Russians (and Georgians and Ukrainians and the rest) can bring their "controversial" (if you're charitable) or "ill-gotten" (if you're not) fortunes here and pay minimal tax and face minimal disclosure. It's quite likely that they now hugely outnumber the "fat cat" investment bankers in the ranks of the non-doms, and they certainly far surpass them in wealth -- and, therefore, in tax avoided.
Still, we can be grateful that Alstair Darling is backing away from his plans to boost taxation of non-doms. After all, we wouldn't want to lose our front row seats for the next mob hit.
The Times has a piece today about how London came to be their bolthole of choice, but it doesn't actually throw any light on that question. I think it's pretty obvious why they choose London: the non-dom tax rules. These may have been put in place to encourage foreign bankers to locate here, but the rules are totally non-discriminatory. The Russians (and Georgians and Ukrainians and the rest) can bring their "controversial" (if you're charitable) or "ill-gotten" (if you're not) fortunes here and pay minimal tax and face minimal disclosure. It's quite likely that they now hugely outnumber the "fat cat" investment bankers in the ranks of the non-doms, and they certainly far surpass them in wealth -- and, therefore, in tax avoided.
Still, we can be grateful that Alstair Darling is backing away from his plans to boost taxation of non-doms. After all, we wouldn't want to lose our front row seats for the next mob hit.
Sunday 10 February 2008
Pimping for the rate tarts
The "money" sections of the Sunday papers in the UK mainly consist of wheezes for people to squeeze a little bit more out of their savings accounts, or to reduce the cost of their mortgages. In the Sunday Times, in particular, this is underpinned by a tediously repeated belief that the banks are all a bunch of crooks, out to fleece their innocent clients by every available means, fair or foul.
A few years ago, the principal focus of the advice in these sections was on credit cards. New entrants to the market were offering a variety of zero-interest deals, and the papers were assiduous in bringing these to the attention of the so-called "rate tarts", who would enthusiastically move their borrowings from one institution to another in the hope of never having to pay any interest.
The zero rate deals are gone, but the desire to get something for nothing lives on, and the papers are happy to feed it. How sensible is it to take their advice? The Sunday Times's list of "best deals" has always been full of the names of banks that nobody has heard of : ICICI Bank, for example. (Yes, I do know who they are). But there's a lot more to sensible investing than lusting after the best published rate: investors have a responsibility to know just where they are putting their money. If they don't, they shouldn't have much of a leg to stand on if they run into trouble.
The proximate cause of this little rant is a remarkable juxtaposition of articles in today's (10 February) Sunday Times. The "best deals for savers" list includes several minor UK building societies, plus Kaupthing and Icesave, two Icelandic institutions. Turn back a couple of pages, though, and you will find a lengthy article warning of problems in the Icelandic economy and financial system, with particular reference to these two banks. Moody's says the Icelandic financial system is "fragile": ratings downgrades may be in the offing, and there is an ominous suggestion that Icelandic banks have been tapping the UK market because their other sources of funding are drying up.
Still, not to worry: in a sidebar, the Times sagely notes that you can still invest in these institutions and pick up the extra vig, as long as you don't go over the newly-increased £35,000 deposit insurance limit. But wait: if you read a bit further into the sidebar, you'll find that UK investors' recourse to UK deposit insurance only kicks if the Icelandic deposit insurance fails to pay out. So investors could face a long wait to get their money back, in the event that anything untoward were to happen at Kaupthing or Icesave. I wonder how many of the 100,000 UK investors who have stuck their money into Icesave realise that.
Anyone still think that these banks offer the "best deal" for savers? Shame on the Sunday Times for encouraging savers to behave in a way that absolutely defines the term "moral hazard". Mind you, the ST regularly touted Northern Rock as the best deal for mortgage borrowers this time last year, but that's not stopping them from slagging off the poor wounded beast now.
A few years ago, the principal focus of the advice in these sections was on credit cards. New entrants to the market were offering a variety of zero-interest deals, and the papers were assiduous in bringing these to the attention of the so-called "rate tarts", who would enthusiastically move their borrowings from one institution to another in the hope of never having to pay any interest.
The zero rate deals are gone, but the desire to get something for nothing lives on, and the papers are happy to feed it. How sensible is it to take their advice? The Sunday Times's list of "best deals" has always been full of the names of banks that nobody has heard of : ICICI Bank, for example. (Yes, I do know who they are). But there's a lot more to sensible investing than lusting after the best published rate: investors have a responsibility to know just where they are putting their money. If they don't, they shouldn't have much of a leg to stand on if they run into trouble.
The proximate cause of this little rant is a remarkable juxtaposition of articles in today's (10 February) Sunday Times. The "best deals for savers" list includes several minor UK building societies, plus Kaupthing and Icesave, two Icelandic institutions. Turn back a couple of pages, though, and you will find a lengthy article warning of problems in the Icelandic economy and financial system, with particular reference to these two banks. Moody's says the Icelandic financial system is "fragile": ratings downgrades may be in the offing, and there is an ominous suggestion that Icelandic banks have been tapping the UK market because their other sources of funding are drying up.
Still, not to worry: in a sidebar, the Times sagely notes that you can still invest in these institutions and pick up the extra vig, as long as you don't go over the newly-increased £35,000 deposit insurance limit. But wait: if you read a bit further into the sidebar, you'll find that UK investors' recourse to UK deposit insurance only kicks if the Icelandic deposit insurance fails to pay out. So investors could face a long wait to get their money back, in the event that anything untoward were to happen at Kaupthing or Icesave. I wonder how many of the 100,000 UK investors who have stuck their money into Icesave realise that.
Anyone still think that these banks offer the "best deal" for savers? Shame on the Sunday Times for encouraging savers to behave in a way that absolutely defines the term "moral hazard". Mind you, the ST regularly touted Northern Rock as the best deal for mortgage borrowers this time last year, but that's not stopping them from slagging off the poor wounded beast now.
Friday 8 February 2008
What a silly Cantuar
My blizzard of free copies of the Daily Mail (see previous post!) did not include the edition in which the Archbishop of Canterbury came out in favour of adopting sharia law in the UK. But it's not difficult to imagine what they made of it -- the same as just about everyone else, i.e., what is Rowan Williams thinking of? (For what it's worth, Dr. Williams was at my university college at about the same time I was).
Dr. Williams seems to be arguing that it would be appropriate to adopt certain elements of sharia law because not everyone in the UK accepts the current legal framework. True: criminals don't, for example. But the hugely adverse reaction to Dr. Williams's remarks shows that most people, conspicuously INCLUDING most Muslims, do accept it. And even if they didn't, the principle that the rule of law can be different for different groups of citizens would surely be one that should be resisted at all costs. (Then again, the shocked reaction of MPs when they are caught fiddling their expenses or accepting dodgy donations suggests that there is already at least one group of people who think the rules don't apply to them).
There is a place for "alternative dispute resolution" techniques, which are already used extensively in the business world. However, these are adopted so that the parties involved can avoid the delays and expense of using the regular courts, and not because they reject their jurisdiction. If Muslims want to use sharia like this, for example in family disputes, that's fine: but if they want the right to employ sharia-inspired punishments that are forbidden by UK law -- stonings, for example -- that's not fine. With his own church colleagues, politicians of all stripes and senior Muslims queuing to speak out against him, Dr. Williams needs to come back in off the ledge, fast.
Dr. Williams seems to be arguing that it would be appropriate to adopt certain elements of sharia law because not everyone in the UK accepts the current legal framework. True: criminals don't, for example. But the hugely adverse reaction to Dr. Williams's remarks shows that most people, conspicuously INCLUDING most Muslims, do accept it. And even if they didn't, the principle that the rule of law can be different for different groups of citizens would surely be one that should be resisted at all costs. (Then again, the shocked reaction of MPs when they are caught fiddling their expenses or accepting dodgy donations suggests that there is already at least one group of people who think the rules don't apply to them).
There is a place for "alternative dispute resolution" techniques, which are already used extensively in the business world. However, these are adopted so that the parties involved can avoid the delays and expense of using the regular courts, and not because they reject their jurisdiction. If Muslims want to use sharia like this, for example in family disputes, that's fine: but if they want the right to employ sharia-inspired punishments that are forbidden by UK law -- stonings, for example -- that's not fine. With his own church colleagues, politicians of all stripes and senior Muslims queuing to speak out against him, Dr. Williams needs to come back in off the ledge, fast.
Planes, trains and hatemail
On my recent trips by both National Express East Coast and British Airways, the "complimentary" newspaper I've been offered has always been the Daily ("Hate") Mail. That's the kind of compliment I can do without, thanks. But it makes me wonder: what proportion of the Mail's "paid circulation" is accounted for by these bulk sales, presumably at heavily discounted prices? Or to put it another way, does anybody actually pay full price for the wretched thing?
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