Journal of the Plague Years

He needs you, you don't need him.
(Affiche of May 1968)

• A stay of execution for Britain's oil age: Shall we use it well?
• The First Lord Of The Treasury and his Darling of the Exchequer still haven't got it right.
• Don't repossess, buy for rent-back. (Businesses do it all the time.)
• I've got a headache, Darling.
• The Free Market is Good for You.
• Passing the Buck (or, in this case, the devaluing pound).
• Feeding the junkies.
• The 10p Rate.
• I think I'm going to offer my services as Chancellor. (When I've finished there, I'll sort the England team.)
• Do the experts actually know what they're talking about?
• Rant of the Day.
• For a government trying to balance its books, building flood defences makes no sense.
• Interest rates - Conclusion.
• Interest rates and inflation.
• Interest rates should go up.
• Taxing those who can least afford it.
• Who can afford a house?
• PS to the Northern Rock saga...
• A House In The North.
• Assets Of Straw. Or Just Off-shore.
• The Banks and their schemes: why do we just sit back and let them do these things?
• Addled Egg.
• Economic Consequences of Mrs. Thatcher.
• Demand for oil will NOT outstrip supply for many years yet.
• Northern Rock, Postscript.
• Northern Rock Progress Report by One Who Understands.
• Darling Darling - How He Does Mislead!

A stay of execution for Britain's oil age: Shall we use it well?

7 June 2008 .

There are some of us who just can't be pleased by good news. Including me, it seems.

A BBC documentary, 'Truth, Lies, Oil and Scotland', suggests that there's far more oil left in the North Sea than we knew and that, contrary to the common perception that reserves are drying up, reserves are actually good for another half-century yet. Professor Alex Kemp (Petroleum economics, Aberdeen University): "The remaining reserves on central estimates could be 20-22 billion barrels equivalent," which at current prices is over 2.5 trillion, "and on optimistic estimates could be over 30 billion." Professor Peter O'Dell (Erasmus University, NL) adds that he believes there are about 44 years of oil left; "It's not quite as much as we've used already, but it's not far short." New technology is enabling the exploitation of reserves which weren't previously viable (as, presumably, is the rising price of oil?) and will also potentially enable the discovery of new reserves.

Having pottered about this planet for a few years, I am reasonably conscious of how things which happen in the world impact on my own little life; so I have to say that hearing all this came as quite a boost: it does matter to all of us, and it means that the rest of my life will probably be a bit easier than it would have been if the oil were running out more quickly. Far better to have forty or fifty years of oil left than not.

So why am I still grouching? It's not so much that I can't be cheered up as that I have some reservations, of which a few herewith:

• It's not all ours. Substantial chunks of the exploitation rights have been acquired by aggressive foreign oil companies (not that supposedly 'British' companies have always been too straight with us - even where they haven't sold fields to foreign competitors): some of the oil arising from these agreements do not automatically 'belong' to Britain; in some cases, foreign governments, including the US, now have a prior claim. Sometimes these arrangements have been agreed by - or at least allowed by - UK governments which seem to have had less idea of the potential of the fields than they should have done. The result is that benefits from the future reserves in the North Sea will not accrue to us in Britain quite as we may imagine.

• The estimates aren't guarantees. The figures being offered to us are median estimates: if we're lucky, there may be more even more oil than the good professors are suggesting - but there may be less. [Just in passing: If what we have left is not quite as much as we've used already, isn't the hope that it will last 44 years just a tad optimistic, unless we bring in some sort of rationing much sooner than we've considered this time around?]

• There's devolution and independence in the air. There's a lot of argument, but the fact is that (whatever angle from the coast the international boundary line into the North Sea ends up being drawn at) the Scots are going to claim an awful lot of this oil. Which is fine. Except that I live in England.

• Past form isn't encouraging. We frittered away a large part of the boost that oil should have given us in the past forty years on short-term self-indulgences (tax-cuts, ideologies, comfort) when we should have been investing for our future (which, so far as we knew, was now). Given a second chance, but with the world becoming increasingly tough to survive and pay our way in, are we going to have learned our lesson? (See Economic Consequences of Mrs. Thatcher. 27 January 2008 - near foot of this page)

And of course climate change remains a factor, even if (as I hope) our oil is used wisely rather than just being burnt or used in cars - the most modern materials technologies, for example, still leave a massive carbon footprint. But the oil may keep some of the coal in the ground, so on the whole, hopefully, we win on this one.

[Re Stays of Execution: Please see also The ocean currents and a gift of time... Classified - Pollution and Climate 01 May 2008]

'Professor Alex Kemp' ''Truth, Lies, Oil and Scotland' 'Peter O'Dell' 'North Sea oil'

The First Lord Of The Treasury and his Darling of the Exchequer still haven't got it right.

22 May 2008 .

The party line in the labour party, this week, appears to be that The Great Helmsman has gone beyond correcting his minor error (of reducing taxes for almost everybody, except for the 5.5 million of the poorest for whom he raised taxes), by implementing a tax reduction which is 'eminently the right thing to do at this time to help the economy'. Everybody is to be happy. (Admittedly, about 1,000,000 people will still face a tax increase amounting to several pounds a week, but there are always losers and they shouldn't grumble... I paraphrase, but I don't distort...)

Let us just bear in mind that the net effect of the whole exercise, from the first mooting of the removal of the 10p rate up until today, has been to give about 20 million people a welcome bonus in their pay packet (ie net of tax)... and to raise the taxes of about 1,000,000 of the poorest and most vulnerable by a significant amount at exactly the moment when the downturn in the economy is hitting precisely those people the hardest.

We're always being told how His Prudency is quietly working to help the poorer in society... For a sizeable chunk of the most vulnerable, it's never been quite as true as he would have us believe: in this case, the outcome tells us that either he's pretty selective about whom he's actually trying to help... or he's as incompetent as I believe him to be.

Brown 'Regressive taxation'

Don't repossess, buy for rent-back. (Businesses do it all the time.)

14 May 2008 .

The government is suggesting that the public sector might buy potentially foreclosed housing, to rent to the impecunious owners who would otherwise face repossession. Brown supports the idea, as does Vince Cable this evening ('an excellent idea'). A bleedin' obvious idea, I would have thought - I was arguing for precisely that, on this humble site, months ago.

'Rent-back' repossession

I've got a headache, Darling.

13 May 2008 .

If I write an item which I later find a bit embarrassing (perhaps because I realise it's misinformed, I've got hold of the wrong end of the stick or I've simply confused myself) I leave it in anyway on the grounds that this is meant to be

• a journal of how I react to what I see and hear and of my opinion and
• not a report of the news.

(I hope I'll only break this self-imposed rule if I make assertions about somebody which prove both wrong as a matter of fact and hurtful or damaging.)

In writing the following, I realised I hadn't quite got the plot well while I was still in the middle of it.

Darling has announced in a mini-budget in Parliament that a 'refund' is going to be made to all those who've lost out in the 10p tax-band fiasco in order to defuse the ongoing anger. It will be serviced by a temporary increase in the tax-free band of 600 and will cost 2.7 billion, he said. It seems to me to be a most unsatisfactory way of managing things... but once again, it's the maths that seems particularly questionable...

It's generally agreed that 5.5 million taxpayers had been adversely affected. Darling suggested weeks ago (when trying to avoid compensating the losers) that although 'there would be winners and losers', no-one would lose more than 5 a week, 250 in a year.

But: The total (absolute maximum) damage to the losing taxpayers is (was), in Darling's terms, 5.5 million x 250 = 1.375 billion. So where does his figure of 2.7 billion come from?

A million people will still lose, apparently, albeit less than before; but, because this extraordinary sledgehammer approach, 1.2 million (wealthier) people who hadn't been losers will gain an extra 120.

That still means a surplus of at least 1.181 billion*. Is it intended to cover compensation in future years? No... the extra allowance is a one year measure, we're told. (I imagine, perhaps unfairly, that Darling assumes that by next year the fuss will be forgotten and the poor end of the income scale will end up paying the higher taxes without any renewed comeback on the government.) So what is this extra billion pounds intended for? (* 1.325 billion less 120 x 1.2 million, if you're still with me and care enough!)

I was going to delete the whole article, but I decided to wait 'til I actually knew what was going on before doing so. Lo and behold, the reality, once I'd worked out what it was, turned out to be just as cack-handed... The rise in the tax threshold is going to be matched by a reduction (by a "matching" [sic] 600) of the threshold for the top rate of tax, applying to those earning over about 40,000 pa. What on earth has that got to do with anything?

At least the apparent surplus of one billion pounds is explained - it goes in a tax rebate to those earning in the range 18,000 - 40,000 pa. Hmmmm. 22 million people (rather than 1.2 million), says Darling - benefitting to the tune of 120 each...

which by itself will cost the treasury 22 million x 120 =2.5 billion... so the maths still doesn't add up...

Despite all reports and my best researches, still no statement of what's going to going to happen next year, though the implication is that the thresholds will revert to this year's levels... or will change to something else... or won't... So my rather acerbic ('perhaps unfairly') parenthesis might turn out to be right after all...

Anyway; if I have it straight, a tax refund has been made to 22 million people in the middle income bracket ("appropriate in this economically difficult period", or words to that effect), while 1 million at the bottom end (presumably going through even more difficult times) are still going to lose a few pounds a week each. That's after all the kerfuffle of the last month...

Oh well, at least we're told that Frank Field is satisfied. Although I suggest that probably he's more, sort of, overwhelmed.

Meanwhile, soldiers go on fighting in the Middle East with substandard equipment, teachers and nurses are miserably underfunded, etc. etc. My head's hurting.

(But surely, even with the grotty politicals we breed these days, it's a bit cynical to suggest that the whole exercise today is a bribe for labour voters in the forthcoming by-election?)

Added 14 May: My instinct not to write this item may have been right; almost everything I've said here has been repeated in the next day's papers, in more depth and better informed. Then again, I still want to leave my first reactions to this particular issue on record, because I think the whole thing was so badly handled, including in how the resolution was presented yesterday: I want to come back and look at it all later. One extra bit of surrealism, which I did hear yesterday but didn't take in (because I couldn't believe my ears?) The funding for this multi-billion-pound refund is going to come out of borrowing! It's so fundamental that you do not borrow against the future to pay for tax cuts now that it defies belief that even Prudence Brown (not notable for real prudence any more than for competence, whatever the world may still be fooled into thinking) even considered allowing it to happen...

'regressive taxation' 'Frank Field' Darling By-election 10p

The Free Market is Good for You.

30 April 2008 .

Anyone who believes there will be another era of cheap fuel and energy is going to be disappointed; there may be short periods when the rising prices relent for a while, but the trend from now on is going to be firmly, and permanently, upward.

In the meantime: protesting truckers and motorists are told that they shouldn't be too upset at the massive and growing profits that the oil companies and their shareholders are making, because that's just the way the market works.

Precisely.

'Rising prices' Oil 'cheap fuel' 'Free Market' profits

Passing the Buck (or, in this case, the devaluing pound).

30 April 2008 .

Mervyn King, Governor of the Bank of England, apparently claims that city greed was behind the credit crunch. He mentioned bonuses (of 7.4 billion last year, with some hedge fund managers banking over 100 million each) leading to a culture of 'excessive risk-taking'. Exactly, Mr. King: and who was in the driving seat, who should have been warning us 10 years ago of what was happening? If Mr. King (and, indeed, Mr. Gordon Brown, who set up the truly hopeless financial regulatory system, back in 1997, which totally failed to regulate anything) were to explain exactly what else they think that ambitious young money-men in the city were going to do when given the green light, that would be interesting.

Now King and Brown would have us believe that they are 'continuing' to be prudent by 'only' reducing the base rate (of interest) by 0.25% (never mind that the money market is taking little notice of their fiddling with interest rates)... while subbing the market to the tune of 50 billion of our money... (just watch those lovely bonuses go to the folks 'getting us out of the mess' - funnily enough, the same folks who got all the bonuses for getting us into the mess in the first place!)

Messrs. King and Brown's failings do not exonerate, say, the directors of Northern Rock, who by any common understanding of the terms were confidence tricksters and fraudsters, who ought to be rotting at Her Majesty's pleasure. But Northern Rock wouldn't have happened within a more competent framework.

If the bankers and money-men were the bacteria which have poisoned us, King and Brown were the cooks who kept a filthy kitchen.

So, reappointed or not*, I'd rather you just shut up and went (with your enormous pension), Mr. King. Nobody other than Brown believes you or trusts you any more. (*back in January, by Brown, for another five years)

(There was a film 20 or so years ago, 'The Charge of the Light Brigade'. At the end of the film, after the fiasco, everybody is blaming everybody else... Likewise, at the end of 'A Bridge Too Far'... Plus ca change!)

'Northern Rock' 'Mervyn King' 'Gordon Brown' 'Northern rock' 'city greed'

Feeding the junkies.

26 April 2008 .

I've suggested on this site that injections of tens of billions of pounds into the banking system by the Bank of England needed more understanding and care than our present mob of politicians and government bankers have shown evidence of possessing. [Their attempts to bring interest rates down through the base rate failed, with interest rates actually continuing to rise, so that we were treated to the site of Brown begging the money market to loosen the purse-strings; and in any case, whatever the Bank of England can do for the market is being swamped by the massively greater power of the Federal Reserve. Never mind that it was the banks being given their head in a way so poorly understood by those same politicians and functionaries that caused the money crisis in the first place.]

It never occurred to me that the governments danegeld would run to 50 billion. Ian Hislop made the point today that it really is a case this being the first government to raise taxes on the poor in order to subsidise the rich (because, be assured, the same monopoly money is out there as always was: the money men have simply realised - in a rather inchoate, market driven way - that by freezing the market a bit, they can get themselves fuelled with our money by a panicking government).

Never mind all that... The thought that's being going through my head over the past few days is that this massive injection of cash to the banks resembles nothing so much as giving booze to an alcoholic. I've written my fears elsewhere on this site, and nothing that's happening since then tells me I'm wrong.

'Bank of England' 'credit crunch' 'Federal Reserve' 'cash injection' banks

The 10p Rate.

23 April 2008 .

Brown has backed down on the abolition of the 10p tax rate for low-paid workers, trumpet the media. His MPs are happy with this dissimulation because they can return to their constituencies and drum up labour voters, claiming that the problem's been solved.

[As a result of a (supposed tax-lowering) budget, benefitting most those earning in the order of 40,000 pa - well above the national average - five and a half million near the bottom of the scale will be taxed hundreds of pounds more each year. Such a targetting of the poor to subsidise the rich has never happened so blatantly in this country before.]

I protested this measure as vocally as I could last year (short of appearing obsessive), including in my early days on this site. In fact, among the motives which moved me to start the site in the first place was that nobody took any notice of me on this issue (the universal opinion was that I'd misunderstood what was happening and even that Brown was a socialist who surely had the interests of the poorest at heart!), but also that there seemed to be no effective vehicle by which I could object, since the Tories supported Brown, or at best would abstain.

I'd so given up on what seemed to me to be this manifest injustice that when the fuss started in the last few weeks, I actually thought we were hearing about another unfair budget. (I won't give a reference, but that misunderstanding appears elsewhere in this site; I would obliterate it if I hadn't resolved to archive everything intact, warts and all.) It turned out that the world was simply catching up with me.

There are so many wrigglings and distortions in this story that it's hard to work out where to start...

1) For a majority of low-paid people affected there never was an abolition of the10p rate other than in name, as the rate actually rose from 10p to 20p on most of their taxable income. Since everyone knows this, why do so many politicians (and, in their footsteps, the establishment media) still use the word?

2) Darling claimed that the decision couldn't be reversed because the cash isn't available to compensate the losers: but the cash doesn't exist because it's been given to the better-off. [Some of those benefitting are saying that they're not being given the money because it's already theirs: this is revoltingly disingenuous, since their high incomes have been built on the back of the work and taxes of the previous generation, many of whom are precisely those now being hammered.] The decision to lower taxes on higher levels of income is being funded in part by the rise in tax on the lower-paid: restoring the incomes of the poor would equally only damage the tax-drop in part.

3) After Brown's concessions today, Frank Field and other protestors seem to have accepted that all those who have lost out will be compensated, and that the compensation will be backdated. On Newsnight tonight, Paxman interviewed yet another Blair-babe apparatchik-clone (Yvette something... Cooper? Who cares?) He asked her if there would be compensation, if it would be back-dated, if compensation had been costed, and when she kept answering the questions she wanted to answer (rather than the ones asked), which she didn't do very well, he pressed her with the simple question as to whether these things were yet known. I assume her answer was 'no' but nothing would persuade her simply to say it. [Memo to politicians: you claim that the public disdain for you is the fault of the media; don't worry, you manage it all by yourselves.]

4) It seems that one piece of compensation will be backdated to April: an extra winter fuel allowance for pensioners. Backdate? Do they pay winter fuel allowance in April, or May, or June... first I heard of it... Anyway, who gets extra fuel allowance will have nothing to with those who've been hammered in the budget since it isn't means-tested.

5) When asked by Paxman whether the U-turn might be a bit embarrassing for Brown, Yvette Clone-Suit replied that, on the contrary, it was an excellent example of how he continues to care for the poor...

6) Y C-P kept saying how families with children would be helped... very worthy, and nothing to do with anything, so far as this issue is concerned. [An interesting example of salving a perceived electorate, however.. never mind the concerns of those of us who wonder if we can afford to go on allowing so many children, let alone paying for them (but that's my own political agenda coming out, seen by almost everyone as heresy, I acknowledge - but I do object to how much of my tax goes to paying for other people's sexual incontinence.)

There's plenty more, but I'm realising that fury is getting the better of rational argument, I'm getting a headache and I've forgotten half of what I was thinking I'd write here. So, enough for now.

And all this is in a week when pundits are suggesting that for the lower paid, Brown's 'official' inflation rate for Sterling of 2.5% is meaningless - that real inflation for those groups may be as high as between 9% and 15% pa.

10p 0.25% 'Yvette Cooper' 'Frank Field' 'Gordon Brown' budget Paxman Newsnight U-turn

I think I'm going to offer my services as Chancellor. (When I've finished there, I'll sort the England team.)

16 April 2008 .

As I suggested yesterday, the recent fall in the UK base interest rate has failed to produce the desired result. I see today that various pundits are suggesting that what is therefore needed is more of the same.

Ho hum.

'interest rates' 'chancellor of the exchequer'

Do the experts actually know what they're talking about?

15 April 2008 .

More panic today about falling house prices... but they've been overvalued for years. The fault isn't with ordinary people, who have to get on with their lives and find somewhere to live; it is with those - the bankers, government economists and politicians - who knew that the market was overpriced.

The generally accepted figure for the overvaluing seems to be about 30%. Even that, so far as I can make out, would still be talking in terms of four to five times the gross salary for most ordinary people - which I think is still 20-30% too high. I suppose we'll see.

The price of houses has to fall: the question is only how far. As to what this means for the health of the economy, as opposed to the pain for individuals... it's probably better, even in the medium term, let alone the long term, that the market is corrected. (Apart from everything else, you can't have houses costing ten years' net family income and tying people up in that sort of debt as a matter of course.)

Meanwhile, there is complaint that while the base interest rate was reduced by 0.25% the other day, the rates demanded of borrowers by banks have not on the whole fallen - and, in, fact, have shown a continuing rise. I don't follow this... it was crystal clear before last week that money is going to be more expensive. (Never mind that a large part of our trouble on house prices and credit came to us because there was too much cash loose in the economy in the first place.)

'House Prices' 0.25% borrowers

Rant of the Day.

15 April 2008 .

The media keep referring to how Brown, as Chancellor, declared an end to 'boom and bust' under his benign guidance. At least they seem to have grasped that he was mistaken(!)

No mention yet of the sheer arrogance, not to mention lack of understanding of economic forces (or what we in the trade would call 'incompetence', in a chancellor) which Brown betrayed when he made that boast. There was no reason why a non-specialist should know that Brown was talking through his hat, but any second-year economist could see that he was deluded.

The signs have been so clear that we were living in a bubble which was going to burst, probably since 2004, certainly since 2006: overheating, over-valued housing market, play-money interest rates and loans, negative-equity (sub-prime, 125%) mortgages being offered on the expectation of an everlasting rising-price spiral, unsustainable (and increasingly unsustained) personal debt, with the government not far behind... those of us who are saying this now are not speaking with the benefit of hindsight - it was clear.

I admit that I'd begun to hope that the madness would continue long enough for me to be dead, or at least beyond caring, before the crunch came. More fool me.

Now Brown tells us that he wakes every morning thinking about how he's going to help us. Hello-oh.

The problem remains: when Brown goes, who takes over? Cameron? I'll emigrate. Balls? Brown hinting at that unpleasant (and even less comprehending) man as his chosen successor smacks of Tiberius choosing Caligula... at least he'll make Brown seem God-given, in retrospect...

Brown 'Boom and Bust' sub-prime incompetence 'credit crunch'

For a government trying to balance its books, building flood defences makes no sense.

14 April 2008 .

In many parts of the country, rightly or wrongly, the government has chosen not to invest in flood controls as extensively in recent years as they did in the past.

While there's argument whether these have been false economies, I'm not sure what effect the cuts had (if any) on the damage done by the flooding last summer. In the event, the government gave 86 million to help the affected areas.

Except that repairs seem to have cost something over 3 billion, resulting in householders paying 525 million in VAT.

Profit to the government (revenue net of expenses): 439 million. Sorted!

Flooding 'balance the books' 'false economy' VAT

Interest rates - Conclusion.

11 April 2008 .

Most people feel that the right decision was reached yesterday, when the base rate was reduced by 0.25% to 5% - it gave the right signal but wasn't excessive. I admit that my suggestion that the rate should go up was mainly meant to be argumentative... except that I believe that there was a kernel of truth in it. We shall see.

0.25% 'interest rates'

Interest rates and inflation.

10 April 2008 .

Further to yesterday's suggestion that interest rates should go up rather than down... The big concern with relaxing the money supply historically has been inflation*. As it happens I suspect that, for the time being, there's still not going to be a close link... and that we're due for a nasty rise in the cost of living. On the one hand, money is going to remain tight, whatever happens to interest rates; but on the other, I suspect that (a) pressures of food and fuel price rises are going to become increasingly irresistible - sooner rather than later - and (b) the strength of the Euro against Sterling (already pushing the cost of holidays up in leaps and bounds) is going to hit us much harder than Darling Brown might admit. I suggest than any figure for quotidian inflation around 2.5% is optimistic at best.

* I subscribe to the theory that low inflation with cheap money in recent years is on the backs of;

• rising property prices (so that the cash of ordinary people has been disproportionately swallowed up in house-buying),
• the fact that the main beneficiaries of the 'boom' of the past decade or so have been the already rich, whose spending patterns tend not to impact so much on the sort of items that figure in government calculations, and
• the vast, exploitable work-force, particularly in China;

and that these factors are going to be sidelined by more intense pressures from resource inflation.

Never mind; Prudence Manse-Brown will be able to bury real inflation under falling house prices and continue to persuade himself of his fiscal mastery of matters economical.

Incidentally: what's with this idea, which still seems to be widely held in the media, that the UK economy is going to prove so resilient to what's coming? Our currency's softening, our economy has become increasingly dependent on precisely the sector that's in trouble world-wide, our energy resources increasingly come from countries which have no great love for us, our manufacturing base has disappeared....

Cheerful bugger, ain't I?

'real inflation' 'housing inflation' 'cheap money' 'energy resources'

Interest rates should go up.

09 April 2008 .

Just for the record; if I were to have a vote on the monetary policy commission tomorrow, I would go for maintaining the present rate of interest or even raising it by 0.25%.

A reduction, which seems to be what all the pundits are calling for, might make the future more comfortable in the short term - but surely even that must be in doubt, since market prices for money have risen despite central bank actions over the last few weeks. Money isn't becoming (and won't become) more available simply because of central bank fiddlings which can't have any 'disciplinary' force.

If, however, we have the US Federal Reserve pumping more credit into the system (which the Bank of England doesn't have the power to emulate meaningfully anyway), all we're getting is more of what incubated the present crisis in the first place (floods of easy money leading to reckless behaviour) - with the problems we face now merely being delayed, to hit us even harder a bit further down the line. An additional downside is that some of the monkeys who got us into this mess will believe that they've got away with it yet again.

Meanwhile, The Father Of The Nation - erstwhile chancellor who

• set up the regulatory system which so signally failed to understand what was coming;
• keeps assuring us, in the face of increasingly ominous signs, that the UK economy is well-equipped to weather any possible storms;
• spent his years in that office telling us that the 'era of boom and bust' was ended (with some of the credit to him?) - a nonsensical statement which every economist worth tuppence knew was rubbish and
• spent those years acting accordingly...

does not seem to me to be the best qualified to guide through the coming storm; any more than darling Darling, bless his little socks. If you want evidence, just look at their unbelievably costly hesitation and political fear over Northern Rock.

At least, after a generation in the outer darkness, Keynes is beginning to be dusted off.

Just for the record, since nobody who matters is going to take any notice of this minor webcassandra.

'US Federal Reserve' 'interest rates' 'monetary policy commission'

Taxing those who can least afford it.

13 March 2008 .

If you earn less than about 15,000 a year, your tax will have risen for the second budget running. Nothing to do with fighting climate change, or even particularly the rises in regressive council taxes. This is a Labour government hitting the lowest earners in the economy. Again.

I wouldn't bother writing anything about this, on this site... if I understood why.


Who can afford a house?

24 February 2008 .

I overheard part of a television programme last evening; people were being asked what they thought someone would need to be earning p.a. to make it into the top 10% of earners of the UK. One answer put it at perhaps a million pounds - obviously a quick answer, since nobody could seriously suppose that 10% of people working get more than a million a year. The rest of the answers were more realistic. Most guessed around 100,000 to 150,000 (no-one guessed less). I thought even that seemed high - one in ten people earning six figures? I thought 60,000. The actual figure was given as 46,000, which I admit seems to me to be on the low side.

The high levels at which we (all) guessed could be interesting and, possibly, a bit worrying. What effect does such a high estimate of what other people are getting have on us? Does it cause over-optimism - unrealistic aspiration - and consequent disappointment? Does it make us more envious? How does it tie in with commercialisation of our lives? Does it affect our attitudes to the (more realistic) sector of our society who make do on under 20,000, or under 10,000? However, there's an issue which is even more to the point.

90% of us are earning less than 46,000, and the UK average is in the order of 27,000. But the average price of a house is a touch over 220,000 (and that's lower than the recent peak).

Since 1945, we've come through a sixty year period of completely unprecedented and fairly sustained economic growth, in peacetime with a comparatively stable population; we all have to live somewhere; how can it be that the average price of a house is nearly eight times the average salary, and five times what 90% of us earn?

Clearly, the more limited the supply of houses, the higher the price at which supply and demand will coincide. One obvious question is why, after all this peacetime prosperity, we haven't built more houses; but, pertinent though that is, I don't think it's crucial - there are plenty of empty properties, and most people are, in fact housed. I don't think it's the supply side that's really at issue.

Having said which, I do wonder why we aren't restricting, or at least examining, multiple-home ownership: in a nation of housing shortage (which is what the high prices are telling us), it seems quite extraordinarily against the public interest to allow second homes with quite such unquestioned freedom. It's not simply that a restriction would release more homes onto the market (some of which, it's argued, would be unsuitable anyway); it's possible, though not certain (it needs investigation), that the comparatively small fall in the number of homes being demanded - if no one were allowed to bid for a second home - would lead to quite a dramatic move of house prices to a realistically lower level.

The issue is the demand side.

1) A fairly small rise in the numbers of people in the market (demanding homes) leads to a disproportionate rise in house prices - particularly in the housing market, because the supply is very inelastic (more housing can't quickly be produced to meet rising demand; we're thinking fifteen years for a 10% increase in supply - and that's only if The Supreme Leader's target is met). And we don't have a small rise... with net immigration at the level it is, by the grace of political decisions, we have a large and continuing rise in demand, which can only have an upward effect on prices. But it's not even rising numbers of people who have put prices up so much... it wouldn't happen if they weren't able to pay so far beyond any rational level.

2) The reason people can pay so much to buy a house is not that most of them have the cash (at eight times gross income, not a chance) but because the lending institutions - banks and building societies - have been lending more and more ludicrous amounts of money... so that their borrowers can compete against other people who are being offered equally ludicrous amounts by the same institutions to buy the same houses. There is nothing to restrain the banks - they can lend us cash up to the point where the pips squeak; their only concern is that we are able to go on paying the interest. Worse than that; when we pay for a house, most of the cash we pay goes back, one way or another, to those selfsame banks who can use it to play the game to their advantage all over again. And again. There are actually, even now, some residual restraints on the old banks, but there seemed to be none at all, for example, on N. Rock. [I knew I'd come back to that load of demonstrable fraudsters... I almost wish that one of them would read this site and sue me... boy, I'd have a few things to say in court.]

The banks claim that the system is worthwhile because it causes more houses to be built. There's no evidence that there is more than a minimal effect (or, to put it another way, they would say that, wouldn't they). If you don't believe the extent to which the banks can distort the economy to their benefit, and to the distress of many many many of the rest of us, have a look at basic banking theory: as I've said elsewhere, it's an eye opener. It's also quite simple. If I get a few e-mails asking me, I might even do a page here. I might anyway.

A generation ago, you would be 'lucky' to get a mortgage at three times your salary, maybe two-and-a-half times a combined salary. Put the phrase 'old-fashioned' out of your mind and ask whether the lenders then, in a less rapacious climate, knew things that the current mob choose to ignore.

Those who are faced with mortgages of five and eight times their income and rising interest rates, or those with no hope of entering the market at all, whether their interests are safeguarded vis-a-vis the banks. Wait before asking those who are on the ladder, until the system is faltering.

What I think of the Thatch/Blair governments that have allowed this to happen, to the point of encouraging it by weakening all the regulatory controls in the name of the free market, doesn't bear repeating.

I've done it again; got onto a hobby-horse then run out of time. Maybe I'll come back to this, but I hope there's enough here already that my point is made.

'Cheap money' 'regulatory controls' 'negative equity' 'supply and demand for housing'

PS to the Northern Rock saga...

22 February 2008 .

I'd like to think this could be the last postscript, but it won't be; the whole thing is too big - I suspect there are still a fair number of nasty surprises waiting to ambush us...

But, isn't it a damned cheek? Shareholders of that benighted company still think that they should be recompensed for the loss in value of their shares.

Ye gods! If I've been right in my assertions elsewhere, the shareholders elected criminals as their directors. If they want to try to sue those directors, that's their business. Even if I've been wrong, at best they elected risk-takers. Either way, they had every opportunity to examine the company's business practices and they were happy to take ludicrously large dividends despite the disastrous path they were on: as a taxpayer, I'm already being punished for the company's greed and I'm certainly not prepared to sub their pockets as well.

'excessive dividends' shareholders

A House In The North.

22 February 2008 .

Apparently the new national bank has just repossessed on its first mortgage defaulter; it will be interesting to see what's going to happen to the house in Bishop Auckland. While I don't know how much the defaulters owed vis-a-vis what the government will be able to recover in a falling housing market, I assume that they'll be allowed to go on living in their former property - otherwise, are they in social housing, subsidised by the shareholders of the company which evicted them (which is to say, the taxpayers)? (On US post-subprime form, the house would be abandoned, boarded up and vandalised, ending up worth nothing to anybody; I hope somebody will be keeping an eye to make sure that that doesn't happen here.)

It's a complete dog's dinner...

'mortgage defaulter' 'Bishop Auckland' sub-prime

Assets Of Straw. Or Just Off-shore.

21 February 2008 .

The taxpayers' exposure on N. Rock has reached 100 billion. (Twenty billion pounds. Then 25; then 33, 39, 50, 65, 69... now 100 billion... when does it stop?)

While we watched our liabilities climb and climb with a sort of dumb resignation, we assumed that (perhaps by some sort of Brownian motion) there was a meaningful figure on the assets side of the sheet to reassure us that the whole business wasn't quite the awful black hole that it appeared to be. Some hope.

• 125% mortgages, including to people who were going to be hard-pressed to meet payments on any mortgage at all, insuring that a mass of struggling new home-owners were buying themselves into negative equity at the top of the market before they even started. These are assets of straw. How do you get people-at-large to understand the enormity of what's been allowed to happen? (Which phrase do you even choose to put into italics?)

Then: it comes out this week that 45 billion pounds-worth of Northern Rock's more secure mortgages have been salted away with a Jersey-based company, Granite. This company, despite appearing on N. Rock's books, has not been nationalised. The assets left 'securing' the British taxpayer's exposure turn out to include an impressive amount of the straw and, apparently, none of the gold.

When there's a disaster in progress, but somebody's walking away with a smile on his face, it must be worth asking how much the situation might have been engineered.

1. The N. Rock directors set out with a growth model: borrow short-term and cheap, and lend long.
1.1. Like pyramid selling, with which it's on a moral par, it produces what appears (to the lay person) to be stunning growth.
1.2. But, as any banker, including the directors of N. Rock, should know without even thinking about it, the growth is unsustainable, and has no substance.
1.2.1. The moment that interest rates started to rise - which event was always as certain as death and income tax - N. Rock would crash. They did and it did.

2. Knowing that the crash would come eventually, the directors awarded themselves fat bonuses and gave unjustifiably large dividends to the shareholders and
2.1. went on doing so even when it was becoming clear that gravy-train was heading for the buffers - which now appears to have been with the approval and even the encouragement of a treasury which want literally to con its way out of an economic disaster.

3. At some point (and I do so hope people will be asking when) the directors salted away what gold there was among the dross in an off-shore company, so that when the taxpayer finally came to bail the bank out, the assets which should have been in the pot weren't there.

4. And the directors walked away.

It puts the Great Train Robbery into perspective - as a pocket money raid. Similarly Brink's-Mat and the Tonbridge business. (The real joy of the N. Rock scam - for the directors - is that it's comparatively risk-free. And no guns. Even if they were rumbled, the worst they'd face would be a minimum security, white-collar, 'open' nick.)

It's been the Crime Of The (21st.) Century; the B of E, the FSA and the treasury have been the patsies and the taxpayer's paying.

History Will Say That. And it will say that Gordon Brown might as well have been the man on the inside because of the way the system was set up under his watch as chancellor. As for the rest of the banking sector - think twice before asking them to be on your local Neighbourhood Watch, because they'll just sit back and admire the burglar who comes along so long as he has enough chutzpah.

However The Great Economist And Helmsman may huff and puff about urrrgh prudence, this government and its financial agencies have truly buggered us.

But I'm only a man with a sandwich-board; what do I know?

'Northern Rock' 'Granite' 'Great Train Robbery' 'Bank of England' Treasury FSA

The Banks and their schemes: why do we just sit back and let them do these things?

18 February 2008 .

"You cannot borrow short to lend long. If you do so when money is easy, then, the moment the market begins to harden, You. Will. Hit. A. Brick. Wall." This is about rule #3 to be learned by aspiring business students. But not, it seems, by our chancellors or the new generation of bankers.

Despatches on Channel Four, this evening: 'How The Banks Bet Your Money'. I wish everybody could watch this programme - if I were a teacher of Economics, Business Studies, Politics, citizenship or simply PHSE I'd be showing it to my students in the morning. It's a litany of the greed and complacency of the banks and the three(!) regulatory bodies (FSA, Bank of England and Treasury). I'm willing to bet that folks from those bodies - all of whom refused to speak on this (well-respected) programme - will claim that the makers are being wise after the event; they're not: with my undergraduate knowledge of finance, let alone what I've learned since, I knew that N. Rock's borrowing/lending model was a disaster waiting to happen. Okay, I happen to know a little about banking (because that was what I taught) and there's no reason why everybody should know as much as I do on this matter. But, we're not talking about everybody, we're talking about the directors of the banks and the members of the regulatory bodies - who should know not what I do but a massive amount more. (I believe the senior bankers involved were earning on average about 60 times as much as me... and, as it happens, with regard to them, there may be the crux of the matter - sheer greed.)

The regulators are supposed to regulate on behalf of the nation. Their problems are not so much about greed, I imagine, as about sheer incapacity, lack of resources, lack of clarity (who's responsible for what?), complacency, even laziness. The genius behind the scattered and unworkable system there was Gordon Brown, who created and took all the credit for the new set-up soon after he became Chancellor. Who now wants us to believe that his government have taken the urrrgh prudent and urrrgh sensible steps to urrrgh maintain confidence.

Now I'm abusing ad hominem... a weak trick which I dislike whenever I come across it... but I'm getting so frustrated - not so much by the arrogant incompetence of The Father Of The Nation himself (he couldn't be where he is if we didn't put him and people like him in power) as by the way we go on allowing our lives, our world and our country to be damaged by him (and that other one - I've got no favourites) and by the hopeless political class that supports him; and by men in expensive suits with massive bonuses in the financial sector who simply are not as clever as they think they are nor as wise as we seem to think.

Anyway, we're seeing the playing out of the CLO (Consolidated Loan Obligation) scheme, into which our banks leapt with both feet to the great distress of our economy.

They've already got their next little money-spinning scheme running, possibly ready to ambush us all, the CDS (Credit Default Swaps) game - a supposed means, in effect, of reinsurance. Apparently AIG is the first company to be showing stress here, to the tune of about five billion pounds. UK-economy exposure if and when the banks and others topple on this one are estimated to be as high as 700 billion pounds...

And the Regulatory bodies? The BofE is talking about being given more powers (without really being clear in detail, so far as I can make out, what those powers should be and how they would improve things) - while not yet having demonstrated that it knows how to use the powers it already has. The FSA is being assessed on its performance over N. Rock... by the FSA!

(The FSA, I've been told, discovered in an exercise two years ago that they didn't have the legal powers or the skills needed to deal with an N. Rock type crisis... and did nothing about it.)

There are two things clear about the financial waters in which we swim; they are fiendishly complex and they present many occasions for sin.

The two questions to be asked are:

• What responsibility do I (as a private citizen) have in all this and what do I do about it? And;

• What do we (as a society) do to restore, or re-invent, the regulation of a system which is clearly beyond the capacity of our present political and financial institutions to master?

'How The Banks Bet Your Money' 'borrow short' 'lend long' CDS AIG FSA CLO 'Bank of England' treasury 'Northern Rock'

Addled Egg.

03 February 2008 .

Citi are cancelling 160,000 credit cards, out of the blue (and no, no personal ax to grind, here). The customers who have, in Citi's eyes, the greatest risk of defaulting are pretty much by definition their most vulnerable customers; and since the Egg card was being handed out with gay abandon, we may assume 160,000 from among the most financially vulnerable in our society.

If I were about to have my credit line cut off in this way, my first step would be to get in touch with Citi and try to negotiate - I do hope that that's what Citi intends - but the reality may be that many of these customers may find the prospect (of negotiating with a company that so suddenly hits so many people) very intimidating.

I can imagine the panic, even the terror, of some folks as they receive their termination letter from Citi. I can also imagine the panic of a mass of people not among the 160,000 who nevertheless read what is happening, in the press, and wonder if they, too, have a letter coming in the post.

The Graces forgive me for even hinting at this; but has Citi assessed the possibility that out of 160,000, there may be a few suicides? Come to that, have they assessed the publicity impact on themselves if that should happen? Perhaps they've assessed that our society has become so alienated that nobody will care, and the Daily Rag will say that these people were losers anyway, so don't matter. (Okay, that bit was a bit personal!) Or perhaps the decision was made by a disaffected student on work experience, and Citi haven't assessed anything at all.

160,000 must be about 1 in 200 of the working population of the UK - a very small but not totally insignificant proportion. Isn't there going to be a social impact - I would have thought at least comparable with the N. Rock fiasco?

I would have thought that in the present fragile financial climate, this action by Citi (who insist that the action is purely one of financial prudence) could precipitate real problems for the whole British economy.

And once again, the problem is caused by the bank (yes, Citi itself; while it may have taken Egg over, Citi knew what they were taking, and therefore took over the moral responsibility for Egg's prior actions). The bank chased customers, apparently including those who couldn't actually afford a credit card.

I have suggested that marketing men are bottom feeders. It seems there's an even deeper and slimier bottom for credit card marketing men.

gg Citicorp Citi Citibank

Economic Consequences of Mrs. Thatcher.

27 January 2008 .

30 years ago, we had North Sea oil and gas, and the promise of freedom from energy-dependence on the vagaries of OPEC and the Middle East. Our politicians told us that the future was full of promise and that the income from taxes and sales would be invested to guarantee the future of our children and grandchildren.

During the eighties, the decision was taken that this income would best be employed, alongside the cash raised by privatisation, to reduce taxation. It was intended that, as a result, private investment would be the fuel to drive economic growth. There have, indeed, been long periods of economic boom.

And it's been an illusion.

Output from the North Sea is well past its peak. There's still a lot to come, but every year it will be harder and more expensive to exploit each litre and every year output will be more and more constrained. So, if the great investments that were promised had been put into effect, by now we would be able to point at them and say, 'The North Sea did that for us'. The reality is that the nation's existing assets have been sold, transmuted not into investment but into short term tax cuts, 'selling off the family silver' as Harold MacMillan described it . 'Investments' in schools and hospitals being initiated by the present government are on the 'never-never', a sort of hire purchase which is all hire (paid by the taxpayer over the next 20, 30 or 40 years on the most massive scale) and no purchase (ownership of the capital stock - the buildings and so on - reverting at the end of the contracts in large part not to us but to the contracting company, leaving our grandchildren with nothing).

The question, then, is what has the average Brit been able to show for the North Sea years? There are answers, and they bear examination.

The most obvious is the transfer of wealth from public to private ownership, primarily achieved through the tax cuts allowed by the North Sea revenues and the programmes of privatisation. Sadly for most of us, this answer falls at the first hurdle.

It was axiomatic in this country a generation ago that the heaviest taxes fell on those most able to pay - which broadly meant a progressive income tax, with the poorest paying no tax and even being given help by the state (negative taxation) and the only the richest paying in the highest tax bands. Income tax, along with capital gains tax and others have indeed broadly halved in the past 30 years. But:

• Taxes never fell as far as the government pretended. Some of the shortfall was taken up by other taxes and charges rising. The problem is that these taxes and charges tend to be flat rate, like VAT, shifting the burden of tax more to lower income groups; some are actually regressive, hitting the poorer groups proportionately harder than the rich. The effect is that the rich have gained massively from changes in taxation over the past 30 years, the average taxpayer perhaps a little (and there is some dispute even about that) and the poorest are not only relatively but perhaps even absolutely worse off. Simple example, not the best but very clear: seven and a half million people can't afford dental care. This isn't even the worst of it: in the most recent budget, Brown trumpeted that income tax was being reduced - which it was, for many people; but (go and check this out if you don't believe it): the poorest taxpayers, earning less than about 12,000 pa, had their income tax increased. A person on, say, 9,000 could (I believe) find themselves paying 400 extra - quite a burden; and this is before the increases in those flat-rate charges and taxes which by their nature hit the poor hardest anyway (and are expected to).

What was axiomatic has gone; poorer people can now find themselves paying a higher percentage of their income in taxes than those richer than themselves. There is even a neo-con body of opinion which holds that that is how it should be. (In France, in the end, the ordinary folk cut off a king's head...)

So, move past the taxation; it is a fact that we are on the whole a home-owning society, and the followers of Mrs. T. credit her with that. But at what cost? We were moving that way slowly anyway; the effect of the tax cuts, putting more money in the pockets of many, has simply been to fuel the runaway rise in house prices; those who benefitted from the tax cuts had the money taken away again by having to pay two, or three or five, times the amount to buy a house. Those who were left behind in the tax bonanza find that there isn't even any social housing for them now. Be clear: the main long-term effect of North Sea Gas has been to put the price of houses up.

How about that we are a share-owning society? That has very little to do with North Sea revenues - except that they made privatisation possible more quickly than it would otherwise have been (because of the spare cash from tax cuts that was in people's accounts).

And where are the privatised utilities and companies now? Certainly not in the pockets of a vast shareholding public: as predicted by the most basic first-year economics, the ownership has become concentrated once again in the hands of a few large corporations (Gas? electricity? London Underground? telephones? building societies*, etc. etc...) and often these utilities have not only moved out of public ownership but out of British ownership - then sometimes to be run to the great disadvantage of all of us and to the profit of our national competitors.

*You have to admire Mrs. T.'s chutzpah in selling companies that the government didn't even own and being praised for it by some of the very people who were having the wool pulled over their eyes.

I've done it again; a topic I could go on and on about. And I haven't even started on the way we're selling quite a lot of what we have left in the North Sea at a loss.

And I want my dinner.

Just let me say this. If you have read this far, you may agree or disagree. I can't suggest to you what to do about it - I'm still trying to do that for myself. But, it's just possible that you've read it and thought, conspiracy theorist, or, alarmist: don't. I assure you that, while I may have made elementary errors, the core of what I'm writing is sound.

As to how the government would let this happen, I'll limit myself to these: Anything for Power; and, Short-termism. Thatcher/Blair/Brown don't want to hurt their children or ours; but they are blinded by their politics.

Twenty or thirty years from now, I promise you, there will very few people who will look back on any remaining legacy of Thatcherism with any affection, admiration or gratitude. It always was a flawed policy of greed and selfishness based on a philosophy of social darwinism (if you lose, it's because you're a loser!). The sour joke is that so many of those who admired her never got more than crumbs for their loyalty, and their children and grandchildren are starting to pay the price.

And we're back to being hostage to foreign countries for our energy needs. I do hope you feel safe in Mr. Putin's tender care. Because he really loves the Brits.

'North Sea oil and gas' Thatcher Putin 'privatised utilities' 'peak production' OPEC

Demand for oil will NOT outstrip supply for many years yet.

26 January 2008 .

Jeroen van der Veer, CEO of Shell, predicts that conventional fossil fuel supplies will fail to keep pace with rising population and booming economies. One rag says that such comments from the boss of a major international player "will be seen as a wake-up call to the world".

Talk about reporting the bleedin' obvious. I hardly think van der Veer woke up one morning after Christmas and had this Damascene insight and, while it may seem that the world still needs a wake-up call, frankly, if the world hasn't realised already what trouble it's in and how soon it's going to hit the buffers, it deserves everything it gets.

"Demand will outstrip supply within seven years." we're told (as if in six years there won't be a shortage but in eight there will). That, at least, is total rubbish, and the columnist who wrote that doesn't know his economics from his ectoplasm (or, more likely, was being patronising).

The whole point of the free market, to which concept our esteemed leaders are wedded, is that demand doesn't outstrip supply; all that happens is that the price rises. If demands shifts in the 'more' direction and supply in the 'less', the price just goes up, and up, and up. For the wealthy, there will be oil all my lifetime, and yours, at a price. The problem is for everybody else - when the prices rise so much as to start getting prohibitive.

Unfortunately, whatever their nobler ideals, neither neo-con nor 'liberal' economist, Thatcher nor Blair nor Bush, ever shaped their systems in the interests of the 'everybody else'.

Look at the position from the opposite point of view, and it may be a bit clearer. Is oil becoming so expensive that poorer people (or nations) are finding it harder to afford what they need? If it is, that's because the 'shortage' is already here. If we lived in a controlled economy with fixed prices, the shortage would already be apparent; there would have to be rationing.

Rationing is a dirty word these days, so the only sort of rationing we have in the open market is by price (which is hidden, but in fact the harshest form of rationing there is) - so it's the poorest, the most vulnerable, the powerless who are suffering. What will be obvious in seven years is that it's not just the undeserving poor any more.

If we insist on maintaining the 'free market global economy', ultimately, the situation becomes so severe to those who can't afford to pay that individuals will resort to theft and nations will be forced to consider war. [Mind you, adopting a whole new 'fair' approach - world-wide rationing (if it were politically possible) - wouldn't stop the crunch from coming eventually, but it might buy us time.]

• I seem to remember 1972 as being a sort of 'tipping point'. It's been suggested that if we had foreseen what was coming before that date (as some people did), then concerted action might have saved the day. I hope to God that's too pessimistic a view.

• I wasn't one of the Cassandras then ( I was too young, and that's my excuse); but certainly by 1985 I was talking to my economics students in terms of 2010 as being the crunch year for oil: seven years from now is only five years beyond that date, so I wasn't far out. And here's the point: I didn't work that date out for myself.

Technology is not going to find sustainable replacements for oil in seven years, and probably not in twenty-seven; it will be able to provide us with some additional energy resources, but that's all.

So what do we do? There's the rub.

'Jeroen van der Veer' 'free market global economy' 'Demand will outstrip supply' 'tipping point'

Northern Rock, Postscript.

23 January 2008 .

I've been asked, what would I do? Just to show that I have an answer, even if it isn't the best, or at the very least requires refinement:

1) Nationalise it without compensation. Actually, what compensation should there be? Let the shareholders go hang (when will investors accept the basic rules of private sector investment?). Bring criminal charges if there are any to be brought. Underwrite deposits (depositors are not taking market investment risks in hope of a return).

2) Review the status of every marginal mortgage. Renegotiate terms so that there aren't families on the street (which the government, in one form or another, would have to rehouse anyway). If need be, freeze individual household arrangements and let the householders pay rent for an indefinite period, until (if) they are able to resume mortgage payments.

3) Reassure the markets, particularly by transparency. Also, discipline the market-men a bit by making it clear that the government will underwrite infrastructures, but not reckless behaviour. There are plenty of folk in the market who are made nervous by the very profligacy of government support for unsustainable and therefore unsupportable cases - and N. Rock was quite demonstrably such a case.

4) Reprivatise in stages, when the market favours it, either by equity sales or by a full ownership transfer (to Branson, if that's what's wanted). Or, by the gradual relinquishment of the housing stock, let the company wither away. Or even create a new core of nationally owned social housing - for which there's been a desperate need for two decades.

Total exposure for the taxpayer: at most, exactly what is now - actually, a great deal lower, but going through that would be too much like hard work.

Social Cost: Who would the government need to evict?

Financial costs: here's the rub; the cost would appear on the books, now, and that's what terrifies brown. But he's wrong - the cost has already been incurred, the government has responsibility for the situation and it has to bite the bullet... but brown won't do that, either.

Quote from Private Eye seen today: 'After the run on the Rock, Darling (Chancellor of the Exchequer) called for "far greater openness to prevent risky investments being hidden off balance sheet". Unless it's his balance sheet, that is.'

'Northern Rock' 'socisl cost' 'taxpayer exposure' 'financial infrastructure'

Northern Rock Progress Report by One Who Understands.

22 January 2008 .

So that's how it might be looking, then.

The taxpayer is presently exposed to Northern Rock to the tune of 55 billion (or more, depending whom you read). Branson (or somebody, depending whom you read) may buy into N. Rock to the tune of 25 billion (or some other amount, depending whom you read), which will be underwritten (or offset, depending whom you read) by a complex bond release scheme by which ordinary shareholders will (or may, depending whom you read) end up with stakes in the company. But that 25 billion invested in the company by the private sector will still be guaranteed (or underwritten?) by the government. Whatever the details (which depend on whom you read) the taxpayers will still at the end of it be exposed to exactly the same amount (55 billion?) as they are now, which means 2,000 for each taxpayer (or for each British citizen, depending whom you read, although here at least we can do the maths for ourselves - it's per taxpayer).

The only difference after all these shenanigans will be that if the recession, the housing market and the credit squeeze continue on the path that seems likely right now, the taxpayers will carry the risk; but if the situation changes and there is a boom, Branson or whoever the 'investors' then are will stand to make the profits (which may be considerable).

You have to ask why the government is making a decision which seems to be so obviously against the interests of the general public; the answer seems to be where it always is: appearances.

• An injection of private sector cash now will defer the full impact on the nation's books, and if the gamble comes off and the market improves, the taxpayer will escape untouched. The chance of the taxpayer making the profit in the future may be worth the risk to the taxpayer, but just isn't worth the negative political impact to Brown and his party of losing that initial 25 billion private sector cash now. (The joke is that because of the bond scheme, there won't be any actual cash involved anyway.) So stuff the chance of the taxpayer, who's taking a fair(ish) risk, making a profit in the future (probably after brown's gone) - brown goes for the short term party interest.
• If the economic climate continues unsettled, there will have to be repossessions, many in the labour party's heartland. brown doesn't want to be seen to be involved; much better, in his view, to forget the taxpayer's long-term interest if that's what's needed to get someone else to be seen to be carrying the repossessions baby.

Right, then. Everything I've written in this item is total nonsense. Except that it is exactly the picture that this reader of several newspapers (and watcher of news programmes) has gained of what is going on.

• You may suggest that I should research the matter more closely. Why should I? I've got a life to live; I can't read in detail about everything that brown and every other minister and quango-chair does, I have to rely on the media for a general idea.
• You may suggest that I should stop worrying, then, and leave these things to people who understand them. I do so hope you'd be joking.

The Great Leader And Helmsman would, of course, prefer that I leave everything in his capable hands.

injection 'economic climate' 'public money'

Darling Darling - How He Does Mislead!

22 November 2007 .

Re sub-prime lending:

Foolish me. When Darling (whom I'm sure The Supreme Leader sees as Mark Antony to his Julius Caesar as Chancellor) announced that Britain had nothing like the exposure of the US in the sub-prime market (5% was the figure he quoted), I thought, 'That's a relief.'

Later he announced that the figure was 12.5% (I think I have the figures right). Not so good, I thought, feeling that it was quite a reassessment.

Now we discover that there is no clear definition in this country, as there is in the US, of what constitutes 'sub-prime' (and such understanding as does exist in the UK is narrower anyway). So Darling was talking complete, meaningless nonsense. An example of post-modernism, I suppose, in which Darling chooses the meaning of words in his narrative - and doesn't tell the rest of us what those meanings are, or if indeed there are any.

It's what we in that foreign country named 'the past' call lying.

'sub-prime lending' chancellor darling

Site Map