Tag Archive | "banking bailout"

Discounted bank shares is cheap electioneering

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Discounted bank shares is cheap electioneering


I am not known for agreeing with the Labour Party very often. However, George Osborne’s suggestion that the people should be offered shares in a bank we already own, at a discounted price, is nothing other than a cynical gimmick. I would have hoped that the Conservative Party would rise above such silly electioneering.

The reality is, we already own these banks and therefore, the dividends or proceeds of a sale will already go back to the public purse, allowing us to reduce debt or invest. Why would we want to buy these shares at a “discount”, when as taxpayers we are already assured of receiving the full benefit when these shares are drip fed back into the market? Furthermore, why should any specific sections of the community receive special or additional discounts?

There are suggestions that young people, low-income families and parents saving for their children should receive extra discounts. Why? The banks were saved using taxpayer funds and debt. This proposal is not an equal or proportionate division of the proceeds of a sale of a publicly owned asset; it is just a cynical way of buying votes from one section of the community. In fact, this is a typical ‘Labour Party’ trick of attempting to redistribute wealth, in spite of the fact that the Labour experiment has proven to be an utter failure.

It could be argued that those on the lowest incomes and, for that matter, younger people, contributed the least towards the propping of the banks, so why should they receive shares at a more favourable rate? It simply does not stand up to scrutiny. I suggest that the Conservative Party get on with the real job of telling us what they will do if they get into power, rather than trying cheap tricks designed to garner support from a minority at the expense of the majority. We have had to put up with this type of positive discrimination for the past 13 years…enough now!

Posted in Conservatives, General, World | Comments (3)

Asset Protection Scheme IS a Blank Cheque

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Asset Protection Scheme IS a Blank Cheque


Whatever Gordon Brown may have said about the Asset Protection Scheme not being a blank cheque, he is either misguided or failing to be honest with the electorate, you decide. Whilst I was aware that  a proportion of the £325bn (RBS) of “toxic assets” insured by the UK taxpayer would be outside the UK, I had NOT expected it to be the “majority”. Furthermore, I had not considered the fact that we, the UK taxpayers, would also be liable for exchange rate risks.

Gordon Brown claimed that the banking bailout was not a “blank cheque”, that is utter rubbish, in my view the definition of a blank cheque is one where you don’t know what the final cost will be and there is no cap on your exposure. Could anyone disagree with that analogy? Yet here we are, insuring toxic assets, where our exposure is unknown, the vast majority of the “assets” are overseas and we must accept 90% of any losses as well as covering exchange rate issues at a time when Sterling is dropping like a stone against ALL major currencies.

Granted, when or if we have to stump up cash to cover these losses, no-one can accurately predict the exchange rates, but it would be a very brave man, with the state of our economy, that would envisage that Sterling will be stronger than it is now. Lets face it, this country has massive borrowings, lower tax income and it is expected to be the last of the G7 to come out of recession. That is hardly going to provide any confidence in Sterling, add to that, the fact that we are also printing money and the writing is on the wall for a weak Pound for some time to come.

Unlike the United States where the banking bailout had to be passed through both Houses of US Congress, in this country, Gordon Brown was able to commit money without such scrutiny. That is an incredible amount of power and it ought to have been used with care, but in my opinion, our Government has been reckless. Not only have they failed to complete a proper due diligence before investing our money into the banks, but they have now negotiated an appalling deal to insure toxic assets, much of which are overseas, at a rate of 90% of the loss plus cover for the exchange rate fluctuations. If this is the best our Government could do, then it is a very sad day for politics in general and this Government in particular. The opposition parties are not much better, because they have, through their relative silence, been complicit in the whole thing.

Fair enough, there must be no reward for failure, but conversely there must also be a price to pay for recklessness, a failure of duty and incompetence. We need to start with the bankers and then deal with the politicians, ministers and regulators that have failed in their duty to the public. We can regulate as much as we want, but unless those responsible are brought to book, lessons will not have been learnt and a clear message will go out that the only ‘price‘ that has to be paid is public humiliation. Tell that to our kids and their children who will have to pay the price for this wholesale failure.

Posted in Conservatives, General, Labour, Lib Dems | Comments (4)

Are bankers exempt from a fiduciary duty?

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Are bankers exempt from a fiduciary duty?


It is generally accepted that company directors have a fiduciary duty to their shareholders. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust. In other words, a fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. As is the case of a company director.

If we assume that the directors of banks also have this fiduciary duty, why is it that they are being asked to resign, rather than being sacked? In addition to their fiduciary duty, directors must exercise a reasonable standard of care and act responsibly. Now, whilst there is some reasoned argument that the world economic situation compounded the problems our banks faced, it is ludicrous in the extreme to suggest that this is the sole reason for their demise and therefore, the need for vast amounts of taxpayers money to bail them out. With position comes responsibility, if the directors of our banks got it wrong, then they must pay the price. It is after all, they (collectively or otherwise), who made the decisions that ultimately lead to the failure of these once great institutions. Theoretically at least, if any director failed in their fiduciary duty, acted recklessly or without due care then, not only could they be sacked, but they could find themselves liable to a civil action. That notwithstanding, it is clear to me, that if ‘trust and confidence’ is an integral part of a fiduciary’s duty, then there has been a failure.

Government ministers have consistently talked about the fact that there must be “no reward for failure”, this pre-supposes that the bankers have failed,if this is the case, then by which yardstick? Is it in terms if their fiduciary duty, duty of care or that they have acted recklessly? If they have failed, then why were they allowed to leave voluntarily, with or without a compromise agreement? Why weren’t they sacked, why haven’t we heard ministers talk about suing directors that have failed? Could it be that those in public office also have a fiduciary duty and that they themselves could be subject to litigation? I don’t know the answers, I am no lawyer, but I say this, if there is no reward for failure, then there must be action against anyone that has failed in their duties. Not for revenge, but to prevent this happening again. In addition, if the government is correct in its assertion that certain bankers have failed, then surely, the right way to go is not to renege on the terms of any compromise agreement, but to sue the individual in their personal capacity. These individuals have either failed or they have not, ministers must be careful in making damning statements, yet failing to back them up with appropriate action.

I am not qualified legally or otherwise to determine whether or not any individual director has failed in their fiduciary duty. Therefore I am not suggesting anyone (bankers or otherwise) has acted improperly, I am relying only on the governments own words, that there should be no reward for failure, which implies that there has indeed been a failure. However, in the “court of public opinion” I would like to state for the record, that I believe there is merit, perhaps even a duty, for the government to seek legal advice on this matter, because they, as a majority shareholder in these banks, have their own fiduciary duty to the shareholders, you and me!

Posted in Conservatives, General, Labour, Lib Dems | Comments (4)

Government to act on bailout tax breaks

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Government to act on bailout tax breaks


I would like to thank David Jones, MP, for drawing my attention to a statement made by Alistair Darling in relation to my current anathema. Specifically, that unless Government intervenes to prevent it, banks and other large institutions that are in receipt of taxpayers money (as a consequence of large scale losses), will be able to benefit from carrying forward current losses to offset against future taxes. This to my mind would be scandalous. In a statement last Wednesday, Alistair Darling said;

To protect the taxpayer, RBS will have to bear the first portion of any additional losses over the coming years, up to a total loss of 6 per cent., or some £20 billion, on top of the £22 billion of impairment and write-downs that it has already taken. As in any insurance scheme, RBS will have to bear the first losses. After that, the Government will cover up to 90 per cent. of any further losses. RBS will also pay a fee of 2 per cent. of the value of the assets insured—some £6.5 billion—again, as in any insurance scheme. It has also agreed for a number of years not to claim certain UK tax losses and allowances, meaning that when it does return to profitability it will not be able to benefit from the losses accrued in the intervening period.

Now, whilst there appears to be a recognition that banks and other such institutions in receipt of taxpayers money could take advantage of tax breaks related to past losses, it does not go far enough. Firstly, this is just words, there is no concrete agreement, secondly, it only refers so far, to RBS and thirdly, it highlights “certain losses” and “number of years”, providing no clear definition. As we all know, if there are grey areas and money is involved, such statements will be challenged by these large institutions. This is a classic New Labour statement, high on self-righteous rhetoric and short on substance, detail and commitment. We would all be well advised to take much of this statement with a large pinch of salt.

Government needs to legislate for this issue, given every business is entitled to carry forward past losses to offset against future profits. Therefore, unless legislation is introduced, specifically aimed at those in receipt of taxpayers bailout money, to prevent the use of these tax breaks, there will be a massive outcry in the future. This will doubtless be at a time when the taxpayer is being fleeced for even more money to pay for the losses, borrowing and debt accumulated in large part as a consequence of the mismanagement of these institutions.

It is unlikely that we can rely on New Labour to tackle this issue, especially as they are unlikely to be in power when the tax breaks become a political issue, but there is no reason why the Conservatives and LibDems could not, or should not raise this issue now. The electorate demands it of our elected representatives and they must not claim ignorance when the day of reckoning comes, as it surely will.

Posted in Conservatives, General, Labour | Comments (1)

Politicians need a history lesson from 1929

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Politicians need a history lesson from 1929


Though I am no expert on the stock market crash of 1929 or the Great Depression that followed, what a pity that senior bankers and politicians did not study this subject and learn some of the lessons. There are so many parallels that it is uncanny and implies that people who should know better never learn their lessons.

In the run up to the Great Depression, ordinary people were allowed to purchase shares, whereas in the past it had been an exclusive club. In doing so, they increased demand and share prices started their relentless rise. This started to encourage more and more people to buy shares and, you’ve guessed it, the prices started to rise even further. The inexorable rise in share prices encouraged people to start to borrow in order that they could take advantage of the wealth creation that the stock market appeared to provide. The vast majority of these ordinary people had absolutely no idea how the stock market worked, it just looked like a one way bet. Brokers extended credit to share purchasers, in what became know as ‘margins’ whereby the purchaser could buy for example, $60,000 worth of shares, with just $6,000 of cash, the rest was borrowed.

The people of America felt rich, lifestyles improved after the austerity of the first world war and few people raised any doubts, those that did, such as President Hoover, tended to keep it to themselves, rather than be see as the Cassandra. Millions of people were encouraged to invest in the new gold rush that was the New York Stock Exchange, with little or no knowledge of the risks and inevitably with a ringing in their ears that you have to be ‘in it, to win it’. Banks and brokers stoked the money fever by extending loans secured on the shares. Inevitably the bubble burst, some were smart enough or lucky enough to get out before the crash, but they were few and far between. The vast majority of people lost all of their savings. There followed
the Great Depression, which lead to mass unemployment and affected virtually every corner of the world and it lasted 10 years. Some would argue that it also encouraged fascism and communism, if true, then it could well have been a precursor to the second world war.

If we exchange shares for houses, the parallels are uncanny. Many people have jumped on the housing bandwagon for fear of being left behind and a concern that if they were not a property owner, then they were nothing. In fact, there is some irony with that last statement because, as we all know, if you went to a bank and were a home owner, even if you owed £300k on your house, you were more likely to be able to secure another loan, than if you had no such liabilities because you rented. Somehow, owning a home had become the primary goal of a good proportion of the people of this country, actively encouraged by the banks. Loan to Value (LTV) ratios increased from around 75% to, in some cases, 125%. This implied that the banks felt that their investment was safe, because house prices would continue to rise, which meant that in a relatively short period of time, their risk would be covered by the rise in house prices.

If the banks felt that way, why would the buyers not? The ratios were also increased, allowing people to buy a house with multiples or 5 or 6 times their earnings, where previously this had typically been 2.5 times joint, or 3 times a single income. If that were not enough, many of the banks introduced ‘buy to let’ schemes, which allowed people with little or no money to build up a property portfolio in no time and of course, lead to an even greater demand for properties, leading to a further increase in house prices. So, everyone was making money, homeowners, the banks, mortgage companies, estate agents and of course, your friend and mine Gordon Brown, in the form of the Treasury.

After the 1929 stock market crash, Hoover introduced the Securities & Exchange commision to regulate US markets, this had the desired affect. However, over the past 20 years or so, the rules and regulations have been relaxed, seen as no longer necessary and much of what we witness in the United States today can be attributed to the easing of those regulations. Similarly, the much vaunted deregulation of the City was also a pre-cursor to the problems we all face today. Light regulation and a hand-off approach by government and the regulators has allowed the banks to enter very high risk transactions which many people struggle to understand. Yet, in doing so, they have clearly bet everything on it, presumably because they also though they couldn’t lose. Now, clearly all of us must take personal responsibility for our respective levels of borrowings, but easy money is difficult to refuse especially when it is being rammed down your throat on a daily basis, in the newspapers, on TV, in the shops and via direct mail campaigns.

However, when people hold senior positions, in banks, commerce and government, we could all be forgiven for believing that they are well read, experienced, shrewd and knowledgeable. In fact, we tend to take it for granted, how else would they have secured senior positions with such huge responsibilities? As chancellor, Gordon Brown in particular and the Labour government in general have let us down, their collective naivety lulled us all into a sense of false security, with Gordon Brown using the oft repeated mantra that his government policies would lead to an end of “Tory boom and bust”.

We can be forgiven for believing that a man in such a position would be best placed to know whether that was true or not, but instead, we have all come to realise, that politicians do not earn their position because of their knowledge, but instead, where they sit in the party. In other words, they learn on the job. Imagine placing a 10 year old in charge of a London bus if you will! Similarly, bankers have created new financial products, which are so complicated, that few, if any, could actually understand the risks associated with bundling mortgage securities. At best their actions could be described as reckless, but a far better description maybe of a desperate gambler playing for high stakes.

The regulators appear to have either been overwhelmed at the scale of these new securities or, more likely, unable to understand the complexities. As a consequence, those that were entrusted with our financial security, government ministers, regulators and banks, have seriously let the people of this country down, as well as shareholders, many of whom are you and I with pension funds invested in the stock market.

What is particularly galling is the fact that no-one wants to accept responsibility. On top of that, the same people that got us into this mess are, for the most part, still in the same positions. Asking us to believe that they have all the answers. Even though, had they studied their subject matter better and read up on the stock market crash of 1929 and the Great depression, many of the problems we are facing today could have been anticipated and perhaps even avoided. Governments around the world want us to believe that their solutions will work, but how do they really know, what confidence can we have in their solutions? They are spending £trillions on propping up banks, business and economies, but all of this money is borrowed, have they learnt nothing?

The rest of us are having to tighten our belts, but our governments are spending our money in what appears to be a last throw of the dice. They are all frightened of another depression, aren’t we all, but sometimes it is necessary for a period of reflection, instead, governments around the world appear to be thrashing around, panicking in a last throw of the dice. We all find ourselves asking where will it all end, not when?

We must all learn lessons from this. But one fundamental lesson is that no member of parliament should be allowed to take up a position unless they have prior experience. For example, no current cabinet minister has ever run their own business, so what do they know of the problems being faced by business people? When was the last time that an experienced person was placed in charge of the second largest employer in the world, the National Health Service? Take a look at Miliband, he is wet behind the ears, lacks depth and credibility, he may be ‘smooth’ but he does not look like someone that is well read. In fact, he even managed to offend the Indian government on his last visit, are these the sort of people we want to be representing us on the world stage? What of Jacqui Smith, she finds it difficult to string a sentence together has allowed the police and other agencies to trample all over our civil liberties and lacks any obvious gravitas? Little wonder that we are in a mess.

In my view, government ministers and bankers must be called to account because they have demonstrated what appears to be a reckless disregard for the interests, respectively of the people of this country and the interests of their shareholders.

It is a time for change and this must include a look at how or on what basis members of parliament are given key cabinet posts. In no other business or industry I know of do people with little or no experience get elevated to such senior positions based on nothing other than a handshake. Never again should the people of this country be lead by donkeys. We will come out the other side, most likely in spite of this government intervention rather than because of them, but when we do, the people’s voice must be heard. We must demand change.

Posted in Featured, General, Labour, World | Comments (13)

Open letter to Gordon ‘Blank Cheque’ Brown

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Open letter to Gordon ‘Blank Cheque’ Brown


During yesterday’s press conference to announce the latest banking bailout you demonstrated your true colours. When asked by a reporter if you were offering the banks a “blank cheque”, you turned on him saying that he needs to be careful about what he was accusing you of. I don’t know about the reporter, but I felt your response was menacing, bordering on threatening. Just who the hell do you think you are? Whilst you may surround yourself with yes men and women, the public of this country have to rely on reporters and the odd MP to ask searching questions.

The bottom line is you have offered a blank cheque. Please feel free to threaten me, because I will not be intimidated with your schoolyard bully antics, which can serve only to demonstrate that you are a weak or a vain man. Lets look at the accusation that you are issuing a blank cheque. You have refused to put a number on the cost of the banking insurance scheme, which implies that you don’t know the cost. This smacks of a blank cheque, furthermore, if you are not even prepared to put an upper limit on the exposure, this is another clear indication that you are providing the banks with a blank cheque. So blank cheque it is, if it look like a dog, barks like a dog etc, etc…

The truth is, when the original banking bailout was conceived, insufficient thought was given to it, instead a huge amount of taxpayers money was thrown at the problem and it has had little or no affect. Banks are not lending to each other and the high street banks have not significantly increased their lending to consumers or businesses. All the £37bn has achieved is, that it has allowed ailing banks to shore up their balance sheets. In other words, it was a complete and utter failure. In addition, the advisers that your government appointed, clearly failed to identify the extent of the questionable or ‘toxic’ debt within the banks that you invested our money in. That is hardly the sign of a competent government or leader.

What I find most galling is your abject failure to admit any responsibility for something that happened on your watch, principally as Chancellor and subsequently as Prime Minister. What you need Mr Brown, is more people around you that tell you how it is, not people that continually blow hot air up your backside. If you surround yourself by people that keep telling you, at least to your face, that you are brilliant, then there is an inherent risk that you start to believe them. Well let me put you straight Mr Brown. In my view, you were the most inept Chancellor in history, you knew that the entire economy was being driven by cheap and plentiful credit, in part because of historically low interest rates and more specifically because of the boom in house prices, allowing people to release and spend their equity. Some would call it fools gold. But, the bottom line is, many, many warnings were being given by economists and the like that the bubble would burst. You ignored them and we are now paying the price.

Granted Mr Brown, the housing crisis started in the United States, but as you well know, if we ourselves had not had an unsustainable housing boom, we would not have been so badly affected as we were. Remember, you were the one that promised and end to ‘boom and bust’, how hollow those words are now. Remember also, that you have claimed all of the credit for the so called boom years, but did you put anything aside for a rainy day, no you did not. Instead, you went on a massive spending and borrowing spree. For example, in spite of the fact that you increased employers and employees national insurance contributions by 1%, ostensibly to allow further investment into the national health service, you then used PFI to finance the building of hospitals, regardless of cost to the taxpayer. For example, to build a new hospital would normally cost around £60m, using PFI, the cost over 30 years in £300m. Little wonder that PFI contracts were traded on the open market with £millions being made on each trade.

Each time I hear you say that you are acting in the best interests of the public it makes me cringe. In my view, if you were as honest and sincere as you would have us believe, you would step aside and let this country decide who they want to lead us out of this enormous mess. You have made massive mistakes and ignored many warning signs, instead of taking appropriate, if unpopular decisions at a time that they would have made a difference, you ignored them in favour of the Labour Party’s populist approach. Don’t you dare try and tell us you didn’t see the warning signs, it was your bloody job, some of the people of this country placed a great deal of trust in you and you let us all down. You may be angry with the banks for embarrassing you, but trust me Mr Brown, we are very, very angry with you.

The last banking bailout may have prevented the banks from collapsing, but, for all intents and purposes, it failed on every other measure. Moreover, the recent report that your advisers failed to identify a potential £2,5bn write-off of a debt until recently is shameful. This should have been evident before you spent our money investing in a bank that is expected to report losses of up to £28bn. What happened to due diligence and warranties? Your current plans appear piecemeal and with respect Mr Brown, the whole thing smacks of a desperate man placing the last of his money on a horse in the vain hope that he can win big. Shit or bust as my father used to say! But, of course, it is not your money, it is ours and most of us, thank god, are not high stakes gamblers. If you cannot tell us how much it is going to cost, how can you claim that your response is measured? If the previous bailout failed, how can you convince us that this one will not follow suit?

The fact is Mr Brown, you lack credibility, if you fail to achieve your objectives, you simply move the goal posts, when asked a difficult but relevant question, you bluster, ignore them, or once again, refer to what the Conservatives have done in the past, ignoring the fact that we have heard it all before and they haven’t been in power for 12 years! Your party is a spent force and if I may be so bold Mr Brown, I was perhaps one of the few people that never believed you had the ability or nous to be a good chancellor, oh how I wish I had been wrong.

Your reputation for prudence Mr Brown is in tatters, your credibility as a prime minister has been in question almost from the outset and your ability to lead us out of this mess is simply too far fetched to imagine. So please do the decent thing and step aside. Let the people of this country decide who is best to lead us out of this financial mess. We deserve no less!

Posted in General, Labour | Comments (2)

Did the government complete due diligence on RBS?

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Did the government complete due diligence on RBS?


Gordon Brown has taken a great liking to decribing the Conservative party as the “do nothing party” and he may well have a point, because until recently, they (the Conservatives) have preferred to paint an austerity picture rather than coming up with something tangible or credible. But what of the Labour government? Rather than doing ‘something’, their motto could be described as ‘do anything’, so long as they appear to be doing something.

As part of the government banking bailout in October last year, the taxpayer ended up with 58% of the Royal Bank of Scotland. However, whether this was a bailout, rescue or a necessary evil, the fact remains that the government, through its advisors, were obliged to act diligently and with care. Particularly given it is our money, not theirs. But did they?

There are reports that Gordon Brown is furious that Treasury officials have only just discovered that ABN Amro, the Dutch bank taken over by the Royal Bank of Scotland in 2006, will write-off a £2.5bn loan to LyondellBassell which is reported to be teetering on the brink of bankcuptcy with £18bn of debts. Given the government was taking a controlling interest in RBS, it was right and would have been expected that whatever the circumstances, there would have been a process of ‘due diligence’ to ensure that there were no surprises in store. Furthermore, the taxpayer would have been right to have expected the government and or their advisors to have secured warranties against any undisclosed liabilities that the bank had. Was this done, if not, why not? Anywhere else this would be standard practice.

If these reports prove to be accurate, then at best, this government has demonstrated that they acted in haste and at worst, that they have been negligent resulting in a further cost to the taxpayer of £2.5bn. Furthermore, it could be argued, that if they missed a debt of this magnitude, how many other, ‘smaller’ questionable debts have been missed? In my view, this government has already demonstrated a flair for acting recklessly with taxpayers money and a culture of blaming someone or something else. However, from my perspective, there can be no excuse, when spending so much of the British taxpayers money, for not acting responsibly and demonstrating best practice whatever the circumstances. The bottom line is, had this transaction been competed properly there should be no surprises unless there was a failure to disclose and if the latter was the case, then the government should be able to claim against warranties.

This banking bailout involved huge sums of money and the public is entitled to know that the government, ministers, civil servants and advisors all acted appropriately and with due care. There needs to be an independent public enquiry into what measures the government employed to protect the public purse when this government pledged taypayers money to the banks. This should be wide-ranging and at the very least, include details on what level of due diligence was employed, whether warranties were sought and received and what other commercial conditions were placed on the banks. Given, unlike many other countries, this government did not need the approval of parliament to invest these vast sums, evidence must be provided that the taxpayers interests were protected at all times. If it should subsequently be proven that individual government ministers, civil servants or advisors have acted negligently, then they must be prosecuted.

Gordon Brown likes to say that this governments’ intervention is measured and appropriate. To me it looks as if this government has little or no idea of what it is doing, opting to do anything, rather than something. More akin to a gambler having his last throw of the dice, rather than a government in control or one which knows where we are going. I literally shudder when I consider the damage that has been done to the British economy by this excuse for a government and it juts gets worst, when reports of undiscovered liabilities, on a majority owned state asset are discovered 3 months after the deal has been concluded.

Posted in General, Labour | Comments (8)

Will taxpayers lose out to the banks again?

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Will taxpayers lose out to the banks again?


I read a post on the British Politics blog which referred to the statement by an unamed bank official, on Channel 4 News, that “banks were not charities”. Now I agree with the original posting, that it is a bit rich that the same people who came with their begging bowls for a bailout, should now, having received what they wanted, make such a statement. On top of that, they threaten not to pass on any further interest rate cuts, even though they must know that the economy needs this type of monetary stimulus.

This had me thinking, under current rules, the banks are set for another win at the taxpayers expense. At the moment, the banks are making massive write-offs, this means that the government and therefore the taxpayer, will not receive any corporation taxes from the banks. Less tax receipts from the banks, means, ultimately, more will be needed from you and I. Now here is the rub, banks can quite legally carry over losses from one year to another, now given the size of their losses, they could end up not paying any form of corporation tax for several years.

So, not only will they have received taxpayers money to stay afloat, they will contribute nothing to the economy for several years to come. This may be perfectly legal, but it is completely unacceptable. I believe that the government should act now to prevent the banks and any other third party that has received taxpayer funding from being able to carry over past losses, to offset against future profits. Think about it, when we are all having to pay for the excesses of this government in higher taxes, the bankers will be coining it with large bonuses, brought about, in no small part, from the fact that they will not have to pay corporation tax.

It is unlikely that Gordon Brown & Co will be in government when this happens, but at the very least, he should start the ball rolling and David Cameron needs to come out of his shell and insist that something is done. The banks effectively held us to ransom, when they embarked on high risk expansionism, requiring a massive injection of taxpayers funds as well as guarantees, they now intend to hold us to ransom over passing on any future interest rate falls, they must not be allowed to win again. For a government that simply revels in state control, perhaps they should consider getting some over the banks?

Posted in Conservatives, General, Labour, Lib Dems | Comments (3)

UK banks bite the hands that feed them!

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UK banks bite the hands that feed them!


In my post last month, I suggested, that what this economy needed was a shot in the arm, a package of measures designed not to avoid a recession, because that is impossible, but to reduce the impact on the people of this country. Unlike either of the main two political parties, I suggested a six point plan, which included a dramatic reduction in interest rates and a requirement that the high street lenders pass on the cuts in full.

Of course I am not suggesting that anyone takes any notice of my posts, but I am pleased that one of those points has been implemented, albeit, not as far as I would have wished. The Bank of England has reduced the rates by 1.5% to 3%. I was calling for a cut to 2%. However, if the country was to receive any benefit, the cuts would have to be passed onto borrowers, both domestic and business. This, for the most part is not happening, at least not so far.

Only Lloyds TSB, through their mortgage arm, Cheltenham & Gloucester and the Bank of Ireland have indicated that they will pass the cuts on in full. Now in the case of Lloyds TSB, I suspect their motive was to demonstrate in a tangible way, that whilst their takeover of HBOS will lead to them becoming the largest retail bank in the UK, they have no intention of using their dominance in a negative manner that would reduce competition. We will have to wait and see whether or not that remains the case of course.

However, when it comes to the other banks, their response demonstrates that they have little or no regard to their customers or the people that have bailed their businesses in one form or other. They have only indicated that they have the interest rate decision “under review”. Well that is just not good enough. When the banks struggled, they came, cap in hand to the Bank of England and therefore the taxpayer, to help them with guarantees, cash injections and short-term cash advances. The banks received pretty much whatever they needed, regardless of the impact to the balance sheet of UK Plc or the cost (and risk) to the taxpayer.

Now the banks have a real chance to demonstrate that they appreciate the assistance or lifeline they have been given. Instead, they are, at least for the time being, indicating that they feel little or no obligation towards the wider UK economy, the well-being of its citizens or their customers. Now, yes I know, before people tell me the obvious, they are ‘independent’ financial institutions and must be free to make commercial decisions. However, as soon as they came to the taxpayer to assist them at their time of need, they gained at the very least, a moral obligation to repay us by supporting anything that would assist the taxpayer in their time of need. Which clearly a reduction in interest rates would do.

I am angry with the bankers, very angry and everyone else should be as well. The banks have made £billions over the past 10 years from their customers. Many, have at times, been reckless in their lending practices, and they hold a considerable proportion of the responsibility for where we are today. So do the borrowers, but banks were and should have been the ‘grey’ men, those that provided a balanced view and set lending criteria. The banks are also being very short-sighted.

The higher the interest rates, the more likely that their will be defaults and house repossessions. In the case of the latter, banks often have to sell properties at auction, resulting in returns of at 20-25% below market values to secure a sale. Add this to the fact that many properties have fallen in value and their losses on each property have to be quite staggering. Therefore, wherever practicable, surely they would be better off attempting to ease the burden and keep more people in their homes?

In additon, the higher the interest rates, the less money that is in the economy and the less transactions that will take place. The latter is the bread and butter of the banks, they make money when people and business transact, they benefit from money that is lost in the system for days on end. They do best when their customers feel able to spend. Customers will clearly be more conservative, they will borrow less and many will reduce their debts. But more money in our pockets, means a more responsible nation, because most people will choose to be responsible rather than reckless. In the past, going bankrupt was a painful and drawn out affair, today it is far easier, no-one benefits, least of all the creditors, if people throw the towel in because they can see no way out. The banks will be first in line to suffer if bankruptcies rapidly.

Whilst I am cognisant of the high inter-bank lending rates, these will come down and in all honesty, the reduction in the Bank of England rates by 1.5% will, for and intents and purposes be neutral to the banks.

Whether we do it now or later, I believe we should all punish the banks that have not supported their customers or the economy by passing on the interest rate cuts in full. Particularly, but not exclusively, those that have received assistance from the taxpayers. We should look to move our current accounts to banks that have supported their customers…en-masse. We must hurt them as they are determined to hurt us. Banks make big money from current account transaction charges and the ‘balances’ are used by the banks to reduce their borrowing costs. We must cancel our credit cards with the banks that are associated with not passing on the rate cuts and consider moving our mortgages. Now I appreciate that this may be impossible for people to do right now, though I am going to, but we must remember, that in our hour of need, even when it was obvious why the Bank of England reduced interest rates, the banks stuck their middle finger up to us all. We must return the compliment. Even if we have to bide our time and do it when the banks least expect it.

I urge everyone to remember each and everyone of these banks that have screwed us and make them pay, make their shareholders fully aware that there will be a medium and long-term price for their refusal to come to the aid of this country. There will be a price for their decision to ignore their moral responsibilities and helping those that helped them. End of rant!

Posted in General, Labour | Comments (3)

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