Tag Archive | "banking crisis"

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 shirks responsibility for RBS bonuses

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Government shirks responsibility for RBS bonuses


Despite all the political grandstanding surrounding the proposed bonuses to be paid to RBS staff, there is little that can be done about it and the government knows it. Don’t get me wrong, I am completely against the payment of bonuses to staff when the very fact that they still have a job is down entirely to the intervention of the government with taxpayers funds.

However, the fact remains that the vast majority of the staff will have some form of contractual entitlement to a bonus; the senior bankers know this and so do government ministers. For example, it is estimated that some £500m is due to be paid to ABN Amro staff and this was a pre-condition of the original sale of the business to RBS. If senior managers don’t honour their employment contracts, then they could very quickly find themselves in breech of contract and you can rest assured that there will be a massive queue of lawyers offering to take up their cases.

Gordon Brown is reported to be “very angry“, well, bully for him,  what difference will his temper tantrum make? None! Treasury minister Yvette Cooper said any contractual or legal obligations on banks to pay bonuses at a time when they were making huge losses must be “challenged“. Yeah right Yvette, you know that there is little or nothing that can be done about it, which is why you squirmed so much when John Snow put some eminently reasonable to you on Channel 4 News last night. Alistair Darling is quoted as saying “I have spoken to the chief executive of RBS, and made it quite clear, and he agrees, that no-one associated with these huge losses should be allowed to walk away with large cash bonuses.” Quite right Mr Darling, but this is a legal issue, not a place for political rhetoric.

Even David Cameron demonstrates how out of touch he is by stating “As the principal shareholder, you are able to say what is and what is not acceptable.” True Mr Cameron and that is precisely the point, but you cannot do it retrospectively, if you had any business experience you would know that, unless of course, you are simply taking us all for fools.

The truth is this government rushed into “saving the banks from collapse” and in doing so, they left any commonsense back in the office. So keen were they to be seen as the saviors of the banking world, they did not complete any form of due diligence. I know that ministers and civil servants can often be accused of rank incompetence, but this goes off the scale. No experienced businessman and I mean not one, would blindly invest into a business, however urgent the need, without completing a full review of the business. As one contributor stated on one of my recent posts on the RBS fiasco;

Due Diligence is only half of the required formula for meeting the requirements under “Standard of Care” or “Due Care”. Due care is the second half of the diligence formula and equally as important. For without it, the standard of care can not be measured.

Performing Due Diligence identifies where investment risks or exposures lie, due care is exercising the requirements discovered under due diligence to protect or mitigate exposure from those risks.

Not only has the PM missed the first but importantly government has neither the resources, skills, or initiative to deal with the second which is what ultimately leads to failures.

In the normal course of events, due diligence would have uncovered that there were, amongst other things, contractual liabilities to pay bonuses; this would have included an estimate as to the likely cost. Had the government and its advisors acted with a reasonable level of care, arguably, this whole situation would have been avoided. Government could, for example, have included conditions which required staff to sign a waiver in relation to their bonuses. Alternatively, they could have been made redundant and re-employed on new contracts, the business after all was likely to collapse. Those that were expecting large bonuses, but had been party to significant losses, could have been warned that if they attempted to exercise there ‘bonus guarantees’ they could expect to be dismissed with immediate affect and could face a claim if they had acted recklessly or without a reasonable level of care.

I am not an employment lawyer, but I am convinced that there were (‘were‘ being the operative word), any number of imaginative ways in which government ministers could have avoided this massive kick in the teeth to hard pressed taxpayers if they had acted with foresight and were in receipt of legal advice. Instead, once again, the rank incompetence of government ministers has cost UK taxpayers £billions.

There have been justified cries for the bankers to pay back their bonuses and even suggestions, quite rightly in my opinion, that traders should be sued for bonuses paid on what have subsequently turned out to be ‘questionable or toxic’ investments. These are perfectly justifiable initiatives, but what about the government ministers, surely they are equally culpable? Leaving aside the issue of regulation and so on (pre-bust), government ministers ordered a massive injection of taxpayer cash into banks without fully understanding the liabilities and obligations therein. At best, it demonstrates incompetence of the highest order and at worst, that they do not appear, based on the evidence currently available, to have demonstrated a reasonable standard of care.

This current political grandstanding and rhetoric is nothing more than a smokescreen designed to divert attention from the incompetent management of the whole banking crisis by members of this government. New Labour ministers have proven themselves to be incapable of humility, unable to accept any form of personal responsibility and aggressive towards anyone who would question their intent. That is arrogance in its most basic and crude form, the people of this country must not let them get away with it, government ministers must be held to account and accept moral and legal responsibility for their actions. Anything less would be an outrage to the people that will have to pay the price over the coming decades.

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

Big Brother Database or Tax Cuts?

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Big Brother Database or Tax Cuts?


Yesterday, I wrote an article suggesting how this government could reduce taxes to help stimulate growth in the economy. This was partly a Keynesian approach, given I argued that it was possible that these tax cuts could be self-funding, if my proposals worked. The reason for this was, if we do nothing, there is likely to be a significant surge of people claiming benefits, rather than generating income for government coffers. My proposal was, if the government was going to borrow to invest, they would be better off doing so, with a natural stimulus, rather than bringing forward capital building projects which would only benefit a small section of the economy.

My proposal, amongst other things, was that government should reduce the basic rate of personal tax by 5%. Over a period of 3 years, this would cost around £45bn, less than 10% of the cost of the banking bailout. However, by allowing us to retain more of our own money, we could decide how and where we would spend the extra money we were ‘permitted’ to retain. If we were to spend it in much the same was as we did before the crash, my argument was and is, that more small and medium sized business would survive and therefore more people would remain in employment. I noted that some 13.5m people were employed by small businesses and these same companies accounted for, just shy of 50% of UK Plc’s output. However, I also noted, that the Keynesian approach was that government should adopt a balanced budget, that is to say, they should cut back government spending in certain areas, to allow them to invest in other areas. Having read my post this morning, addressing the usual, inexcusable typos, I decided that I should expand on my own theory.

For example, my pet hate is the government’s proposed Big Brother Database, which I think is a massive attack on the civil liberties of every person in this country and an unforgivable intrusion into our right to privacy. That said, this government, if it goes ahead with this initiative, is expected to spend some £12bn on this massive Big Brother Database. Now quite apart from the fact that we know this government has never yet managed to bring an IT project in on budget, the figure that needs to be allocated is huge.

Therefore, the question I wanted to ask was:
Which would you prefer a Big Brother Database that infringes our civil liberties and intrudes on our privacy at a cost of £12bn or an immediate 4% cut in the basic rate of income tax for at least 1 year? From 20% to 16%? – I know what my answer will be.

Then I went on to look at other large government capital expenditure projects, this time I focused in on the much criticised NHS Database Project. It is worth noting that the original cost was estimated to be £2.3bn, by 2006 that had rocketed to £12bn, with some independent estimates suggesting it could cost as much as £32 billion. Most medical professionals question the viability of this project, the public have barely been consulted on such a massive project and even though some £2bn has already been spent, there is little to show for it. So, lets be generous, and take a middle figure between the governments estimate of £12bn and the independent estimates of £32. This leaves us with a likely cost of £22bn.

Therefore, my question is:
Which would you prefer, to shelve or cancel the NHS Database or receive an immediate cut in the basic rate of income tax of 5% for at least 18 months? The reason I have said ‘at least’ is because if this additional money prevents people losing their jobs and claiming benefits, then it would be possible to extend the period of the tax cut, perhaps indefinitely.

So what of the ID Database Project. Yes, I know, this government is completely obsessed with databases, it is a pity, they do not also consider the massive security risks associated with having all of this information on computers. However, I digress, this particular project, is simply aimed at having all of our personal ID information in one place. The cost, an eye-watering £5.4bn.

So, once again, my question is, which would you prefer, an ID database where only the government and its agents see the benefit, or an immediate cut in the basic rate of income tax of 2%, for a least one year, from 20% to 18%?

My basic premis is that this government has an obsession for massive information technology projects, most of which have been so poorly considered, specified and planned that they are either doomed to failure or massive cost overruns. This governments track record of waste is well documented and appalling. Most of these pet projects are not wanted by the public and it has to be said, the vast majority will allow government to know everything their is to know about every single legal citizen in this country. Because this government is obsessed with using IT to spy and control its subjects. At this time, the biggest threat to our security (apart from the government itself) and our well being, is the state of our economy, not terrorism. Yet no-one from government has suggested shelving, postponing or cancelling any of these Big Brother databases. Even though, combined, these 3 projects alone, will cost a staggering £40bn. If the government were to add an extra £5bn, we could all benefit from a reduction in the basic rate of income tax of 5%. From 20% to 15%, for a period of 3 years, if we are lucky, this would be able to see us through this period of recession. In addition, as I have argued earlier, if this money is invested into the economy by us, then jobs could be saved, government would benefit from the revenues brought about by indirect taxes, business taxes and fewer unemployed claiming benefits.

So, my final question, is which would you prefer? Government to spend £40bn on 3 highly questionable information technology projects at a time of this massive economic downturn, or more money in your pocket. £40bn on IT projects, or a 5% cut in the basic rate of tax for 5 years. QED!

Footnote:
I have also argued strongly for a significant, simultaneous cut in the Bank of England bases rates from 4.5%, to 2%, with all taxpayer funded banks being ‘required’ to pass on this cut to their customers. This will reduce the number of repossessions and/or increase the amount of money available to us, to reinvest into the economy. I am sure there will be economists out there that can or will pick holes in my arguments, well go ahead, someone needs to come up with some ideas, because it is pretty clear to me, this government hasn’t got a clue, the Conservative Party has backed themselves into a corner with their negative, one size fits all ‘austerity’ assessment of our economic future and none of the other parties have any influence. Sad, but true!

Posted in Big Brother, Civil Liberties, Conservatives, General, Labour, Lib Dems | Comments (7)

Gordon Brown, its time to introduce tax cuts

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Gordon Brown, its time to introduce tax cuts


At prime ministers questions time, Gordon Brown, once again, decided to take all the credit for “creating 3 million new jobs” and none of the responsibility for the ‘bust’ brought about by the credit funded boom that was his creation. Instead, he avoided all of the questions he was asked and once again, came out with the same old mantra, that the problem was the fault of the Americans and the bankers. Nothing new there then.

He did imply, however, that he believed that the government should invest in times of recession, a sort of embracing of the Keynesian approach. However, John Maynard Keynes did not suggest that government should simply spend, but that there should be a balance. He also argued, that it was possible that if government used borrowed money wisely, it could be self-financing. For example, most people want to work, which means that given the opportunity, they will not be a burden on the state, but an asset. In addition, companies want to sell their goods, at a fair price, employ people, succeed and therefore, be an asset to the state.

To achieve this, people need to have money to spend, yet the state takes nearly 50% of what we all earn. That is way, way too much. A reduction in direct taxation, would be much less expensive than building new schools and hospitals earlier than was originally intended. Moreover, a construction boom will be very limited in terms of assisting the wider economy. What we need is more money in peoples pockets, which they can invest in buying goods and services offered by retailers, service providers and manufacturers. In other words, a natural stimulus, not a false one.

If people feel poorer, then they will push their employers to pay them more, this adds a further burden to struggling businesses and places inflationary pressures on the wider economy. In addition, public sector workers, who account for some 20% of all employees in the UK are starting to get increasingly vocal about higher wage increases and they are backing this up with threats of industrial action. This is no good to anyone. Furthermore, if they succeed in getting higher wages, this will be a cost borne directly by the taxpayer and will inevitably result in a cut in services as the public sector attempts to balance the books.

We know that a boom based on easy credit is not the answer, nor does the equity in a property really amount to tangible wealth. The Keynesian approach advocated, amongst other things that borrowing to provide tax cuts can provide an aggregate increase in demand and, that properly targeted, it could be self-financing, because demand will create or save jobs and people that are employed, are not a burden on the state. In addition, companies that are selling goods, will be pay tax and sell goods that, for the most part, attract VAT.

A cut in direct taxation would have an immediate and tangible affect on the publics ability (not necessarily willingness) to spend. If this would was coupled with a substantial, perhaps 2 or 2.5% cut in bank base rates, then the benefits would multiply as would the potential speed of recovery. The government has indicated that they want to spend £12bn to create a database to spy on the public, apart from the fact that this is both unnecessary and a massive attack on our civil liberties, it is also something that is a nice to have, rather than a need to have. That notwithstanding, even if they proceeded with this database, the chances are, the contract would be awarded to an American company! Yet this £12bn, could ‘fund’ a 5% cut is direct taxation for nearly 3 years, if you were to ask the public what they would sooner have, there are no prizes for guessing their likely preference.

In addition, the government is intending to proceed with the £13bn NHS computer system. There is no proof that the system will work, nor has their been a sensible cost/benefit analysis. This project should be shelved and the money used to invest into small and medium sized businesses. I wrote an article yesterday, outlining some of my own ideas to assist small businesses. These companies employ 50% of our workers, some 13.5m people and provide nearly half of our output. An investment in this area, could secure jobs, companies and tax revenues.

It is true, governments cannot prevent a recession, but they can, through careful management of their (our) finances, targeted initiatives and the shelving of non-essential investment programmes, reduce the length and severity. Had the conservative party not nailed their colours to the mast, with an austerity assessment of the UK economy, claiming that “the cupboard was bare”, then they could have proposed this type of solution. Instead, they must either say that they got it wrong, or the Labour government, if they are bright enough to steal the initiative, will be able to come out of this smelling of roses.

For what it is worth, I am not convinced that this government, or the other political parties will want to endorse my suggestions, because they seem more interested in telling us what won’t work, rather than what might. It is this dithering and indecision that will damage this economy. Whatever action is taken it needs to be bold, decisive and meaningful. Therefore, in summary, my suggestions are as follows:

  1. Shelve the £13bn investment in the NHS computer system
  2. Cancel the proposed £12bn Big Brother Britain database
  3. Reduce direct taxation by 5% for a minimum period of 3 years
  4. Implement a package of incentives and tax reductions for small business
  5. Instruct the independent Bank of England to slash rates from 4.5% to 2%
  6. Ensure that all taxpayer funded banks pass on the full cut immediately, which should encourage the others to follow or lose

My suggestion will cost a tiny fraction of what the government has already invested into the banking system and provide a tangible stimulus to the economic activity of this country. Above all, it may just ensure that we can watch the news and receive some good news. If the government introduced, or the other parties proposed such an initiative, I do not believe anyone, other than a few discredited bankers and economists (who already got it wrong), would criticise the move. The bottom line is it is our money and we should be allowed to keep more of it and decide where we will invest it.

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

Government bailout, take a breather and reflect

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Government bailout, take a breather and reflect


Now that Gordon Brown and Alistair Darling have committed some £500bn to the banks in loans, guarantees and shares, it is time to reflect, to allow the city, time to digest the level of this intervention before going any further. There is now a real risk that the government could become its own worst enemy, by saying they “will do whatever is necessary to stablise the UK economy”, they are sending the wrong message to the city. Yes, I mean the wrong message, city investors are not uninterested parties here. Whilst the taxpayer is shoring up balance sheets, buying up shares, rescuing companies and intervening in the money markets, the ‘city types’ have their own investment portfolios protected. The government is continuing to speculate at our expense, with limited or no risk to the investors.

As I have said before, I am no economist, I am no expert, but I have been blessed with some commonsense. This tells me that if you are constantly running at full pelt, you don’t have time to see what you have passed, what you have left behind and whether you are still in the race. The government must stop NOW, before they bankrupt this country. They have oiled the wheels and reduced much of the investor risk through these interventions and the substantial injections of cash underwritten by the UK taxpayer. No more open-ended promises.

Government must also look at which stocks are falling. For example, most people accept that we are about to face a world recession, therefore, you can expect organisations that are involved in commodities to see their share prices fall. And, of course, these are some of the largest companies, in terms of value, on the stock exchange. Add this to banking and financial stocks and of course we will see a massive fall in the value of the FTSE. On top of the so called banking crisis, a recession means that city experts will be looking at companies that will do well out of a downturn and those that won’t, this will then be reflected in their share price. So, given there is a recession looming, it is fair to assume that stock prices would have fallen anyway.

Virtually from day one, this government has used taxpayers money as if they had been given their very first credit card. They have gone on a spending spree, thinking they are rich and there is an endless money supply. Then, once they realised they had overspent or reached their credit limit, they simply came after the taxpayer for more money. As a consequence, this Labour government has set a poor example to everyone else, now we must all pay for our excesses…but that includes government who must haul back on their investment commitments, they must learn to live within their means, just like everyone else must do.

My concern, is that the current banking crisis has them on that road again, they think they can spend more and more of our future tax revenues in the name of saving us all from some type of doomsday scenario. Now I accept, some form of intervention was necessary, but this must have limits and I am worried that this government has exceeded those limits with an intervention that is worth at least as much as that provided by the American’s, who’s economy is 3 times the size of our own. It is also worth noting, that £500bn is more than double all tax receipts, based on the 2007 figure. Given we are likely to have much reduced tax revenues because of company losses (they can carry these forward to offset against future profits), falling employment and lower sales, this £500bn might end up being the equivalent of 3 years worth of tax receipts.

Now the government have told us there may be some upside for the taxpayer. I don’t like the word ‘may’, nor do I really trust this government to negotiate a good deal for the taxpayer. It has been suggested that this government has lost close to £110bn in poorly negotiated contracts, mistakes and failed projects. This record does not bode well for the taxpayer, when the same people are negotiating with experts. Lets hope, this time they have learned some lessons, though I will not hold my breath. But in the meantime, I would like to advice Alistair Darling and Gordon Brown to STOP, pause for thought, look at whether what you have done has had any positive affect and stop offering the city a blank cheque, no-one could blame them for taking advantage.

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Banking Crisis and the responsibility of the auditors

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Banking Crisis and the responsibility of the auditors


At the moment one day pretty much blends into another, but on one of the evening news programmes this week, another fat cat, fee-earner had the temerity to say, when questioned, that auditors had played no part in the financial mire that is the bane of every UK taxpayer. I have to admit, that I wanted to throw something at him, because I have been arguing for weeks that the auditors have failed in their duty to the shareholders and worst still, shall be one of the few ‘industries’ that will make money out of this fiasco, through company administrations, receivership’s, consultancy fees and so on.

Lets look at the generally accepted definition of a Finance Audit:
The process of verifying a company’s financial information. Auditors are certified public accountants who are independent of the corporation. An auditor examines a company’s accounting books and records in order to determine whether the company is following appropriate account procedures. An auditor issues an opinion in a report that says whether the financial statements present fairly the company’s financial position and its operational results in accordance with Generally Accepted Accounting Principles (GAAP).

And here is a common definition of an Auditor
Auditor is the person appointed to conduct an examination of the records, to form an opinion about the authenticity and correctness of such records, by verifying the correctness and reliability of the recorded transactions from the evidences available, opinion and inference reachable based on his expertise.

Most, if not all, stock market listed companies in this country and, for that matter, around the world, use the services of one of the so called ‘Big Four’ accountancy firms. These big firms charge huge sums for their audits, often running into £millions, and the audit teams are lead by high ranking ‘fee earners’. In other words, as the businesses, banks and financial institutions they audited expanded, so have the fees earned by the auditors and yet, not one audit firm appears to have asked any questions about what is now being described as “questionable accounting” practices within the financial services and banking sectors.

For example, do we know of any audit firm that qualified a set of accounts within the banking sector because of the heavy reliance on a particular financial model, such as in the case of Northern Rock? Has an audit firm raised any prior concern over the way that ‘bundled’ mortgage debt was traded, sold and then re-sold, with each party taking a profit or commission, without really knowing the risks or true value of the asset.

You would think that after Enron and Worldcom, auditors would be even more cautious, especially given investors and business people alike, will have increasingly come to rely on the expertise and the independence of the auditors before they make financial investment decisions related to the company being audited. It is absolutely essential that the audits of company’s that rely on external investors for funding are wide-ranging, thorough and probing, a failure to do this and ask questions, is, in my impinion a dereliction of the auditors responsibility to the shareholders. If an audit is not indepependent, or in-depth, why on earth do so many companies pay so much money out every year for their audits?

I personally believe that, when the investigation begins, as it surely will, the part played by company auditors also needs investigating. Given they will be the only party to have profited in the ‘boom’ as well as profited out of the ‘bust’, yet they were also the only party, other that the regulatory authorities, that had a duty to ensure that they reported the facts, discovered questionable practices and reported their findings in an open, direct and a frank manner. I do not say that any of these accountancy firms are culpable, because I would have nothing to back this up with (other than logic of course), but I can say that, I believe they have failed, for the most part, in their duty to appropriately and competently assess the risks associated with some of the more questionable practices adopted by the banking and financial industries.

I also believe that shareholders that have lost money should consider individual or class actions against any audit firms that are left wanting in this current mess. For them to be preening themselves in front of the cameras, whilst rubbing their hands with glee, behind the scenes, is stomach churning. If there job was not to highlight risks, operating and reporting practices, asset values and profit claims, what on earth were they charging such massive audit fees for? The Audit Firms must not be allowed to extract themselves from any form of responsibility whilst the rest of us are left to pick up the tab and the pieces of what is left.

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Housing Crisis, what they don’t want us to know

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Housing Crisis, what they don’t want us to know


I am no economist, nor am I a banker, but I invite those that are to pick holes in my assertion or put my mind to rest. I have never been a great advocate of government intervention, but I believe they need to do far more and now, before we reach a genuine crisis driven by the falling property market.

Many people have suggested that the property market is long overdue for a “correction”, but just how far should this be allowed to go? If we assume that a bank has secured its lending against an asset, which subsequently falls, surely at some stage the banks will be required to write down the difference, just like any other business? If this is the case, they could, theoretically, breach their covenants in terms of their reserves.

Banks have very strict rules in relation to their reserves and many may end up having to go cap in hand to the market in an effort to raise money to shore up their capitol reserves. In a nervous market, this is going to be very tough, particularly if there are several banks trying to do this at the same time. The affect of a major bank failing could have catastrophic consequences for the city, Sterling and the UK economy. This would almost certainly lead to some form of government bailout, which would very costly indeed at no doubt lead to the breaking of our own fiscal rules in terms of borrowing.

Therefore, surely the government would be better advised to intervene now, invest what is required to stablise the property market and avoid a banking crisis. The government must know the risks, they pay hundreds of millions of pounds to expert advisors every year. Now, they may want to keep this information from the public, but they simply can’t afford to ignore it.

Posted in General, Labour | Comments (2)

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