Tag Archive | "uk banks"

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)

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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What deal has Labour done with the UK banks?

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What deal has Labour done with the UK banks?


This Labour government is not really known for getting a good deal for the taxpayer, so I am left wondering what sort of quid pro quo, is received by the UK taxpayer, in return for the monies that are being loaned or gifted to the banks. Let me explain.

The justification given by the government for the intervention of the Bank of England is that they need to get the credit market going, increase liquidity, encourage the banks to lend to one another etc. However, what guarantees have the Bank of England or the government sought from these banks? After all, no-one is claiming that it is now easier to get a loan, a bank overdraft, a mortgage and so on. Therefore, is it fair to assume that the banks are not using the money they have been loaned for the purpose it was provided, or is the government just lying to us? Or perhaps, no-one has though of including any pre-conditions for the loans, so that banks are just using this money to shore up their immediate cash flow issues?

The Bank of England has had to intervene by taking over the mortgage debt of Northern Rock and Bradford & Bingley, much of which would be termed sub-prime, or ‘dodgy’ if you are English. If we are to believe all that we are told, then the banking sector is so intertwined, that somewhere, another bank, or more likely several banks have benefited from the effective underwriting of this so-called toxic debt. So, what do we, the taxpayer, having taken on all this risk get in return?

Perhaps I am just missing the point here, I am not a banker, nor an economist. However, I am a taxpayer and as such, my signature has been used to underwrite these debts and therefore, I believe I deserve a full account of precisely what has been taken on in my name, the risks, returns and the conditions, if any. The government and the Bank of England keep using terminology that is foreign to me, why… have they got something to hide? Surely if they are going to use our money to bail our both the banks and the city, we deserve an explanation in laymans language, not just a doomsday scenario designed, in my view, to frighten us all into submission and asking as few questions as possible.

I don’t trust this government, they have consistently lied to the public, manipulated figures and misled us whenever they could get away with it. Then there is the Bank of England, which is run by bankers and economists, the former (bankers), the government would have us believe are in part responsible for this mess and the latter (economists), should perhaps have seen this disaster coming. Whatever the situation, this government is spending billions of pounds our money and we don’t know what chance we have of getting it back. We don’t know if they have secured any form of agreement in return, such as a loosening of consumer and business borrowing facilities, nor do we really understand the government or BoE’s primary objective, so at least, we could measure whether they had been successful on our behalf or not. No doubt this is the whole point, if they don’t tell us what they are trying to achive, we won’t know if or when they fail!

In spite of all this intervention by so called experts, the stock market has plummeted by some 7% at the time of writing this post, so something isn’t working. Worst still, we are given to understand that the Bank of England has intervened in the stock market to slow the decline, so does this mean that we have also had massive paper losses. My message to the Government and the Bank of England is that it is time to come clean with the shareholders of UK Plc…right now!

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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.

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