British Politics’s Blog

The ravings of an individual, UK voter frustrated with our politicians

Posts Tagged ‘bank of england

Ed Balls recession comments, a slip or planned?

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It is difficult to believe that the comments attributed to Ed Balls, “I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy”, was a mistake. Ed Balls is one of Gordon Brown’s closest confidantes and credited with some of the secret briefings to journalists during Tony Blair’s tenure as PM.

As a former key Treasury adviser to Gordon Brown when he was Chancellor, he would have known that his comments would be widely publicised and as an experienced politician, I cannot believe that this was anything other than deliberate. The Governor of the Bank of England has indicated that the economy could shrink by up to 6% this year, unemployment is at 2m, forecasters suggest that this will rise to 3m this year, Sterling is under pressure against all currencies, the expected rise in exports has not materialised…the list goes on.

Now Gordon Brown, having pounded David Cameron for talking down the UK economy and not being one to admit that he is wrong, would hardly have made the announcement himself. So, is it conceivable that Ed Balls was just Gordon Brown’s mouthpiece? After all, it is not like this would be the first time is it?

New Labour has always leaked bad news, they don’t make announcements and what better way than to have a cabinet minister and former Treasury adviser to let this ‘slip’ whilst addressing the party faithful in Yorkshire. Call me a cynic if you will, but this does seem typical of New Labour, drip feed bad news, announce good news with fanfare. Now it is in the public domain, ministers and eventually Gordon Brown, can add a little meat to the bones, temper the news by saying, whilst it will be worse than they forecast, it won’t be like the great depression. That said, a 6% contraction (year on year) of the UK economy would be more than we experienced during the Depression. Convenient that this ‘announcement’ should come a few weeks before Alistair Darling’s update on our economic future.

Did anyone else note that Gordon Brown, I believe for the first time, used the word “Nationalisation” in a response to David Cameron at PMQ’s? What happened to “public ownership”, is Mr Brown slowly inching towards Old Labour?

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Do not bank on the banks

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My attention was turned to an interesting post over at Power to the People which followed on from my own post in respect of a bankers claim that “banks are not charities“. The post that I am referring to relates to corporation tax that banks would normally pay and comes at the whole issue from a perspective I had not considered, but is, nonetheless, very relevant in the current economic climate.

As everyone knows, the high street banks are posting massive losses as they move to write-off questionable assets and large consumer debts. However, under the current HMRC rules, they are entitled to carry over losses to offset against profits in future years. This means, that in spite of the significant risks being borne by the UK taxpayer as a direct consequence of the banking bailout, when things improve, there will be no win for us. In other words, the big banks, will not have to pay any form of corporation tax for some considerable time to come, perhaps, in some cases, for the next 5 years.

This, whilst perfectly legal, is an outrageous state of affairs and in my view, must be treated as an exception to the rule. Gordon Brown must bring in urgent new legislation to prevent the banks carrying forward these massive losses to set off against future profits. The principle of carrying forward losses is a good one, however, in this particular instance, it would leave the taxpayer with a very sour taste indeed. Failing which, the government must advise the banks that they could be subject to a windfall tax equivalent to any loss to the Exchequer in terms of tax revenues. The full article can be read here: Will taxpayers lose out to the banks again?

UK banks are not charities

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A senior figure at one of the major UK banks was quoted on Channel 4 News as saying that “banks are not charities“, needless to say this coward was not willing to have his name revealed. But what hypocrites these banks are, they claim that they are not charities, yet they clearly think that the UK tax payers are, after all, only a few weeks ago, they had to come begging for our help.

It is well known that high street banks are the most loathed businesses on the high street and their leaders and managers are, for the most part, considered with the same disdain as politicians. But, what arrogance they demonstrate, these people (high street bankers) made the decisions that ended up with their banks having to come begging for help, they made it easy for people to borrow, they were the architects of their own demise. Now they seek to lecture the government and issue a veiled threat to the very people that have risked their money to protect the interests, jobs and shareholders of the high street banks. They are pathetic, blood sucking creeps, that do not deserve their vast salaries and positions. How dare they lecture us, fair weather friends indeed. I hope this idiot has the courage to ‘own’ his statement, rather than hide in that cowardly way, only politicians and bankers know so well.

I stated in my post yesterday that the public should, when practicable, vote with their feet and punish these bankers by withdrawing funds and cancelling our current accounts and credit cards with all of the banks that so clearly look upon us as the necessary evil, rather than respect.

I also appreciate that many people will not, at this time, be in a position to punish the banks by withdrawing their business. But I do believe, when we are, that we must deliver a hard-hitting message to the banks that have turned their backs on the very people that came to their aid. The banks cannot survive without customers, fact. Every 10 years or so, they go through a phase of telling us they don’t want current account business and shortly afterwards, they realise that they do and go on a recruitment drive. We should all let them know what we think of them for turning their backs on us. Full article

In the meantime, the government should consider their position carefully, the public will not appreciate our money being risked by banks that have little or no regard for the well being of their saviours and their customers.

UK banks continue a path of self-interest

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I was pleasantly surprised when the Bank of England announced that there was to be a further reduction of 1.5% in interest rates, dropping to 3%. After all, most of the economists arguedthat the banking bailout would not work, unless or until there was a “substantial” reduction in interest rates. So, eventually, the Bank of England reacted positively, even if they could have gone further.

So what have the main UK banks done? The answer, little or nothing. With the odd exception, the Cheltenham & Gloucester and the Bank of Ireland for example, none has announced a reduction in the rates they charge their customers, claiming only that the matter was under review. Now I know that the LIBOR rate is supposed to be an influencing factor,  but if the banks were to pass on the 1.5%, surely they would be neutral.

The whole point of the Bank of England reducing the interest rates, was to provide the economy with a well needed shot in the arm, but if the high street lenders do not reduce their rates accordingly, it will be a largely meaningless initiative. I have read a few blogs and a number are calling for some form of positive action by banking and mortgage customers, but for the most part, it seems to be creating nothing of a stir. My own view is that that banks have received massive support from the UK tax payers and many of these people are also their customers.

Therefore, I believe the banks have a moral obligation to offer their support by passing on the rate reductions in full, at the earliest opportunity. Prevarication should not be an option. Banks were careless in their past lending practices and therefore they have to shoulder some of the responsibility for the situation many borrowers find themselves in. Not all, but some. high street lenders and mortgage companies could help themselves (in the long run) and their customers in the short-term by recognising the fact that the economy and many of their customers need and probably deserve an economic stimulus as would be provided by a rate cut.

One website has suggested a boycott of banks that do not pass on the rate cut, especially those that have received tax payer funded state aid. I agree. I also appreciate that many people will not, at this time, be in a position to punish the banks by withdrawing their business. But I do believe, when we are, that we must deliver a hard-hitting message to the banks that have turned their backs on the very people that came to their aid. The banks cannot survive without customers, fact. Every 10 years or so, they go through a phase of telling us they don’t want current account business and shortly afterwards, they realise that they do and go on a recruitment drive. We should all let them know what we think of them for turning their backs on us.

I earnestly hope that fellow bloggers out there will post more on this issue and try, together, to pressurise the high street banks into action and encourage a backlash if they don’t act positively. I am also disappointed, that the government did not include some form of pre-condition, that state aided banks should pass on any interest rate cuts. It is not as if the UK government were not aware that 1. interest rate cuts were inevitable, 2. banks would try and profit from cuts and 3. there would be a public backlash against the government if state aided banks were to shaft their customers.

Bank auditors should also be held responsible

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I find it difficult to disagree with anything stated in this article from Power to the People, which I have reproduced in case anyone has missed it. The reality is, auditors do have a major responsibility to shareholder’s, who rely on their reports being objective and searching, surely the auditors can’t claim that they cannot he held liable for the fact that they have missed completely or failed to understand the risks involved with the strategy employed by some banking and financial institutions. I feel sure some ‘auditor’ will come in at some stage, in defence of his profession and I look forward to the response, assuming he or she is not too busy dealing with company administrations and liquidations!

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.

Article Source: Power to the People

Bradford & Bingley nationalisation, is it a good deal?

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As I have said, not for the first time, I am no financial expert, but I am a little confused about the ‘part nationalisation’and ‘part sell-off’ of the Bradford & Bingley deal. I accept that there is probably still more detail to come about, but from the little that is available, I find myself wondering, whether the government, on behalf of the hard-pressed taxpayers of this country, worked out a good deal.

In the past, building societies received deposits, in order that they could then use that money to offer mortgages and loans to others. The saver would receive interest on their money, the mortgage payer would pay interest on their borrowings and the building society would take a commission in return for the introduction and managing of the arrangement. Although this model has been turned on its head, with the wholesale trading of these mortgages, the principle should still be sound.

Therefore, if the government have taken on all of the mortgage debt of the Bradford & Bingley, estimated to be some £50bn, why not retain the deposits as well? Instead, they “sell”, the ambitious Spanish conglomerate, Santander, some £20bn of saver deposits (2.7 million people), for the miserly some of £612m. How can this be a good deal for the taxpayer? How can the government be so sure that the savers interests are protected, given we don’t really know that much about Santander. In fact, if the government were responsible for the sale of these customer deposits and something were to happen to Santander, would the government be culpable or liable, given it was they who negotiated the deal?

This particular arrangement can’t be good for the employees either, because Bradford & Bingley employed some 3,000 people and operated 197 branches. Does anyone imagine that a foreign owned bank, will give a toss about these employees? No, from what I can see, the UK government has passed over the profitable side of Bradford & Bingley to the Spanish owned bank ‘Abbey’, whilst leaving the British taxpayer exposed with just the bad mortgage debt. What was the point in getting rid of depositors money which has traditionally been used to offset mortgages? Looks like a very poorly thought out deal to me and somebody needs to explain why? Santander must be rubbing their hands with glee at the at the apparent naivety of the UK government.

I would not normally be a supporter of nationalisation, although in this case, as in the case of Northern Rock, there was probably no palatable alternative. However, I do believe that the government is responsible for driving home a decent deal for the taxpayers, they have a duty of care to the public purse and a responsibility to the taxpayer. No matter how urgent the problem, they should not lose sight of this. Yet here, from what I can see and perhaps against the views of many other observers, I fail to see how anyone, other than Santander would be considered to a be a winner.

HSBC increases mortgage rates in the UK

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HSBC have announced an increase in their mortgage rates to borrowers which will affect hundreds of thousands of borrowers. Now, whilst I accept that the inter bank lending rate has risen and that the banks have losses to contend with, this should be weighted against the fact that the same people that have mortgages, the tax payer, are currently accepting the increased risk brought about by the incompetence of the banks.

The Bank of England has advanced £billions of tax payers money to help prop the banks, this is not a risk free strategy and the evidence suggests that it hasn’t worked anyway. But there needs to be some form of quid pro quo, if the Bank of England is advancing the bank’s our money, then there needs to be a cap on the level of mortgage increases levied by these banks. Mortgage rate increases should be commensurate with need not greed. The simply can’t have it both ways. I would hope that the Bank of England and/or the government have sought some time of assurance from the bank’s that they won’t shaft mortgage payers in order to have a quick fix for their profits. Based on experience, I suspect this has not happened, but rest assured, a more savvy public will be watching and waiting.

Tax payer owned (not government owned as is often the way it is described), Northern Rock has indicated that it may well follow suit. Northern Rock should be setting an example for other lenders, no playing a game of me too.

Written by British Politics

25 September, 2008 at 3:42 pm