British Politics’s Blog

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

Posts Tagged ‘banking bailout

Harman does it again

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At PMQ’s Harriet Harman made the following statement in response to a question about who had put Fred Goodwin forward and why; “I think Sir Fred was nominated for a knighthood because of his services for the Prince’s Trust.  “I understand it was not in recognition of his services to banking.”  Tut, tut Harriet, have you learned nothing? If you want to be PM in waiting you don’t try and guess the answers, you can only do that when you have the position, ask your boss! This statement has since been corrected by an official from her office.

But what does it tell us about Harriet Harman? It is, after all, only a few days since she suggested that the government would consider introducing new legislation, which would then be made retrospective, to enable the government to reverse Sir Fred Goodwin’s pension entitlement. Now, whilst I accept that there are at the very least, moral reasons why Sir Fred should not receive this pension, the fact remains that government ministers were party to, if not fully au fait with, the content of a compromise agreement, which is legally binding on all sides. To make matters worse, any threat to introduce legislation designed to target one citizen is a draconian move and anyone supporting or suggesting such an act must be considered a threat to all of us, especially when they are from a government that has paid lip service to civil liberties.  Sir Fred is NOT deserving of a pension in my view, but surely there are other ways in which this can be dealt with, for example, whether or not he had failed in his fiduciary duty?  If he had not, then there would, presumably, be some form of legal recourse using existing and established law.

In my view, Harriett Harman has, in the past week or so, confirmed why it is that she will never be a viable candidate for prime minister (or, more accurately, leader of the Labour Party).  Firstly, her judgement; no minister, whatever the motivation or justification should ever seek to use the immense power of government to target a single British subject. No-one deserves that, not even Sir Fred. Secondly, her knowledge on the subject matter; how is it that Ms Harman can claim to know all the details surrounding Sir Fred’s pension arrangements and the negotiations thereto, but not why Sir Fred was nominated for a knighthood and by whom? As Alan Duncan said, “Instead of worrying so much about her campaign to succeed Gordon Brown, she should focus on mastering the detail.”

I find it difficult to recall anything useful that Harriet Harman has ever done during her time as an MP, though I am happy to be corrected on that one, any takers? That said, at the risk of arguing against myself, perhaps that is why she would make a good leader of the Labour Party for their period in the wilderness which is certain to come after the next election. But PM, never, at least not in my life time, of that I am certain.

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4 March, 2009 at 5:19 pm

Have the bank directors failed in their fiduciary duties?

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Whilst doing my rounds today, I came across this article which points out that all directors have a legal duty of care or, if you prefer, a fiduciary duty. The author then asks why it is, that bank directors have been allowed to resign, rather than be sacked, given the government are suggesting that these bank directors have failed? It is a compelling argument.

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.

I cannot argue with the sentiment, so lets be clear, one government minister after the other has been heard to repeat the term used by Gordon Brown, that there must be “no reward for failure“.  Similarly, there must be no amnesty for anyone that has failed in their fiduciary duty or that has acted recklessly or without due care.  The author goes on to say;

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.

Surely government ministers understand that if they are going to step up the rhetoric, then they need to follow these statements with firm action? Anything less would be unacceptable to the general public who are now massive stakeholders in these banks. Moreover, if I were a former bank director, I would welcome the opportunity to clear my name, assuming of course, that I had a defence to the charge.  The article is pretty well summed up as follows;

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!

I agree! So lets see some action from government ministers instead of hot air.

Is Harriet Harman is an opportunist?

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It is difficult not to conclude that Harriet Harman’s attack on Sir Fred Goodwin’s pension is anything other than opportunistic. Clearly she will be aware that public opinion is firmly against corporate greed and any form of reward “for failure”. However, if government ministers were to be judged on the same criteria, there would be mass resignations, no pay-off’s and a refusal to take their generous, gold-plated pensions. Of course we all know that isn’t going to happen.

It is fair to say that Sir Fred’s pension is obscene and that the board and Lord Myner’s should have dealt with this thorny issue at the time, but they did not. Instead, it would appear that it formed part of what is commonly described as a ‘compromise agreement’ and this is, whether government ministers like it or not, enforceable in a court of law. Compromise agreements are not the exclusive preserve of high ranking banking officials, many thousands of people every year enter into some form of compromise agreement with their employers, with each party fully appraised by their legal advisers of the consequences.

It is difficult to conceive that any credible member of parliament would possibly suggest that a compromise agreement ought to be overturned through the introduction of new legislation which is applied retrospectively. Yet, Harriet Harman has done precisely that, whether it was her own idea, or someone has ‘suggested’ that she become the sabre rattler is not clear, either way, she does not come out of this with any real credibility. Yes, the public will, at face value, agree with her and therefore, it will appear that she is in tune with the masses. However, this completely ignores the fact that a Labour minister was party to the pension discussions and that the government were aware of the compromise agreement back in October. Yet it has only come to light now, when there was a need to divert attention from the real issue, which is the massive injection of additional taxpayer cash into RBS and the taking on of massive potential liabilities through the underwriting of so called ‘toxic assets’.

There have been suggestions that Harriet Harman has been positioning herself to become the successor-in-chief to Gordon Brown, I don’t know how much truth there is in these rumours. However, if I wanted to set her up for a fall, I would have asked her to do precisely what she has done. Why? Because no minister ought to be proposing new legislation to reverse something in a contract, that they were party to (directly or otherwise), simply because they no longer like the terms. Once that happens, the government can no longer be trusted to enter into any contract, without the other party believing that there is a possibility that any terms could subsequently be overturned, on a whim, through retrospective legislation.

Whatever the rights or wrongs of Sir Fred Goodwin’s pension arrangements, ministers from the Prime Minister down appear to be milking it for all it is worth and in doing so, they are successfully diverting the country’s attention from the real issue and that is our massive long term exposure to RBS liabilities. Worst still, if they are expending so much time and effort on what, in the scale of things, is a peripheral issue, can we trust them to be steering the ship in which we have so much invested? I wonder!

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1 March, 2009 at 2:06 pm

RBS Pension scandal or attempt to divert attention

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Perhaps it is the cynical side of me, but, I can’t help wondering whether the release of Sir Fred Goodwin’s pension entitlement is a bit too convenient. Bear with me if you will.

Sir Fred has complained that his pension arrangements have been made public. Now lets face it, given the scale of the losses at RBS, it is not inconceivable that this particular obligation could have been ‘lost’ in the malaise, but it wasn’t. Why is that? At time of public anger over bankers, a nice juicy pension to a former banker was bound to get the blood pressure rising, with the masses venting their anger at the recipient. Yes, yes, the government must have known about it, but they have got away with other issues in relation to due diligence, so why not this. Added to which, the government will have known that the public, for the most part, would target the recipient not them. Then there is media commentators, the vast majority of whom have fallen for it, stating that the if the government did know and released the details then, it must have been an own goal. But was it?

Take a look at the headlines and you can get a feel for what has captured the public imagination. Not the fact that RBS is about to receive another £13bn of taxpayers money (on top of £20bn last year);  not the fact that a bank that is 70% owned by the tax payer has just announced losses of £24bn, 70% of which is ours; not the fact that we, the taxpayer, are about to underwrite £325bn of ‘toxic assets’ in return for a premium of just £6.5bn; and not the fact that our ownership of this company is now likely to rise to 84% in economic terms, if not voting shares (75%).

You would expect something of this magnitude to lead the news stories, but is has not, instead, in a classic New Labour ‘smoke & mirrors’ game designed to dupe the public, our attention is turned to Sir Fred Goodwin and his obscene pension. The bailout of the banks, the underwriting of inter-bank loans and the public guarantees on toxic assets have all but bankrupted this country and here we are kicking up a big fuss about Sir Fred’s pension arrangements. Instead of Gordon Brown having to defend the fact that he has just spent way in excess of our expected tax receipts for this year, he could go on television and say that the government were considering legal action to challenge Sir Fred’s pension entitlement, in other words, he (Gordon Brown) could appear to be in tune with the public mood.

Please people, stop falling for these classic New Labour, cynical moves to wrongfoot the public, they are laughing at us and in a way, we deserve it. As for the political commentators that have fallen for this trick, they should hang there heads in shame. Before anyone accuses me of supporting Sir Fred’s pension arrangements, I will state for the record that I firmly do not, I just believe that this government has used the pension to divert our attention and boy, has it worked!

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27 February, 2009 at 3:59 pm

1929 stock market is history repeating itself

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I read an interesting article over at the political blog Power to the People, about the similarities between the 1929 stock market crash and our current economic situation and I am finding it difficult to fault the parallels. Clearly many of the problems we are experiencing today are similar to those during the 1929 crash, except, as the author points out, back then it was shares and today it is property.

As the author makes clear there were some people in power in 1929 that were rightly concerned about the possibility of the whole pack of cards falling down, but elected to do nothing.

The people of America felt rich, lifestyles improved after the austerity of the first world war and few people raised any doubts, those that did, such as President Hoover, tended to keep it to themselves, rather than be see as the Cassandra.

Surely Gordon Brown knew there were real risks that the property bubble could burst, particularly given the property crash of the 1990’s, he must have been aware that the economy was being fueled by cheap and easy credit and above all, that the massive profits being reported by the banks were not from their high street activities alone. Yet, he chose to do nothing, now he is puffing his chest out and telling us how he is going to save the world. Personally I think that there is something morbid about allowing the same person who threw us in at the deep end to then jump in, ignoring his own culpability and receive backslaps for his vain attempt to save us.

During the 1929 crash, millions of people were destitute, having lost all their saving. Today, with millions of people investing in pensions, the fall in key stocks means that their pensions are worth considerably less than they were 18 months ago. Perhaps by as much as 50%! Those that have saved for their retirement, will be punished with low or non-existent interest rates, resulting in a reduction in their standard of living, even though they may not have been benificiaries of the largesse that caused these problems. Of course, most civil servants do not have to worry about such anomolies, because their final salary schemes are paid out of future income and as such, are guaranteed.

But the lessons of history havent been learnt, as the article goes on to state;

After the 1929 stock market crash, Hoover introduced the Securities & Exchange commision to regulate US markets, this had the desired affect. However, over the past 20 years or so, the rules and regulations have been relaxed, seen as no longer necessary and much of what we witness in the United States today can be attributed to the easing of those regulations. Similarly, the much vaunted deregulation of the City was also a pre-cursor to the problems we all face today. Light regulation and a hand-off approach by government and the regulators has allowed the banks to enter very high risk transactions which many people struggle to understand.

This government has a lot to answer for. Mr Brown promised an end to boom and bust yet, in spite of his promise, we are actually in one of the most dire economic positions ever experienced by this country, even though the warning signs were there all along. They were just conveniently ignored for political expediency and no doubt, because Gordon Brown, whilst basking in the glory of being described as the ‘iron chancellor’ didn’t want to be a party pooper. Shame on him, he was in the best position to know the risks and to do something about them, but he did nothing. In my view he is either incompetent, inept or reckless.

And…I couldn’t agree more with the statement made on this posting…

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

We must all demand that all those in position of power or responsibility that have played an active part in this economic mess be made to accept responsibility. Further, anyone that has been reckless, irrespective of whether they are in government or commerce, must be brought to book. We, the people will automatically have to pay for any mistakes we have made (as well as those we haven’t), why should politicians and senior business executives get away scott free?

Stop banks from carrying forward losses to offset future profits

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Most analysts forecast that most, if not all of our high street banks will shortly announce record breaking losses, as many re-value their assets and take the write-off’s on the chin. In fact, informed pundits are suggesting that this will continue for another 2-3 years. Well, there is little or nothing we can do about that.

However, any bank that has been in receipt of state aid, support or taxpayer sponsored insurance schemes must not be allowed to benefit from a double whammy. That is to say that, whilst the taxpayers of this country take on much of the risks associated with their recklessness, the banks carry forward these massive losses, to allow them to offset past losses against future profits. That would most certainly rub salt into the wound. Under current taxation rules, business can carry forward past losses, to set against future profits. This concession made sense for most businesses that have a difficult year or two, or those that are in a start-up phase. It should not be used to reward banks and their shareholders, when they have had to rely on a state bailout or support programme to allow them to survive intact.

Government ministers and opposition parties must provide the assurances, here and now, that the banks will not be permitted to carry forward past losses, to offset against future profits where these banks have been in receipt of any state aid. A failure to do this will allow banks and more specifically their shareholders to receive handsome ‘tax free’ rewards at the very time that the taxpayers will being having to accept higher taxes as a direct conseqeunce of the banking crisis and the largesse, or indifference of our government and ministers. This would be completely unacceptable. If the banks were not so integral to our economic well being, they would not have been treated as a ‘special’ case and received such massive state aid. But they are and they have been. MP’s must now undertake to identify the banks as a special case in the future, given the racing certainty that they would, under existing rules, be rewarded with future tax breaks/concessions.

Once we come out of the other end of this recession, taxes will rise and if the past is anything to go by, the public will be expected to pay the lions share through direct and indirect taxation. This country will need banks and industry to pay their fair share. We cannot afford any bank or any business to use 2 or 3 years of losses to offset against the following 2 or 3 years profits. Everyone needs to make a contribution. If business, such as the car industry are in receipt of state aid, then they must also be prevented from offset past losses against future profits, similarly, if these businesses are not registered in the UK for tax purposes, then they must undertake to do so before any taxpayers funds are advanced and for a period beyond, to make sure that taxpayers benefit in the future. Now is the time to be negotiating tough terms and looking ahead in terms of these banks and businesses making a real and tangible contribution in the future. A failure to do so will result in a massive public backlash in the future.

UK Economy, can the future be so bright?

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It doesn’t really matter who you listen to, everyone seems to believe that we will come out of the recession leaner and stronger, with most arguments centering on how deep and how long the recession will be. There are also varying estimates as to the level of debt UK Plc will have and also how long it will take to reduce this debt mountain via increased tax revenues. Maybe I am cynical, naive or just plain stupid, but I can’t for the life of me see what we are going to be left with when the recession does actually end.

We know that after the last recession, our manufacturing industry was virtually decimated, not only did many people lose their jobs, but an industry dating back to the Victorian times disappeared virtually over night. Therefore, even if the pound is weak, surely we cannot rely on manufacturing to provide jobs and tax revenues.

So what of the financial services and banking industries? As we all know, this particular recession has been brought about, for the most part, by poor lending decisions of the banks. In addition, much of the profit derived from The City was via ‘manufactured’ trades of bundled mortgages, securities and so on. The financial services and banking sector have now had their fingers burned. In addition, one of the main attractions of the UK was light regulation, and there is every indication that the UK authorities will now start to tighten the rules. Taking all these things together, it is most unlikely that the UK banking and financial services sector will ever look the same again, nor will it offer the same levels of GDP contribution, jobs or tax revenues. Added to which, with many financial institutions and banks harbouring massive losses, it is quite likely that they will not have to pay any corporation tax for a good few years to come.

As our manufacturing base declined, our GDP was propped by the banking and financial services sector, given the above, do we really have any hope of a strong recovery from any of these sectors? I think not. On top of everything else, before the recession, the government were steadily increasing corporation tax as well as red tape. As a direct consequence, the UK was no longer the land of milk and honey from a tax perspective. So in recent years we have seen more and more companies registering their businesses abroad for tax purposes. Southern Ireland is a case in point, where their tax regime is considerable more attractive than our own. This will lead to a further loss of jobs and more importantly in the current debt climate, a loss of tax revenues.

Then their is our carbon emissions targets. Our government has committed to a reduction of 80%, this is not empty rhetoric, they intend to make it legally binding. Similarly, a reduction in carbon emissions is not incentive driven, instead is uses a stick rather than carrot approach, meaning higher ‘green taxes’. These taxes will hit not just business, but individuals as well and of course the price will have to be paid both at the tills and in the way of fewer jobs. What this means is that is that any UK business will be subject to higher direct taxes and higher indirect taxes via ‘green’ initiatives. Now, because the UK is one of the few countries taking carbon reductions seriously, it means that companies operating in the UK will be subjected to a competitive disadvantage when compared to other countries.

Then look at what has been driving sales over the past 10 years, the so called “credit bubble”. The economy has grown as a direct result of easier credit, low interest rates and rising house prices. The latter has made people feel more wealthy, leading to a release of equity through remortgages or secured loans, the ‘easy’ money has than been spent in th High Street, on consumables, cars and nice holidays. In a harsher climate, with less money available to consumers, a stagnant housing market, higher taxes and fewer people in work, it is difficult to see how or when we can expect a return to ‘business as usual’.

So, whilst I know the politicians hate to paint a picture that is considered too negative or gloomy, I would like to witness them share their thoughts on just how everything is going to be fixed and over what timescale. Becuase, in all honesty, unless I am missing something, the future does not look too bright.