I have confessed before that my grasp of economics is not the sharpest, though I do feel I understand as much as the next lay person.
I am struggling to understand why the Bank of England has today announced a further cut in the base rate from 1.5% to 1%.
I understand that rate cuts are some times used as a tool to combat inflation, but there are large areas of the economy where prices are coming down, rather than up. I have not seen a report in the press that shows that Inflation is the greatest concern here.
A further rate cut can only punish savers whose rates will be cut instantly. Yet previous rate cuts have not been passed along in full to borrowers, this one probably will not be passed on in full either. The Bank of England, possibly at the Governments urging seems to be drastically trying to help those who have borrowed more than they can afford to repay; but it is doing so at the cost of the people who have been responsible and saved, many of whom have spent their lives paying off mortgages and are now trying to put money aside for themselves.
I am not suggesting that borrowers should not be helped, they should. But, isn't there a danger in helping too generously, those who have borrowed too much, some (by no means all) of whom have been reckless in the levels of debt they have undertaken. Where is the incentive for foreign investors and corporations to bring their cash to the UK? Why should thousands of ex-pats, living cheaply abroad in places like Spain leave their money in UK PLC when they can earn more interest on those savings abroad?
The line I am hearing is that the Government wants the banks lending to each other again. This seems a little dangerous to me, as that lending is based on the UK banks borrowing more. Surely, they banks need to be able to offer incentives for people to put their money in their banks or building societies and use that cash on providing loans at a higher interest than they are paying the saver. Why would a saver want to put their capital in the bank with such unattractive rates?
Anyway, like I say, economics are not my strong point, so feel free to point out if and where I am wrong... but if you do, please use language I can understand.
Showing posts with label Bank of England. Show all posts
Showing posts with label Bank of England. Show all posts
Thursday, February 05, 2009
Monday, January 19, 2009
Effing Bankers
The Government has today announced that it is to roll out an insurance scheme for the banks to encourage them to start lending more to people. This is being offered by the Government (in case you missed it) after banks lent too much to people who can not afford to repay it. As people now have no money left, and a significant chunk of the population now owes as much as they could possibly hope to pay off; Gordon Brown and Alastair Darling have decided that the Government should "do something".
On the same day that the insurance scheme is announced, RBS announced that they are in a little bit more trouble that was initially realised, certainly more than Gordon Brown knew about when he handed over £20bn in capital a few weeks ago.
RBS purchased another bank a few years ago called ABN Amro. This bank had also lent a lot of money that people can not afford to repay. They helpfully lent what now extends to £2.5bn of credit to a Russian Chap with a big impressive chemicals business. Unfortunately that chap can no longer afford to keep the company going so it will probably go to the wall and default on the loan. But don't worry, the British Tax Payer can pick up the bill. No, not because the treasury coffers are over flowing; but because the Chancellor knows some Asian fellas that are prepared to lend us a few quid to bail out these defaulting loans. I am not sure what the rate of interest is, but what the hell, we will not be paying them back anyway - the IMF will have take care of that for us, we can worry about paying the IMF back later.
Perhaps I have unrealistic expectations of elected officials and Government in general. Maybe, I have watch just a few too many episodes of the West Wing, or not enough of Yes Minister. Something inside me says, this is all completely wrong. Wrong, wrong, wrong! Mr Brown, this credit crunch has not come about because of a lack of regulation, it is because we had bad regulation. You have not ended boom and bust, you have exaggerated it.
I wish someone could explain to me where this Government is authorised to borrow and spend, and spend and borrow in such a reckless fashion. Was this in the Labour Party Manifesto? Has Parliament debated the two separate bail outs? Has the chancellor been on ITV, BBC, SKY News taking calls from members of the public and addressing their concerns? I don't recall the national debate about the UK taxpayer covering UK banks defaulting foreign loans. We have a Democratic Deficit.
Some bankers have made off with £millions in bonuses. Were they acting illegally? I can only assume not. Otherwise the government would have launched an investigation and would be bringing these thieves and crooks to justice. Not just in the courts, but in the newspapers and TV news. Why has this not happened? Because they were not acting outside of the law.
So what is the government going to do when pumping £billions more into the system fails to lure indebted Brits further into debt (and thus kick starting a boom cycle, that Brown insists that no longer exists?) Borrow more money?
The government needs to be more pragmatic in it's approach to this crisis. By covering the debts of negligence that far transcends economic sense, the Government is covering for those poor investment decisions. They have nationalised the failures of the banking system. How many Banking heads have rolled? None. How many tellers, and branch assistance have lost their jobs? Loads. Is this right? No, it is not. The decision makers made the mistakes, they are keeping their jobs and the tax payer is funding it.
I think Interest rates need to come back up a little. UK banks need to attract deposits from abroad. Savers in the UK should not be unduly punished. We also need to avoid another surge of poorly secured credit on the first sign of economic recovery.
The Bank of England should be granted emergency powers to investigate all deals over £100m (or at a value deemed appropriate, and practical by the BoE) that is now on the Governments portfolio to see if those loans were based on sound financial decision making. If not then legal action should be considered by the government against the banks, and from the banks against the employees that made them. The Government can not keep maintaining that bankers were greedy and made errors if no one can be found to have fallen outside of the regulations.
Those toxic debts should be targeted, and identified. I am not sure if a Government Toxic Bank should be set up, but if these bad investments are identified, then it might not require a Government solution. Solvent banks and financial institutions might help struggling banks, with compensation of insurance. Certainly the Government should be looking for the banks to write down a share of the debts, at their loss, rather than propping up the whole rotten system.
The FSA should be culled and regulatory powers handed back to the BoE and the Treasury. The BoE must then openly report on the banking sector in the UK, and be charged with improving confidence in the UK financial sector.
Some of the money being offered into bailout schemes should instead be offered in entrepreneurial grants to companies that have a chance of getting a foothold in the emerging Asian markets, such as China and India... I am talking about small and midsized companies with UK based staff and management who are trading in sound products and emerging technologies. Our economy needs cach from the East, and we need companies creating new jobs.
The Government should also reduce the size of the State, to reduce the burden upon the tax payer. Can we go onpaying for big Government AND big Government debts? I don't think so.
I am not economist and I am not a banker. You may not agree with any, or all of the above, nor may the Government. I am, however, a tax payer, and I have not been consulted in how my tax money is being spent, or on my concerns for the future tax burden on me and my family. And that is what has annoyed me most of all.
On the same day that the insurance scheme is announced, RBS announced that they are in a little bit more trouble that was initially realised, certainly more than Gordon Brown knew about when he handed over £20bn in capital a few weeks ago.
RBS purchased another bank a few years ago called ABN Amro. This bank had also lent a lot of money that people can not afford to repay. They helpfully lent what now extends to £2.5bn of credit to a Russian Chap with a big impressive chemicals business. Unfortunately that chap can no longer afford to keep the company going so it will probably go to the wall and default on the loan. But don't worry, the British Tax Payer can pick up the bill. No, not because the treasury coffers are over flowing; but because the Chancellor knows some Asian fellas that are prepared to lend us a few quid to bail out these defaulting loans. I am not sure what the rate of interest is, but what the hell, we will not be paying them back anyway - the IMF will have take care of that for us, we can worry about paying the IMF back later.
Perhaps I have unrealistic expectations of elected officials and Government in general. Maybe, I have watch just a few too many episodes of the West Wing, or not enough of Yes Minister. Something inside me says, this is all completely wrong. Wrong, wrong, wrong! Mr Brown, this credit crunch has not come about because of a lack of regulation, it is because we had bad regulation. You have not ended boom and bust, you have exaggerated it.
I wish someone could explain to me where this Government is authorised to borrow and spend, and spend and borrow in such a reckless fashion. Was this in the Labour Party Manifesto? Has Parliament debated the two separate bail outs? Has the chancellor been on ITV, BBC, SKY News taking calls from members of the public and addressing their concerns? I don't recall the national debate about the UK taxpayer covering UK banks defaulting foreign loans. We have a Democratic Deficit.
Some bankers have made off with £millions in bonuses. Were they acting illegally? I can only assume not. Otherwise the government would have launched an investigation and would be bringing these thieves and crooks to justice. Not just in the courts, but in the newspapers and TV news. Why has this not happened? Because they were not acting outside of the law.
So what is the government going to do when pumping £billions more into the system fails to lure indebted Brits further into debt (and thus kick starting a boom cycle, that Brown insists that no longer exists?) Borrow more money?
The government needs to be more pragmatic in it's approach to this crisis. By covering the debts of negligence that far transcends economic sense, the Government is covering for those poor investment decisions. They have nationalised the failures of the banking system. How many Banking heads have rolled? None. How many tellers, and branch assistance have lost their jobs? Loads. Is this right? No, it is not. The decision makers made the mistakes, they are keeping their jobs and the tax payer is funding it.
I think Interest rates need to come back up a little. UK banks need to attract deposits from abroad. Savers in the UK should not be unduly punished. We also need to avoid another surge of poorly secured credit on the first sign of economic recovery.
The Bank of England should be granted emergency powers to investigate all deals over £100m (or at a value deemed appropriate, and practical by the BoE) that is now on the Governments portfolio to see if those loans were based on sound financial decision making. If not then legal action should be considered by the government against the banks, and from the banks against the employees that made them. The Government can not keep maintaining that bankers were greedy and made errors if no one can be found to have fallen outside of the regulations.
Those toxic debts should be targeted, and identified. I am not sure if a Government Toxic Bank should be set up, but if these bad investments are identified, then it might not require a Government solution. Solvent banks and financial institutions might help struggling banks, with compensation of insurance. Certainly the Government should be looking for the banks to write down a share of the debts, at their loss, rather than propping up the whole rotten system.
The FSA should be culled and regulatory powers handed back to the BoE and the Treasury. The BoE must then openly report on the banking sector in the UK, and be charged with improving confidence in the UK financial sector.
Some of the money being offered into bailout schemes should instead be offered in entrepreneurial grants to companies that have a chance of getting a foothold in the emerging Asian markets, such as China and India... I am talking about small and midsized companies with UK based staff and management who are trading in sound products and emerging technologies. Our economy needs cach from the East, and we need companies creating new jobs.
The Government should also reduce the size of the State, to reduce the burden upon the tax payer. Can we go onpaying for big Government AND big Government debts? I don't think so.
I am not economist and I am not a banker. You may not agree with any, or all of the above, nor may the Government. I am, however, a tax payer, and I have not been consulted in how my tax money is being spent, or on my concerns for the future tax burden on me and my family. And that is what has annoyed me most of all.
Thursday, January 08, 2009
Economic Stimuli
The BoE has cut interest rates again by 0.5% to a base rate of 1.5%. Now I may be showing some economic ignorance here, but isn't this below where the ideal rate should be? It was a good move to start cutting the interest rates last year, in fact to my mind the cuts started a little late.
However, what benefit does the person on the street get from rates much below 3%? Not much unless you are on variable mortgages or rare products that track below 3%. Just the other day, the Tories announced a tax break for basic-rate savers this was well received, so why are we punishing savers with rates that are too low? The banks are now passing the rate cuts onto borrowers, not even the ones owned by the Government!
Sudden excesses in the printing money are like Guido says, Mugabinomics, and as such is the litmus test for any Governments level of desperation.
What do I think?
All of the world money is spinning around in Asia, we need to get some of it back over here. To do this we need to offer to the good people in Asia products and services that they want to purchase at competitive prices. Plans to stimulate the British Economy should focus on how we can grow our trade and presence in the emerging markets in the world. We should be looking to help British Companies that have the potential to do well in Asia help with grants and tax breaks. Why haven't we done this already? Probably because the UK no longer has any real ability to make trade decisions in the wider world, as this is a function of the European Commission. Could it possibly be that in times of economic depression the National Governments of the EU no longer have the executive means and independance in which to implement necessary changes to domestic economic policies?
So, why not just address this issue instead of sending the printing presses into overdrive and punishing those people that showed the wisdom to save instead of borrowing excessively? Probably so Mr Brown can tell the world that this way is better than being a “Do-Nothing Tory”.
However, what benefit does the person on the street get from rates much below 3%? Not much unless you are on variable mortgages or rare products that track below 3%. Just the other day, the Tories announced a tax break for basic-rate savers this was well received, so why are we punishing savers with rates that are too low? The banks are now passing the rate cuts onto borrowers, not even the ones owned by the Government!
Sudden excesses in the printing money are like Guido says, Mugabinomics, and as such is the litmus test for any Governments level of desperation.
What do I think?
All of the world money is spinning around in Asia, we need to get some of it back over here. To do this we need to offer to the good people in Asia products and services that they want to purchase at competitive prices. Plans to stimulate the British Economy should focus on how we can grow our trade and presence in the emerging markets in the world. We should be looking to help British Companies that have the potential to do well in Asia help with grants and tax breaks. Why haven't we done this already? Probably because the UK no longer has any real ability to make trade decisions in the wider world, as this is a function of the European Commission. Could it possibly be that in times of economic depression the National Governments of the EU no longer have the executive means and independance in which to implement necessary changes to domestic economic policies?
So, why not just address this issue instead of sending the printing presses into overdrive and punishing those people that showed the wisdom to save instead of borrowing excessively? Probably so Mr Brown can tell the world that this way is better than being a “Do-Nothing Tory”.
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