The stock market is now sliding again to maintain its historic record of underperforming under a Labour government. Having exhibited an impressive 'double-top' formation over the last eleven years, I would expect to see the FTSE 100 fall at least a further 20% or 30% by 2010, putting it right back to where it was in 1997.
Inevitably, there will a lot more headlines like this one. The irony being that UK plc's pension funds are largely invested in shares in UK plc; or put it another way, one-third or so of the shares in UK plc are owned by UK plc's pension funds. Which leads to a vicious circle; if share prices fall, pension deficits increase; if pension deficits increase; share prices fall; and so on ad infinitum.
This is easily fixed, but of course pension funds are not allowed to invest in the employing company, so it requires co-operation by lots of different pension funds;
Let's assume that ten different companies, that are otherwise trading profitably (i.e. not banks!) each have a pension fund with deficit of £9 million (to keep the maths simple). What each of these companies should do is go to the bank in the morning, take out a short term loan of £9 million and pay this to its own pension fund. The pension fund in turn splits the £9 million up into nine tranches of £1 million and invests in new corporate bonds issued by the other companies. Each company collects the proceeds of 9 x £1 million in new corporate bonds (now held by the pension funds of the other nine companies involved) from the other nine pension funds and repays that money in the afternoon.
That's that fixed.
Tax-wise, this is brilliant too; each company gets a corporation tax refund of £2.52 million (£9 million pension fund contribution x 28%), and the interest income that the pension funds earn is truly tax free, as the paying company gets a full corporation tax deduction for the interest paid; unlike the dividend income that pension funds earn, which is paid out of post-corporation tax profits.
Hopefully, once they've pulled this scam a few times, the taxpayer will wake up to the fact that tax breaks for pension contributions do not, on the whole, benefit pensions savers; they are a massive corporate welfare scheme worth £50 billion per annum for the pensions industry.
Just sayin', is all.
Tuesday, 30 September 2008
The stock market is now sliding again to maintain its historic record of underperforming under a Labour government. Having exhibited an impressive 'double-top' formation over the last eleven years, I would expect to see the FTSE 100 fall at least a further 20% or 30% by 2010, putting it right back to where it was in 1997.
Yet more hand wringing about 'child poverty' over at the BBC. This is the best bit:
"A spokeswoman for the Department for Children, Schools and Families said the government was committed to the cause. She said: "We have lifted 600,000 children out of poverty...
Nope, the taxpayer has. And it is the self-same tax system that is pushing low and average earners back into poverty.
... we are introducing free nursery education for all two, three and four year olds ...
Not true. The much-vaunted 'free' nursery education only pays for two-and-a-half hours a day.
... and have seen an increase in educational outcomes at all ages" ...
Not sure whether I should dignify that with a response.
... She said local authorities and other service providers had to help it raise family incomes, encourage people to apply for tax credit and benefits and help parents work. She said the latter was known to be one of the best ways for families to get out of poverty."
WTF? Getting a job and earning your own money is "one of the best ways ... to get out of poverty"? Not, er, "the only way"?
Again, from the BBC:
New mortgage lending collapsed in August, according to the latest figures from the Bank of England. Banks and building societies lent an extra £143m in home loans last month, just 5% of July's lending figure and only 2% of the lending in August 2007.
Yes, we know that the number of homes bought and sold each month is down from its long term average of about 100,000 to 30,000 or something, but if you divide £143 million by typical price £143,000, that would mean only 1,000 homes were bought with a mortgage, i.e. first time buyers.
Ah ... I see what they did there ... gross mortgage lending was down from £34 billion in August 2007 to £20 billion in August 2008 (page T20 of the original Bank of England report). There's another table on the same page that looks at net lending, i.e. new advances minus repayments, that's the figure that's down £143 million, which is probably within a margin of error of one or two hundred million anyway. Twats.
* Actually, the article came out yesterday, but it's taken me a while to battle my way upstream to the original source of the complete misunderstanding.
From the BBC:
"About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 [40% of] Democrats."
The Democrats have a 235-to-199 majority in the House of Rep's, they could have pushed this through on their own.
"President George W Bush is to make a statement on the deadlock over the bail-out plan early on Tuesday morning. But the president has been wholly ineffectual in the crisis so far and it's difficult to see how that might change, says the BBC's North America correspondent Justin Webb."
Right. So a Republican President proposes this legislation, does his best to railroad it through, but when it fails it's his fault, not the fault of the majority Democrat Party?
"The legislation has failed, the crisis has not gone away," said Nancy Pelosi, the house's Democratic speaker.
So she's the heroine of the hour, is she? The 'crisis', to the extent there is one, will go away the minute they remember the joys of the 'debt-for-equity-swap'.
H/t John Pickworth in comment to previous post.
Monday, 29 September 2008
228 good men and true (and women, obviously) refuse to approve lunatic $700 billion dollar corporate subsidies, aka "Fed bail out"!
Interestingly, a large majority of Democrats voted Yes and a large majority of Republicans voted No.
OK, that's not what the linked article says, because that's from half an hour ago. Try this one.
George Obsorne, after showing a glimmer of intelligence over the whole B&B debacle, has now reverted to type. This bit of his conference speech sounds all well and good:
"We built an economy on the engines of finance and housing and government spending, and the government never stopped to think what would happen if the engines stalled. Now the credit has dried up, the engines of the economy have stalled, the party is over."
As does this ...
The [tax] freeze would be paid for by cutting consultancy budgets by £270m in the first year and £770m in the second. Budgets for frontline services such as NHS, schools and police - and the Department for International Development - would not be cut.The Central Office of Information budget would be cut by £230m in each of the two years.
Great. £1 billion of waste down, £99 billion to go ...
But which tax do they want to freeze first?
Council Tax, of course! According to this Tory opportunist "Council tax bills are the third highest monthly bill after housing and fuel bills - local councils must deliver high-quality services at the lowest cost to the taxpayer."
Does this joker not realise that all taxes are ultimately borne by individuals/households? So applying his 'logic', Council Tax (£20 bn) is only the seventh-biggest monthly bill after income tax (£130 bn), National Insurance (£85 bn), VAT (£80 bn), corporation tax (£40 bn), housing costs and fuel bills.
Agreed, The State should be delivering high-quality services at the lowest cost (or not at all), but why restrict this to a narrowly defined range of expenditure that happens to be covered by Council Tax, which raises barely 4% of total government revenues? AFAICS, nearly all services are local services. So if councils can run things more efficiently than central government (and they probably can - less layers of bureaucracy and corruption), why not devolve more stuff down to them, even if that means that local taxes (primarily Council Tax and Business Rates) go up a bit?
It's all well and good George Osborne railing against an economy based on credit, but the flipside of the credit bubble is the house price bubble, which are now both bursting in tandem. So if you freeze Council Tax (which is more akin to a user charge than a tax) rather than cutting economically damaging national taxes (which are purely confiscatory; primarily VAT and Employer's National Insurance), all this will do is to kick-start the next house price bubble. Which is exactly what happened after they got rid of Schedule A taxation in 1964 and after it became clear that they were going to get rid of Domestic Rates in the 1980s.
Ah well. It's a good job I sold to rent last year, so I can make another small fortune during the next bubble. I'm going to keep doing this until they learn their lesson and replace all existing property and wealth related taxes with Land Value Tax. Twats.
Here's a quick summary of B&B's balance sheet, once you include a sensible ten per cent write down on all their dodgy mortgage assets:
I woke up this morning to find out that our Gummint had decided to nationalise the B&B, or as I like to call it "open up yet another Black Hole for taxpayers' finest". Had the gummint OTOH adopted the 'debt-for-equity' plan mooted by me and since adopted by Messrs Cameron & Osborne*, the balance sheet would show a healthy Tier 1 capital ratio of 13%, depositors and employees would be protected, no branches would have to be shut and all would be well with the world, as follows:
"What's the trick," I hear you gasp, "how did you do that?"
It's easy. It's called a capital reconstruction. The precise details of the legal, tax and accountancy side are devilishly complicated, but Big Picture-wise, what you do is, say to the bond holders "For every £1 face value of bonds that you hold, we will give you new bonds with a face value of 61.5p, and shares with a nominal value of 23p." Then there's a bit of netting and cancelling etc, far too arcane to go into here.
So, if you were dumb enough to originally subscribe for £1's worth of bonds issued by B&B, which had a market value of (say) 80p in the £ before the nationalisation, you would end up with shares worth 23p** and properly secured bonds worth 61.5p, so your original £1 investment is now worth 84.5p. That's a nasty 15% loss, but nothing compared to the shareholders who get more or less wiped out. Quite what the shareholders are whining about is not clear to me, as they were given these shares free on demutualisation anyway.
* My sympathies are increasingly with the Tories on this. They are being bashed for accepting donations from short-sellers in The Daily Mirror but are they being given as much credit for saying that 'reckless investors' should bear the brunt of the fall out of the credit bubble bursting rather than the taxpayer? Nope, thought not. AFAIAC, a gamble is a gamble. If you sell short and win, good for you; if you are conned into investing in 'mortgage backed securities' and you lose 15% of your money, well tough, frankly. There are worse things at sea.
** Actually, seeing as shares in Bankrupt & Bailout plc were still trading at 20p each last week, when the Better & Better plc shares are relisted, they might well be trading at 30p or 40p, in other words, the loss faced by long-term bondholders might be much less than 15%, and the original shareholders might recoup some of their losses. That's up to The Markets to decide.
UPDATE: if the B&B nationalisation was supposed to reassure the banking sector, it has failed miserably. Can we try it the old fashioned way the next time a bank fails, please?
UPDATE: and of course a reconstruction like this is not subject to EU rules against State Aid, which IMHO are an example of that rarest of things, 'Good EU rules'. The problem being that the rules are never enforced when France, Germany or Italy subsidise or protect 'national champions'. Ah well.
UPDATE: NB, comment 4, seems to be the only person over at LabourHome who has grasped this.
This headline on the BBC website caught my eye, as it's one of my favourite topics (see here or here).
However, Vindico seems to have beaten me to it this time, and I've said what I have to say in the comments over there.
NB, in this context it is important to remember that the National Housing Federation is the umbrella body for Housing Associations, who are in turn creatures of legislation, owned by the State and generously funded by the taxpayer. They can compete unfairly with private builders but have even less democratic accountability than local councils. Not to be confused with the Home Builders' Federation.
And why do the BBC deem it necessary to accompany an article about rural housing with a picture of some, er, rural houses? For the avoidance of doubt, some of them look like this:
Sunday, 28 September 2008
"Wot?", I hear you cry, "For doing what?"
Ahem, they can get that money if they ... er ... split up. Or at least pretend to split up.
So here are the figures from the DWP's updated Tax benefit Model Tables, as promised a couple of days ago:
1. A cohabiting couple with two kids, one parent (let's assume Dad) earns £500 a week gross (all figures in this example are weekly), Mum is at home with the kids so there are no childcare costs, living in council housing have a net income after tax, benefits and housing costs of £345.59 (Table 1.6b).
If Dad 'moves out' ...
2. The newly single single mother with two kids, no childcare costs living in council housing has a net income, i.e. benefits minus housing costs of £190.39 (Table 2.1a)
3. Newly single Dad has a net income after tax/NI of £379.76 before housing costs (Table 1.1b) of £379.76. In practice he doesn't have any housing costs, because he stays in the family home - the couple just have to quickly hide all his gear should council snoopers pop round.
Total income of newly 'separated' family = £570.15. That's £224.56 more than what they were on before. I rest my case.
Hurray! The National Minimum Wage has gone up from £5.52 to £5.73! According to the TUC, "More than one million workers will benefit"
Right. Let's assume that there are 1 million people on the NMW, working 25 hours a week each, all claiming Tax Credits (let's ignore Housing Benefit and Council Tax Benefit, or the calculations are too horrendous).
On a static basis, each of those workers will earn an extra £5.25 gross per week (25 hours x 21p), but net incomes only go up by £1.58 per week because they will pay an extra £1.63 tax/NI and lose £2.05 Tax Credits.
Next: the dynamic effect. The demand for labour is almost certainly price-elastic (in other words quantity demanded goes down by more than 1% for every 1% increase in cost), but for simplicity let's assume that quantity demanded goes down by the same amount as the increase in the cost to the employer of 3.8% (£5.73 ÷ £5.52), so 3.8% of those one million workers are made redundant.
OK, so 962,000 of the lowest paid workers will be £1.58 a week better off; and 38,000 - who previously had post-tax, post Tax Credits income of about £160 a week - will be getting £60 a week JSA instead. Collectively, those one million workers will be over £2 million worse off (962,000 x £1.58 minus 38,000 x £100).
It gets worse, of course.
The government will collect extra net taxes of £2.69* for each of those 962,000 workers who stay in work, but instead of paying £22 in Tax Credits less tax/NI to the other 38,000, it will be paying them £60 JSA. The Exchequer will benefit by over £1 million a week (962,000 x £2.69 minus 38,000 x £38).
What a storming result; the total income of the poorest households falls by £2 million a week, but the Exchequer collects an extra £1 million in taxes to pour into a Black Hole labelled Northern Rock/Bradford & Bingley/PFI/EU payments/Quangocracy etc**!
* Extra income tax/NI = £5.25 x 31%; Tax Credits withdrawn £5.25 x 39%; extra Employer's NI = 12.8% x £5.25, less corporation tax relief on the higher gross salary £5.92 x 28%. Tot those up gives me £2.69 per worker per week.
** Choose your own particular bugbear.
From today's interview with Andrew Marr*
Well what matters most of all is safeguarding the depositors in a bank like Bradford & Bingley. That is the absolute key. And I think what obviously is preferable is a private sale, so the business is a going concern. But I think what we've got to do in this country is get away from a situation where the only choice if you can't have a private sale is to throw the whole thing onto the taxpayer, nationalise it and have the taxpayer bearing all of that burden and bearing all of that risk...
And that is why we've been saying for a year now, because remember Northern Rock went over... went under a year ago, that we should have a situation in Britain where we have the ability for the Bank of England to take over a failing bank and to reconstruct - safeguarding the depositors and then making sure that those bits of the business that can be sold are sold. And in the end, then the bill effectively is picked up not by the taxpayer [but by the creditors]**...
So instead of nationalising [an insolvent bank], instead of the taxpayer taking all the risk, the Bank of England holds it, the Bank of England safeguards those deposits and then it works out with the business ... what bits can be sold as a going concern and what you're left with. But the key, the key at the end...the absolute key is that if at the end of that process there is a bill to be paid, the bill's paid by the creditors*** - by the banks and others that lent money to that business - and not by the taxpayer"
This method is more or less what I suggested, er, a year ago.
* Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.
** Actually he said 'debtors' rather than 'creditors' at this stage, but AM kept interrupting him so we'll give him the benefit of the doubt.
*** It must be blindingly obvious that when any business goes bankrupt, shareholders get wiped out and other creditors get a pro rata share of the loss. It is vitally important at this stage to realise that there are different types of creditors. The order of priority in a liquidation is set by law, and the rules are broadly sensible. There is nothing wrong with having special rules for banks that say depositors, employees and trade creditors get priority, and that losses are borne by long-term bondholders****.
A failing bank can be sorted out even more simply and smoothly by being forced (at gunpoint if necessary) to write its mortgage receivables down to the truly recoverable amount (bearing in mind loan-to-value ratio, loan-to-income multiples, when the mortgage was originally granted and whether the borrower has ever missed a payment) and then simply replacing every £1 of long term nominal debt (that might have a market value of only 50p anyway) with a replacement debt with a face value of 50p, and compensate those bond holders by issuing them with more shares.
Hey presto, bank recapitalised - don't forget that a bank's capital is merely a balancing figure of assets (outstanding mortgages plus actual value of the business as a going concern) minus nominal debts. If you write down the book value of mortgage assets by 10% and reduce the nominal value of the debts by 50% (or whatever lesser figure might be required), all of a sudden, the bank is soundly capitalised again. We are beyond the stage of fixing this with rights issues, I don't think people will fall for that any more.
If the write-down was overcooked, then the shares that the bond holders are given will rise in value and they will recoup some of their losses.
**** There are all sorts of clever names for 'long term bonds', like 'deferred shares', 'preference shares', 'covered warrants', 'collateralised debt obligations', 'permanent interest bearing shares' and so on ad infinitum. Do not let this confuse you.
BBC, 5 December 2001,"The largest prime number yet discovered has just been revealed to the world. The new number, expressed as 213,466,917-1, contains 4,053,946 digits [and] was discovered by Michael Cameron, a 20-year-old Canadian..."
Metro, 4 December 2003, "The maths world was celebrating last night after the discovery of the largest known prime number. It has 6,320,430 digits ... American Michael Shafer found it after joining the Great Internet Mersenne Prime Search. He said: 'After a short victory dance, I rang my wife and GIMPS friends'".
Metro, 5 January 2006, "After years of calculating [a computer] has come up with a prime number 9.1 million digits long - the largest ever found. Steve Boone, who led the study at Central Missouri State University, said: 'We are very excited.'"
BBC, 28 September 2008, "Mathematicians in California could be in line for a $100,000 prize (£54,000) for finding a new prime number which has 13 million digits. Edson Smith, the leader of the winning UCLA team, told the Associated Press news agency: 'We're delighted. Now we're looking for the next one, despite the odds.'"
If there is a pattern here, and in maths there usually is, it takes an average of 830 days to discover a new prime number, and the number of digits goes up by 48% each time, so the next prime number will have about 19 million digits and will be discovered on 5 January 2011.
Saturday, 27 September 2008
Here's a photo to match my earlier post:
OK, the Independent School Council are hardly impartial, but they've hit the nail on the head with this, as reported in The Daily Hatemail:
The cost of educating a child in the state system is greater than in many private schools, it has been claimed. Fee-paying schools work out cheaper because millions [billons, shurely?] of pounds of public money is being spent on bureaucracy, a headteachers' leader said. And he warned that, despite the huge sums being pumped into state schooling, 'an awful lot of money never gets close to a child's education'.
The Rev Tim Hastie-Smith, chairman of the Headmasters' and Headmistresses' Conference, made the claims as research by the Independent Schools Council suggested the cost of educating a child in the state system is in excess of £9,000 a year. This compares to the findings of a recent census, which revealed average fees for pupils at independent day schools stand at £9,069 a year, although dozens [slightly more than half, i.e. hundreds, shurely?] charge less.
As ever, you read it on this 'blog seven months ago, picked up by Tim W at The Spectator.
Dearieme's comment was prescient: "I was just hoping that one further tweak would get it above £10k. Then you could get the Daily Mail to carry the story." It seems that £9,000 was the magic figure that The Mail was looking for. Ah well.
UPDATE: And don't get me started on 'Academies'.They are even more expensive than anything else and educational outcomes are just as bad as anywhere else in the State sector. Vouchers is the way forward.
Sobers posted a long comment here, which deserves a proper response:
1. I'm anti LVT on the basis I don't like being taxed on income I don't have! Which is what LVT taxes ...
People are prepared to pay huge sums of money for houses to live in. That house does not produce income, but it is of value to the owner (even if we ignore the notional income, i.e. the cost saving from not having to rent). LVT would reduce the cost of land (as it acts like a higher interest rate) so a purchaser would pay more in tax but less in mortgage repayments. And if he pays more in tax, then other more damaging or more unfair taxes can be reduced.
Exactly the same argument applies to businesses. If you're renting, then part of the rent is paying purely for the location (rents on Oxford are ten times as much as on an average High Street), but think about it, Primark on Oxford Street charges the same prices as Primark on Leytonstone High Road, so the rent is not passed on the customer in the form of higher prices.
The extra rent that Primark's Oxford Street store is paying is for the privilege of being able to work harder and sell ten times as many clothes in a prime retail location. That extra rent acts like a tax on Primark's retail operations, but the site owner collects that tax, not the State. So why not collect more tax from the site-owner, and less VAT/Employer's NIC from Primark? The site-owner cannot pass on the LVT, as Primark is already paying full market value rent.*
2... I'm a farmer, and no farmer in the land could afford to pay a LVT of even 2% without going bust. You would close down the entire industry...
As it happens, I would exempt agricultural land from LVT and have said so (its value, net of subsidies, is so low as to be not worth taxing, plus farmers' incomes fluctuate wildly from year to year). The first challenge it to get rid of CAP subsidies which set a floor for a minimum rents that landowners have to charge tenant farmers (if they can't get at least £70/acre rent, then they might as well leave the fields fallow and collect the subsidies). As it happens, one of the prime LVT-supporters in UKIP is Dr Duncan Pickard, a sheep farmer and land-owner in Scotland, who wrote this fine book.
3. Also LVT would have a massive downward pressure on land prices (not a bad thing in itself), but would leave anyone who had borrowed money to buy in a negative equity situation overnight.
Agreed. Which is why I have always said (e.g. point 5 here), LVT should be introduced at the bottom of the market - when people are already in negative equity anyway - to replace Council Tax, Business Rates, Stamp Duty Land Tax, Inheritance Tax etc**. So the static impact of the shift would be minimised - some properties would go up in value a bit, others would go down a bit. But thereafter, land values would be low and stable, exactly because of the "massive downward pressure"
4. Equally I'm not sure the figures add up - I suspect the 5% I think you've quoted before would have to rise once land prices fell because of the introduction of LVT in order to get the revenues back up, thereby creating further land price falls etc etc.
I do not know what total UK site-only land values (net of buildings thereon), excl. agricultural land, public parks & roads etc. will be in a few years' time at the bottom of the market. Maybe a third of what they were at the 2007 peak, £1,000 billion or so? If the total revenues from the taxes to be replaced are £60 billion, then the rate is 6%, and that's the end of that.
5. LVT is probably a superior taxation system if you were designing a tax system from scratch, but we already have a system in place upon which people have made long term decisions.
6. The government is not entitled in my view to suddenly turn the applecart over and change everything so drastically overnight.
Agreed. But now the property price/credit bubbles have burst, The Markets are busily destroying land values as we speak - total residential property values are falling 1.5% a month = £2 billion per day! So the clock is resetting itself back to normality anyway, i.e. typical house price three or four times income etc.
7. The only other tax similar to LVT that taxes value of assets and has to be paid year on year is council tax, and we know how unpopular that is, and how regressive it is too.
Agreed. Council Tax was designed as a mixture of property tax (fair enough, actually) and Poll Tax (regressive = bad), but the Labour government has skewed the central funding so that LibDem & Tory Councils have to charge far more for the same band than Labour councils, so there's a Jealousy Surcharge element as well (bad).
It always puzzles me that VAT (the worst tax of all) raises four times as much as Council Tax but nobody bats an eyelid. The point is, LVT will go to the local council to cover local spending. Council Tax only covers a quarter or so of local spending, don't forget! If you don't think the council is getting value for money or spending it on the right things, then go and protest! Further, if the council is wasting LVT on the wrong things (5-a-day advisors rather than bobbies on the beat; climate change officers rather than street sweeping) property values and hence land values go down again, so their source of income gets choked off by simple market forces.
LVT would not be regressive relative to property value. Somebody in an ex-Council flat up North would be paying £100 or £200 per year; somebody in a villa in Hampstead or a penthouse in Westminster would be paying £10,000 or £20,000 per year. If they can afford a mortgage repayments of £100,000s a year, then they can afford LVT of £10,000s a year. If they can afford to buy cash, they can afford easily afford it.
I agree that LVT, if demanded on an annual basis, would be unaffordable for retirees in larger houses. So they would be allowed to roll up unpaid tax to be repaid on death. Which is why it is important to scrap Inheritance and Stamp Duty Land Tax as a quid pro quo.
8. As for CI, you have more knowledge and insight into it than I will ever have
9. As I said, I like the idea, and wish it could be introduced, at whatever level was feasible. I just can't see it ever happening due to the basic flaw of that if it makes anyone at the bottom of the pile worse off, while making wealthier people better off, politically it's a dead duck.
Don't worry about the wealthy - the CIT booklet did not say they'd get rid of higher rate tax, that's just my own view (getting rid of higher rate income tax is the flipside of making the wealthy pay more in LVT than they did in Council Tax to smoothe the shift from taxing productive activity to taxing land values etc).
The CIT system leaves relatively few people better or worse off (and if so, only by marginal amounts, which can easily be recouped by working part time, which is an intended, not an unintended consequence). Where it does shift money is from lone parents to couples, that is part of the point. The reason we have so many children in single parent families is because of the extra £10,000 per annum that parents can claim by pretending to live apart, or indeed split up.
* I assume that Primark are renting. Perhaps they bought the site on Oxford Street, in which case they are paying a mortgage instead of rent, which in economic terms is much the same as renting.
** ... and Capital Gains Tax on property gains, TV licence fee, VAT on domestic fuel, Insurance Premium Tax, s106 Agreements for new builds, minus Council Tax Benefit, CAP subsidies, VAT zero-rating for residential new build, Housing Benefit for private tenants, in other words LVT could and should replace all taxes and subsidies that relate in any way to land, property ownership/occupation, wealth generally or construction costs.
Daily Mail, 27 September 2008: As any serious job-hunter knows, it helps to dress smartly and smile at that all-important interview. But research has revealed that a firm handshake is what really matters when it comes to impressing potential employers.
The Onion, 5 October 2005: Garrett Maddox, born to a working-class family living on the South Side of Chicago, started out at the bottom, but has quickly worked his way up the corporate ladder. A youthful 34, he was recently named chief executive officer of telecommunications-research giant Qualcomm, and has already headed up 11 Fortune 500 companies, ranging from Safeco Insurance to United Technologies. The key to his outstanding success? An unbelievable handshake.
Friday, 26 September 2008
From an article in today's FT headed "Church accused of hypocrisy after archbishops' attack on short selling"...
Hedge funds pointed to the willingness of the church commissioners to lend foreign stock from their £5.5bn ($10.2bn) of investments - an essential support for short selling - and derided the [two archbishops] for not understanding shorting. "They are trying to shoot the messenger and . . . deflecting attention away from the dramatic incompetence of bank executives," said Hugh Hendry, of hedge fund Eclectica Asset Management. "Short selling is the pursuit of truth." ...
As well as aiding shorting by lending stock, the church commissioners had £13m invested in Man Group, the biggest listed hedge fund manager, at the end of last year. The commissioners also sold a £135m mortgage portfolio last year, says their annual report, despite Dr Williams' criticism of trading debts for profit. Through the Church of England pensions board, which manages another £847m, the church invested this year in a fund from Auriel Capital, a London hedge fund, which aims to make money from currency trading - including short selling currencies.
And their excuses are the best bit ...
Andrew Brown, secretary to the commissioners, said they did not invest in Man's products, only its shares, and none of their managers used shorting. "We can assure you that the commissioners' stocks have not been used to facilitate the shorting of financially vulnerable institutions in the US and UK, including HBOS," he said. "Nor will this happen."
Ahem. That's like saying "Although we invest in arms manufacturers we do not buy weapons. We used to be involved in shorting financial stocks, but we stopped doing it recently once public opinion turned against, although we still short other non-financial stocks. And we're not going to short sell financial institutions any more because it's illegal now."
Gli italiani già stanno conducendo il senso:
I bloggers italiani sono in su in armi ad una sentenza all'inizio di quest'anno che suggerisce che quasi tutti i blog italiani siano illegali. Questo mese, un politico italiano maggiore è andato un punto ulteriore, avvertimento che la maggior parte della attività di fotoricettore è probabile essere contro la legge.
La storia comincia indietro in maggio, quando un giudice in briciole (in Sicilia) ha trovato il Ruta locale storico e di Carlo autore colpevole del crimine “del clandestina di stampa„ - o pubblicando un giornale “clandestino„ - rispetto al suo blog. Il giudice ha regolato che poiché il blog ha avuto un titolo, quello gli ha reso un giornale in linea e portato esso all'interno del rinvio della legge.
Le pene per questo crimine non sono onerose: Un'indennità di 250 euro o una pena detentiva di fino a due anni. Il Ruta di Carlo è stato multato ed ordinato per prendere giù il suo luogo, che ora è stato sostituito da una pagina in bianco, ha diretto “il luogo in costruzione„ e un collegamento che dirige i surfisti verso il suo nuovo luogo. Roba appena serio - salvo che ora ha un casellario giudiziario ed il suo luogo originale è sparito.
L'offesa ha relative origini in 1948, quando nella contraddizione apparente dell'articolo 21 della costituzione italiana che garantisce la destra liberare l'espressione, una legge è stata approvata che richiede agli editori di registrare ufficialmente prima dell'installazione della pubblicazione nuova. L'intenzione, negli effetti di fascismo, può essere di regolare le pubblicazioni partigiane e estremiste. L'effetto era di introdurre la società italiana in un metodo altamente centrista e burocratico a libertà di stampa.
Una torsione ulteriore a questo racconto ha avvenuto in 2001, con la realizzazione che le leggi attuali erano inadeguate occuparsi del Internet. Invece di liberalizzazione, il governo dell'italiano ha cercato di introdurre il Internet nella stessa struttura della stampa tradizionale. La legge 62, approvata nel marzo 2001, introduce il concetto “del clandestina di stampa„ al Internet.
Allineare gli interni, ecc.
Via Obnoxio Il Pagliaccio
I set up a Sitemeter last September, with which I was perfectly happy until the botched switchover to a new version of the weekend before last, which had to be hurriedly reversed because the new version didn't work. It works fine again now, BTW.
However, I was taking no chances and on that weekend I set up a Statcounter as well just in case.
What is striking is that the number of 'Unique visitors' according to Statcounter is 50% to 60% higher than the number of 'Visits' according to Sitemeter.
The lessons being, if you are a stat-junkie using Sitemeter, you should switch to Statcounter (it lets you enter your starting figure - you don't have to start from zero again). And if it ain't broke, don't fix it.
The Daily Express have got in on the act:
MILLIONS of benefit claimants are better off living on handouts than getting a job, a Government report confirmed yesterday. Some can lose as much as £1.20 in benefits for every £1 they earn.
Why is it mainly right wingers who point this out, again and again and again?
The problem is that the knee-jerk reaction of these right-wingers is to either overtly subsidise married couples or to time-limit benefits.
Why is it that The Citizen's Income Trust are the only ones explaining how this could all be fixed; quickly, simply and cheaply?
Underneath the print version of this article is a classic anecdote:
Anti-ID activist Phil Booth was denied the chance to debate the merits of ID cards at the Labour Party conference - because he did not have the right ID. He had travelled from the south coast to Manchester for the fringe meeting. 'How the hell do they expect to it for 60 million people', Mr Booth fumed.
Thursday, 25 September 2008
Just caught the umpteenth rerun of this, yadda yadda, blah blah blah, but this stuck in the craw:
In the mid 1990s infection rates rocketed in understaffed and dilapidated hospitals. Last week I announced that NHS staff had succeeded in cutting MRSA infections, not by half as envisaged but by 57% in three years.
Woah! Fact check!
Deaths from MRSA increased from 51 in 1993 to 800 in 2002 (BBC)
Deaths from MRSA increased from 955 in 2003 to 1,168 in 2004 (The Torygraph)
Deaths from MRSA fell slightly from 1,652 in 2006 to 1,593 in 2007 "the first time the number of MRSA-related deaths has fallen since the ONS began keeping records in 1993" (BBC).
So we are still way above the numbers back in 1997, eh lads?
Meanwhile, the number of death certificates mentioning Clostridium difficile increased from under 2,000 in 2003 to over 8,000 in 2007 (BBC).
If you're going to tell Big Fat Lies, don't lie about things that can be disproven by scratting around for twenty minutes on the internet, FFS! Ah well, at least Tractor Production is up, I suppose ...
I agree with Phil Booth, in response to this crap:
Phil Booth, head of the national No2ID campaign group, attacked the roll-out of the cards as a "softening-up exercise". "The Home Office is trying to salami slice the population to get this scheme going in any way they can," Mr Booth told the BBC "Once they get some people to take the card it becomes a self-fulfilling prophecy. The volume of foreign nationals involved is minuscule so it won't do anything to tackle illegal immigration."
Even the SNP and the LibDems seem to have called this one right.
I saw McCain, Obama Bin Laden, Bush, Paulson*, Bernanke et al on the news yesterday waffling on about an impending crisis and their proposed Fed bail out, which will cost trillions of dollars of taxpayers' money, I realised that this is a huge great scam.
It is exactly the same as the global warming scam where the self-same politicians ask for billions of taxpayers money to combat a non-existent threat. It's all about power and corporatism.
As I posted elsewhere:
"Banks do not trust other banks, that would appear to be true.
This is easily fixed. Just merge ALL banks into one mega-bank. There is then no net counter party risk. They can collapse and cancel all their inter-company balances**, hey presto, problem (largely) solved.
There remains the problem that even the consolidated mega bank probably has negligible or negative net assets. The next step is to come to an arrangement with long term bond holders for them to forgive 20% of the debt and swap this for new share capital. Hey presto, bank recapitalised!
Banks' long term bonds are trading at 80p in the £ anyway, so this is only crystallising a loss priced in by the markets. For sure, existing shareholders will be wiped out or diluted down to diddly squat, but again, so what? Their shareholdings have gone down 80% or 90% in value in the past year or two, is it so terrible if they lose another 90% of what's left? Bringing total losses to 98% or 99%?
And not a single penny of taxpayers' money is involved!
* Who was 'too busy' to meet The Goblin King, tee hee.
** The rate of churn is staggering. Never forget that banks are just middlemen. Total UK mortgages and loans outstanding (assets) are about £1.5 trillion and total household savings, banks' corporate bonds etc are also about £1.5 trillion (net assets negligible, but we knew that).
But if you add up the balance sheets of the big UK banks, total assets/liabilities are shown as £5 trillion. In other words, money goes round in a circle three times."
On a related, topic, how about this for a deeply gratifying search?
Shami Chakrabarti was on the telly this morning, and what struck me was how much chubbier she was than normal, i.e. the photo used on the Liberty website.
Wednesday, 24 September 2008
In his speech at the Nulab conference, The Goblin King claimed - without the slightest shred of evidence, of course - that "Some people have been asking why I haven't served my children up for spreads in the papers."
In the spirit of Carrie in Sex And The City, I set up an online poll to establish whether this was true. The responses to the question "Have you been asking why Gordon Brown doesn't offer up his children for spreads in the papers?" were as follows:
"Yes" - 6 (3%)
"No" - 58 (29%)
"I couldn't care less about his stupid children, the man is responsible for ruining the country, FFS" - 143 (69%)
So there we have it. Another Big Fat Lie from Mr Shit.
Stumbling & Mumbling's brief post, illustrating how evil our Welfare System really is, is well worth a read.
Now that the Tax Benefit Model Tables have been updated, I can recalculate that example showing that a couple can gain over £220 a week in extra benefits by pretending to live separately, or indeed splitting up.
From today's Metro under the heading 'African Aid':
Stuart Henry has totally missed the point of the need for birth control in overpopulated parts of the world. Of course the parents of the children need looking after by their offspring and if the offspring were not there they would be alone; but what if the parents were not there in the first place? Problem solved.
Miles Ward, London NW4
Well, hats off to her for pissing on The Goblin King's chips a few hours after his speech, but isn't her excuse the most pathetic you've ever heard?
The mother-of-four told the Labour conference it was time to "step back" from politics and put her family first.
It is broadly agreed that it is babies and young children who need their Mum's undivided love and attention most (up to age 2, 3 or 4 according to personal views). Her kids are aged between 4 and 11. So hasn't she left this career break a bit ... er ... late?
Tuesday, 23 September 2008
The top inanity from his otherwise cretinous speech - which took him and his little friends months to write - was this:
Some people have been asking why I haven't served my children up for spreads in the papers. And my answer is simple. My children aren't props; they're people.
I dunno. I can honestly say that I have never asked that question. I have often wondered why, for example, he didn't do the decent thing and just commit suicide; I have tried to work out whether he believes his own lies, but his kids or his fat ugly beard of a fishwife are really of no interest to me. If I had to guess an answer, I'd assume "because they're really ugly" more than anything.
Anyroad, I've set up a fun online poll in the sidebar to see what everybody else thinks.
I had a good debate with Umbongo in the comments to this post on what Land Value Taxers mean when they say "the unimproved value of each site assuming optimum permitted use" and how we could work it out.
As I tried to explain, 99% of the value of any plot of land (minus the cost/value of any buildings thereon) relates to the value of the planning permission*, which is at the whim of the local council under pressure from NIMBYs, subject to certain legal overrides.
This recent court case (unearthed by Tim W, and featured on BBC London News yesterday) illustrates the point nicely:
The current market value of the land, as a public open space, was independently set at £15,000, but Greenweb's legal team invoked an obscure clause in the Land Compensation Act 1961 which gives automatic planning permission for the rebuilding of houses destroyed by German bombs. That meant the value of the land suddenly shot up to £1.6m, even though the council would never allow it to be developed.
Even if we assume that there were no such Act and the council had acquired the land for £15,000, there is still the question of the land's value to the community.
With an average density of 52 homes-per-acre, there are around 337 homes within a 100-yard radius of the little park. If the presence of that little park enhances the value of each such home by £5,000, it's still good value for money. If all those homes are rented, and the presence of that little park enables landlords to charge an extra £5 a week in rent, it's still good value for money. And if the benefit to surrounding property owners is not worth that much, the council can just sell on the land to a developer again, can't they?
* The value of the land/planning permission is actually dead easy to work out within a 10% or even 20% margin of error (as my earlier post showed). As the other variable - the LVT % rate that would be applied to that notional value is an arbitrary figure - it is politically expedient to use a lower notional land value (to minimise the number of appeals) and charge a correspondingly higher LVT % rate.
Which also deals with the argument against LVT that it is tantamount to nationalising land. The value of your land is derived almost exclusively from the planning permission; ergo a tax on the value of the planning permission is a user charge and not a tax in the sense of truly confiscatory taxes like income tax, VAT, National Insurance etc.
Denis Cooper (via email) has been doing some digging...
I notice that Ambrose Evans-Pritchard has repeated the canard that US taxpayers profited from the last major debacle, the Savings and Loan crisis:
"The RTC was created in 1989 to absorb the bad debts from the Savings and Loans crisis. The assets of the bankrupt lenders were taken over by the state, preventing fire-sales that can drive prices even lower in a self-feeding spiral. It worked well enough. The RTC sat on the devalued assets until the bloodbath was over. In the end it made a nice profit."
I wish somebody would tell him that is definitely NOT the case that "In the end it made a nice profit" - see here, here, here, or here.
US taxpayers are still paying for that bail-out, and their children will also be paying for it until all the extra US government borrowings have been repaid with interest. The final net cost remains unclear, but it will be somewhere between $166 billion and $500 billion, depending on how much interest is added.
Initially it was estimated that the Savings and Loan bail-out would need between $30 billion and $50 billion of taxpayers' money, but in the event it turned out to be more like $400 billion - say ten times as much...
If that was repeated this time round, the $1 trillion presently being talked about would eventually turn out to be $10 trillion, and the taxpayer would lose twice as much once all the "toxic assets" had been bought, and gradually sold off at less than the purchase cost, and then the necessary US government debt had all been paid off with interest - ie, the final net cost to US taxpayers could be as much $20 trillion spread over the next 30 or 40 years.
That may seem impossibly high, but the US GDP was $13 trillion in 2006, so an average of $0.5 trillion a year would still be only a few per cent of GDP. To roughly scale down to the UK - taking GDP in 2006 as $1.9 trillion, that was about one seventh of the US GDP, while the UK population is about one sixth of the US population.
That seems to stack up to me (to within a huge margin of error), unless anybody has a better guesstimate?
UPDATE: the author of the original piece has sent me a follow up email admitting that he may have been double counting, in which the full cost would be 'only' $10 trillion rather than $20 trillion.
Veteran anti-traffic lights campaigner Martini Cassini lays into the Congestion Charge in The Grauniad.
They neutered a few bits, e.g. [the] original ending:
With wealth distribution regressing beyond 1937 levels, the charge increases living costs, damages city life and commerce. It is an invasive, punitive, parasitic, time-consuming burden which, despite the improperganda, has failed to ease congestion. Livingstone certainly pulled off some spoon-bending, but look closely, and you'll see it's a con(juring) trick with nothing to commend it, not even entertainment value.
From today's Metro:
Demand for rented accommodation has soared by two-thirds during the past year and is the strongest 'for decades'. The number of leases taken out during August was 65 per cent higher than in the same month last year... the strong demand for rented accommodation was not driving up rents, as the demand was being met by supply from sellers who had opted to let their home rather than accept a lower price for it in the current market... Latest figures from the Bank of England showed that the number of mortgages approved dropped by 71 per cent year-on-year during July.
As I have been saying for decades, rent levels are the most stable factor in the housing market; they are the Maypole around which everything else dances*. You can arrive at this conclusion by applying commonsense or observing what actually happens (as above); or you can apply economic theory that rents are a normal good, i.e. they rise in line with incomes, but this economic theory in turn is derived by observing hard facts and applying logic.
* In the long run, the cost of renting or buying the same property with a mortgage will be much the same, give or take 10% either way. In times of easy credit and low interest rates, the notional 'value' of the property increases disproportionately, leading to a bubble mentality. In a few years' time we will look back at the house price boom of the years 2001 to 2007 and file it in the same drawer as 'Tulip Bulbs' or 'dotcom shares'.
Monday, 22 September 2008
John Hutton at the Nulab Conference, in among the inevitable dross is this: "No coal and no nuclear equals no lights, no power, no future."
Guess what The World Development Movement, who received a modest £129,710 from the EU back in 2005 (page 9 of this), the last year for which they could be arsed to prepare accounts, have to say...
"John Hutton’s pro-coal stance ... is not founded on science, economics or reason."
Erm, coal burns to boil water to drive turbines to produce electricity, that's the science covered; extracting coal and burning it in power stations is a profitable activity that doesn't need subsidies - in fact, it creates tax revenues and employment, so that's the economics covered; and people like having electricity, that's the reason. Have I missed anything?
The World Development Movement has a parent charity, which spent a cool £1 million on a new office building in Ruffley Road, London SW9 0LS in 2006 (page 8 of this). The accounts bemoan "the widespread persistence of poverty after half a century of international effort to eradicate, or at least appreciably diminish it" without any apparent trace of irony. The possibility that aid payments cannot, and will not ever 'eradicate poverty' is of course off the radar - if they ever admitted it, they'd lose their raison d'être.
* Yes I know that he is a Secretary rather than a Minister, the difference appears to be that a Secretary is more senior and is in the Cabinet. So why is the Prime Minister not called Prime Secretary?
As predicted on this very 'blog*, once you net off all the debits and credits, the ultimate source of finance for our cheap loans was China, Japan etc, and seeing as we can't repay them in cash, we'll let them gradually take over our banks.
One story I missed from July was Barclays issuing more shares to The China Development Bank and other SFW's. Which is mighty chucklesome; the self same bank invested £1.5 billion in Barclays just over a year ago, and has, presumably, lost one third of its money, even after the recent upward tick.
See also Nomura to buy Lehman's Asia business.
* See here or here.
From today's Metro (letters unfortunately not available on line):
Graham Bates' criticism of downgrading ecstasy to a class B drug and his simplistic solution to tackling illegal drugs will solve about as much as the current policy has: absolutely nothing. Research has shown that ecstasy is less dangerous than unclassified substances such as tobacco, alcohol and solvents...
The only people who benefit from any kind of prohibition are criminals. I think all drugs should be decriminalised - the government could then generate billions in extra tax revenues, ensure a degree of quality control exists, create thousands of [legal] jobs, allow the police to concentrate on more pressing matters and, most importantly, take power and profits out of the hands of criminal gangs.
A Morris, Cardiff
Sunday, 21 September 2008
The last comment here presumably related to today's interview, rather than the one they did back in May, which prompts me to read the transcript* thereof.
Think what you will**, it strikes me that Andrew Marr has a genuine, deep-seated loathing of the The Goblin King. I'd warmly recommend anybody to read the full transcript, if you have five minutes to spare, but here are a few highlights:
AM [introducing his interviewee] Right now he's in some trouble with the Tories, romping ahead in the opinion polls and a daily diet of his own supporters saying "it's time to go." The pressure is on Gordon Brown to demonstrate this week that he's got what it takes to revive his leadership in the country... Prime Minister, good morning.
TGK: We're looking at a number of things. I mean we stopped the speculative trading in what you call "short-term sales". Unfortunately, AM didn't interject with "Get your f***ing jargon right, you twat! It's called 'short selling', not 'short term sales'", but hey ...
AM: Year after year, you stood on conference platforms and you said "No return to boom and bust", "No stop go," erm, "prudence". You could not say that. You could not stand up this week and say "No return to boom and bust" because there would be a sort of sickening silence.
TGK: Yeah, but we were talking about 15% interest rates and 3 million unemployed, 10% inflation. That was the old days.
AM: But we had huge boom based on inflated property prices and we now have a bust.
TGK: [waffles] We had 15, 18% interest rates at one point. Our average is about 5, 6% interest rates and mortgage rates. We have...
AM: Highest unemployment for 10 years, highest inflation for 16 years.
TGK: I'm sorr... I'm sorry, we have created 3 million jobs and that is, that is not correct. The inflation...
AM: Employment... unemployment figures are.
TGK: The... the unemployment figures...
AM: The highest for 10 years.
TGK: No, I don't accept that. The issue is that the unemployment figures are based on two separate analyses and more jobs have been created even as I accept unemployment is going up. As far as the other figures you mention, I think it's true...
AM: Inflation is the highest for 16 years.
AM: A lot of your own people, your own ministers and own MPs say that's the trouble; it's always somebody else's fault. It has not been a great year for you, it has not been a good year, and yet it's always somebody else to blame. You never seem to either apologise or confront the fact that you might have had some failures yourself.
or this for a closer .....................
AM: And you will be here by Christmas?
* "Please note "The Andrew Marr Show" must be credited if any part of this transcript is used."
** Yes, this might be a fix - Andrew Marr may be just pretending to give The Goblin King a hard time so that people have sympathy with him, but I doubt it somehow.
Inspired by an article in The Times, Denis Cooper (via email) has followed through the logic:
As of July 2008, China had $1.8 trillion in accumulated foreign currency reserves, the result of its exports to the west, outstripping Japan with $1.0 trillion:
I stand to be corrected, but I guess -
a) The Chinese could offer to buy "toxic assets" from the western financial institutions and sort and recycle them, rather as they've been taking our physical rubbish and sorting and recycling it; but
b) They wouldn't know what price to pay in order to be sure of making a profit, as nobody can say how much of value there is any of those "toxic assets"; and
c) They can't be allowed to pay an absolutely safe rock bottom price, because then the western financial institutions would get so little cash that it wouldn't go far towards solving their liquidity problem; so
d) The Chinese will go for the infinitely safer option of buying US Treasury bonds, expecting that US taxpayers will be able to repay them with interest; and
e) The US government will then use that money to buy the "toxic assets" from the financial institutions, possibly at a discount to their real value; but
f) If the discount was too great, once again the institutions would get too little cash to solve their liquidity problem; and
g) As the US government is now a buyer in the market, and is known to be desperate to shore up the institutions, and is also known to have effectively unlimited supplies of taxpayers' money at its disposal, it will probably end up buying the "toxic assets" at a premium to their real value; so
h) When it's all been sorted out, which may take a decade, because a lot of it ultimately involves residential property and there'll be political sensitivities about the US government repossessing people's homes;
i) The Chinese will have got their money back, with a profit, while the US taxpayers will have recovered some but probably not all of their money - it was about half last time round:
"In the 1980s Resolution Trust Company rescue, the government had the power to take over any distressed Savings and Loan bank and close it or sell its assets as necessary. This eventually meant that about half of the $400bn rescue package was recovered - but most of the banks closed for good"; and
j) At least most of the larger institutions will have been saved from the consequences of their own recklessness; and maybe
k) The Chinese will also have helped out the US government by investing in some of that residential property, at attractive prices, so that significant numbers of Americans will be renting their homes from companies owned by the Chinese government.
I can't fault that, having come to much the same conclusion myself. The ultimate source of all these 'easy credit' must be China and the petro-states, and to a lesser extent, Japan. The mortgage borrowers can't or won't repay what they borrowed, and China will demand/will be fobbed off with some other assets instead.
"Plunge in house prices outstrips the crisis of the 1990s" blares The Independent.
A good start, but then they let themselves down with sloppy maths and logic:
The crash in house prices is now the worst ever in Britain. HBOS ... will publish figures next month showing that the decline from last year's peak now exceeds the fall during the 1990s. From the top of the market in May 1989 to the bottom in February 1992, the bank's seasonally adjusted index of prices fell by 13.1 per cent. That fall has already been exceeded since the market peaked last August. So a slide that took nearly four years in the last recession has been repeated in just 13 months – and shows no sign of stopping.
1. Using Nationwide figures, the nominal/non-inflation adjusted peak was Q31989 and the absolute bottom was Q51995 - that's over six years, not "nearly four years".
2. The nominal fall was 17%, not "13.1%". Anybody who quotes averages of averages to anything more accurate than one per cent is a fool anyway.
3. The inflation adjusted fall last time was 37%. The inflation adjusted fall so far must be about 18% - a fall of more than 13.1% nominal (from the article) plus 5% RPI inflation. So we're achieved - in one year - half as much as we did in the six years 1989 to 1995.
Saturday, 20 September 2008
From the Buckhurst Hill Parish Council Magazine:Beat that, Trixy!
Friday, 19 September 2008
It kicked off with 'Happy Harriet' that is funny but clearly a spoof. Then somebody managed to turn off the comments on Richard Corbett's blog (only it wasn't his blog at all).
Then I stumbled across the so-called 'Number 10' website, that was totally deadpan and almost believable.
Via the comments at Old Holborn comes F***ing C***s Online., which is beyond satire, it is the equivalent of returning to shore after a day on a ferry and feeling the ground wobble beneath your feet.
Half-way down The Graun's Reader's Letters:
How about reducing interest rates and stopping the cheap credit being diverted into another housing bubble with a land value tax? DBC Reed, Northampton
Tim W highlighted this bit of good news: " ...it was good to learn that we are beginning to take the defence of our country from the sea seriously, like the Dutch. I caused a huge kerfuffle two or three years ago when I reported that the Government would not reinforce an under-populated part of the Suffolk coast at East Lane, Bawdsey, and that as a result Aldeburgh would eventually become an island. I can report that work on a coastal defence scheme to protect East Lane and its Martello tower starts later this month. A Government rethink? No, a privately funded scheme on the back of a housing development. Welcome to the future of coastal defence."
As I said back in March, flood defences are a supremely local issue and nothing to do with central gummint: " ... if local landowners club together to fund better sea defences to protect their property and livelihoods, then good luck to them.
And as I explained in June, where the ownership of the threatened land is widely held, we can achieve much the same thing with a voluntary, fully-costed and hypothecated local Land Value Tax.
If they have to waste yet more taxpayer millions, let's hope they pay all this money to the correct Georgia at least.
This one. Not this one!
We don't want a repeat of the unfortunate Newcastle/Newcastle mix-up, eh?
In an article titled "Lehman Brothers' Close Ties to Gore, Hansen and Carbon Trading":
A year ago they couldn’t predict their bankruptcy but were predicting the climate 100 years ahead.
Via MalcT at HPC.
Thursday, 18 September 2008
One mantra that the subsidy junkies we refer to as 'the pensions industry' have fobbed people off with over the years, and which is mindlessly trotted out by otherwise intelligent people is that "... tax breaks are there to provide incentives to save and so avoid the welfare system in retirement."*
Right. State Pensions and the Pensions Credit and all the other bits and pieces are worth around £75 billion per annum to the recipients**, and cost the taxpayer £75 billion plus admin costs. So purchasing power is being transferred from one group of households to another; or more to the point, this is like a compulsory savings scheme for working age people - they get most of it back in retirement.
Next. Private and private-sector occupational pensions.
1. The total contributions made by individuals and private employers £63 billion (HMRC Tables 7.4 £16 billion, 7.5 £4 billion and 7.9 £43 billion, i.e. £17.5 billion x 71/29)
2. Total value/cost of tax reliefs £47 billion in 2007-08 (HMRC Tables 1.5 and 7.9)
So that's over £110 billion a year going in.
3. Total private and private occupational pensions paid out £58 billion in 2005/06 (PPI Pension Facts, Tables 15 and 16). Let's up that by 10% for inflation and knock off 20% for public sector pensions = £51 billion.
So where does the other £59 billion go? (£110 billion minus £51 billion). Is it being used to build up pension funds? Maybe, but the funds' investment advisors must be pretty crap as total funds are going down in value.
Or is it being soaked up by the 'pensions industry' in fees, commissions and charges?
So shouldn't the mantra be "... tax breaks are there to provide incentives for the 'pensions industry' to sell pension policies"?
* Kay Tie, Comment 4 here.
** Of course, the first thing a simplification campaigner does is to look up the number of people aged 65 or over in the UK, about 10 million, whip out his calculator and work out that this would pay for a handsome Citizen's Pension of £145 per week, but that's another topic.
More fun and games from The Evening Standard.
"Mr Mack believes his bank has become the victim of short selling."
Interesting is the very last sentence...
"Chinese investors, unaffected by the sub-prime meltdown and awash with cash, are also said to be considering a stake in Morgan Stanley."
As I said at the end of this recent post;
"the ultimate source of all this easy credit and cheap finance is The People's Republic Of China and oil rich countries like Russia and the Middle East. So we in the West can pull a fast one, put our banks into receivership (in a controlled and orderly fashion) and tell the bond holders (the PRC and petro-states) "Oops, sorry! We can't repay the full value of those bonds, but hey, we'll issue you new bank shares to the face value of the shortfall." This would, from the banks' point of view convert a short term liability (bonds) into a long-term non-repayable liability (shareholders' capital), so our banks would be recapitalised on the sly without the need for these messy and embarrassing rights issues."
Christopher Monckton of Brenchley.
His name is familiar to me, as he wrote a cracking article back in 1993 (page 5 of this) on replacing the Welfare State with a Citizen's Income scheme. In brief, he worked in Thatcher's policy unit and put the idea forward, but The Powers That Be miserably failed to understand the merits of the scheme.
It now turns out that he has been ruffling a few feathers with a rabidly climate-change-skeptic article.
Via Marksany's Blogroll.
Councillor Daniel Moylan, Chairman, Transport and Environment Committee, London Councils, in yesterday's FT:
... about 34 per cent of passengers landing at Heathrow are transferring to connecting flights and therefore not investing in London's economy.
Around 70,000 people are employed at Heathrow. If around 34 per cent of those jobs relate to connecting flights, then connecting passengers support around 24,000 workers. Assuming that Heathrow workers earn average salaries, their total salaries are £600 million per annum.
Heathrow handles 68 million passengers a year. Assuming that 34% of them spend a fiver on coffees, newspapers etc while they are waiting for connection, that's another £100 million.
Greater London's population is 7.5 million, so on average, each inhabitant earns about £100 a year from transit passengers.
Wednesday, 17 September 2008
The BBC have done a fair write up of a press release.
The killer sentence - and not even the Beeb seems to bother denying this - is "And an EU Directive that requires the most polluting coal- and oil-fired power station to close would result in the likely loss of a further 12GW generation capacity."
As a taxpayer and electricity user* who lives on a small, windy island built on coal, may I suggest that ... er ... coal may the way forward? Unlike nuclear or windmills, it doesn't need subsidies - we can collect tax from the mines, the miners and the generators. It's a safe and reliable energy source under our own feet. And BTW, CO2 is not a pollutant, FFS, it's a perfectly natural, airborne plant food. The coal will last us for centuries, and if and when it runs out, future generations can fill the empty shafts with household waste or something.
* In common with presumably 99% of the rest of this island's inhabitants.
The Lloyds-TSB/HBOS merger is of course another way of doing it...
The problem with banks and financial institutions, as I explained here and here, is the double- and treble counting of losses. They all know that there will be losses, i.e. mortgages at vast multiples of income secured on houses that are falling in value, but because the mortgages have been repackaged and sold on so many times, nobody in the chain knows who end up taking it on the chin, so we end up with half a dozen different counter-parties all fretting about the same underlying loss, and all facing tumbling share prices and credit rating downgrades (outside investors in turn don't know which parties in the chain will be worst hit).
In part 2, I suggested that the various counter-parties divvy up the loss between themselves and get on with their lives, but of course the horse trading might drag on a bit. Especially if you end up with people who don't really have a culture of negotiating sensibly and honourably.
So here's Plan B - if all the banks, hedge funds and Sovereign Wealth Funds etc in the whole world were to merge into one mega-bank, they can net off the intra-group assets and liabilities (counter-party risk within a group is effectively nil) and there wouldn't be a "lack of trust" issue. The underlying losses - defaults by mortgage borrowers is the same, that won't go away - but there would be no double- and treble counting.
There'd still be bickering over who gets how many shares and bonds in the combined entity in exchange for shares and bonds in the entities being taken over, but that can be taken step by step. Clearly, a single global bank is not a good idea from a competition point of view, but I guess that you'd reach the same result with four or five.
I doubt that the various Monopolies and Mergers Commissions or protectionist gummints around the world would agree with this, but hey, they are part of the problem, not the solution.
I understand that politicians lie all the time. This is fine, provided nobody believes them. What annoys me is when Joe Public falls for it; and what really frightens me is when politicians actually seem to believe their own lies.
Anyroad, I finally received a reply to my letter inviting my MP to sign Bob Spink's EDM calling for the tax-free personal allowance to be increased to £10,000. NB, my MP forwarded this to HM Treasury, who replied as follows:
"I am afraid that increasing the personal allowance by this amount would be an untargeted (sic) measure, the most benefit would go to those on higher incomes who pay 40% tax."
Dude, WTF? I explained in my original letter that the revenue loss could be minimised by reducing the higher rate threshold so that higher earners are no better off (which is exactly what they did last month - personal allowance went up by £600 and the higher rate threshold came down by £1,200). FFS, even if they didn't do this, only 15% of taxpayers are higher rate, so by definition, 85% of the benefit would go to basic rate taxpayers.
"Moreover, it would be of no benefit to the poorest individuals who currently do not have enough income to pay any tax or national insurance"
Oh, just f*** off! The idea is to reduce the tax burden on those earning between £6,000 and £10,000. These low earners are already losing 39p in Working Tax Credits for every £1 they earn; if you take another 31p tax off their meagre wages ...
"Funding any increase in the personal allowance by scrapping working tax credits, or restricting relief for pension contributions to the basic rate as your constituent suggests, would go against Government policies of directly targeting (sic) those at risk from poverty and encouraging pensions saving"
Jumping Jack F*** on a bike! In my original letter I suggested "scrapping Working Tax Credits for those earning over £10,000 (who even under the current system pay more in PAYE than they receive in WTC)". It is a simple verifiable fact that a single earner over 25 earning £9,000-odd per annum pays about £19 a week in tax/NI and receives, in theory at least, about £19 a week in WTC.
Now, Nulab are supposed to be left-wing, I can sort of understand why any idea that benefits higher earners (however modestly) does not appeal (her first argument, which I dealt with in my original letter and repeated above). Fine. But that's the whole point of restricting relief for pension contributions to the basic rate! Does the stupid bitch who replied to my MP not know that over half the total tax reliefs for pension contributions accrue to higher rate taxpayers?
For a sensible suggestion on how to respond, see here.
Nick Drew, in the comments to my previous post points out, quite rightly, "...that irrational or not, the double- and triple-counting adds up to a massive loss of confidence"
So let's do this in Plain English.
Imagine the six people in the chain nursing a potential loss (the building society, the SIV, the investment bank, the hedge fund, the hedge fund investor/original vendor and the Sovereign Wealth Fund that lent the hedge fund the money to leverage up) locked in a room with a loaded gun. They are not allowed out until the game is finished and one of them is dead. As like as not, they will sit in the room for ever as nobody will want to make the first move. This is analogous to the credit markets freezing up.
OK. Let's replace the loaded gun with six envelopes, one of which contains the £30,000 loss and five empty ones. Nobody will want to open the first envelope. The credit markets are frozen.
But one party might make the sensible suggestion, "Hey, let's open all the envelopes and split the loss six ways; we all leave the room £5,000 poorer, but it's better that each of us takes an actual loss of £5,000 on the chin, rather than us all sitting here for ever worrying whether we'll be the one that ends up with a £30,000 loss!"
After a bit of horse trading and cajoling, the parties agree to this course of action and get on with their lives.
That, in a nutshell, is what I am suggesting.
Tuesday, 16 September 2008
I am, as you may have noticed, an accountant, so I like to look at both sides of every equation - for example; for every reckless borrower there is a reckless lender; and for every overstretched buyer there is a vendor laughing his or her way to the bank. Similarly, the credit bubble was the cause and the effect of the property price boom; and the credit crunch is the cause and the effect of the property price crash. It's not just correlation; they are two sides of the same coin - you can't have one without the other.
MSM reporting of the whole credit crunch debacle - and the politicians' response thereto - has been muddled to say the least. I suspect because they haven't bothered to understand things properly, which are, if you follow the logic through, quite simple. But - be warned - like all simple things, it has to be explained and understood step-by-step.
The basic, fundamental, simple problem underlying all this Lehman Brothers/Northern Rock nastiness is that first-time-buyer households with an income of £30,000 have overstretched themselves with a mortgage of five-times-income to buy a home costing £150,000 at the peak of the market last year. Once the mortgage market returns to normal, the lending multiple will fall to three-times-income and property prices will fall by 40%, so in this example, the price of the first-time-buyer properties will fall to £90,000. (These are UK figures, but similar principles apply in the USA, Spain, ANZ or anywhere else that's had a credit/property price boom/bust).
In a simple world, without interbank lending, the building society lent an FTB £150,000 for a 100% mortgage in mid-2007 and credited the vendor with a deposit of £150,000. By the time house prices have fallen 40% from their peak, the poor FTB will be kicking himself, as he has overpaid by £60,000. Unless he wriggles out of that debt by declaring himself bankrupt, he will end up paying £977 a month until 2032 (assuming 6% interest, 25-year repayment mortgage), unlike a canny buyer who will wait until the bottom of the market in five years' time, use the money he has saved by renting not buying to pay a 20% deposit and pay £523 a month until 2032 (6% interest, 20-year repayment mortgage).
So last year's FTB has made a £60,000 notional capital loss, kicks self. His mortgage lender in turn, would be prudent to write down (more accurately, "make a general bad debt provision against...") the value of the mortgage advance on the basis that £60,000 of it is unsecured. Sure, that's not the sort of security that I'd want, but the chances of last year's FTB losing his job; falling behind on payments; being repossessed and declaring himself bankrupt is quite small. Even a rabid pessimist would look at a large sample of such mortgage advances and write off fifty percent of the unsecured portion, in our case, that would be £30,000 per FTB, or a write down of 20% of the initial advance.
Using my negative-equity-o-meter, a 40% fall from peak will see just under 3 million households in the UK in nequity. Let's assume average mortgage £150,000, average bad debt provision 20% = £30,000, £30,000 x 3 million = £90 billion (or about one-sixteenth of outstanding mortgages in the UK - which is three times my previous worst-case estimate and so probably wildly overstated).
So we are straight into the realms of double-counting - we have 3 million households kicking themselves that they overpaid by £60,000 (=£180 billion) and banks/building societies kicking themselves that they have to write off £90 billion of mortgage advances.
But it is the same loss! The losses do not add up to £270 billion; the losses are £180 billion. If - taking an extreme example - banks did the decent thing and sent recent FTBs credit notes for £30,000 each on the strict condition that borrowers kept up with repayments in future, that would still leave the banks' losses at £90 billion, but would halve FTB losses from £60,000 per property to £30,000 per property.
And it does not stop there.
The original mortgage lender packaged up those mortgages on overpriced properties to people who couldn't really afford them on a semi-recourse basis to an SIV in the Channel Islands. So the SIV is also booking a potential loss of £30,000 per mortgage.
And some investment bank invested in that SIV, so the investment bank is also booking a loss of £30,000 per mortgage.
And some highly leveraged hedge fund may have borrowed further to buy shares in that investment bank and enticed investors by promising annual returns of 10%. The hedge fund is booking a loss of £30,000 per mortgage.
And the original vendor may have withdrawn his £150,000 sales proceeds from the boring building society current account paying 5% interest and invested in the highly leveraged hedge fund. So that investor is worried about making a £30,000 loss as well.
So, we have the FTB worrying about a £60,000 loss and the building society, the SIV, the investment bank, the hedge fund and the hedge fund investor/original vendor all worrying about a £30,000 loss each. But the total potential losses on each mortgage do not add up to £60,000 plus 5 times £30,000 = £210,000!! The total loss per mortgage is probably in the order of £30,000 (if that) - this has to be split up between the various parties - if all six parties take a £5,000 actual loss on the chin, then they've all learned a valuable lesson and nobody gets wiped out.
Even better - and this parallels a previous post on the merits of Sovereign Wealth Funds - the ultimate source of all this easy credit and cheap finance is The People's Republic Of China and oil rich countries like Russia and the Middle East. So we in the West can pull a fast one, put our banks into receivership (in a controlled and orderly fashion) and tell the bond holders (the PRC and petro-states) "Oops, sorry! We can't repay the full value of those bonds, but hey, we'll issue you new bank shares to the face value of the shortfall." This would, from the banks' point of view convert a short term liability (bonds) into a long-term non-repayable liability (shareholders' capital), so our banks would be recapitalised on the sly without the need for these messy and embarrassing rights issues.
And if you don't like the sound of Johnny Foreigner running our banks, then just move your mortgage and your deposit account to a good old-fashioned British building society! Johnny Foreigner will end up owning bank buildings, thousands of computer terminals and bugger all else. A bank without customers is worth nothing!
Well, congrat's to anybody who's bothered to read this far. And double congrat's to anybody who understood it all.