Saturday, 28 February 2009

Pride comes before a fall*

*I was tempted to title this "If you build it, they will come" but that would be asking for trouble. After twenty months of 'blogging, Sitemeter tells me that this 'blog has now had a hundred thousand visits.

Thirty million potential criminals to be electronically tagged

"Brown promises banking clean-up"

Faithfully trotted out by the BBC:

Gordon Brown has reiterated his call for a clean-up of the financial system to ensure what he called "banking responsibility" in the UK and abroad [Dude, WTF?]. In a speech to Labour activists in Bristol, the prime minister said banks had lost sight of basic moral values. He also repeated his promise of legal action to recover pension pay-outs negotiated by bosses of failed banks...

*Sigh*

I think we can add 'banks' to the long list of things that Labour have f***ed up, which they then use as an excuse to f*** things up even more.

*/sigh*

Mark's Negative-equity-o-meter: Update

It turns out that my original back-of-fag-packet estimates were probably correct, i.e. there are 11.7 million outstanding mortgages and let's assume that loan-to-value ratios were evenly distributed at the top of the market, so for every one per cent fall in prices from peak, you'd expect +/- 117,000 more households to go into negative equity.

There were two stories this week, the first was that GfK NOP had interviewed 60,000 people and extrapolated this up to assume that there were already 3.8 with "loans worth more or close to the value of their homes.". The didn't define "close to", but let's assume that half of those are actually in negative equity as at today, or 1.9 million. The second is Lloyds Banking Group's claim that 540,000 of their borrowers are in negative equity. Lloyds TSB and HBOS together have 28% of the mortgage market, so that would pro rate up to 1.9 million as well.

According to the Nationwide, the average house price is down by 20% from the peak in late 2007, which would give us a figure of 95,000 mortgages in negative equity for every 1% fall in house prices. That's a bit less than 117,000, so let's split the difference and call it 100,000 additional cases for every 1% fall from peak.

"Drinking is the new smoking"

The BBC have finally gone and said it:

Health ministers are describing drinking as the new smoking amid rising concern about the price of alcohol in the UK.

The Scottish government has suggested a range of radical measures, including a minimum price per unit of alcohol. After a public consultation they are due to respond with more detailed proposals for legislation later this month. The idea of minimum pricing is supported by medical organisations and charities, but opposed by retailers who say moderate drinkers would be unfairly penalised. The Scottish government says the connection between price and consumption is backed by international evidence, including the recent experience of Finland.


They gleefully trotted out some statistics on the effect of tax/price cuts on alcohol consumption in Finland on BBC News 24 yesterday evening, finishing off with the solemn message "Cheaper booze costs lives".

I'd have thought that "Cheaper booze costs less" is the main lesson that we can draw from this.

Friday, 27 February 2009

Mervyn King: Only Hitler was worse than Gordon Brown

From the FT, reporting evidence given by Mervyn King, Governor of the Bank Of England to the Commons Treasury Committe:

"The governor appeared to criticise the government when he said that Britain had entered the crisis with excessive levels of public borrowing. However, he pointed out the country had managed to recover from the punitive financial costs of the second world war."

So that's all right then, The Goblin King may have left the economy in a pretty dire state, but it's not quite as awful as what Hitler did. I can sleep soundly now.

Council of Mortgage Lenders stops releasing data on arrears etc

Alice Cook has the details.

If any friendly insider fancies leaking the best bits, please feel free...

We only meant it as a joke, FFS!

We covered this topic a couple of weeks ago here.

It appears that The Bastards That Be didn't realise that we were joking, they've actually gone and done it, see here.

A brief history of UK tax, Part 6.

To round off the series, I shall allow myself the indulgence of picking and choosing the least-bad aspects from the long and iniquitous history of taxes in the UK, see footnotes...


1. It would be based on the feudal idea that collecting 'rents' for exclusive possession of land (including the right to use parts of the 3G spectrum, landing slots at airports etc) is the natural least damaging form of public revenue*, having the admiral knock on effect that local councils are motivated to concentrate spending on things that make an area more desirable, but with democratically elected councils and government rather than feudal overlords, of course.

2. Ultimately, nearly all services that the government provides are local services, with the exception of immigration control, diplomacy and defence. So instead of the national government collecting taxes on incomes and production and using this to pay for social engineering, local councils would collect tax, spend what they need to and pass up the rest to the national government.

3. Taxes on land values keep prices low and stable, so banks would only need to lend first-time buyers enough to cover the value of the bricks and mortar element, the resale value of the land value element being negligible.

4. You may notice that taxes on incomes and production do not appear in this system, quite simply because these are the worst taxes. It should be borne in mind that taxes on land values could never collect more then ten or fifteen per cent of GDP, as opposed to the forty-five per cent of GDP that is currently collected. This ten or fifteen per cent would be more than enough to cover the cost of the core functions of the state, with maybe enough left over to pay a modest Citizen's Pension to the elderly. If voters decide that they are happy to pay a low flat income tax of ten or twenty per cent to pay for some form of minimal-but-universal Citizen's Income and other forms of redistribution like vouchers for education or health, then so be it, I wouldn't actually be averse to this.

5. In theory, there would be little need for welfare in the long term, because with low or no taxes on incomes and production and no property/credit bubbles, the economy itself will develop in a much healthier and resilient way. There's only one way to find out, isn't there?

6. The best time to introduce such a system will be some time in the next few years when property prices, and hence land values, bottom out so the impact of the change on land values would be negligible. Realistically, there is no chance of it happening of course, because voters are still blinded with the Fool's Gold of the next house price bubble and most MPs own two homes.

Ah well, I can but try.

* People who claim that the underlying site-only unimproved value of any land that they owns (excluding bricks and mortar and improvements) is down to their own efforts - with the narrow exception of farmland, which is of such low value relative to urban land, that 95% of it would be exempt from LVT anyway - is seriously deluded. The fact that they might have paid an inflated price for this in the past in the expectation that the tax system would continue to justify the higher value is neither here nor there for these purposes.

Fun Online Poll: Interim results

The seventy-two seventy responses to the question "What would you like the government to do ..." so far are as follows:

Outright winner:
None of the above - 89%

Also rans:
Use taxpayers' money to build 'affordable housing' - 7%*
All of the above - 3%
Use savers' money to subsidise borrowers - 1%
Use taxpayers' money to prop up house prices - 0%


Which pleasantly surprises me, having voted for "None of the above" myself. So that's what the readers of this 'blog think. Which begs the question, we know that the government is engaged in ruthless vote-buying, but whose votes exactly? I shall now put up the poll at housepricecrash.co.uk, to see how they respond.

* As an aside there is absolutely no need to spend taxpayers' money on 'affordable housing'. We've already got enough social housing for the poorest twenty per cent of the population, if we want housing to be 'affordable' for the better-of poor in social housing and for everybody else (including those on council house waiting lists), all we need to do is liberalise planning laws and replace Council Tax etc with Land Value Tax, which is effectively what we had in the 1920s and 1930s, and it worked just fine.

Thursday, 26 February 2009

Is this how we treat our children!?!

From The Metro:

Trade union Equity, which represents models and actors, said the problem was that models were to some extent treated like children by their employers. "We've had models say to us that they've been on all-day shoots where everyone else is fed properly but the models are given only sweets and champagne," a spokesman said.

'Sweets' I can understand, but 'champagne'? What planet do they live on?

Just in case you're not sure what 'a model' looks like, they helpfully included this picture:


I'm no expert, but they look perfectly healthy to me.

A brief history of UK tax, Part 5.

However, there is nothing so bad that you can't make it worse. The post-modern tax/subsidy system that has now been introduced looks superficially like the picture in Part 4, but some of the arrows have flipped round.

1. Instead of homeowners, wearing their homeowner hats, being net payers of even a little bit of property tax (i.e. Council Tax, average bill £1,000 or so), the government is now subsidising mortgages via artificially low interest rates and other subsidies (things are even more extreme in the USA or Australia, but let's stick to the UK for now) that is worth around £3,000 per annum to the typical mortgage borrower.

2. Banks have cut interest rates on savings far more than interest rates on mortgage lending, so banks are now net recipients of interest from savers, who we can look at as being in the 'landlords and home-owners' box, including people who cashed in at the top of the market and sold to rent or traded down. On a cash basis, older homeowners with savings are worse off, but the political advantage of trying to keep house prices above their equilibrium level seems to be keeping them quiet so far.

3. Banks are unlikely to pay much corporation tax for the foreseeable future, and are now recipients of taxpayers' money in the form of various bail-outs, interest rate subsidies and government guarantees.

Of course, now that government revenues from landlords and banks have gone negative, the arrow for 'Income tax etc' has to become even fatter. We are now seeing the largest amount of churning in the history of the world ever - from young to old, from rich to poor, from non-property owners to property owners, from savers to borrowers, from productive to unproductive, from childless to single parents etc - that it is difficult to work out who is actually a net winner or loser from all, but it would appear that younger, childless private sector workers who are tenants are propping up the whole system, which is why the number of them becoming first-time buyers has now dried up while they wait for the whole pyramid to collapse.

Click here for full series, final episode with my suggestions for a 'least-bad' tax system tomorrow.

Today's health scare stories

Both from The Metro:

TV can cause child obesity: Report

Young children who watch a lot of television are much fatter than those who do not, scientists said. The study of two-to-six-year-olds found those spending just an hour a day longer in front of the television had on average 2lbs (1kg) more body fat. But scientists carrying out the research believe the cause is food intake rather than inactivity.*

Changing diet could cut 40 per cent of cancers

Almost 40 per cent of cancer cases could be prevented by changing diet from red meat and alcohol to fruit and vegetables. A major study from the World Cancer Research Fund (WCRF) found that an estimated 39 per cent of 12 major cancers could be prevented by adopting a healthy lifestyle. This included almost half (43 per cent) of cases of bowel cancer and 42 per cent of breast cancer cases. Increasing the amount of fresh veg and fruit in the diet and cutting down on alcohol could prevent 67 per cent of cases of mouth, pharynx and larynx cancer each year, the report said. This is equivalent to more than 3,300 cases each year in the UK*.

* Bollocks. My kids watch an hour or two of television every day, plus maybe half an hour on YouTube and they are just as slim as me and Her Indoors. A coincidence? I think not.

** Memo - UK population approx. 61,000,000

FakeCharity Of The Day

From a BBC article entitled Teen pregnancies 'rise slightly', we get the inevitable rent-a-quotes from "sex education charity Straight Talking" and "sexual health advice charity Brook".

Brook is a fakecharity, as I mentioned a year ago along with a few others*. Straight Talking was a new one to me, righty-ho, let's have a quick look at their accounts, here we go, Note 2, page 10:

Incoming resources from charitable activities
Association of London Government £34,343
Bridge House Trust - £15,500
Barking & Dagenham - £20,660
Gruntvig ESF - £4,586
Awards for All - £4,550
Kingston Council - £2,000
Department for Education £35,000
Trafford Metropolitan Borough £17,121
Other £2,505


Which adds up to a princely £136,265, completely dwarfing** charitable donations of £79,348. And what might those 'charitable activities' be?

"This year Straight Talking delivered 127 courses in 23 secondary schools in the London Boroughs of Kingston, Richmond, Sutton, Barking & Dagenham, Colchester and Surrey. All types of schools participated including Pupil Referral Units and Special Needs Schools."

Right, so basically the government pays them £1,000 a pop to 'deliver a course' at a school. Dude, WTF? If you seriously want to cut teenage pregancies, just scrap all the extra benefits to which young single mothers are entitled to, job done.

* Follow that link if you want to find out my comedy-quangista-name-of-the-year at bullet point 3).

** Are we still allowed to use that expression?

Wednesday, 25 February 2009

Maths/servant joke

What do you call a thousand minions?

Highlight between the lines to reveal:
-------------------------------------
A BINION
-------------------------------------

A brief history of UK tax, Part 4.

We now move to the system that has been in place for the last half a century. Faced with the threat of introduction of Land Value Tax by the Liberal Government in 1909, when only ten per cent of households were owner-occupiers, landowners, whether represented in the House Of Lords or not is moot, decided to stage a tactical retreat and co-opt ever larger sections of the working population into what is essentially a giant Ponzi Scheme.


Because notional income and capital gains on homes are now lightly taxed (relative to taxes on income and production), their resale values are artificially inflated. The two boxes 'landlords' and 'households and businesses' are largely synonymous of course - but once they have overpaid for buying a home, people think with their 'homeowner' hats on and want this state of affairs to continue, so that they can in turn sell for an inflated value later on (without thinking about exactly when they hope to do this), but without them noticing that they are paying far more in income taxes etc than they would ever be paying in LVT. Compare the outcry over a 3% rise in Council Tax, that might cost an average household an extra £35 a year, with the relative lack of outcry at the government's announcement that National Insurance would rise by 0.5% in a year or two, which would cost the average household £200 a year.

Schedule A taxation and Domestic Rates (as the last vestiges of some sort of land or property value taxation) were scrapped in the 1960s and the late 1980s respectively, as a result of which property price bubbles and busts have grown larger and larger.

The penultimate throw of the dice was the sale of council housing at massive undervalue in the 1980s by the Tory government, in the hope that becoming a homeowner would make voters both more small 'c' and large 'C' conservative, since when 70% of households have been homeowners. The irony is that taxes on income and production erode the tax base, so tax rates have to rise ever higher to compensate for this and to pay for a welfare system for those that are excluded from the party.

Click here for full series, next episode tomorrow.

Lord Ahmed jailed ...

.... for twelve lousy weeks?

Labour life peer Lord Ahmed was jailed for 12 weeks today for dangerous driving by a judge who heard he sent and received a series of text messages from his car on a motorway. Sheffield Crown Court was told Lord Ahmed was involved in an accident which left a man dead on the M1 near Rotherham, South Yorkshire, on Christmas Day 2007. But the judge made clear the text messaging had finished before the accident took place and was not connected to the fatal incident.

I tell you, there's one rule for us ...

Today's health scare stories

Published in the last twenty-four hours in The Metro:

Working long hours damages the brain

We work some of the longest hours in Europe but while staying late should make the boss happy it increases the risk of dementia later in life. The stress and exhaustion of working overtime can harm the brain's ability to process information, a study suggests. Middle-aged workers putting in 55 hours or more a week had poorer brain function than those who clocked up 40 hours. Their scores were lower on tests to measure intelligence, short-term memory and word recall, according to research at the Finnish Institute of Occupational Health.

Gaming consoles spark skin scare

A skin disorder caused by over-enthusiastic handling of gaming consoles has been identified. 'PlayStation palmar hidradenitis', which causes sore patches on the palms of hands, is linked to intense sweating. Swiss doctors spotted the symptoms in a girl of 12. The British Association of Dermatologists says gamers should take regular breaks.

Daily drink 'raises cancer risk'

Women who have just one alcoholic drink each day increase their risk of cancer, according to a new study. Consuming just one drink a day causes an extra 7,000 cancer cases in women in the UK each year, researchers found. Around 5,000 of these cases are related to breast cancer* but others are cancers of the rectum, liver, mouth and throat, researchers from the University of Oxford found.

Being fat ‘as risky to health as smoking’

Obese teenagers are just as likely to die early as people who smoke more than ten cigarettes a day. A premature death was more than twice as likely compared to normal weight youngsters and about a third more for those who were overweight, a study found. 'The need for effective prevention of smoking and obesity remains significant,' a Swedish report said.

OK, if you work shorter hours and earn less money, what on earth are you supposed to do in your spare time? No gaming, drinking, eating or smoking, it would seem. The obesity/smoking comparison is a classic - seeing as smoking keeps you thin, it seems to me it's six of one, half a dozen of the other.

* Remittance Man took a closer look at those numbers here, concluding that if every woman in the UK stopped drinking it would postpone 1,000 deaths a year.

Tuesday, 24 February 2009

Fun Online Poll Results: Starbucks 2; Mandelson 0

Starbucks Founder & CEO Howard Schultz scored a resounding 2-0 victory over Lord Mandelson Of Thingy in this week's Fun Online Poll.

Eighty three per cent of us would trust Schultz more to run the economy, as a further humiliation, eighty per cent thought that Starbucks probably made better coffee than Mandelson as well.

This week's Fun Online Poll - do you agree with the government's housing policies? Vote here or in the sidebar.

A brief history of UK tax, Part 3.

Things took another turn for the worse after the Industrial Revolution. Because living standards in towns and cities, however awful, were slightly better than in the countryside, people moved to towns to work in factories. While Victorian industrialists contributed to the rapid growth in prosperity, it shouldn't be forgotten that many mill owners also owned the houses in which their workers lived, so they could cash in three times - they made a profit from their labour, charged them rent and allowed them to fund what little 'public services' there were out of their own taxes.

There was still some residual taxation of agricultural land values at the time, although the agricultural sector became less and less relevant to the national accounts. Over time, and culminating in the Town & Country Planning Act 1947, rural landowners were cut off from the growth in land values enjoyed by urban land owners (see dotted line) and need not be considered further. As compensation for this, a system of agricultural land subsidies was invented by which agricultural land-owners are paid money for, simply owning land, which of course do not benefit tenant farmers or keep food prices down.


Click here for full series, next episode tomorrow.

Another day, several more reckless throws of the dice (24)

And here's the second batch of today's crop of crap:

4. "Alistair Darling, the UK chancellor, is set to drop the £480m annual interest bill charged to Lloyds Banking Group on a taxpayer loan in exchange for a promise by the bank to provide billions of pounds in extra mortgage funding and loans to small businesses. Mr Darling is prepared to convert £4bn of government preference shares – which carry a 12 per cent coupon – to ease financial pressures on Lloyds and as part of a wider deal to boost lending in the economy. Although talks are continuing this week, the preferred shares are expected to be converted into other forms of non-voting equity..."

WTF? They are giving this bank £480 million a year of our money, in exchange for more reckless lending - we know it's going to be reckless because ...

5. "Taxpayers may become liable for £500bn worth of bad loans and investments made by Royal Bank of Scotland and Lloyds Banking Group, the BBC has learned. It would be part of the government's Asset Protection Scheme, under which taxpayers insure banks against future losses from such assets."

*rant*

I've done the numbers on this, the total losses suffered on UK residential mortgages by UK banks will be in the order of £40 billion, to which add an unknown figure for US sub-prime and commercial loans that go bad, total losses £100 billion, tops. Where does £500 billion come from? Doesn't the government realise that the banks will merely exaggerate the size of their losses, collect the guarantee payments and in future, over the next decade, maybe, miraculously recover far more than their original estimates?

*/rant*

3. "Local councils face a £6bn fall in contributions from property companies this year as developers halt work and renegotiate plans in the face of the industry’s worsening crisis... In the financial year to March 2008, EC Harris estimates local authorities received as much as £9bn in planning contributions, also called section 106 agreements. It predicts a fall to £3bn this year and £2bn next year."

*sigh*

S106 agreements are the stealthiest of stealth taxes. Everybody (but me, it seems) loves bashing property developers - but all they do is respond to demand from the likes of you and me. Bashing property developers is like car drivers slagging off oil companies ... oh, right. S106 agreements actively discourage new developments - like the various Planning Gains Supplements that have come and gone over the decades, and as we now see, receipts fluctuate wildly and plummet when times are bad.

Chances are, the government will just hike taxes on incomes and production to make up the shortfall via the revenue support grant, thus putting more people out of business and out of work, and thus locking us in to a recessionary spiral.

Hey ... how about scrapping S106 agreements and rolling them into Land Value Tax, which would be a much more reliable source of tax revenues? LVT would also put the onus on councils to get the best value for money to make the area as attractive as possible, hence keeping rental values and house prices as high as possible to ensure that the money keeps rolling in, in a sort of virtuous spiral etc etc?

*/sigh*

Another day, several more reckless throws of the dice (23)

Here's the first batch from today's crop of crap:

1. Northern Rock's staff got £9 million in bonuses for repaying £18 billion of the taxpayers' loan, apparently ahead of schedule. Speaking as a taxpayer, that looks like good value - it's only 0.05% of the money they brought in and repaid. The government has now reversed this eminently sensible policy and now wants them to lend another £14 billion. Question: are Northern Rock staff going to have to repay £7 million of their bonuses? Fair's fair, and all that.

2. "Mortgage lenders should face penalties for repossessing homes too quickly, MPs have urged. The Commons Communities and Local Government Committee criticised the "precipitate" action being taken against the increasing numbers of people getting into arrears. And it said in a report that attempts by the Government to limit repossessions cannot be enforced."

We have the usual assymetry problem here - for every reckless or unlucky borrower who isn't repossessed, there's another family in rented or too-small accommodation who can't afford to buy or trade up at a reasonable price.

3. At the end of that article "The committee said a greater proportion of new homes ought to be stipulated as social housing."

*Sigh*

If homes to buy came down in price, then the better-off-poor would be able to buy their own home; that would get people off waiting lists and out of social housing. Ideally, councils could get private builders to build homes for sale, but institute Land Value Tax on those homes, in other words, instead of Council Tax and Stamp Duty, purchasers would agree to pay, each year, (say) 5% to 10% of the difference between the purchase price and the construction costs (about £75,000 for a three-bed semi or terrace).

The initial amount of the tax would be decided by the first wave of purchasers - if they are happy to pay £85,000 for a house, they pay £1,000 in tax - as long as the total mortgage bill plus tax is less than what it costs to rent, they are happy. When houses on the estate are later sold for higher or lower prices, everybody else on that estate gets a correspondingly higher or lower LVT bill, i.e. the tax in future years would be set by negotiation between buyer and seller.

Further, this highlights the schizophrenic attitudes of people in general and politicans in particular: OT1H, they are desperately trying to reflate the house price bubble (using taxpayers' money) and OTOH, they accept that people are being priced out, so they want to build more social housing (also using taxpayers' money). Or maybe it's not schizophrenic at all - from their point of view, anything that uses taxpayers' money is seen as a good thing.

*/sigh*

Monday, 23 February 2009

Dave don't got no clue (9)

From today's FT, not online:Twats. If they really wanted to do something for pubs, they could just lift the smoking ban. Or go halfway house and auction off smoking licences, which would rescue a lot of pubs and be a nice little earner for local councils.

Carbon footprint of the week

From The Evening Standard:

What with the Oscars, the Brits and now London Fashion Week, it's been a tough schedule for high octane eco warriors. Despite being named as one of the 10 greenest stars on the planet, Sienna Miller was in London on Wednesday night for the Coldplay gig, flew to Los Angeles and was snapped at a pre-Oscars party on Thursday night, before returning in time for her and her sister's twenty8twelve fashion show and party at Whisky Mist last night... something of a mammoth carbon footprint.

Miller recently bought a cottage in Gloucestershire and only last week she told an interviewer of her plans to grow all her own food and be "slowly self-sufficient"... Miller, who votes for the Green Party, has been commended for her work in raising awareness about global warming through the charity, Global Cool. When she became a Global Cool ambassador in 2007, she said: "I'm very excited about joining Global Cool and their campaign to tackle Global Warming. Climate Change is an issue that is going to affect us all unless we act now and I truly believe Global Cool's approach of encouraging individuals to reduce their energy use will go a long way to solving the problem."

A spokesman for Sienna, who of course emails me from LA, says " Obviously, due to the nature of Sienna's work, she is required to travel regularly. She tries to offset her carbon footprint wherever possible." Global Cool's user-friendly mantra is that "It's not about being perfect, it's about cutting down" which is helpfully pragmatic.

New UK government comedy website

Abandon hope, all ye who enter Real Help Now

A brief history of UK tax, Part 2.

It all started to go wrong around the time of the Magna Carta, when the barons basically said that they were no longer going to pass on the rent they had collected, and if The King needed money he'd have to collect it from the little people. So The King imposed all manner of taxes, tithes, imposts and duties to fund his lifestyle and various foreign military adventures, while the barons sat pretty. The little people were now of course paying twice - once for the value of what they got (exclusive possession of the land they farmed) and again for the cost of whatever else  it was that the barons or The King wanted to do.

Click here for full series, next episode tomorrow.

Quangista form new quango, ask for more taxpayers' money

From The Metro:

Up to £6.3 billion must be ploughed into a scheme to build more than 100,000 affordable homes over the next two years, according to an influential group.

The newly-formed 2020 Group said the credit crunch has meant a collapse in house prices and lending, a severe drop in housing building and an estimated 450,000 job losses in the construction industry between 2008 and 2010.


And who might the members of the 2020 Group be, I wonder ... ah, here we go:

Ms Barker, who sits on the Bank of England Monetary Policy Committee*, is a member of the 2020 Group alongside the National Housing Federation (NHF)**, housing charity Shelter***, the Local Government Association (LGA)**** and the Trades Union Congress (TUC)*****.

* The MPC, which ought to be disbanded. Ms Barker is also on the Board at super-quango the Homes & Communities Agency.

** The umbrella body for Housing Associations, which are either fakecharities or quangoes, depending on your point of view. Not to be confused with the Home Builders' Federation, who have been surprisingly silent in all this.

*** Make that "housing fakecharity Shelter", item 5 here.

**** Dude, WTF? Local councils could create masses of 'affordable housing' at the stroke of a pen by granting more planning permission - if enough were granted, land values, which make up nearly half of the cost of a new home would fall significantly, so there'd be no reason for a new, privately built home to be sold for much more than its construction cost, or £75,000 for a three-bed semi.

***** The TUC, who have a symbiotic, if not parasitic relationship with the public sector and the ruling Labour Party, Exhibit 2 here.

Another day, another reckless throw of the dice (22)

It genuinely appears that there is no stopping them, they just keep on doubling their bets (using borrowed money) in the hope that something will turn up...

Northern Rock is to revive its mortgage business with up to £14bn in new loans by 2011, the government has announced. The Newcastle-based bank is expected to take on about £5bn in new mortgages this year and up to £9bn from 2010.

They will be financed with money from new deposits, repayments on existing loans and more government money. The move is part of wider plans to restructure the nationalised lender and follows a government decision to reverse the wind-down of its loans.


Seriously, £14 billion ain't going to be enough; that's just enough to lure a hundred thousand gullible first time buyers into buying a house over the next two years. But remember that the number of sales and purchases is down from a long run average of well over a million per annum to about half a million; the house price bubble is deflating at the rate of £1 or £2 billion per day etc etc.

So in a few months time it will be another £30 billion, then by next year they'll be talking about another £100 billion and so on. Heck knows where this money is going to come from ... oh, I see.

Sunday, 22 February 2009

Rejoice! Our Great Leader has his finger on The Pulse Of The Nation!

It just begs the question, who the f*** is 'Jane Goody'?

Frank Field and The Art Of Missing The Obvious

My Welfare Reform Minister Mark's Any picked up on Frank's article in The Times, in which Frank correctly suggested 'tearing up' the New Deal. I picked on one of his superficially politically attractive ideas towards the end of the article and commented thusly:

He's a typical right winger (yes I know he's a Labour MP). He sees the symptoms, he understands the magnitude of the problem, he genuinely cares and is quite sincere. But all he can suggest is even more authoritarian nonsense. Workfare jobs, probably a good idea, as long as it's a top up to CBI or a replacement for Housing Benefit. But paying people more dole if they have paid more tax is nuts - why not just cut tax a bit and let people self-insure?

There are various hurdles to be overcome before my suggestion rather than Frank's would ever be adopted, of course:

1. It involves tax cuts and an emphasis on self-reliance, an anathema to Nulabour and Blulabour alike.

2. It involves a move to a flat-rate Citizen's Income-style welfare system, without any moral judgments as to who is 'deserving' and who gets how much (under CI, all legally resident working age adults with no or low incomes would get £60 a week, cash, no questions asked).

3. It involves simplification, and thus a massive loss of pseudo-jobs in the civil service.

4. It involves scrapping asset-based means testing. If we adopted Frank's suggestion while retaining means testing (you get no benefits if you have more than £8,000 or £16,000 in savings - excluding the value of your home or your pension fund, of course), those who actually have worked and saved wouldn't see a penny of that notional extra entitlement unless they were reckless enough never to put some away for a rainy day.

Just sayin', is all.

A brief history of UK tax, Part 1.

Let's go back to basics and look at the way the 'government' raised money in Anglo-Saxon and early Mediaeval times. Broadly speaking, it was accepted that land was held by 'The King' on behalf of 'The People'. So people (to the extent that they weren't serfs or slaves, of course) paid market rents for exclusive possession of the bit that they wanted to farm to the local squire, wealth trickled up through various feudal levels, all the way to The King etc. 

There was very little in the way of 'taxes', in the sense of payment for nothing in return, and because having to pay market rent does not depress economic activity, everything hummed along smoothly (apart from the frequent invasions, of course):
Click here for full series, next episode tomorrow.

Saturday, 21 February 2009

Karl Denninger shooting fish in a barrel

Colonel Gaddafi - surprisingly libertarian

From The Times:

Forty years into the revolution he unleashed on Libya Muammar Gaddafi has announced plans to dismantle the Government, hand the riches from Africa's biggest oil reserves to the people and nationalise foreign oil operations that have recently been allowed back into the country.

“The administration has failed and the state economy has failed. Enough is enough. The solution is, we Libyans take directly the oil money and decide what to do with the money,” he says. To end the corruption that has sapped the vast oil wealth, bundles of cash should be delivered to the poor, three quarters of the ministries should cease to exist and the workers should run hospitals and schools.


He'd be stupid to nationalise oil operations, of course, it is far better to let the experts get on with the job and let them pay for the value of the oil they extract, and I don't like the sound of only paying cash to "the poor", a flat rate Citizen's Dividend is always better, but hey, apart from that, it sounds good to me. It's a bit like Tom Paine's idea of two centuries ago, except he probably hadn't realised how valuable oil would be in future, and so suggested raising the tax from usage of other natural resources.

The New Maths - one minus one equals one.

They're all at this week, on the subject of repossessions and evictions and so on:
-------------------------
First up, Nick Clegg:

Liberal Democrat leader Nick Clegg said: "The much-publicised Homeowner Mortgage Support Scheme announced last year has not yet helped a single family in trouble. The prime minister's wasteful complacency means that millions of extra families could be added to already full social housing lists."

Sorry mate, but when a home is repossessed, is it promptly demolished, or does the bank eventually sell it on for a lowish price to somebody who can afford it, so that's a different family OFF the waiting list? Isn't it a zero sum game?
-------------------------
As an aside, there's a bit of Indian Bicycle Marketing in there as well. In the blue corner...

Shadow housing minister Grant Shapps said the [Homeowner Mortgage Support Scheme] which was meant to help people facing a sudden drop in income defer mortgage payments, was announced with such a "flourish" it had even "upstaged" the Queen's Speech on the same day. But the details had not been fully worked out and lenders had not signed up to it to the extent Mr Brown had claimed, Mr Shapps alleged.

... and in the red corner ...

Cabinet Office minister Liam Byrne said the government's "goal" was to get the scheme "up and running in April" but he stressed there five other ways in which the government was helping people struggling with mortgage payments... He contrasted the government's approach with that of the Conservatives, who he claimed would "do nothing" to help people through the recession.

So at least Labour have some sort of plan, as expensive and damaging as it may be, even though they have, literally done nothing. The Tories then accuse them of doing nothing (but without committing themselves to saying whether they support or oppose the idea) and then Labour hit back by saying that the Tories wouldn't do anything either, but I digress.
-------------------------
Returning to the New Maths, next up is the Council of Mortgage Lenders

The number of homes in the UK repossessed by lenders rose last year by 54% to 40,000, according to the Council of Mortgage Lenders (CML). Despite the recession, the CML said this was fewer than it had originally predicted, but it expects repossessions this year will reach about 75,000. It said lenders were making "strenuous efforts" to ensure repossessions were a last resort.

This reminds me of the article in the Daily Mash, Price of gas to rise, say men who set the price of gas. Presumably the CML are trying to put pressure on the government to bail them out a bit?
-------------------------
And let's see what a fakecharity has to say:

There has been a "steep rise" over the last six months in numbers of tenants evicted after landlords defaulted on mortgages, Shelter has warned. Tenants can get just days' notice to leave their home, says the charity, which wants ministers to "act quickly to give tenants far, far longer".

As a tenant, I'd quite like to see a rule that my landlord's mortgage lender has to give me a month's notice to quit (or even better, simply offer to sell me the house), so that I can recoup my deposit by simply not paying the last month, but hey, they are indulging in fact-free maths. How 'steep' is 'steep'? How many such cases are there? The article doesn't say and the relevant press release doesn't appear to be on Shelter's website either.

Shelter get £12 million a year from the government (see bullet point 5 here) so it's hardly surprising that they toe the government line and call for much more homebuilding, which IMHO is a good idea, but for some reason very unpopular with existing homeowners, hey, that's politics.
-------------------------
To round things off, how about a bit of total economic illiteracy from The Progress Group:

An influential Labour Party group is urging the Government to freeze stamp duty for the rest of the year on houses worth up to £1 million as part of a massive economic boost. The Progress group - whose members include Cabinet ministers Ed Miliband and Andy Burnham - was also calling for a £1,000 tax credit to home buyers ...

Ho hum. As there is a fixed supply of housing and first time buyers have fixed budgets, giving them all £1,000 will merely increase the price that they can pay by £1,000, thus pushing up the price of houses by £1,000, so that £1,000 subsidy actually accrues to people selling homes (and who are probably paying the extra tax to fund it) and the equilibrium does not change, ditto Stamp Duty reductions.

... Both ideas form part of a £20 billion stimulus for the economy in order to ensure this year is "the bottom of the recession".

Sorry chaps. You cannot magically put £20 billion into the economy without taking it out as tax. Seeing as all taxes (except Land Value Tax) have deadweight costs, £20 billion in taxes reduces the size of the economy by (say) £25 billion, and because the government spends money so inefficiently, their £20 billion spending will only increase the size of the economy by (say) £15 billion, so what they are actually proposing is taking £10 billion out of the economy.
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Sure, we'd like to get the recession over with ASAP, I posted my Five Point Plan at comment 10 on this thread over at HousePriceCrash. As my plan is based on honesty and economics, none of it will ever happen, of course, which is why the recession is set to drag our for years and years rather than months. But if that's what people want ...

Friday, 20 February 2009

Shabbat shalom

Friday funnies from the FT:
If that doesn't have you rolling about in the aisles, how about this:

People saving into a workplace pension have seen the value of their assets fall by a quarter since the start of the credit crunch. Defined contribution schemes have fallen by £140bn since September 2007, new figures from Aon Consulting show. They now have a value of just £410bn, as of the end of January. Older workers have been hit harder by the falls, as their pensions have less time to recover before they start drawing an income from them. Those approaching retirement and aged 55-65 will see a 30 to 36 per cent drop in their pension...

Seriously now, is there anybody out there who still believes that paying into a huge great slush fund that we laughingly refer to as 'a pension plan' is a sensible investment? How about using the £50 billion annual cost of the tax relief to scrap VAT; cut income tax by ten percent or raise the personal allowance by £5,000 or something? Y'know, leave people with higher after tax incomes so that they can make their own investment decisions?

Fun Online Poll Results: Obama's trillion dollar bail out is mad

Thanks to everybody who voted. The results after one week are:

Obama's trillion dollar bail-out is ...

Mad - 68%
Sad - 20%
Bad - 13%


With hindsight, I ought to have included the options "All of the above" and "A stroke of genius. I wish my country would do something like it", but hey.

The problem is of course, we know it won't work and that it will merely draw out the agony for a extra few years, but The One and His Disciples will never admit it, they will insist that without the bail-out that things would have been even worse/lasted even longer. That's one of the problems with economics - you can't do control experiments, so you have to base your observations on two otherwise very similar economies that adopt radically different policies in certain regards. I guess that Canada makes a good 'control experiment' - who so far are streets ahead in the game, as it happens.

This week's poll - Who do you trust more to run the economy?, suggested by Tim Almond, inspired by an article in The Daily Mash.

Conspiracy theory of the week

"Diana was still alive hours before she died", first comment here. The advert at the top makes it well worth a click.

Out of the frying pan ...

... and into the fire.

I agree with HNL's views on this.

Happy 21st Birthday, Rihanna!

Background story here

Primary education is deficient

Are we mad or are they?

Children in England are getting a "deficient" primary education because schools are focusing too much on ....

Without following the link above, can you guess which three of the following six are reported as having too much emphasis, and which three 'should' be given more emphasis?

1. Maths
2. English
3. Testing
4. The needs and capacities of the individual: wellbeing; engagement; empowerment; autonomy
5. The individual in relation to others and the wider world: encouraging respect and reciprocity; promoting interdependence and sustainability; empowering local, national and global citizenship; celebrating culture and community
6. Learning, knowing and doing: knowing, understanding, exploring and making sense; fostering skill; exciting the imagination; enacting dialogue.

Deeply gratifying Google searches

Mortgage broker joke, number 1 out of 2,740,000.

Rather surprisingly, my underlying-warming-trend-o-meter has gone into reverse. The number of results had crept up from 2,000 to nearly 3,000 during January, but is now back down to 2,460.

C'mon you warmenists, how else are you going to explain away the last few years of global cooling?

Thursday, 19 February 2009

Roll Call Of The Righteous

Here we go ...

Some critics called the cartoon racist and said it trivialised a tragedy which left Charla Nash with what police called "life-changing" facial injuries.

Others said the cartoon suggests that Obama should be assassinated, with critics urging a boycott of the Post and the companies advertising in it.

Barbara Ciara, president of the National Association of Black Journalists, said: "How could the Post let this cartoon pass as satire? To compare the nation's first African-American commander in chief to a dead chimpanzee is nothing short of racist drivel."

State Senator Eric Adams called it a "throwback" to the days when black men were lynched.

The Reverend Al Sharpton, an influential civil rights leader, called the cartoon "troubling at best given the historic racist attacks of African-Americans as being synonymous with monkeys".

Phones at the Post's Manhattan office rang all day with angry callers, while protesters also picketed outside - demanding an apology and a boycott and chanting: "Shut the Post down."

Col Allan, the paper's editor-in-chief, defended the work... "The cartoon is a clear parody of a current news event, to wit the shooting of a violent chimpanzee in Connecticut. It broadly mocks Washington's efforts to revive the economy. Again, Al Sharpton reveals himself as nothing more than a publicity opportunist."

Here's the cartoon, for what it's worth:

Deeply gratifying Google searches

Arguments for land tax - number 1 out of 303,000.

Article number 9 "Libertarianism and Land Value Taxation" is worth a read as well.

Bansturbation Of The Day

From The Metro:

Facebook 'could raise cancer risk'

Social networking sites such as Facebook could increase the risk of health problems such as cancer, strokes, heart disease, and dementia, a doctor has claimed.

Such popular sites, also including the likes of MySpace and Twitter, are putting users in danger by reducing levels of face-to-face contact, according to psychologist Dr Aric Sigman.

He believes this could have biological effects, altering the way genes work, and upsetting immune responses, hormone levels and the function of arteries.

I hope none of you invested in Real Estate Investment Trusts!!

One of Nulabour first reckless throws of the dice to try and prop up property prices was to invent "Real Estate Investment Trusts" by which small savers would be conned into putting their hard-earned into commercial property.

They went live in early 2007, and were quite highly geared - so every 10% fall in commercial property means a 25% fall in the value of your REITS shares. The insiders bailed out at the top of the market, leaving Nulabour & Tory core voters, the small savers, nursing huge losses. Not that I'm a conspiracy theorist or anything, but remind me, who votes for these people? Here's the chart for the FTSE Real Estate Sector Index for the last two years:


There's an old saying, "Don't invest in a railroad company until it's gone bankrupt three times", which applies to all companies based on speculative land values. True to form, these companies (REITS and other UK property companies) are now on the edge (i.e. are breaching their lending covenants) and have asked their shareholders for another £3 billion in the next four weeks.

Land Securities "added that its combined investment property portfolio had been valued at £9.97bn as at January 31, down from £12.5bn in September [2008]. After adjustments, the valuation deficit over the four-month period was £2.45bn, representing a decline of 20.1 per cent. Land Secs added that it was cutting its dividend payment pool from £307m in to £221m."

To put this in perspective:

a) Land Securities currently has a market capitalisation of £2.5 billion, so shareholders have already lost £7.5 billion in value and are now being asked for another £755 million to keep the wolf from the door.

b) It admits that its properties lost a fifth of their value in just four months.

c) It doesn't appear to grasp that cancelling dividends is a much cheaper way of preserving capital than paying a dividend of £221 million and then promptly asking shareholders to pay back £755 million.

d) The more prices fall, the higher the gearing. If and when commercial property prices bottom out, a REITS share will more or less equate to a call option on property prices, i.e. pretty much risk free with unlimited upside. But let's wait for another couple of waves of rights issues, debt-for-equity swaps and the like before we start buying.

UPDATE Per The FT (thanks to Umbongo & Lola for the steer):

The government is to consider whether to allow the payment of stock dividends by real estate investment trusts, a measure that would help alleviate the strain on balance sheets in the struggling listed property sector...

Whether stock dividends are allowed by existing rules is uncertain. Some accountants and analysts warn such a move would be a minor breach of the Reit legislation, which stipulates that Reits need to distribute 90 per cent of rental income to shareholders.

Wednesday, 18 February 2009

Today's Q&A

Q - when will banks start lending again?
A - when they think they can make profits from doing so.

Q - will quantitative easing work?
A - no, it's just separate branches of the government shuffling bits of paper with numbers on them back and forth. The experience of Japan suggests that is won't even cause inflation, let alone get the economy moving.

Q - what's the main cause of child poverty?
A - poor parents.

Q - would you describe Sir Allen Stanford as a sophisticated fraudster?
A - no, he invested some of his money with Bernie Madoff and then tried to deny having done so. Sir Allen should have claimed that he invested all his money with Bernie Madoff and that he himself was the innocent victim of a fraud. Daft bastard, honestly.

Another day, another reckless throw of the dice (21)

More lunacy, this time from the USA:

President Barack Obama's plan to tackle the US housing crisis is aiming to help up to 9 million families. The plan will aim to provide refinancing to four to five million "responsible homeowners". A $75bn (£53bn) "homeowner stability initiative" will also aim to help reduce monthly payments for a further three to four million people.

He is clearly stark staring mad.

"Responsible homeowners"?? Is that the American for "hard working families" or something? The article doesn't say what the refinancing will cost on top of that*, but divide $75 billion by three-and-a-half million families (surely they can't mean 'people'?), that's $21,000 each! At today's low interest rates, that's equivalent to the mortgage on a $500,000 home. Or maybe it's spread over three years, as the article goes on to say " ... it could provide a buffer of up to $6,000 against declining values on the average home".

Either way, this makes the antics in the UK see tame by comparison. The biggest attempt so far to prop UK house prices (which has failed miserably, of course) was the cut in interest rates, which has seen savers lose about £30 billion per annum, while eleven million mortgage borrowers are saving, on average nearly £3,000 each.

Truly utterly completely barkingly insane - which is the option for which 66% have voted for in my current Fun Online Poll.

* UPDATE: The entire package is expected to cost $275 billion, $75 billion as described above and $200 billion for buying up worthless loans from Fannie Mae & Freddie Mac.

A busy week for right-wing tax advisers ...

Monday 20 April Führergeburtstag
Tuesday 21 April Queen's Birthday
Wednesday 22 April Budget Day
Thursday 23 April St George's Day

Corporatism at its best ...

You know that we have sunk to a whole new level where it's not specific industries that are holding out the begging bowl, which would be understandable enough, provided the government, as representative of the taxpayer tells them politely to f*** off, but supposedly independent bodies (fakecharities, quangoes, trade unions, regulators etc) doing it on their behalf:

Exhibit One:

Companies will not be allowed to cut cash contributions to underfunded pension schemes if they are still paying dividends to shareholders, the UK Pensions Regulator will announce on Wednesday.

Dude, WTF? The largest single collective shareholder in UK plc are the pension funds of UK plc, whether that money goes in as contribution or as dividends should be neither here nor there. As it happens, cash contributions are much more tax-effective as they come out of pre-corporation tax profits, but hey, if UK plc hasn't worked that out yet, Heaven help you all.

Exhibit Two:

The government is being urged to give the same financial support to manufacturing during the recession as it has to failing UK banks. The Work Foundation think tank wants emergency state funding to help save jobs and companies.

Woah! Stop right there! The Work Foundation is a fakecharity, as we have established before, see footnote here. The BBC also get the inevitable rent-a-quotes from Brendan Barber and Derek Simpson, leader of the largest trade unions, which receive £3 million a year from the taxpayer-funded 'Union Modernisation Fund' yet still find it in their hearts to donate about £10 million a year to the ruling Labour Party.

I would have expected to see a sound-bite from Steven Alimbritis of the Engineering Employers' Federation - who is surprisingly left-wing, but there is none. And this is not just down to BBC bias - the EEF aren't mentioned in The Metro's write up of the same press release either.

Exhibit Three:

An extra £4.2bn a year will have to be spent on tax credits if the government is to meet its target of halving child poverty, a report warns. The Joseph Rowntree Foundation (JRF) estimates that 2.3 million children will be in poverty in 2010, missing the 1.7 million target set in 1999.

The various Joseph Rowntree bodies are in fact funded by a good old fashioned trust set up by Quaker and erstwhile Land Value Tax enthusiast Joseph Rowntree at the turn of the last century, although they seem to have lost their way badly, and now tackle the symptoms, and not the causes of poverty.

The BBC get the inevitable rent-a-quote from the Child Poverty Action Group, which is a bona fide fakecharity, which receives £500,000-odd from various government bodies (note 3, page 21), as well as from Joseph Rowntree (who pays the piper ...). I'd love to know who pays them £1,314,000 a year for 'publications', I'd hazard a guess that some government department or other pays them to do leaflets and stuff, there's hardly a big market for welfare reform porn in this country.

HH looks at this madness in more depth, the post title sums it up nicely in one word.

Tuesday, 17 February 2009

Separated at birth*?

Keir Hardie, Scottish socialist, and Geer Haarde, Icelandic PM until a couple of weeks ago:


* Not literally at birth, obviously, as they were born ninety-five years apart. But just look at the wonky left eyebrow ...

"David Mills sentenced to four years in Italy for corruption"

This cheered me up no end, I hope brightens up one or two other people's evenings as well.

Yup, that's the next house price bubble sorted

There are one-and-a-half decent idea in this melange of crap from the Tories, as reported by the BBC, namely these:

The Conservatives also propose making councils publish detailed information on expenditure, including senior staff's pay and perks and guidance to stop "rewards for failure" for sacked workers. Regional Development Agencies would lose their planning and housing powers to local councils and the party says it would scrap the controversial Infrastructure Planning Commission - set up by the government to take decisions on major projects like airports to streamline the planning process.

Of course, they are total hypocrites on airports, do they mean 'streamline' as in give to local NIMBYs more quickly, or 'streamline' as in push through wealth-generating infrastructure projects, who know?

But at the core is the usual shite:

Caps on council tax rises would also be scrapped. Instead, if increases broke a certain threshold, 5% of council tax payers could trigger a local referendum.

Here's a thought, why don't we allow people buying/selling homes in any area to set the amount of local property tax via the free market, by charging a fixed percentage on the amount that buyers are prepared to pay (and which sellers aren't prepared to pay) over and above the bricks and mortar value? Isn't it better to let people vote with their feet - if a council is badly run, then prices fall and the tax goes down, and vice versa. The council is thus more like a mutually owned service provider. This would have the added bonus of acting like a higher interest rate on the largely speculative land value and thus help keep house prices low and stable.

Instead, why don't we have a referendum on the the ninety per cent of taxes that relate to incomes and production? How about a referendum on scrapping VAT and National Insurance or doubling the tax-free personal allowance?

Oh, of course ... I've remembered why ... it's because people equate rising house prices with wealth and falling house prices with recessions (thus completely confusing cause and effect; it's the rising prices that cause the subsequent recessions), so if the Tories can keep council tax down (and all other taxes correspondingly higher) then money will flow from heavily taxed productive investment into lightly taxed property, house prices will start to rise ... (continued page 94).

Remind me, what was it that Dave studied at Oxford?

"Missing millionaire found safe at station"

It'd be quite a bizarre coincidence if it turned out that the safe which he found had been reported missing as well.

"Shops should pay for recycling"

*sigh*

From The Metro, more crap from the bansturbators:

Supermarkets are using excessive food packaging and should* contribute towards the cost of dealing with it, a new report says. The study by the Local Government Association (LGA) found people's efforts to recycle rubbish were being undermined by the stores they shop in... As well as making recycling easier and more affordable this would also ease the burden of landfill tax on local government, it says. Landfill tax costs councils £32 for every tonne of rubbish they throw away - a figure that will rise to £48 a tonne by 2010 - meaning that by 2011 an estimated £1.8 billion will have been spent on it since 2008.

The only halfway sensible comment is this, at the end:

The British Retail Consortium (BRC) said the survey failed to acknowledge the key role packaging plays in preserving food and thereby reducing waste. Its head of environment Bob Gordon said: "It's a nonsense to suggest that retailers swathe their goods in masses of unnecessary packaging. This would simply be a pointless cost. Packaging reduces waste by protecting and preserving products."

*/sigh*

Meanwhile, on Planet Wadsworth, we leave the EU and the first thing we do is scrap Landfill Tax (being an insane tax that bears no relation to anything, point 4 here) and VAT (the Worst Tax Of All).

Sure, refuse collection has a cost (which appears to be about £100 per household per year), but it is simpler to levy this on new goods than to charge people for refuse collection (because of fly-tipping problem and so on). A flat one or two per cent charge on new goods (including food, a lot of which goes in the dustbin) would cover refuse collection costs nicely, or we could be a bit more sophisticated and have graded rates depending on how expensive it is to dispose of stuff safely (so there'd be a much higher rate on car batteries and a lower rate on paper, for example, for detailed workings see the second part of this).

* A good rule of thumb is that anybody using the s-word to support an argument is usually in the wrong.

Monday, 16 February 2009

Banks are not too big to fail, never have been, never will be.

CityUnslicker says in the comments to my previous post "Banks are too big to fail. If they went bust the confidence in the UK would go with it. The currency would collapse and the UK could also default on its debts."

Nope. Banks are like utilities - water, electricity, gas - they provide a vital service, but it does not matter particularly who provides that service. If a company that owns loads of power stations went bankrupt because of malinvestment and because it was overloaded with debt, the administrator would promptly sell off the power stations to somebody else, and customers wouldn't even notice a flicker.

It's no different with banks - take for example the Bradford & Bingley. One of the few masterstrokes that this government has pulled was to sell all the B&B's branches and transfer the liability to repay its customer deposits to Santander. If you were an employee of or a depositor with B&B, or the landlord of one of their branches, you wouldn't have noticed the change had you not read it in the newspapers.

This comes pretty close to the New Bank solution that CityUnslicker himself proposed a few months ago.

The mistake that the government made with the B&B was to 'nationalise' the loan book. They should have declared it a 'closed fund' and just let the shareholders and bondholders squabble over the meagre spoils, which is what I suggested after Northern Rock first went *pop* back in September 2007, which seems like ancient history somehow.

Further, our currency has already collapsed and is now bumping along the bottom, and if the government palmed off the losses onto private investors (where they belong) rather than nationalising them, the chances of "the UK defaulting on its debts" would actually be reduced.

Ah well, better luck next time. You can't expect a Labour government to have already learned the lessons of what was blindingly obvious to me a year and a half ago.

UK banking crisis in perspective (2)

When I did my first round up of this in April 2008, I guesstimated the losses from reckless UK residential lending at between £28 billion and £50 billion.

HBOS has written off about £6 billion of residential mortgages so far (£3 billion last year, £3 billion this year) and house prices will fall at least another twenty per cent, so let's double that to £12 billion. HBOS also has around one-fifth of the UK mortgage market, but was at the more reckless end, so £50 billion looks 'about right'. At the time I made my guesstimate, nobody realised that there would be a government bail out. I'll give myself a bonus point because the amount they stuck in of £37 billion is pretty much in the middle of my range.

Just for fun, I reworked the table from my earlier post, if you divide their market capitalisation (as at April 2008) by their gross assets (as at December 2007), and then sort the rows in descending order of the result in column C, this ties in pretty well with how much their share price has fallen over the last twelve months (Standard Chartered is a blip). The 'Tier 1' capital ratios as at April 2008 (see earlier post) of these banks all looked pretty much the same, so in future we can dispense with 'Tier 1' ratios as being a complete fiction, somehow or other, the stock market knew perfectly well a year ago which banks were most likely to survive.

Anyways... the point of all this is that there are people who say that "banks are too big to fail"*.

Take it from me, they are not, the losses might well be a lot more than £50 billion, because then there's corporate lending, in which HBOS seemed to have excelled - at picking lousy risks - and also an unknown amount that UK banks invested in sub-prime crap from the USA and so on. So maybe the total losses will be £100 billion (around 7% of UK GDP, £1,500 billion). As at present, the balance sheet total of UK banks is around £6,000 billion, a ridiculously large figure because there is so much double counting involved. If you net off all the inter-bank stuff and assets/liabilities that are matched economically but not legally**, then their balance sheet total is more in the order of £1,500 billion.

So, without going into legal niceties, shareholders will be wiped out and up to 7% of their creditors (i.e. longer-term bondholders) will have to be paid in shares instead of cash, or will have to wait a bit longer for their money than they expected, or might not get much of it back. Such is capitalism, risk and reward and all that.

That's that fixed, next.

* Interestingly, people trot this out, whether they support the bail out or not, merely because they can't see an alternative. I wouldn't be surprised if the banks exaggerate their own balance sheet totals to make themselves seem more powerful and important than they really are. This is a bit like EUphiles and EUsceptics being broadly agreed that the EU is getting more and more powerful. It's not - it passed it's high water mark with the Irish 'No' and now they are flailing around trying to make it look like they are all-powerful, but they aren't. Of course we still need to keep kicking the EU until it's been snuffed out, but there's no panic any more, a more pressing issue right now is kicking the banks while they are down.

** For example, the bank has sold foreign currency forward to Company A and hedged its bets by buying the same currency forward from Banks B, C and D. Really, these two net off - unless Banks B, C and D welch on the deal and the spot rate has gone against them, the net asset or liability on these two position will always be a small profit. And accountants are very fussy about not netting stuff off, it went out of fashion a decade ago.

A triumph for off-off-balance sheet funding

From the BBC:

The government could have to bail out Private Finance Initiative projects to the tune of £4bn in the next 18 months, an industry spokesman has warned. Tim Pearson, of the PPP (public-private partnership) Forum, said the recession was limiting loans to firms on PFI projects like schools and hospitals.

PFI was originally a way of getting assets and liabilities off the government books to flatter the borrowing figures. The government paid a handsome premium for this, which is why the is a market for 'second hand' PFI contracts - once you've got the contract, you can sell it on to an actual construction company for a large slice of the embedded gain. Heck, there's even a market for funds that invest in such second-hand deals.

That would be bad enough. In the meantime, the government has come up with another wheeze to lend to businesses off balance sheet, namely by 'guaranteeing' the loans that banks make to businesses, rather than lending directly. Not that this is working, of course. If the government fails to charge the correct insurance premium for the guarantee, then that's another misallocation of funds and a further cost to the taxpayer. If it did charge the correct premium, then there'd be no additional lending either, as it happens.

But now they've gone full circle - the government is providing off balance sheet funding to private companies (at less than market interest rates) to subsidise their own off balance sheet funding (for which they pay above market interest rates). The overall losses on this must be colossal.

OK, pop quiz time: if we go with what Uncle Vince says, i.e. "the government should go back to more traditional public financing structures rather than use taxpayers' money to prop up the public-private model", what sort of tax would provide the best match between the amount of revenue raised and the benefits that infrastructure spending bring to an area..?

"Round the world in a £300 motor"

Nice to see one of my friends in The Sun.

Tessie, Loong, Lewis & Dwight, you rock!

Glad you're back safe and sound and we'll see you on Saturday.

There's an old saying ...

... that "If you owe the bank ten thousand it's your problem, but if you owe it a million it's the bank's problem."

I think it's time to update this and add on "... if you owe it a billion it's the government's problem and if you owe it a trillion it's the taxpayers' problem."

Sunday, 15 February 2009

"Make use of empty homes - Tories"

Oh dear, the f***wits have come out to play...

1. In the blue corner, the Tories. To be fair, they make a good start...

The Conservatives say thousands of empty properties across the UK could be used to house those "languishing" on waiting lists for affordable homes. An estimated 4.5 million people are waiting for social housing, a figure the Tories say is "unacceptable".

It's not 'thousands', it's something approaching a million, but hey. Then they spoil it all again ...

Housing associations should think more flexibly about the tenancy arrangements they offer, Mr Shapps adds, to capitalise on the availability of the housing stock. They should also be given more freedom to match people with suitable properties, not just awarding the first property available to the person on top of the waiting list. The Conservatives accept some of properties in question will require investment in order to make them habitable. However, they say that the funding for this is available within existing government budgets for new social homes which is currently not being spent.

Woah! Stop right there! What do 'housing associations' have to do with this? There are empty homes and there are people who'd like to buy them or rent them, oil the wheels of the markets a bit and Bob's your uncle. And why the assumption that 'investment' has to be paid for by the taxpayer? Somebody who wants to sell or let out a property is in the best position to judge how much should be spent on what to make it saleable or lettable.

2. In the red corner, Nulabour...

Labour said the Conservatives had opposed past plans to allow councils to step in and maintain a private property if it was unoccupied for six months. The government had spent £19bn since 1997 in modernising social housing stock, said housing minister Iain Wright. "The proposals being put forward today are advocating a return to poor quality homes," he said. "We believe we can increase housing supply without the need to sacrifice high standards for tenants."

The Tories are probably right to oppose plans to prevent councils barging into private property (unless clearly abandoned etc). £19 billion divided by twelve years divided by four million social homes is about £400 per home per year, so I doubt that's achieved much. And the Tories did not advocate a return to poor quality homes - it's up to tenants to choose where to live, no doubt they will choose whichever is the nicest home available to them for a given price, as long as it's better than what they've got then they'll take it and I count that as a 'win'. And Nulab have an unenviable record of reducing the housing supply, via John Prescott's Pathfinder crap and handing over social housing to asylum seekers.

3. In the yellow corner, the LibDems...

By relaxing design and environmental regulations, the Lib Dems said people would be "condemned to living in cramped and drafty homes for 15 to 20 years as they wait to be rehoused". "This just shows how out of touch the Tories are," said the party's housing spokesperson Sarah Teather. "They have no idea of what it is like for a family living in a social home."

Sorry love, I've covered that point.

4. Bringing up the rear is the quangocracy....

"With such acute housing need in much of the country, no-one wants to see homes lying empty," said David Orr, chief executive of the National Housing Federation, which represents housing associations in England. "Many housing associations would be interested in new opportunities to renovate and manage these homes."

You're salivating at the thought of getting your hands on another few taxpayer billions to enlarge your empire and feather your nest, free of any sort of democratic accountability or market discipline, more like. Twat.

5. ... and to round off the evening, a fakecharity...

Shelter's chief executive Adam Sampson said the priority must remain building new homes. "Bringing empty homes back into use is an important part of the solution but, to really tackle the housing crisis, any government must commit to building the good quality, affordable and social homes that this country desperately needs," he said.

Surprisingly, Shelter's accounts show that it receives nearly £20 million a year in donations from individuals, but tucked away in note 4 on page 36 of their 2008 accounts is a nice round £12 million that they get from one government department or another.

Anyway, as I may have mentioned before, there is a quick and simple way of getting a lot of those homes back on the market that doesn't requite subsidies or government involvement ...

H/t Anton Howes.

Tzipi Livni

"Worthwhile Canadian initiative"

Witterings From Whitney has drawn my attention to this article in Newsweek. It's all pleasantly dull stuff, but well worth reading - a few highlights...

Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts, or government intervention, in the financial or mortgage sectors? Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th. Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.


That's all simple enough. Those strict rules on capital adequacy/leverage are there for a good reason. The UK government is doing its best to 'blame it all on the Yanks and the banks', but they have in fact been turning a wilfully blind eye to the burgeoning credit bubble ever since about 2001 or 2002. Further ...

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for over-consumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours.

Ah, but you've heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes.

And the rate of Canadian homeownership? It's 68.4 percent.


That's another thing that winds me up, and the Tories are especially guilty of this, is the idea that the taxpayer should 'help' first time buyers via whatever tax break. First time buyer are competing with other first time buyers. If you give them grants, or tax breaks then that increases the budget of all first time buyers equally without reducing the competition, so all that happens is that house prices go up accordingly, exactly like interest rate cuts.

And, to the extent that we have redistribution at all, surely it should transfer wealth from the very top to the very bottom, rather than transferring it from the middle to the middle, as did MIRAS? Like I always say, taxes on land values are the least bad taxes; so subsidies to property ownership are the very worst subsidies, they never achieve what they are officially supposed to do.