From the BBC:
Uber drivers have won the right to be classed as workers rather than self-employed.
The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the national minimum wage. The GMB union described the decision as a "monumental victory" for some 40,000 drivers in England and Wales…
Fair enoughski, but this is just people fighting over the same source of income. Taxi drivers, collectively have a monopoly - each licence is a little monopoly. the tell tale sign is that an increase in demand for taxi rides does not increase the supply of taxi licences (which are at the whim of a local council or similar), it merely pushes up the value of the licences.
From the point of view of the consumer, Uber busted the taxi drivers' monopoly, bringing down prices and increasing supply, but from the point of view of drivers, it created a new one of its own. The trick with these platforms is to persuade passengers/buyers that they are the biggest and have most drivers on call, while simultaneously persuading drivers/suppliers that they are the biggest and have most potential customers.
Things being what they are, it is far easier and more efficient if everybody uses the same platform.*
Which brings me to this…
The ruling accused Uber of "resorting in its documentation to fictions, twisted language and even brand new terminology", adding: "The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common 'platform' is to our mind faintly ridiculous."
No, that is exactly how it is. Presumably, if you register as a driver with Uber that does not stop you from registering as a driver with other platforms at the same time. Question is then - whose employee are they now? Do they have two employers? How is the holiday pay, rest pay and national minimum wage while on call but not driving supposed to be split between the two?
Here comes the maths fail:
Alex Bearman, partner at Russell-Cooke solicitors, said Uber could look to meet any additional costs by increasing the percentage of each fare that it kept as commission: "It seems likely that this decision will be appealed and we may not see a final determination for some time to come."
Again, no. It appears that Uber takes about 25% of the total fare paid by the customer. If Uber takes a higher percentage, then that leaves less for the driver, not more. So either:
- Uber takes a lower percentage (which won't kill it, their income is pure profit/rent once its minimal overheads are paid) or
- prices overall go up by a third to get driver's average hourly earnings up from £5.03 to the National Minimum Wage. And you can't just put prices up, the result will be less demand and fewer Uber drivers. So those at the margin will be unemployed again and those who keep their jobs will earn more for less work. Which is classic rent seeking, it is just when trade unions do it, they dress it up as A Good Thing.
Then there are taxes on output and employment to consider. Let's assume our driver is genuinely self-employed and is below VAT registration threshold. He makes £10/hour gross, Uber takes 25% leaving our driver £7.50/hour, on which he pays 29% income tax/NIC = £5.33 after tax. The self-employed will also get a full tax deduction for motor vehicle costs.
If the drivers are all now employees of Uber, the full fare will be liable to VAT, so out of £10, £1.67 goes in VAT. This leaves £8.33. Even if Uber generously slashes its fee to 5% (42p after VAT) to cover its minimal overheads, this leaves £7.91 to pay gross wages. 96p goes in Employer's NIC, leaving £6.95 employment income taxable at 32%, leaving our driver with £4.73 per hour. The tax deduction which employees can claim for business use of private car is also much more restrictive than for the self-employed and is more difficult to claim.
So an epic fail all round**!
* Which is why the answer is for the government to simply set up its own low-cost ride sharing app, it can provide it for free to all and sundry and will make its money back ten times over from all the extra income tax/NIC it can collect (even at self-employed 29% rate) now that it knows who is doing what. That still looks like a monopoly in the old-fashioned sense of there being a single provider, but in practice it isn't a monopoly at all.
** Unless you are totally cynical and think that the Employment Tribunal is an arm of government and decided the case this way because it vastly increases the tax take from Uber drivers...
Sunday, 30 October 2016
From the BBC:
From the BBC:
Mexico City has held its first Day of the Dead parade, complete with floats, giant marionettes and hundreds of dancers and performers.
Mexican tourism officials say the inspiration came from the opening scenes in last year's James Bond film, Spectre*, which was shot in the city. Bond is seen chasing a villain through crowds watching a parade of people in skeleton outfits.
It is hoped the new parade will attract more tourists to the city… But Lourdes Berho, chief executive of the Mexico Tourism Board, said Spectre had created "expectations that we would have something".
Whenever something is described as 'tradition', it always strikes me that it can't always have been tradition; there was a first time for everything. Most things are never repeated, but sometimes, a year later, people do the same thing again because they enjoyed/profited from the first time; after a few decades it is simply 'custom' or 'tradition' and it somehow has to happen in a certain way.
Social scientists, anthropologists, theologians, historians and so on will debate the origins of things more and more as time goes on and longer after the reason it happened the first time is lost in the mists of time. These people will look for deeper symbolism and so on, nearly all of which is is ascribed, attributed and invented long after the event. IMHO, the first time was just an unusual set of circumstances which people repeated a year later for a giggle and so on.
On the other hand, there are customs and traditions which die out, be that 'penny for the guy' being displaced by Halloween or some sacred Native American ritual. People bemoan their loss and talk about homogenisation of culture and so on. Well so what? I vastly prefer watching telly to Morris dancing or compulsory archery practice on the village green. Who are we to tell Native Americans that they should be performing certain dances at certain places at certain times of the year instead of watching telly?
Clearly, newer traditions serve people better than the ones they replaced and that is the end of that.
So well done Mexico City, and I hope it works out for you!
* Which in turn harks back to the opening scenes of Live and Let Die, thus possibly establishing a 'tradition' of their own…
Saturday, 29 October 2016
Some time ago I toyed with the idea of buying some shares in this famous, British brand. I knew their history, what they did, and they were doing well at the time (see share price 5 years). I am glad I did not. The Hornby management went on a European wide, 'rivals' buying spree and bought into some very poor marketing tie-ins: The Olympics for one. They bought the enlarged group to its knees.
But my original concern before this, was their wholesale shift in production from Margate to China and the long term issues with that. They provided fantastic models and kept price inflation low over a decade. The central problem was the planning, communication and supply issues. They could never hit their deadlines and customers and retailers assumed all delivery date promises were fictions. Their customers also could not grasp how expensive it was to develop and tool up every new product they promised to bring to market (£100,000+). On the hobby sites some cool heads, who knew the tooling up problems, tried to calm the frustrations. In this context then, this anecdotal caught my eye on a blog: *Kader is a giant toy manufacturer
As people from factories in China talk to each other, it need hardly come as a surprise that A knows a little about what B is doing, it need also not comes as a surprise that C lets drop a hint that he is doing it just to test the water. Hornby now buy stuff through a multiplicity of factories, at least one of which has some ex-Kader folk working for it; some factories are known to be making models for several (widely different) concerns which happen to have 'a presence' of some sort or other in the British market so it is hardly surprising that word might get around.
If Hornby happened to have a concern that - not for the first time - a competitor is working on something which they are also working on it strikes me as good business sense to 'let slip' hints about what they are doing and where they have got to with their version. Hornby have had a vast amount of panning on here in the past (some of it from me) about not responding to what many of us consider they should be doing or what 'the market' wants (or what we think it wants).
Hope it works, but that seems a funny old version of the free market if true.
From yesterday's Metro (Scottish edition):
Made Of Tougher Stuff, I agree with you. I have been married for 40 years and my hubby has never once worn a hat, gloves, vest or pyjamas. He is a real man!
I don't know what MOTS's original vicarious boast was, but this one could run and run, culminating with something like this…
I have been married for sixty years and my husband has never worn anything but underpants. When we are snowed in, he marches out and kills a polar bear with his bare hands so that we have something to eat.
Friday, 28 October 2016
Says the BBC.
Why is this a headline? Didn't everybody panic buy a year's supply a week or two ago?
Notwithstanding the stuff is wholly UK made and not imported anyway...
Thursday, 27 October 2016
It seems that The Express still has a forensic interest in the prostrate body of UKIP's Mr Woolfe. It has become something of an iconic image.
Having no idea who Mr Hookem was, I had assumed that the figure standing over the political corpse was just a security guard who had arrived late on the ramp and found the body. I am now wondering if the figure leaning over Woolfe is in fact Mr Hookem. Anybody UKIP savy put me right on this point?
From The Guardian, shortly before the referendum...
Negotiations about the shape of the UK’s post-Brexit trade arrangements would have to start from scratch after a leave vote in the EU referendum, the head of the World Trade Organisation said as he admitted there had been no preliminary discussions with the UK government.
Roberto Azevêdo, the WTO director-general, said he expected any talks to be long and difficult, adding: “We haven’t had any discussions about the process. We don’t know what the process would be. We do know it would be a very unusual situation.”
From City AM, yesterday...
UK's transition out of the European Union will be fast and smooth and there will be no disruption to trade, the head of the World Trade Organisation (WTO) said today.
Roberto Azevedo vowed that the UK would not face a vacuum or a disruption when it leaves the bloc and it would continue to be a member of the WTO.
Azevedo has been in discussions with the trade secretary, Liam Fox, and vowed to make the transition as smooth as possible. His comments will reassure some who fear uncertainty and repercussions on trade if Britain did not secure a trading arrangement quickly.
Wednesday, 26 October 2016
Posted by Lola at 19:28
Well, he said he would if Heathrow went ahead, and he has gone and done it. I hope you don't mind if I sit back and enjoy it from my seat in the grim, North. I would have voted for expansion for Blackpool or John Lennon myself. Plenty of capacity and anything is better than the planned fracking.
The one fact we can assume from the situation though, is that Tory HQ in London has had plenty of time to consider what to do if Prime Minister May chose tarmac over the sexy, old Etonian.
Many of you here, no doubt, had already guessed they would shoot Zac's fox by not standing against him. Just a little disagreement amongst the sixth form boarders, nothing to get the whole school worried, don't you know. United front. With, 'Neat solution old chap' echoing down the quad.
But what a chance for the Labour Party, up the ante, and also not stand a candidate? Interesting. Take some faux, outraged, moral high ground and bring it straight back to pure 'Blue on Blue' fire. (Always assuming the electorally challenged, Lib Dems, play with a straight bat). Now, even a very average cavalry commander, in battle, seeing utter disorder in the enemy ranks would simply turn his horses around and charge straight through the gap.
But Labour's top brass in Parliament, is cursed by senior commanders who have long records of persistent, misjudged, half-hearted, confused failure when fantastic opportunties present themselves.
So take the wisdom of serial offender, Staff Officer, Tom Watson here:
In short, faced with heaping pain on the enemy, all Watson can contribute is the lazy idea, that Labour is a 'national party' and focus on the old internal issue of always fielding a candidate no matter what.
So the question is, how many here agree or disagree with Jabber the Hut above: Labour is still a 'National Party' and we can show this ideal in any way we like, except by winning a general election?
The results to last week's Fun Online Poll were as follows:
Which 'price' is worth paying to retain tariff and quota free access to the EU Single Market?
Freedom for EU workers to come to the UK to work - 15%
A market access fee of about £5 billion a year - 8%
Both - 2%
Either/or but not both - 1%
Neither. I prefer Hard Brexit - 72%
Other, please specify - 2%
Good, that's that settled then. I hope the government is on message. Exactly 100 people took part (thanks all) so no 'differences due to rounding' this week either :-)
A strange quandary again today. From the BBC:
Spain has said it will review the permit for refuelling it gave to Russian warships expected to support a bombing campaign against rebel-held eastern Aleppo, in Syria.
The decision to allow the use of the port of Ceuta was criticised. Nato expressed concern that the ships could be used to bomb civilians...
That's more than a tad hypocritical of 'Nato' (when did it stop being called 'NATO'?) if you ask me, and it serves the Russians right for not having seen this coming and built a nuclear powered aircraft carrier (lack of easy access to the oceans was always the Russian Navy's Achilles' Heel), but hey.
The whole concept of allowing foreign warships to use your ports has always puzzled me, there is a very strange legal status to all these things and it's always surrounded with diplomatic flummery, but AFAIAA, Spain is not in any way at war with Russia and it's entirely up to Spain whether they want to allow it or not.
So that's this week's Fun Online Poll: "Would it particularly bother you if Spain allowed a Russian warship to refuel in a Spanish-controlled port?"
Vote HERE or use the widget in the side bar.
Tuesday, 25 October 2016
Actresses/former actresses who became Labour MPs
From The Metro:
Good riddance to the greedy bankers who are threatening to leave the UK for Europe over Brexit (Metro, Mon).
Let some other mugs bail them out in future. But before they go, let's make sure every penny they owe is paid back to the British taxpayer.
Sunday, 23 October 2016
From The Independent:
Estate agents in the UK have been swamped with calls from Chinese, Middle Eastern, Italian and Spanish buyers looking for a bargain after the pound tumbled to more than 30-year lows, making the exchange rate very favourable for foreign buyers.
With global commodities like oil, if GBP falls and world price of oil stays the same, then the GBP price of oil goes up, obviously.
Not so with land and buildings. Land and buildings sell for a multiple of the rental income and the rental income is in GBP. So if GBP falls, the rent falls in foreign currency terms and so the price which a foreigner is prepared to pay also falls in his own currency terms, and by definition is unchanged in GBP terms. The two effects neatly cancel out.
So in practice, GBP levels against other currencies have no little no effect on the selling price of UK land and buildings (in GBP terms). This is easily observable, or more to the point, is not observable at all because the effect does not exist, or the effect is so faint it is masked by 1,0001 other factors.
I can see the obvious counter-objections to this and I might as well deal with them.
1. "Ah, but wealthy foreigners aren't snapping up London homes for rental income, they are buying them to show off to other rich people."
Quite true, but when wealthy foreigners are bidding, the baseline is that they have to outbid the locals i.e. people who earn GBP and will be paying in GBP.
Further, it is a similar set of factors which influence GBP levels as influence the price of land and buildings, the two seem to move in tandem rather than in opposite directions (interest rates being one exception, a cut pushes GBP down but pushes the price of land and buildings up).
UPDATE: Inevitably, people appear to believe that wealthy foreigners don't care about underlying i.e. rental values, or even showing off, they are doing it because it is a safe haven for their money and they are hoping for capital gains. The first part is clearly not true, if they wanted a safe haven for their money, they could buy 100 ordinary homes instead of one mansion in Westminster. So perhaps the second part is true, they are gambling on capital gains - and they have been right so far.
Nonetheless, put yourself in the position of a wealthy foreigner who wants to speculate in high end London homes. Two come up for sale, a smaller one with an annual rental value of £100,000 and a larger on with an annual rental value of £200,000. Which one would you bid more for? Not difficult, is it?
And of course, in all cases, it is local - earning and paying in GBP - who set the baseline for what you have to pay for the top couple of percent, even if we ignore the fact that homes sell for a multiple of rents.
2. "Foreigners will gamble on GBP bouncing back."
Sure, but everybody can do that and there are simpler ways of speculating on currencies than buying land and buildings, with far lower transaction costs. And at any one time, we have to assume that whatever the FX rate (or any other random financial market variable) is, half of people expect it to fall and half expect it to rise.
Saturday, 22 October 2016
Quite apart from the fact that the EU uses subsidies to buy its support and fund its mates, why is HM bleating about this when Brexit has delivered her family business its property back? You'd think she'd be bloody grateful. As for all the other pleaders, do they not realise that they are on benefits?
Humph. And then there are these pearls:
It is understood there were concerns about whether demand for stores on Regent’s Street and other parts of London owned by the Crown would drop after a vote for Brexit.
All revenue made by the Crown Estates goes to the Treasury, with 15 per cent of the taking shared to the Royal Family through a yearly 'Sovereign' Wealth Fund.
However a Crown Estate source said last night: “Businesses are still queuing round the block to take retail space on Regent’s Street and St James’s.”
Something else has occured to me.
The taxpayer is coerced into paying subsidies to one part of 'The Crown Estates', whilst another bit collects a share of rents from land in prime retail locations.
Why not just stop paying the subsidies and collecting the share of the rents?
KRMG News (Tulsa), 22 September, Major damage after car hits house. Possible drunk driver ran away
The West Australian, 23 September, Car ploughs into house in Perth's south
Ipswich Star, 3 October, House damaged during crash between van and car in Suffolk towns
BBC, 3 October, Medieval bridge in Bradford-on-Avon damaged by stolen car
Slough & South Bucks Express, 3 October, Car used to 'significantly damage' window of fish and chip shop. Poorly worded headline, it means "was used for the purpose of" and not "it used to, but doesn't any more".
Daily Mirror, 8 October, Couple drive prized car into living room of house to protect it from Hurricane Matthew storm damage
Road and Track, 10 October, Perfectly Reasonable Man Parks E30 M3 in Living Room to Avoid Hurricane Damage
Thejournal.ie, 11 October, 'Substantial damage' caused as car crashes into front wall of house
12 News (Arizona), 19 October, A family of four is OK after a car slammed into the front of their home, crashing through the master bathroom early Wednesday.
Clydebank Post, 21 October, Drumchapel house damaged by tractor at 3am prompting police investigation
New Haven Register (Connecticut), 21 October, SUV crashes into house, gas meter in New Haven
Follownews (Massachusetts), 21 October, Car Crashes Into Home, Causing Serious Damage
UPDATE from the BBC, 22 October/today, Driver smashes car through garage wall in Brownhills
A quote from this intriguing article in the Mail...
"The other major stumbling block for those landlords worst affected by the tax changes has been a perceived need to refinance, the costs of which can prove to be astronomical and may result in losing preferable mortgage terms agreed prior to the credit crunch."
I've long suspected that Mark Carney's 'forward guidance' (and all those bland speeches he manages to get reported everywhere as 'interest rates are about to rise') is all about wrong-footing consumers into fixing their mortgage rates. It's forgivable too, as his job as a macro-prudential regulator is to keep the banks safe.
Mark Carney opens his mouth and the interest rates futures market jumps. Mark Carney makes the merest hint of rising rates and folk in my office all start panicking and fixing their mortgages. It works.
I guess not only do the BTL reforms create the need for highly leveraged landlords to re-mortgage, it also pushes them into business banking, where they can be well and truly pillaged with almost utter impunity.
From the BBC:
Five people have been taken to hospital and a further 21 injured after the roof of a bus was ripped off when it hit a railway bridge in north London.
Bus hits bridge stories are a lot less common than car hits house stories, but are more spectacular so get a lot more coverage. I'll have to start keeping a tally.
Friday, 21 October 2016
From The Telegraph:
House price growth at stations on Southern Rail's routes has ground to a halt as strikes by the RMT Union continue to make commuters' lives a misery.
New research by the online estate agency HouseSimple found that properties on the Brighton Mainline, Mainline West and East routes have fallen in value by an average of 0.4pc, losing £1,875 in value in the last three months.
This is not due to a general slump in house prices in the area during a traditional summer lull: in the south-east of England, house prices have risen on average 2.4pc between June and August, according to the Land Registry.
Von T's rings assume constant travelling speed (in the days of horses and carts) so it is only distance that matters; what actually matters is time, cost and hassle, so if a train service is less reliable, that is effectively further away from The Centre.
Right at the end there's a nice bit of Home-Owner-Ist double counting:
Alex Gosling, chief executive of HouseSimple, said: “House prices along Southern Rail routes haven’t gone into freefall just yet, but these figures do suggest that the ongoing dispute is hurting local property markets.
"It would be a real kick in the teeth if homeowners, who have had to endure the daily misery of train delays, cancellations and strike action, started to see the value of their homes falling because of the RMT and Southern Rail’s inability to reach a deal."
The amount by which rental values (and hence house prices) fall is not in addition to the grief and hassle, it is the market's estimate of the cost of the grief and hassle.
Thursday, 20 October 2016
From the BBC:
Harry Redknapp's wife was seriously injured when she was run over by a Range Rover driven by the former football boss. Witnesses described seeing Sandra Redknapp, 69, get her coat caught under the car as her husband pulled away…
Mr Redknapp, also 69, had been dropping his wife off in Westbourne, which is four miles away from the couple's £5m home in Sandbanks and reportedly didn't realise that his wife was stuck and drove away.
Either his wife was unlucky, he's a poor driver or that was the most badly planned murder attempts of all time. Reminds of the famous quote: … as a German commander said later, and the Allies learnt the hard way, "if you’re going to invade Italy, don’t start at the bottom".
Wednesday, 19 October 2016
The results to last week's Fun Online Poll were as follows:
Which is more likely to push the UK into a 'Hard Brexit'?
Political grandstanding and threats from EU leaders - 54%
The inevitable UK backlash thereto - 42%
Other, please specify - 5%
Which is pretty conclusive. As Tusk and others have said, the UK must pay a price and be seen to pay a price for Brexit pour encourager les autres. So if we end up with Hard Brexit, that was their decision, not ours.
The question is, what will that "price" be?
1. Merkel keeps insisting that Britain can't get full single market access with free movement concessions. I'd be a hypocrite to oppose the freedom of EU citizens to move within the EU to work and I can't say it bothers me greatly (although it bothers a lot of others, fair enough I accept that).
2. There has also been some mumbling that the UK would have to pay a market access fee, estimated at £5 billion a year, half our current contributions and under the circumstances, a price worth paying if it's for the benefit of the whole economy. For some reason, the pol's are obsessed with UK-based banks having access to the single market, in which case it's not a price worth paying and the banks can pay it themselves out of a bank asset tax or something. Either way, it appears that the EU is not insisting that we continue being the second largest net contributor.
So that's this week's Fun Online Poll, if it were a simple choice (which it won't be), which "price" would you rather we pay to retain tariff and quota free access to the EU single market? Or indeed neither?
Vote HERE or use the widget in the sidebar.
Tuesday, 18 October 2016
Emailed in by Physiocrat, from the comments in an article on FT Adviser headed "The pound’s longer, sharper Brexit shock":
Paris azawak said:
@ Physiocrat @ RiskAdjustedReturn
I have attempted to follow this bizarre thread in which Physiocrat puts forward an ultra-liberalist hypothesis in which all taxes would be abolished overnight except for a simple land tax…
This is his first Big Mistake, as Mike W points out in the comments:
I only require that the 'last great project of political economy' (actual phrase which caused the problem), itself conforms to Popper's dictum of 'piecemeal' observable, testable, one bit at a time, implementation. With no bloody revolution or bloody reactionary counter thrust.
But let's read the rest of the drivel anyway, just for fun:
… Would this not simply result in a return to the known ills of completely unbridled capitalism:
(i) the brutal, irresponsible chaos of disproportionately concentrated wealth into the hands of an increasingly small number (a proliferation of Murdochs, Gates, post-soviet oligarchs, etc, behaving like capricious feudal barons as the rest struggle as vassals once did);
(ii) an immediate widening of the disparity between rich and poor (ie the rich get richer and richer, the poor get poorer and fall behind, are excluded, abusively "exploited", resulting in a surge in social decay and moral injustice (refer Dickens) which costs far more to cure than to prevent (exclusion, poverty, declining health, homelessness, poor education, exclusion, discrimination, delinquent behaviour, crime, &c);
(iii) the decline of infrastructures (especially less "profitable" ones) that taxes pay for in response to specific needs and situations as they evolve and in accordance with government policy as they develop according to evolving democratic majority choices in the interest of the common good.
No company or person enjoys paying taxes.
However, what taxpayers get in return for their fleeting contribute is a very great deal more in return than the sums they contribute since they benefit from the vast heritage or legacy of all that has been constructed and developed by decade upon decade of taxpayers (heath sector, educational sector, law and order, transport and communications, government and public buildings ... the list is endless).
The only possible way to levy tax fairly in order to maintain and develop the vast EU wide infrastructures that make the existence of dynamic, modern and efficient trade, services and consumer markets possible is good governance, fair regulation and taxation based on means-testing.
A land tax is haphazard by comparison and relatively easy to distort and circumnavigate (eg as pointed out, foreign companies such as Google generate unprecedented wealth without owning physical land in the markets they derive profits from through a virtual, immediate and monopolistic electronic Platform).
For the same reason, VAT is relatively unfair since it is a flat tax on consumption regardless of means. The poor pay the same VAT as the rich for the product.
Tax should be levied on income/revenue and not exclusively on land ownership as suggested, because
(a) land value varies constantly according to market fluctuation and is impossible to estimate exactly
(b) in an imperfect world [income tax] is:
(ii) proportionate and therefore sustainable;
(iii) supportive of the market whose infrastructure has made its generation possible;
(iv) adaptable according to specific and ever-evolving governmental policies aimed to protect society in the interest of the common good, and so as to avoid the higher social and Financial cost of exclusion and social decay;
(v) ethical, civilizing and therefore progressive,
A land tax would be regressive and mark a return to the Dark Age:
Indeed, history teaches us that in the middle ages, land taxes concentrated power and wealth into increasingly power dynasties who possessed entire fiefdoms and kingdoms; charity was dispensed patronisingly and randomly according to whim or the success of petitioning peasants and vassals.
Not much means-testing there. Just medieval madness, machiavellan machination and civil strife all round (refer Shakespeare).
RiskAdjustedReturn is entirely correct above, it seems to me when he state in a post above that:
"Someone has to pay for the infrastructure that makes the building viable for habitation."
Well that settles it then, doesn't it?
Sunday, 16 October 2016
Well, FFS it's taken you lot how long to admit this? We told you it was all a bad idea at outset and the actions your 'project' has taken has just compounded the error.
I'm truly speechless.
Posted by Lola at 18:32
I have not kept exact tabs on this, but there is a pattern to the type of advertisements featuring celebrities.
Adverts for something real that you can judge on its own merits like mass market cars, furniture or white goods, tend not to feature celebrities. You can test drive a car, decide whether you like the styling, compare its fuel economy and so on. You can test sit on a sofa and decide whether it's comfy or not.
There's a good list of the reasons why advertisers use celebrities here, but it is just as interesting to look at the type of products they are used for and work backwards from that.
Celebrities tend to appear in adverts for the following, in no particular order:
1. Supermarkets, which are essentially all the same, they sell the same products for the same prices in the same way. So they try to differentiate themselves by using celebrities, apart from Aldi and Lidl which mainly compete on price, so their adverts just compare prices for their own brand goods with similar branded products. This also applies to Littlewoods and Very.
2. Luxury items/conspicuous consumption like really expensive watches, which don't tell the time any better than a £15 Casio. In fact, even a Casio is superfluous if you are carrying a mobile phone.
3. Lifestyle things/conspicuous consumption which serve no useful purpose especially perfume, which all seem to follow exactly the same template and are incredibly dull. In contrast to mass market cars, luxury car makers are far more likely to use celebrities/racing drivers. The same goes for fitness paraphernalia like Kate Hudson/Fabletics, these ghastly fitness trackers and gym memberships. People buy sportswear in the vague hope it will encourage them to actually go jogging etc but usually never do. I'm pretty sure that ninety percent of all fitness gear is only used once or twice.
4. Generic white label products like price comparison/estate agent and gambling websites, where one price comparison/estate agent or gambling website is the same as any other, what these sites needs is some sort of critical mass of users especially price comparison websites, if you are number one, then everybody wants to advertise with you, if you are number two or three then far fewer people will advertise with you.
5. Things which are cheap to produce but can be sold for prices that include a lot of rent, like replica football kits, which the teams advertise for free each time their match is broadcast. This also applies to chocolate, as much as I love chocolate every now and then, it all tastes the same to me.
6. Cable television and mobile phones. Companies which have their own content (Netflix, Sky) can advertise their programmes; BT, EE, Virgin etc do not have own content so it uses celebrities.
I can't quite boil that down to one common theme. To be mundane about it, it's about product differentiation or creating a demand for what is a perceived value-added service rather than the product itself.
The joker in the pack is Gary Lineker advertising Walker's Crisps, which are pretty much the best crisps for the price if you buy multipacks in the supermarket. You can judge them on their merits and either you like them or you don't, so why on earth they pay Gary Lineker or Paddy McGuinness a fortune to get on everybody's nerves is a mystery to me. Those adverts are truly awful and always have been. Coca Cola does a lot of advertising, but by and large they don't use celebrities and their adverts are usually pretty good.
Saturday, 15 October 2016
From The Telegraph:
Professor Mody, who led the EU-IMF Troika rescue for Ireland, said the pound had been driven up to nose-bleed levels from 2011 to 2015 by global property speculators and the banking elites acting in destructive synergy, causing serious damage to Britain’s manufacturing base and long-term competitiveness...
“It was essentially a bank-property nexus, and the rest of the economy was left to suffer. It is stunning that just 1.4pc of all loans were going to the manufacturing sector,” he said. The country was suffering a variant of the ‘Dutch Disease’, although in this case the problem was over-reliance on finance rather than commodities.
“Britain was borrowing 5pc to 6pc of GDP a year to buy imports and live beyond its means. The strong pound was great if you wanted to buy a Mercedes Benz of take a holiday in Spain, but the prosperity was an illusion, borrowed from the future,” he said.
Prof Mody said the pound was 20pc to 25pc overvalued in trade-weighted terms before the Brexit campaign got underway, based on classic IMF measures of the real effective exchange rate (REER). This currency distortion would have inflicted deep damage if it had been allowed to continue for another five years.
I pointed out two years ago that GBP and house prices tracked each other very closely from 2004 to 2014, I ought to update that chart and see if it still holds, but as a generalisation it does: "Brexit fears" have clearly been a fairly direct cause of high end London land prices falling (fewer foreigners want to buy here) which in turn reduces demand for GBP and hence leads to GBP falling.
The UK's trade deficit is about £100 billion a year. What do the foreign exporters do with the GBP they accumulate? They like buying up things in the UK which will provide rental/super-profits/unearned income: shares in UK companies, commercial land and buildings, 'privatised' utilities, high-end London residential, student accommodation and things that will entitle them to government-guaranteed payments (Sizewell B, farmland, UK government bonds etc.
This is a vicious spiral of course. Every year the UK as a whole is poorer by the amount of rent which seeps abroad, enabling foreigners to buy more UK rental streams ad infinitum.
So what would happen if we got rid of these subsidies; started taxing rents/monopoly income more and production/wages less; and reduced public sector deficit to zero? Foreign manufacturers and farmers will still be happy to sell us stuff, they are geared up to producing and selling as much as possible.
What will they do with the GBP they receive for what we import? They are welcome to buy land, but most of the value will go back to the UK Treasury as tax instead of seeping abroad as rent. So they will spend much more of their GBP on UK produced goods and services. Or maybe they will sell us less stuff while buying the same amount from us. Either way, it would do wonders for the balance of trade.
Friday, 14 October 2016
As well as the BRC getting it wrong about tariffs under the WTO rules, they appear to have got it wrong about "falling back on to WTO rules" as well.
The problem, as outlined here, is that the UK isn't a full member of the WTO in its own right, but only through the EU, and so leaving the EU and "falling back on to WTO rules" would not be a quick or a simple process. The WTO may be "an advisory/co-ordinating body rather than a supra-national quasi-government", as Mark points out, but it is still bureaucratic and operates by consensus, which means everyone has a veto.
So let's hope that we manage to remain part of EFTA and the Tories don't cock that up as well.
Thursday, 13 October 2016
2. Open up markets with key partner countries
We seek to create growth and jobs for Europeans by increasing their opportunities to trade with the world. This is particularly important in the context of current economic conditions.
One way of opening markets is to negotiate better access and conditions for trade and investment through free trade agreements.
The EU has concluded a number of Free Trade Agreements and is continuing negotiations with others.
I'm struggling here, stated EU policy appears to be in favour of FTAs, but where does it say "except with the United Kingdom of Great Britain and Northern Ireland"?
It's also well worthwhile following the first link to "trade and investment through free trade agreements", all good stuff but it doesn't exclude the UK there either.
Going back to that BRC letter...
Falling back on to WTO rules would also increase the cost of sourcing from beyond the EU. The import cost of women’s clothing from Bangladesh would be 12% higher, while Chilean wine would be 14% dearer for importers.
Yes, we would expect the UK to remain a member of the WTO which is an advisory/co-ordinating body rather than a supra-national quasi-government. The obvious point is that the WTO has no rule stipulating minimum or default tariffs.
(Nobody questioned why the BRC specifically mentioned Bangladeshi clothes or Chilean wine. It turns out that they were cherry picking:
Bangladesh has been a WTO member since 1995 and, as a least developed country, benefits from the EU's "Everything but Arms" arrangement, which grants duty free, quota free access for all exports, except arms and ammunition.
The EU and Chile concluded an Association Agreement in 2002, which included a comprehensive Free Trade Agreement that entered into force in February 2003. The EU-Chile Free Trade Agreement is broad and comprehensive and covers all the areas of EU-Chile trade relations.)
Daniel Hannan, who is good on principles but useless on facts fell for it, as gleefully reported by The Daily Mirror, and tweeted thusly:
This is idiotic. Chilean wine 14% more expensive? It's currently subject to a 32% EU tariff, which we can now scrap.
Haha! cry the Bremoaners, he didn't know that there was an EU-Chile FTA! Others pointed out that the EU default tarrif on wine is 8p per bottle (although some official sources did incorrectly give the figure as 32%, which is about par for the course for EU tariffs on food, so a forgivable mistake on Hannan's part). So, they argue, Hannan's lack of grasp of finer detail undermines his general point! No it doesn't. His general point was and is sound.
And so bloody what? The BRC were clearly cherry picking examples, thus making their whole letter questionable, and they still haven't explained where it says that WTO members must impose a minimum tariff of 14% on imported wine. Because it simply doesn't, I've checked.
The final point is the general principle of continuity of international treaties, so if the UK leaves the EU, we are then almost automatically in a UK-Bangladesh FTA and a UK-Chile FTA on the same terms and conditions as the EU-Bangladesh FTA or the EU-Chile FTA, and so on, until and unless one party abrogates it.
Whilst supermarket shareholders took a bath in 2013/2014, investors in branded consumable goods maker Unilever have doubled their money in the last five years. Depressed margins from fierce competition have been widely blamed for the poor performance of the likes of Tesco. Yet blue chip consumer non-cyclical companies - investments people are calling "bond proxies" in a word of 0% rates - just don't appear to be affected. Unilever, and companies like it, trade on 25 times gross earnings, much like 'bricks and mortar' in London.
Given that the Lidl and Aldi sell very little branded produce, and consumers are switching to them in droves, it always struck me branded goods companys' margins would be next in line for a haircut. So it comes as little surprise that troubled retailer Tesco have fallen out with the maker of Marmite:
"Reports suggest that Unilever ... has demanded steep price increases of around 10 per cent to offset the increased costs [from the fall in sterling] ... Products have disappeared from Tesco's website after the supermarket chain refused to accept the price increase ..."
Now if everyone refuses to accept the new price, and simply substitutes Colman's with a supermarket English mustard on their shelves - on sale at a third of the cost or less - how does this help Unilever?
Of course another reason the likes of Unilever became a darling stock of the big fund managers was the fall in the price of oil. If consumers are spending less at the pumps they can afford more branded ice creams went the thesis. With petrol prices in pounds on the up again the reverse must be true surely?
So do we dare sell short the 'bond proxies' or are they really going to the moon in a world of negative interest rates and fed up savers?
NOTE: This is a not financial advice or a solicitation to buy or sell securities but an article for academic interest and discussion.
Wednesday, 12 October 2016
I offered an explanation as to why falling house prices end up harming the real economy (despite logic saying they ought to help it) recently, nobody came up with anything better so it'll have to do for now.
To cut a long story short, when house prices fall, people want to withdraw money from banks which are overweight in mortgage lending (which is most of them) because the banks' collateral value is falling. Most banks have about 80% of their lending on mortgages and 20% to the real economy (business loans, overdrafts, credit cards, HP deals/personal loans etc).
It is impossible to make mortgage borrowers repay any faster than under the terms of their mortgage, so the quickest source of cash is to call in business loans, cancel overdrafts, cut credit card limits and stop offering HP deals/personal loans. So the real economy is starved of credit/finance, things which oil the wheels, and it grinds to a halt.
TBH emailed me an article about new revelations on the most extreme real life example of this i.e. the RBS Global Recovery Group which operated on a slash and burn basis. It upped fees and charges, deliberately bankrupted businesses and then a different RBS department acquired their land and buildings at undervalue 'off the market' (can't have forced sales depressing open market prices!). This is a very short term thing and must harm RBS profitability in the long run, but that's not how bankers think; it's only this year's bonus that matters.
I thought that everybody knew this, but apparently not - the BBC re-ran the story (giving due credit to Buzzfeed who uncovered it).
There's no point me summarising, it makes for very interesting reading if you have time.
The point being that without the house price falls, depositors wouldn't have demanded cash, RBS wouldn't have done the slash and burn, and had other banks been expanding their business loans or offered easy remortgages, RBS borrowers would have simply taken their business elsewhere. As things stood, RBS had them by the throat.
The results to last week's Fun Online Poll were as follows:
Which kind of Brexit would you like?
Hard - 63%
Soft - 4%
Runny - 3%
Scrambled - 10%
Poached - 1%
Fried - 4%
Burned - 8%
The vegetarian option please - 8%
That's conclusive, a good turnout of 120 and thank you to everybody who took part. Other suggestions included "Burned bridges", "Over easy", "Scorched earth", "We knead to make dough with a Bistro Brexit", "Fully blitzed like a smoothie" and "Quick". I'm sure that most of those aren't egg recipes, but hey.
What is interesting though is that we are now seeing exactly the same response as we had to Project Fear; if TPTB over egg the pudding, then people just go the other way out of sheer bloody mindedness.
So while the Three Brexiteers and UKIP are merrily banging on about Hard Brexit (whatever that means), it's not the UK as a whole who is pushing for this. As far as I can see, it is Merkel, Hollande, Juncker et al who are doing political grandstanding and saying they can't and won't make compromises, it's all or nothing etc.
As a moderate Leaver i.e. pretty much representative of UK mainstream opinion (for once), it seems inevitable that if the EU leaders are going to try and bully us and ignore the possible cost to their own economies, this will merely provoke the response in the UK that the EU can go f--- themselves, which is not really an optimal outcome for anybody.
So that's this week's Fun Online Poll.
"Which is more likely to push the UK into a 'Hard Brexit'?"
Vote HERE or use the widget in the sidebar.
Tuesday, 11 October 2016
From the related BRC press release (I can't find the letter itself):
While UK retailers have been very successful in insulating consumers from the cost of rising business rates and labour, the recent devaluation of the pound in relation to our most important trading currencies is compounding economic headwinds, while years of deflation have left little margin to absorb added cost from import tariffs and administrative burdens.
There is of course a huge cushion to absorb these extra costs, it is called "rent". As long as rents go down in line with the extra costs, retailers in general will be just fine (successful tenants will replace inefficient owner-occupiers). But that's not the weird part:
Moreover, failure to strike a good Brexit deal by 2019 would have a disproportionately severe impact on retailers and their customers, because if the UK fell back on to World Trade Organisation rules the new tariff rates that the UK would apply to imports from the EU would be highest for consumer staples like food and clothing.
For example, the average duty on meat imports could be as high as 27%, while clothing and footwear would attract tariffs of 11-16% versus the current zero-rating for all EU imports.
Falling back on to WTO rules would also increase the cost of sourcing from beyond the EU. The import cost of women’s clothing from Bangladesh would be 12% higher, while Chilean wine would be 14% dearer for importers. This contrasts with duty rates that would apply to raw materials and semi-finished products, many of which would be zero-rated or attract rates of duty of below 10%.
Hang about, I thought that the WTO has a system of maximum import tariffs which a country can impose (subject to loads of silly exceptions), not minimum tariffs?
They way they say it, the UK would have to impose higher tariffs on certain things. Can this possibly be correct? Can't WTO members just unilaterally abandon import tariffs?
Monday, 10 October 2016
From Wiki and Wiki:
Rosemary Jones’s Baby is a romantic psychological comedy horror film set in modern day London, England in 1965. Rosemary, a bright but somewhat naive young housewife, and Guy Jones, her husband, a struggling actor, move into the Bramford, an opulent but antiquated New York City apartment building in London, where Rosemary works as a television producer.
On her 43rd birthday, Rosemary is awoken by Mrs. Gardenia, an elderly woman who had seemingly gone senile who reminds her that her time to have children is running out. Their friend Hutch tries to dissuade them from taking the apartment, informing them of some of the Bramford's rather unseemly history but, undeterred, Rosemary and Guy move into the building.
Three months later,Rosemary attends the funeral of Hutch, who is presumed dead after a plane crash. He leaves Rosemary a book about witchcraft and it is delivered to her at his funeral along with the cryptic message: "The name is an anagram". While there she sees her ex, Mark Darcy, and his new wife. They bump into one another somewhat awkwardly and then go their separate ways.
On the night she plans to conceive, Rosemary accepts Shazza's offer to take her away for the weekend. They go to a music festival where a drunk Rosemary crawls into a yurt she thinks belongs to her and Shazza, but actually belongs to a handsome stranger she met earlier. The two have sex and in the morning Rosemary tries to not be disappointed when she wakes up alone.
Returning home Rosemary goes to the christening of Jude's youngest child where she is the godmother and Mark has been asked to be the godfather. Mark tells her that his wife has thrown herself to her death from the window of the Castevets' seventh-floor apartment and Rosemary has sex with him.
Rosemary suffers severe abdominal pains, loses weight again, becomes unusually pale, and craves raw meat and chicken liver. Shazza suggests that Rosemary might be pregnant, especially when she realises that Rosemary used old, expired condoms when having sex. Dr Sapirstein insists the pain will subside soon, and assures her she has nothing to worry about.
Rosemary realises that she does not know who the father is and doesn't even have a way of contacting Jack, the handsome stranger, Guy, her husband or Mark Darcy. However, the abdominal pain suddenly disappears. Rosemary's health and appearance also improves quickly, and she, Jack, Guy and Mark are finally happy once again.
During labour Jack, Guy and Mark try to help Rosemary. However during labour she accidentally punches Jack in the nose. After Rosemary comes round from sedation, it is remarked upon that the baby, a boy, has "his father's eyes", to which Rosemary protests that the baby's eyes are nothing like Jack's, Guy's or Mark's.
It is then explained to Rosemary that child's real father is actually Satan. Rosemary sheepishly admits that she was so embarrassed about her one-night stand with Beezlebub that she didn't enter it into her diary. As the film was based on her diary entries, the audience finally realises why the film was so full of plot holes and missing explanations.
Villiers launches campaign to save Arkley’s green belt
Theresa Villiers MP is throwing her weight behind local NIMBYs who - wait for it - object to a graveyard being built on the Green Belt. I can't even find the words.
Posted by mombers at 14:17
Hammond hires HSBC 'economist'...
"It's again a story of managing to keep the recovery hobbling along but due to much more stimulus both from the ECB and government spending. Less private sector expansion, more public sector expansion, and all the while we're just muddling through. We're not solving some of the key underlying problems, such as income inequality, high unemployment, and a disenfranchised youth — which is what is fuelling support for populist parties around Europe. And as we've seen with the UK last week those risks can materialise — so this remains a very precarious calm."
What about your role in all that? The total failure to reform banks? The massive credit expansion? The eye-watering rent seeking? The taxes on production and subsidies to landowners and banks? The total screwing of the poor and the prudent for the benefit of the already rich and parasitical speculators?
Another remainer or at the very least anti-leaver 'economist' from the same serial inflationist home-owner-ist club as all the rest of them.
Update h/t DBCR
Seems that I have been a little (not a lot) unfair to La Ward. Seems that she had spotted some issues in 2008 - somewhat after we did, may I add.
Sunday, 9 October 2016
In an article spotted by Lola, the Indie tries to get to the bottom of what is causing Britain's "housing crisis".
However, setting on one side that fact that there is no housing crisis, there is just a lack of cheap housing in expensive places, they do a good job of bringing up all the usual suspects as the the cause of high house prices: I'd recommend you read the article, but if you've not got time, the defendants in the dock are Maggie Thatcher, foreigners, BTL landlords, NIMBYs, CPRE, house builders (by which I think they mean developers aka speculators), banks, George Osborne, the law and councils. The Indie puts the finger on councils, CPRE and NIMBYs.
So that's a double fail, firstly for ignoring the effect of 500 year low interest rates and secondly for subscribing to the land-bankers' myth that building more houses will make them cheaper. So, just the usual mainstream media output you might think, until you get onto the section "Solutions".
Again, all the widely touted solutions are here: rent controls, mansion tax, confiscate land from house builders (by which they mean the speculators once again), relax the planning laws, protect tenants, then at No 6, impose LVT, which is a bit of a surprise. They then round off with ban multiple home ownership, subsidise mortgages, help housing associations to borrow more and build more houses. Full marks to the Indie for awarding five stars to LVT, but minus points for awarding the same to "build more houses".
Still, for something written in 2014, it's pretty refreshing.
Posted by Bayard at 20:08
Saturday, 8 October 2016
Being a traditionalist, I have tried listening to the whole album in the original running order with the two B-sides tacked on at the end (available on the CD version), but it gets a bit wearing and I don't think I ever managed it all the way through.
Yesterday, I tried again but had left the iPod on shuffle. The order in which it played them just flowed better and made much more sense - I listened to it twice all the way through as follows:
Like A Nightmare
Too Late Too Late
Limb By Limb
(I Won't) Pay Your Price
Tear Ya Down
I'll Be Your Sister
If anybody has any better suggestions, please leave a comment.
Friday, 7 October 2016
Much squealing about something that has been in the offing for seven years, people act surprised that it actually happened. Tenants or buyers should have used a likely upwards revaluation as a bargaining chip in rent or price negotiations over the last few years.
From the BBC:
The new rating list for England and Wales will take effect in April 2017 and reflects the rental values of properties.
Overall figures for Wales show a 2.9% cut in rateable values, with shops falling by 8.8% and offices by 7%.
Across England, rateable values rise by 9.1%, ranging from a 22.8% increase in London to a 1.1% fall in the north east.
The really huge increases are in central London, where nearly all premises are tenanted. A slightly more cunning government would have frozen the amount that tenants have to pay and sent the landlord a bill for any increases (secured on the title, in case anybody wants to play the 'foreign owners won't pay LVT' KLN).
That way, landowners wouldn't be able to use actual real businesses as human shields.
Thursday, 6 October 2016
Emailed in by Ralph Musgrave from Property Week:
The accelerated construction fund, announced at this week’s Conservative Party conference, will be used to guarantee housing developments, with the government effectively using its balance sheet to underwrite the risk developers take...
This week communities secretary Sajid Javid said the £2bn fund, which will be paid for through additional government borrowing, would only apply to schemes on public land and would back the construction of an extra 15,000 homes by 2020.
“We will take government-owned land and partner with contractors and investors to speed up house building,” he said. “We will create new supply chains using offsite construction. And we will encourage new models of building to make houses that people want, more cheaply and at pace.”
Sounds like a massive slush fund to me.
Wouldn't it be easier and cheaper just to employ all the sub-contractors whom the 'home builders' would have engaged to build social housing on the government-owned land? If offsite construction is the way forward (cheaper) then that is how they will be built, for half the price that Mr Javid wants taxpayers to pay (£133,333 per unit).
The waiting lists are far too long, so if there is a 'market failure' (Theresa May's phrase of the week) it is here. The effective interest rate on the money spent/borrowed is effectively zero and the principal can be paid off from the rental income/savings in Housing Benefit to private landlords, so it ends up at a modest profit for the taxpayer generally, not a cost.
Echoing this week's egg-themed Brexit Poll, congenital Home-Owner-Ist and hereditary MP Jacob Rees-Mogg has said that he wants a hard white Brexit with a runny yolk.
The man is incapable of satire or self-awareness, everything he touches becomes unfunny. Which has now taken all the fun out of the fun online poll.
Wednesday, 5 October 2016
From The Independent:
Private housing developers should build homes with smaller rooms that do not meet existing minimum space standards so that landlords can afford to buy them, the housing minister has said.
Gavin Barwell told the Conservative conference in Birmingham that he wanted the private sector to “innovate” to solve the housing crisis and that relaxing the rules on how cramped a flat can be might stop investors from being priced out.
Tuesday, 4 October 2016
From today's Evening Standard:
Regarding your article on business rates, there is hope for London's retail and office tenants. There is plenty of evidence to show that increases in rates are offset by equal and opposite reductions in rents, therefore the only losers from this in the long run will be landowners.
They have enjoyed substantial capital gains and increases in rents over the past seven years [i.e. since the last revaluation], so few will shed a tear for them.
A pity that either Joe or ES didn't add the 'Young People's Party' sign off.
Or to put it another way, Business Rates is just a super-tax on rents; total London rents have risen by £5 - £10 billion a year over the past seven years, and the government has finally got round to increasing this super-tax to what everybody with a little foresight expected it would be anyway.
Emailed in by Lola from CityWire:
Pensions minister Richard Harrington has said people should be able to use retirement savings to buy a house.
Speaking to New Model Adviser® at the Tory Party conference in Birmingham, Harrington, who was appointed as pensions minister in the summer following Theresa May’s post-Brexit vote reshuffle, said there is an ‘arbitrary’ line between saving for retirement and house purchase.
‘For most people there are two steps in their life [house purchase and retirement] and I think it is legitimate that the government should help with both,’ he said.
Previous Chancellor George Osborne had started gently swimming against the tide with his restriction for interest relief on BTLs and the extra 3% for buying second and further homes, but this man clearly is an utter, utter dickhead.
Sure, most people starting out in life would like to buy/own their own home rather than renting; and sure, retirees with some savings want to collect as much investment income as possible, whether that's dividends or rent from those people who would rather buy/own.
So it is a straight fight between young/poor and old/wealthy over available housing and it is impossible for the government to "help" (NewSpeak for subsidise) both sides as the effects cancel out! It's like sending weapons to opposing armies; good for weapons manufacturers and nobody else.
It would be a lot cheaper (for the taxpayer) and simpler to "help" neither side (again, current Chancellor Philip Hammond has had an outbreak of common sense and will shut down the Help To Buy subsidy at the end of this year) with a resulting fall in house prices. Win win win!
Monday, 3 October 2016
From The Guardian:
To understand why, despite the recent funeral orations, liberalism is very much alive, you have to go back to the 1860s and the abolition of slavery in two key countries. To be precise, 1863, when – in one of the great coincidences of history – the proclamations of liberty for the American slaves and the Russian serfs came just five weeks apart*.
Both liberations were great victories for anti-slavery campaigners, more than half a century after the first successes of the campaign against the slave trade. But they were also great disappointments for radicals. Because, in both cases, the slaves and the serfs were catapulted from bondage into poverty.
In the US, slavery was replaced by peonage and debt bondage. In Russia, the land was valued at three and a half times its market value, and the impoverished serfs had to pay this to their former owners over a period of 49 years. It became clear that it wasn’t enough to release the slaves – you had to release them from debt, monopoly and the economic tyranny that replaced it...
All fine so far, if TPTB 'release' slaves/serfs but allow private 'land ownership' to continue and then collect most of their earnings from them in rent, the former slaves/serfs are no little or better off.
It is as simple as that. And that is pretty much where we are today. Anybody who has to hand over a large part of his earnings to private landlords/mortgage banks is in the same position as a newly freed slave/serf, who in turn is little or no better of than an actual slave/serf.
He then drifts off into a criticism of free trade, which is called 'neo liberalism' nowadays.
Why? What he refers to as free trade is in many cases no such thing, what he is talking about is corporatism, regulatory capture, government granted monopolies and protections, rigging the tax system to favour large businesses etc. Those things are the antithesis of free trade. And in terms of importance, these things are nowhere near as important as private landownership, end of.
* One of my favourite coincidences of history, along with FDR and Hitler coming to power and dying within a few weeks of each other.
Sunday, 2 October 2016
Saturday, 1 October 2016
There have been lots of explanations offered for why a fall in land prices affects the wider economy, which is like the tail wagging the dog. It is ultimately the health of the economy which dictates land rents, which adjusted for interest rates dictate land prices.
Some people talk vaguely about "the wealth effect" or "animal spirits" or "financial contagion" in the vaguest sense, in which there is some truth but those are very simplistic and superficial concepts.
The way I understand it, it is a simple mechanical thing that follows automatically from the way banks work. It illustrates the old adage that "If you owe the bank £10,000 it's your problem, if you owe the bank £1 million, it's the bank's problem."
As we know, an average UK bank's assets are 80% loans on land and 20% short term loans, overdraft facilities, HP agreements, credit cards etc. The bulk of their liabilities are customer deposits.
When the land price/credit bubble finally pops, as it does every 18 years or so, people will want to withdraw money from the riskiest bank, i.e. the one whose assets are 99% loans on land and which has been handing out the highest loan-to-value mortgages e.g. Northern Rock. People withdraw money from NR and short of stashing notes under the bed, all they do is swap a deposit with NR for a deposit with a safer bank or with the government e.g. NS&I.
Duly panicked, depositors with the second wobbliest bank will want to withdraw their money on the assumption that it will pop next. That bank of course can't call in much of the 90% of its loans that are on land any faster than the underlying loans and interest are going to be repaid; the borrowers simply can't pay any faster. The banks don't want to do mass foreclosures on land which is falling in value because that would be a vicious spiral, so where do they get the money from to repay the depositors who want to withdraw?
The only ways they can get money back quickly are (a) cancelling people's overdrafts or (b) stopping their credit cards and demanding repayment in full (or not making any more personal loans).
a) I look at dozens of balance sheets every week when I'm doing tax returns, and it is quite normal for a business to finance its entire stock of goods with an overdraft. That stock of goods has a turnover period of a few weeks or months, so the bank can get its money back as quickly as the goods can be sold. By doing this, the bank has bitten the hand that feeds. When those goods have been sold and the overdraft repaid, the business will find it difficult to stay in business because it can't finance more purchases. Some will survive by scaling down, others will go under.
b) If people stop spending on credit cards/personal loans, clearly there will be less spending on goods and services for several months until all the debts are cleared and people have saved up for what they otherwise would have bought with a personal loan.
Put (a) and (b) together, we see that the productive economy is being sacrificed on the altar of the land price/credit bubble. These two effects reinforce each other of course; once a business has had its overdraft cancelled and demand for its output is falling, it will find it hard to refinance with another bank; there are knock-on effects on its suppliers. So people lose their jobs, there is less spending and less demand etc etc.
TBH reminded me by email about the most extreme example of this, being Royal Bank of Scotland's infamous Global Restructuring Group.
Is there a simple fix?
Obviously, the best answer is always shift taxes from production to land values, as a second best, the answer must surely be to segregate banks into two types:
a) hmm, let's call them "Building societies" who lend only on land and whose depositors face strict withdrawal limits i.e. they can't withdraw any faster than borrowers are paying in, so a "deposit" with such a bank is more like an annuity. Mortgages and deposits are denominated in "land pounds" which of course do not exist so can only be repaid with "real pounds" or "government pounds ". So even if their depositors all panic, the building society is allowed to pu a temporary stop on withdrawals, and
b) ordinary commercial banks who are only allowed to lend short term to businesses to finance working capital and fixed assets; to grant overdrafts, issue credit cards and make personal loans etc. These are "real pounds" and deposits are only accepted in "real pounds" or "government pounds". Depositors, collectively, know that they can withdraw all their deposits within a few months without there being a bank run; and they know that the bank is insulated from land price speculation, so they probably wouldn't all want to withdraw anyway.
[Neither type of bank would get any sort of taxpayer-underwritten deposit guarantee. If people want maximum security, there will of course be a third type of quasi-bank which is the government itself, which creates/prints "government pounds" by spending (or paying out deposits) and destroys/unprints money by collecting taxes (or taking deposits). Whether it collect taxes in government pounds, land pounds or real pounds does not seem to matter for these purposes.
People will only be able to deposit "real pounds" or "government pounds" (but not "land pounds") with National Savings and Investments, which would be made a lot more modern and like a normal bank.]
Lending between banks and building societies would be strictly verboten, of course. So we break the link between useful banking (oiling the wheels of the economy, putting deposits to profitable use) and dangerous banking (land price speculation). This surely makes far more sense than some arbitrary and meaningless split into "retail banks" and "investment banks".
Rather perversely, there is an inverse relationship between the savings rate (i.e. deposits) and house price increases, so actually, during such a period, the banks should have more money from depositors to lend to the productive economy, but somehow it doesn't work like that. I suppose because once the land/credit bust has infected the real economy, banks are just too cautious and stick all the money into government bonds or something.
I cheerfully admit that this might all be old hat and a widely accepted explanation in some circles (not that I've ever read it anywhere). Possibly I have missed the point and there is a better explanation, so I'm open to suggestions, but AFAIC, it is as simple as that.