They own land! Give them money!

The Lib Dems step up to the Home-Owner-Ist plate. From the BBC:

Homeowners struggling to pay their mortgages amid rising interest rates should be able to apply for a £300-a-month grant, the Lib Dems have said.

Under plans, the grant would open to people whose mortgage payments had risen by more than 10% of their income. It could be paid for by reversing tax cuts for banks, the party has said...

Can you imagine the form filling involved in proving that your payments have increased by more than 10% of your income? What compared to what? It would be far easier just to cap mortgage interest rates. Just declare that all interest rates to be fixed at whatever people rate were paying when they took out the mortgage.

Any price cap on a quasi-monopoly like a bank has much the same effect as a tax on their monopoly profits/rental income and saves a lot of churn. To level the playing field (morgage-borrowers vs tenants), they could do normal rent controls. This is quite different to price caps in the truly competitive private sector, which usually make matters worse.

The other side of the UK house price/credit bubble

The papers are full of articles suggesting that the house price bubble might be about to burst soon. Experience tells us that they are jumping the gun and the next bust is due in 2025 or 2026.

What nobody is talking about yet, but will be from 2025 or 2026 onwards is the next financial crisis. I've found a chart here showing that UK banks' balance sheets have expanded by one-third over the past six years (I tried clicking 25 years, but it won't go further back than 2010). That is about 2.5 times GDP, about £65,000 per capita for every UK resident, entirely unrelated to economic growth and highly correlated with house price increases. You can't say which causes which, they are two sides of the same coin:

And now it all makes sense...

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.

"At last! British banks are FINALLY lending to small businesses"

From The Daily Mail:

According to Bank of England figures, small and medium-sized businesses received over £1.1billion in net lending from January to the end of June.

Net lending is the amount handed out to firms, minus the amount repaid.

Ho hum. How many small and medium-sized businesses are there? Half a million? That means on average £2,000 each.

From The Council of Mortgage Lenders:

Lending was particularly subdued at the beginning of the year, and was running at lower than expected levels. But in the second quarter it began to gain momentum. Our recently revised forecast predicts gross mortgage lending in 2015 will be £209 billion.

So for every £1 the banks lend to SMEs, they lend £99 to mortgage borrowers.

UPDATE: BFOD points out in the comments that the figures are not necessarily comparable because the former is net lending and the latter is gross lending. But if you look at a breakdown of total UK bank lending, it's about 80% residential mortgages, 10% commercial mortgages and the other 10% is split between credit cards, personal loans and proper SME lending (most of who are tenants).

Fun Online Polls: Bankers & The Guardian

The results to last weeks poll are as follows:

Compared to taking sweets from a baby, how hard is it for bankers to take money from the government?

Easier - 86%
About the same - 13%
Harder - 1%

This week's poll, again suggested by Ralph Musgrave:

"When writing an article for The Guardian, how often should you use the word 'neo-liberal?'

Vote here or use the widget in the sidebar.

Fun Online Polls

Suggested by Ralph Musgrave.

"Compared to taking sweets from a baby, how hard is it for bankers to take money from the government?"

Vote here or use the widget in the sidebar.

Badly designed taxes, part the manieth.

From City AM:

HSBC moved a step closer to leaving the UK yesterday, piling pressure on chancellor George Osborne to take action to persuade the bank to stay...

Osborne is speaking at the Mansion House tonight, and is expected to soften his bank-bashing tone. But the industry does not expect him to take any big steps, such as cutting the bank levy which he introduced and has hiked nine times.

That levy is a major cost for HSBC – it is a 0.21 per cent charge on its global balance sheet, and is expected to cost it $1.5bn (£975m) this year. By contrast Barclays is set to pay around £600m, and RBS less than £300m.

Well, duh.

There is a basic principle of taxation called 'the territorial principle', which means that governments can get away with taxing profits and assets in their own country, regardless of the residence of the earner/owner, but if they try taxing residents of their own country on their income and assets in other countries, those residents will go elsewhere.

In other words, the bank levy ought to be applied only to the UK portion of banks' balance sheet, regardless of whether they are UK banks or not, in which case HSBC's bank levy would fall by three-quarters and they probably wouldn't be too fussed about it.

To give a silly example, we can charge fuel duty on fuel purchased/used in the UK, but we cannot expect UK residents to record how much petrol they purchase/use when they are abroad and then pay tax on it here.

(Taken to its logical conclusion, the tax which best complies with the territorial principle is LVT and similar taxes).

I wouldn't Deutsche Bank on it...

From The Guardian:

Deutsche Bank would consider whether to relocate some of its UK operations if Britain left the EU, according to reports.

The German lender is said to have established a working group to assess the consequences of a possible “Brexit” following an in/out referendum that David Cameron has pledged to hold by 2017..."

Jolly good.

The question is, will DB also shut or scale back its operations in other non-EU countries, such as New York, Buenos Aires, Mumbai, Hong Kong, Beijing, Tokyo and Sydney?

Great! Now she knows what the do with the £300 a week she always seems to have left over...

Astra Zeneca Merger

From the Telegraph

One of the lessons from the banking crisis is that when one of these deals comes along that the boss of a giant firm says must be done, or else we are all doomed beyond doubt, it is well worth saying: "Hold on a minute. We've got some questions you must answer."

Senior capitalists who cannot see this are, once again, doing the work of the resurgent anti-capitalists. The biggest risk to capitalism is posed, unintentionally, by some of its own leaders and their supporters who argue that if a deal can be done then it must always be done, hang the consequences and you must be a communist if you are sceptical about the wisdom of institutional investors or ever consider the public interest.

The problem with Iain Martin's article is that while there were some bad mergers and acquisitions, it wasn't mergers and acquisitions that created the lending crisis. Northern Rock managed to collapse without doing a single merger after demutualistion. And while there were were 16 UK clearing banks in 1960 and 5 in 2010, it's also the case that there were only 5 in the mid 1980s.

And what no-one has been able to explain is what the "public interest" is regarding the Pfizer/Astra Zeneca takeover. What's the worst case? Pfizer move all the jobs to America? So, I get the next cancer or erectile dysfunction drug designed by people who say sidewalk instead of pavement? Sorry, but so fucking what?