Friday 31 October 2008

Friday funny

I have long suspected that the Welsh language was invented by bored code-breakers at Bletchley Park who just had far too many Ws and Ys left over*. Possibly during a game of Scrabble. Here is another possible explanation.

* Those letters being relatively uncommon in the German language.

Valuing landing slots at Heathrow

Continuing my occasional series, the FT reported that Lufthansa had been tricked into paying £800 million for the 49% of BMI that they didn't already own, however "The value in BMI lies with its coveted take-off and landing slots at Heathrow, about a seventh of the total. Earlier this year, BMI put a balance sheet value on these slots at £770m."

The Times reckoned that BMI owned 11% of Heathrow's landing slots, so let's call it one-eighth in round figures. There are 471,000 aircraft movements at Heathrow each year, so that's 235,500 'pairs' (one to land, one to take-off) and BMI 'own' the right to land/take-off 30,000 times a year. £770 million ÷ 30,000 = £26,000 for the right to land/take-off once a year, in perpetuity.

Assuming that this right could be reasonably amortised over ten years, that's a notional cost of £2,600 per pair if you own them, and a real cost of £2,600 per pair if you have to buy them (cost of finance + uncertainty premium). In other words, if the local councils around Heathrow were allowed to auction off land slots, airlines would and could pay an average of £2,600 and still be profitable. Times that back up by 235,000 pairs gives local councils potential income of £611,000 million.

And the value of those landing slots is depressed by Air Passenger Duty. If we scrapped that crude tax as well, the annual 'rental' value of the slots would go up by another £673 million (67.3 million passengers at an average of £10 APD), bringing the total local revenues to a nice round £1.3 billion (rather less than my earlier estimate, I admit).

And in difficult times like these, the auction price would drop of course - in extremis to £nil in the short term. Great, that means that airlines can drop ticket prices by several per cent, which will hopefully keep things ticking over, minimise job losses and ensure that they recover much more quickly again in future (so the auction receipts quickly revive again, and so on and so forth).

Reader's letter of the day

From today's FT (accompanied by a pretty picture of snow falling in London)

Sir, Are we now experiencing negative climate change* as well as negative growth?

J M Macharg, Edinburgh, UK

* I think he fluffed it actually; "negative global warming" would've been funnier.

Barclays to cease charging interest!

Now that Barclays Bank has been more or less taken over by Arabs, will Barclays' mortgage borrowers be able to refuse to pay interest, seeing as of how one of the ground rules of Islamic investing is that you aren't allowed to make a profit from money-lending?

Which considerate mortgage borrower would want the owners of their mortgage lender to go to Hell*?

* Or whatever the equivalent is in Islamic mythology.

"Many violent pupils not expelled"

The killer sentence in the BBC's article is this:

The figures also showed that students from disadvantaged areas were more likely to be given exclusions.

The hidden message is, of course "Ooh! Those horrible Tories! They want head teachers to expel 'disadvantaged' children!."

How about flipping that on its head? How about pointing out that children from 'disadvantaged areas' are most likely to be victims of violence? And that head teachers don't have the guts to expel the perpetrators?

Thursday 30 October 2008

Reader's letter of the day

From today's London Lite, in reply to the question "Does Tony Blair deserve £12m?"

NO ONE is worth that amount for a talk. I think we all know what this is about. Pay-off time comes after they leave office and they have to appear to earn it. 

Sid Siddle, Shoreditch

"Squeezed business struggles to pay rates"

You'd expect slightly more incisive commentary from the FT, which is supposed to be the economically clued up paper, but here goes:

Companies hit by the economic downturn are struggling to pay their business rates on time, adding to evidence of the economic squeeze on business. More than half of councils surveyed by the Local Government Association said companies were experiencing difficulties. The association estimates that business receipts [sic] – which councils collect and send to central government for redistribution – have fallen by more than £1bn ($1.6bn) in the year to April, representing about 6 per cent of takings. They are expected to deteriorate even further in the coming year.

Again, this is easily fixed.

1. Business Rates should be replaced with Site Value Rating, which does not distinguish between undeveloped sites, vacant or derelict buildings or well maintained and fully occupied ones (so as not to discourage owners from maximising the return on their sites).

2. SVR should be collected directly from the landlord, not the occupant. The landlord will in most cases increase his rent to cover the extra cost, but this does not change the total occupancy cost to the tenant. As SVR will only ever be a fraction of the rental income (Business Rates averages out at 30% to 40% of rental income, for example), there is no question of the landlord being unable to pay.

3. Of course, owners of undeveloped sites or vacant derelict buildings will have no current income, but this will be reflected in a much lower cost/value of the land element when the site or building is acquired, giving a lower up-front fixed interest costs, leaving the purchaser with more funds to develop the site.

4. In the very short term, this will not necesarily help the tenant of course, because he still has to cover the increased rent. So he will just have to negotiate a reduction; faced with more competition from other landlords and potential landlords, a fixed SVR bill and a lower tax rate on the actual buildings, there will be more incentive to develop and keep up occupancy rates, and more competition between landlords, so the chances are, the tenant will find it easier to negotiate a reduction in difficult times.

5. A further tweak is this. Business rates, "which councils collect and send to central government for redistribution", should be collected locally and spent locally. How else is a council supposed to be forced to operate any sort of sensible cost-benefit analysis?

That's that fixed. Next.

With economists like this ...

... no wonder the banks are in a mess.

Canvassed by the BBC about his Reaction to falling house prices, James Knightly, Economist at ING had this to say:

This wealth destruction, coupled with growing concerns about negative equity, is likely to keep consumer confidence very weak. This, combined with plunging business surveys and the third-quarter negative GDP rate, should ensure another Bank of England interest rate cut on Thursday of at least 50 basis points, with further large cuts likely in the next few months.

Dude, WTF?

Changes in house prices are neither wealth destruction nor wealth creation. Allowing houses to deteriorate is probably wealth destruction; burning one down almost certainly is; but allowing prices to return to their long run average (about 60% of today's value) certainly is not.

And he works for a bank, so as far as rate cuts go, he would say that, wouldn't he?

Missing figures round

Here are some horrendous statistics:

Figures show offenders on probation were convicted of more than 1,000 serious violent or sexual offences in the two years from April 2006. Those included 120 murders, 103 rapes and 80 kidnappings. But the figures are likely to rise as nearly 400 criminals have been charged with serious crimes and are still awaiting trial. Criminals on probation received 44 manslaughter convictions in the two-year period, and 49 were convicted of arson attacks where they hoped to seriously hurt someone...

Harry Fletcher, assistant general secretary of Napo, the probation officers' union, said: "The number of offenders involved in further serious crimes is less than 0.5% of the total under supervision."

The two missing figures that we need here are:

1. Of the prisoners on probation who committed those crimes, how many of those were released early and committed the crime during the period when they rightfully should have still been locked up? Notwithstanding that sentences appear to be far too lenient, if somebody has served their full sentence, then we don't have much choice but to release them and supervise them.

2. The 0.5% figure given by Harry Fletcher is meaningless. Maybe 99.5% of prisoners on probation were convicted of non-violent crimes (from soliciting for sex to non-payment of Council Tax), whom you'd hardly expect to subsequently kill or rape somebody? The real question is, how high is the recidivism rate among those with prior convictions for violent crimes?

Armed with these further statistics, we could then do a good old-fashioned cost benefit analysis comparing the reduction in the number of crimes committed with the additional cost of keeping them locked up for longer. Or we could free up prison places by releasing all but the most serious non-violent offenders and/or sensible legalisation/regulation/taxation of brothels and certain drugs.

"£100,000 Ferrari wrecked after street race"

Here's a further episode in my occasional series. Great picture BTW:

Fionnuala Earley's time travel machine still functioning smoothly

From the Nationwide's October House Price Survey, which estimates that prices have fallen by 14.6% over the past year (not adjusted for 5% inflation!):

The price of a typical house is now £158,872, almost £30,000 less than a year ago, but to put in context, still almost £30,000 more than five years ago.

So broadly speaking, adjusted for RPI inflation, you have just about broken even over the last five years, and the last year's falls have wiped out the previous four years' gains.

Fionnuala's previous adventures through time and space documented here.

David Tennant has announced he will leave Doctor Who ...


David Tennant was the only Doctor Who I ever actually liked. But I suppose rules is rules, and he's been doing it longer than most (I think).

Wednesday 29 October 2008

Bose SoundDock

Having gone over to The Dark Side a year ago, I decided it was time to try and kick-start the consumer led recovery and have splashed out £150 on one of those Bose iPod docking station thingies:
I'm no sound-quality-obsessive, but I'd rate it absolutely awesome. Bass and drums are punchy to the point of being insistent, yet the whole sound still has a wonderful clarity and you hear all sorts of instruments in a song that you'd never noticed before. And like all small hi-fi systems, it sounds louder and better the further away you are from it.

The only downer is, it doesn't have a headphone socket, but hey.

Bring out your dead! Bring out your dead!

Leftie think-tank the IPPR proudly invite you to this event:

Getting personal

A one-day conference on the role (sic) of personal advisers in welfare and related services. Don't miss your opportunity to register for this must-attend event, which will:

Hear the Government's plans for changing welfare and employment services.

Review the changing role of frontline staff - personal advisers from the public, private and voluntary sector - in the welfare-to-work and related services and outline what role, skills, pay and powers they will need to deliver effective services.

Explore how we can improve services from the frontline and hear what policy frameworks, contracts and structures would best support quality, customer-focused services.

Outline what personal advisers in the welfare system can learn from other public services and workforce roles in order to deliver personalised, holistic and effective services.

Consider the emerging market in delivery - by both the private and public sectors - as contracting for the Flexible New Deal progresses.

"Grants cut over funding blunder"

Shock, horror, yawn. Gummint can't do its own sums properly.

As ever, there's a simple solution to this. Bung in all existing student grants and subsidies with the welfare system generally, and pay students (however rich or poor their parents may be) the same Citizen's Income as any other adult in that age group*, set for sake of argument at current JSA/IS rates of about £48 per week. Administration costs, delayed payments and fraud would be slashed as this would effectively be Child Benefit but at a slightly higher rate.

And as this would also get rid of any financial incentive to remaining unemployed rather than studying, or vice versa, we would also be more likely to have the "correct" number of people going into full time education, whatever that number is.

There. That's that fixed.

* Where I differ from the CIT booklet is that I'd give people a choice: either claim the CI and pay flat rate tax on all your income; or waive the CI and claim a tax-free personal allowance of about £10,000 instead, that's just details.

George Osborne - a twat keeps digging

Also from that Telegraph article:

The pound has lost a quarter of its value against the dollar over the past year, even more than the devaluations under Jim Callaghan and Harold Wilson, and almost 50 per cent more than in the year following Black Wednesday.

That may well be factually correct, but you can prove what you like by comparing GBP to any other currency at random. The Goblin King could counter that GBP had strengthened by 22% against AUD since this summer:
The only fair way to look at this is to compare GBP against a basket of currencies. As at a week ago, GBP had fallen by slightly less between late 2007 and late 2008 than it did between mid-1992 and mid-1993 (ignoring the overshoot in the first couple of months of 1993):
So, faced with several open goals, The Boy Wonder goes for an own goal instead.

UPDATE: in the spirit of being entirely fair about this, I updated my spreadsheet this evening and by yesterday's close, GBP had in fact dipped to 0.88, which puts the Tories and Nulab about level pegging in the 'presiding over booms and busts in sterling' stakes.

George Osborne - still a twat (6)

Writing in today's Telegraph, The Boy Wonder makes a few good points ...

The message from Messrs Brown and Darling is that they will save us from recession with a spending splurge funded by borrowing. But it is the wrong approach - the policies that got us into this mess cannot be the ones to get us out of it. It just doesn't work.

... and then ruins it with this:

Look at Japan. Between 1992 and 2002, Japanese government net debt grew by 58 per cent of GDP. Over the same decade, the economy grew by only 9 per cent. The result was a crippling debt burden and a landscape littered with the evidence of endless white elephant public works programmes.

There may well have been public works programmes, but the main reason for the massive increase in government debt was because the government bailed out the banks after the Japanese credit bubble burst. Which is a bit awkward for Camerosborne, because they have expressed their support for a taxpayer funded bank bail out in the UK.

Then just in case there was any doubt, he nails down his twat credentials with this:

It must be for the independent MPC to make its judgment, but it is a statement of fact that, with interest rates still at 4.5 per cent, there is plenty of scope to stimulate demand with lower rates.

If he's going to use the real life example of Japan, shouldn't he try and learn some real life lessons from it? Ed Harrison explains here why cutting interest rates in Japan did not work. He uses the expressions 'credit deflation' and 'debt deflation', but I suppose it all boils down to the 'pushing a piece of string' argument.

So despite the odd glimmer of hope, we can only assume that George Osborne is indeed, a complete numpty.

Tuesday 28 October 2008

The Sun Says...

The highly sophisticated political operators who write The Sun's editorials have managed to sum up the issues* thusly:

GORDON Brown and Alistair Darling must think carefully before deciding to borrow and spend their way out of recession. Pump-priming is fine when you have the money. New power stations, roads and rail links create jobs — though not overnight.

Tax cuts for low and middle earners, coupled with lower interest rates, would be much more effective. The trouble is Labour has already spent and borrowed too much.

There is nothing in the kitty. More borrowing today means even HIGHER taxes later. That’s why the world downgraded its valuation of our economy, sending the Pound into freefall.

Now the Bank of England is terrified of turning devaluation into a vicious circle by cutting rates ...

Having covered the Keynes vs Hayek debate as well as Ricardo's Theory Of Equivalence and the impact of sentiment/interest rate differentials on foreign exchange rates, they go and spoil it with the last phrase:

... to the level we desperately need.

Oh dear. Maybe they ought to swot up on the 'pushing a piece of string' theory of the impact of central bank interest rate cuts on actual rates paid by borrowers. Further, given that savings and borrowings net off to nil, there are just as many people who'd benefit from higher interest rates. Or possibly fewer people who'd benefit disproportionately more, who knows?

*Via Christina Speight.

Meanwhile, on Planet Zog ...

From today's Metro:

Not enough black men are studying at university, a minister said yesterday... The MP for Tottenham insisted both the African and Afro-Caribbean communities had a 'terrifically strong culture of aspiration and self-improvement'. But he warned that more needed to be done to 'tap into that culture and harness it' - or more youngsters would become gang members. 'When that potential isn't directed and offered an outlet, it is replaced by frustration,' he said. 'You get too many of them winding up in prison. And you get too many of them having their lives cut brutally short.'

Oh, it's all coming back to me now ... back in the 1970s and 1980s when only 12% to 15% of people went on to higher education (see Figure 1, page 2) and the other 85% to 88% all became no-hope hardened criminals ... I remember it all vividly.

HM Land Registry versus Nationwide House Price Indices (3)

As we established back in May, HMLR's figures for a month (released at the end of the next month) tend to be in line with Nationwide's figures for two months previously (released at the end of that month). This rule still held in July but since then the two had diverged - HMLR's figures showed much smaller falls.

HMLR now seem to have caught up again: their September 2008 figures are month-on-month fall 2.2%, year-on-year fall 8%.

Nationwide's July figures, for comparison, were month-on-month fall 1.7%, year-on-year fall 8.1%.

"Why Paulson is wrong"

... and by extension, The Goblin King, Merkel, Sarkozy and half the Western World.

Chicago Business School Professor Luigi Zingales, argues that bailing out the financial system with taxpayers’ money is wrong. He discusses an alternative – forced debt-for-equity swap or debt-forgiveness.

Via Mark's Any.

"Extremists to be barred from UK"

Even when Nulab's plans have a certain superficial appeal - the BBC article is accompanied by the picture of one of those Islamist hate-preachers - you know from bitter experience that you won't have to look far before you find the catch. Ah ... here is is:

The BBC's Nick Ravenscroft said those already blocked include neo-Nazis, holocaust deniers, certain animal rights activists and religious extremists.

Oh dear, those Holocaust deniers. Agreed, people who for some bizarre political reasons deny that something happened sixty years ago tend to be twats and of the racist persuasion to boot, but I never knew that this was some sort of crime over here.

How long before they add 'climate change deniers' to the list?

Arctic shrank to its smallest size on record ...

... in September 2007.

How come that's still news? Why don't they mention it's increased in size since then?

I must admit that their way of measuring thickness - measure height above sea level by satellite and times by ten - is pretty cunning, assuming that it's accurate.

Monday 27 October 2008

"Brown 'relieved' that he can blame somebody else"

From today's Metro:

Gordon Brown admitted that he was greatly relieved that other countries had not monitored banks and that nobody had spotted that he was now rewriting history.

The prime minister said he was glad that financial institutions were not supervised across borders - after ten years in which had done precisely nothing in this regard either.

"We would have dealt with some of these problems, had they not contributed to an illusion of ever rising wealth. So we turned a blind eye to self-certified lending, mortgage multiples of six times income and 125% mortgages, and deliberately ignored the early warning signs of seemingly ever rising house prices" he told BBC Scotland's Politics Show.

"I have never mentioned any of this before. But while we wanted the credit and house price bubbles to go on for ever, other countries did not"

Asked if he had any regrets over his tenure as Chancellor, Mr Brown said "Of course not. I can now blame this on everybody else, despite being Chancellor during the period when UK household debt doubled and house prices trebled, and amazingly enough, gullible journalists are now parroting my bare-faced lie that I have been putting forward proposals to deal with this for years."

Meanwhile, Mr Brown was today due to reveal that the welfare system would be subject to further tinkering during the downturn to maintain the illusion that the government had some sort of plan. He will say "It is no time to cease tinkering, thus maintaining the illusion that we have some sort of plan"

The original article is not online, so I've scanned it in for you here in case you don't believe me:

"Last whisky blamed for drink death"

Does not compute.

It might just as well have been his first beer that tipped him over the edge.

Reader's letter of the day

From today's FT:

Sir, The problem with the government’s plan to accelerate public expenditure is the notorious and unavoidable time lag between such a plan and the resulting economic stimulus. The greatest financial crisis since the 1930s and the major recession we face require action that will be effective now rather than in one to three years' time.

The government has grasped the inevitable nettle of a massive deficit. It would be far more effective to use this to cut taxes now rather than to increase public expenditure in future. However, such tax cuts should be aimed mainly at middle and lower income families, whose disposable incomes have been already reduced by the recent increases in the cost of living. That would stimulate the economy directly and alleviate the growing personal debt crisis, with its consequent damage to the economy.

Michael Deeny, Salisbury, Wilts

House-price-crash porn (4)

From today's FT:

One owner, who bought a £190,000 flat there 18 months ago, is trying to offload it for £150,000, a local estate agent said. Gary Wilkinson, of Thornley Groves, said other developments along Whitworth Street were falling even faster. The asking price for a two-bed in the W3 building had dropped from £282,000 to £209,950 in months. “There were a lot of people buying off plan who were overextended. There are loads of repossessions.” One flat in the nearby Northern Quarter bought last year for £222,000 has just gone for £151,000... The nearby Regency House building is worst hit. One flat there bought for £302,000 at the end of 2002 sold for £203,311 in July [2008].

Schadenfreude? Who, me?

Land prices plummeting, as predicted

Persimmon has written down the value of its land bank by a further £600 million, on top of the £40 million write down at half year stage.

That's a handsome write down of 17% of the value of 'inventories' as at 30 June 2008, barely four months ago, i.e. their land values are falling at 4% a month, two or three times as fast as house prices generally.

Which stacks up mathematically: if half of the cost of a home at the 2007 peak related purely to the site-only land value, and the value of the bricks and mortar is stable, then you'd expect underlying land values to fall twice as fast as total property values.

Sunday 26 October 2008

Let The Symbol Of Our Nation Be A Pub!

The Scottish and the Welsh now have their own assemblies
While the English are left wondering "Just exactly who are we?"
It's a question that needs answering - before the battle's lost
And the forces of the Right bedeck themselves in George's Cross
We need to reassert an idea that can create a nation
That's united out of choice and not by pigmentation
A symbol of inclusion from which nobody is barred
Something we can point at and say "That is who we are!"

So let the symbol of our nation be a pub!
Because it symbolises the things in life that are English and are good
Irrespective of your faith, sexual preference or race
Let the symbol of our nation be a pub!

Yes, the nature of our island is not unlike a pub
It's crowded and it's noisy, and bits keep dropping off
The regulars don't change much, though the landlords come and go
And the decor was quite fashionable a hundred years ago
Music, thought and football pour from every table-town
There's a thousand ancient rules and yet not one is written down
We like to make out we're parochial and shy
But a look along the menu tells you that's a bloody lie

So let the symbol of our nation be a pub ...

And it might appear to strangers that the welcome's not too warm
But respect given for free is not worth anything at all
And if you've got an idea or just like to have a laugh
Then it won't be very long before you're sitting at the bar
And there'll always be some old sod who is mumbling in his pint
About the other pubs around here which he's never been inside
We'll all laugh politely though we wish he'd bugger off
So we can enjoy a place which we will not admit we love

So let the symbol of our nation be a pub ...

(c) M J Hibbett, 2003

"Ukraine granted $16.5bn IMF loan"

That's £215.64 for each Ukrainian.

And whence does the IMF get its money? From its members of course; the G7 countries chip in 44.47% of the total.

The UK's quota is 4.86%, so that means that the UK taxpayer has now unwittingly lent Iceland and Ukraine* half a billion quid. These loans are presumably the first of many, I expect to see far more of this over the next few months.

Query: how can we become wealthier by lending each other money via an unaccountable supra-national non-commercial bank? Thanks but no thanks. AFAIAC the IMF is yet another of these self-serving bureaucracies that England ought to leave.

* Which sadly dropped the 'The' when it left the Soviet Union.

Grainger plc's debt-for-equity-swap

Here's how debt-for-equity-swaps work in real life: 

Grainger plc is a property company, so like banks, its balance sheet is much more important that its profit and loss account. They have told the holders of their 3.625% Convertible Bonds due 2014, that they can repay them 35p in the £1 and give them 8p worth of new shares as well, as a consolation prize*.

This doesn't look very attractive, but what's the alternative? The company's properties are worth what they are worth; and those properties are owned, in economic terms, by the shareholders and bondholders. So if bondholder insist on being repaid £1 in the £1, the company wouldn't be able to repay all the bonds in full anyway.

And, if this works for relatively humble property companies, why wouldn't it work for banks? Why do banks get £37 billion chucked at them?

* Via Jack C at HPC.

Hoist by their own petard

Government deficits suffer a double-whammy in a recession, e.g. in Scotland On Sunday:

At the same time, as recession freezes the economy, tax revenues are falling. As unemployment rises, so does welfare spending.

This is another huge advantage of having a flat-tax system and low-level universal benefits. For simplicity, let's imagine that every working age adult claims the weekly Citizen's Income of £60 (rather than choosing a £10,000 tax-free personal allowance) and pays flat tax of 31% (equivalent to current basic rate tax plus NI) on all earnings (to the extent that they have any). Two or three million taxpayer funded quangista, meddlers and snoopers could be "released to find more productive and wealth creating jobs in private business"*, which would give us enough money to safely scrap VAT and Employer's National Insurance, and let's round up corporation tax to 31% as well for simplicity.

Let's assume that the economy were indeed to shrink by one percent next year. That's £15 billion off GDP, so HM Treasury would lose 31% of that, which is a measly £5 billion or so, less than one percent of current government revenues/spending, and a fraction of the £60 billion to £100 billion annual deficit predicted for the next year or two. These horrifying numbers include the £37 billion bail-out for the banks, which was money down the toilet, of course, debt-for-equity-swaps would have sorted this all out much more efficiently at zero cost/risk to the taxpayer.

And once we start coming out of the recession, people who only have the Citizen's Income to live on would not be in a welfare trap - instead of only keeping 30p or 4.5p for every £1 that they manage to earn, they would keep 69p, so the way out of the recession would be a lot quicker as well.

Don't forget that HM Treasury has benefitted enormously from the house price/credit bubble; each extra £1 of credit is about 2p extra in income/corporation tax every year; each £1 rise in house prices is an extra 1p, 3p or 4p in Stamp Duty Land Tax and potentially an extra 40p in Inheritance Tax; and each £1 paid out as City bonus is an extra 47.7p in income tax/National Insurance. And every time somebody moves home, there's all the lovely VAT and additional profits tax to be collected from estate agents, solicitors and home furnishing shops. These revenues are now collapsing nicely.

If we had replaced Council Tax, Business Rates, Stamp Duty and Inheritance Tax with Land Value Tax when land values were at their lowest in the mid-1990s, and we wouldn't have had the house price bubble/credit bubble in the first place. LVT would have redirected all the lovely cheap credit into the productive economy rather than into a house price bubble, so we'd be in a considerably less-bad situation than we are now. And yes, of course this wouldn't have made us immune from the economic cycle, but it sure would have softened the blow.

That's that fixed. Next.

*TM Lola.

"Banks exploit legal loophole to seize homes"

From The Times:

Banks and credit card companies are exploiting obscure legal powers to seize the homes of thousands of people who cannot pay their credit card bills. In some cases, people owing as little as £1,000 have been served with charging orders – the legal instrument enabling a creditor to order the sale of a property... Vince Cable, the Liberal Democrat Treasury spokesman, said: “No one should be allowed to lose their home simply because of a credit card debt. More needs to be done by the government to ensure that lenders simply do not act overzealously, and only take possession of properties as a last resort. The fact that banks can now kick people out of their homes for not keeping up with their unsecured debts is very worrying.”

Well boo-f***ing-hoo!

What sort of madness is this, that once you are a HomeOwner you become a sanctified, protected species, under no obligation to repay your credit card debts? What happened to this good old fashioned idea that you live within your means? Does being a HomeOwner somehow absolve you of your credit card sins?

I like Joe Garrick's comment best:

Why all the fuss? Here's a lesson that all people should learn: Credit isn't 'free' money. If you borrow money, then you must pay it back. Simple. Oh, and... read the small print. No sympathy.

"Big chill a symptom of climate chaos"

From The Sydney Herald:

Forget global warming - the latest problem is global cooling. Conservation group WWF has blamed climate change for the coldest August in Sydney for more than 60 years. The freezing temperatures are proof of the urgent need to cut carbon pollution, according to WWF development and sustainability program manager Paul Toni.

"We can expect more extremes in climate," Mr Toni said.

He said climate records had tumbled over the past year. Australia had its driest May on record, Perth had its wettest April on record, and Tasmania recorded its hottest ever temperature, according to Mr Toni.

Via P4AC at HPC.

Saturday 25 October 2008

Some things just work

People are always quick to whine when something goes wrong, especially if it is maliciously bad service at the hands of British Gas etc who never turn up when they promise, so I think it's only fair to point out when something goes smoothly.

As previously mentioned, the broadband had been intermittent for the past week or two. I 'phoned Virgin NTL on Thursday morning, who tested the connection remotely, agreed that it was dodgy and promised to send a chap out on Saturday between 8 and 12 a.m. Said chap duly turned up shortly after 9 a.m. and established that the problem was to do with the box in the street, as other people had complained as well. He promised that an engineer would attend to it within the next few hours, made his excuses and left.

Said engineer was on the spot within an hour. I popped out to offer him a cup of tea, which he declined, and he explained that he would have to replace a twelve-year-old transformer-amplifier-splitter-type-thingymajig in the green box, which would take him about five minutes.

Five minutes later, I tried t'internet again, and hey presto, it worked. The engineer even rang the bell before he set off to make sure.

Suitably emboldened, I went into town and bought a new router* to replace the Linksys one that we'd had for years and which had died a death. I followed Step One on the Quick Installation Guide, Step Two looked a bit tricky so I just clicked Explorer on the off-chance it worked, and again, hey presto, it had sort of installed itself.

There. I've said it. Hardly makes for a gripping post though, does it?

* Sitecom DC-202, from Maplins, £25 a pop. It is amazingly teeny-tiny.

Power crazed lunatics of the week

Faithfully trotted out by the BBC:

Asian and European leaders have called for comprehensive reform of the global financial system. Ending a summit in Beijing, they also urged the International Monetary Fund (IMF) to play a greater role in helping countries hit by the market turmoil. UN chief Ban Ki-moon called for action to help affected developing nations.

Chinese Prime Minister Wen Jiabao said Beijing would take an active role at a summit of world leaders to be held in Washington next month. Leaders attending the 43-nation Asia Europe Meeting (Asem) agreed to "undertake effective and comprehensive reform of the international monetary and financial systems".

Dude, WTF?

"comprehensive reform"?

You can't go round reforming stuff until you understand a) how it works, and b) how we got into this mess in the first place, i.e. gummints allowing banks to lend recklessly, pushing up house prices to unsustainable levels to give the impression that the economy is growing, for example, and c) if 'debt-for-equity-swaps' aren't top of their list of ways to sort out the banking 'crisis' then they don't have a clue.

"they also urged the International Monetary Fund (IMF) to play a greater role in helping countries hit by the market turmoil. UN chief Ban Ki-moon called for action to help affected developing nations."?

Woah! The credit crunch has hit first world economies particularly hard; if you want to help poorer countries as well, then isn't this, er, everybody helping everybody else? Wouldn't this all cancel out? In any event, didn't the IMF recently offer to sub Iceland to the tune of $2.1 billion? That's $6,500 per head of population, FFS. That'd go a heck of a long way in rural India, methinks.

"Chinese Prime Minister Wen Jiabao said Beijing would take an active role at a summit of world leaders to be held in Washington next month."

Hardly surprising! China and Hong Kong have managed to amass $2 trillion in foreign currency reserves (twice as much as Japan), including $600 billion in US treasury stock (and as much again in Fannie Mae/Freddie Mac, I believe), and they are probably getting a bit nervous ...

200 redundancies at L'Oréal factory

"Because they're not worth it"

Via Christina Speight.

Said is said (6)

"We threw the pie because we didn't want to engage in debate with him ..."

Friday 24 October 2008

Curious snippets from a cynical optimist*

Bad news: you're only allowed to have a bonfire if your back garden is at least 40 yards square:
Good news: Coffee contributes to your daily fluid intake:
DoublePlusGood News: Paedophiles are to be cured by being given boxes of matches with subliminal messages when they're released from prison:
* Vindico does this better, obviously.

Lies, damn' lies and the State Pension

Right, this has set the scene for a massive pensions mis-selling scandal in a few years' time:

Around half a million people who have not paid enough National Insurance will be entitled to a full state pension if they top it up with one-off payments, it was reported. It will potentially boost the retirement income of a generation of older women who stayed at home to raise children or care for sick or disabled family members. Only around a third of women reaching pension age qualify for a full basic state pension.

The last sentence is factually correct*, but what they conveniently overlook is the fact that women pensioners receive roughly the same in old-age related State benefits as men:

Per the ONS Pensions Survey: "Mean annual income from state pensions and related benefits for pensioner couples was £10,191, compared with £6,911 for single men and £6,700 for single women."

Why? Because of the Pensions Credit! So if women pay for additional State pension, they will, in nine cases out of ten, lose just as much in Pensions Credit. It would be possibly the worst investment of of all time!

* Per the PPI's Pension Facts, avg. Basic State Pension for men = £76, for women = £63; avg. SERPS/S2P incl. COD for men £43, for women £14.

Destabilisin' the world financial system

I made up my mind a couple of weeks ago to move out of JPY into AUD once 100JPY rose to AUD 1.60 or above.

By some bizarre sequence of events, 100JPY soared from AUD 1.52 yesterday evening to over AUD 1.70 by this morning, so I have now taken the plunge.

Ah well.

Government finally winning war on obesity!

... is one way of interpreting this.

The wisdom of crowds

Having collated and meticulously analysed the responses from thirty-five internationally renowned and highly qualified medical specialists, Kim Jong-Il will be pleased to hear that forty per cent concluded he wasn't dead yet, just feeling a bit il.

On the downside, over a quarter thought that he was in fact dead. And slightly over a third neither cared nor knew who he was in the first place.

Thursday 23 October 2008

"Bank failures inevitable, say businesses"

Or was it the other way round?

Luton votes against the EU

More details here.

"Sex education for primary schools"

I can just picture the lesson ...

"Jamelia! Tanika! Be quiet! I'm going to explain what you have to do if you want to have a nice council flat like Mummy - oh for Heaven's sake, Sabriani, pay attention - without having to go to work. It's easy, when Dwayne or Limahl - yes, I mean you Limahl - tell you they want to 'Show you some lurv', then make sure you don't take the contraceptive pill or use condoms. Any questions?"

Another day, another desperate throw of the dice (5)

A few days ago, the gummint's cunning plan to prop up house prices was to buy up unsold new homes at above market value.*

They're going to go one better now and nationalise the housebuilders. That is to say, Yvette Cooper has denied it flatly, so it's probably true.

And by some amazing feat of DoubleThink, the proponents say that they are doing this in order to provide 'affordable housing'. At least the loonie lefties are gloating openly about nationalising things and building 'social housing'.

* How do we know they'll pay above market value? Firstly because they are morons who will get conned, and secondly, if the homes were on sale at market value, they would have been sold by now.

What's not to like?

Techieman over at HPC says, re Fred Harrison's latest video clip, "Whether you believe in LVT or not, it's good to watch."

In response to which I posted my usual mini-essay, as follows:

"It's not a question of whether you 'believe' in LVT.

Firstly you have to understand what land values ARE (or were at least year's peak). Agricultural = £1 per sq yd; typical residential £200 per sq yd; outer London £1,000 per sq yd; and inner London up to £20,000 per sq yd.

Then you think about what drives relative values. I would suggest = value of local amenities/services x generosity of planning permission + scarcity value.

Finally, think about changes over time, over the last HP cycle, for example. As land values are a residual figure (total property value minus bricks and mortar), they actually fell 75% in the early nineties, since when they have risen five or ten fold, and are now falling again disproptionately (builders' land banks are down at least 50%, for example). This is the bubble element.

Now, we all now that higher interest rates reduce house prices. Therefore, if (at the bottom of the cycle - 1994 would have been a good time, the next opportunity will be in 2011 or so) the gummint had the commonsense to replace all property/wealth related taxes (C Tax, Business Rates, Stamp Duty, Capital Gains Tax, Inheritance Tax etc) with a fiscally neutral Land Value Tax of 5% or 10% on site-only land values, there would be little impact, winners and losers would cancel out.

In £ and pence, that would mean somebody in a little croft or an ex-council flat up North would pay £100 a year, and average family home would pay £1,000 to £2,000 a year and people in villas in Hampstead would pay £10,000 a year.

And if every year, site values were recalculated based on actual sales in preceding year, the minute a bubble started arising it would be dampened off again, as there would be a few people who don't want to pay a couple of hundred £ more just because an area is now fashionable (or whatever) who would sell up, so land prices and hence house prices would remain low and stable.
LVT would also be the ideal local tax - instead of being forced to pay for the COST of local services (via general taxation allocated by central government plus a top up in the form of Council Tax) regardless of their VALUE, property owners would only pay towards the VALUE of those services.

So out go 5-a-day-advisors and in come more bobbies on the beat. Out go climate change consultants and in come more lollipop ladies. Out go vanity schemes and white elephants, and in come better bus and train services. Out go sink comprehensives and in come grammar schools. And so on.

What's not to like?"

I forgot to add the usual caveat "Pensioners would not be required to pay their LVT up front; they would be allowed to defer it to be repaid out of their estates".

Wednesday 22 October 2008

"Pound tumbles to a five-year low"

I fail to understand how the MSM can come up with twatty headlines like this. Here's a chart of GBP against a basket of currencies* since 1990 (click to enlarge):Feel free to make up your own commentary, but "five-year low" is not the first thought that springs to my mind.


The Tories are to blame for everything (Part 94)

Brendan Barber, in The Metro:

"This year we have celebrated the centenary of the state pension. It remains a key achievement, but its value has melted away since the link with earnings was ended by the last Conservative government."

On a more serious note, for a given level of total spending, we could easily have a Citizen's Pension of £151 for each pensioner at current spending levels (about 6% of GDP). All we'd have to do is increase the Citizen's Pension age to 66.5 years (and that can go for the public sector workers that Brendan B claims to represent as well, thank you very much) and Bob's your uncle!

There's a simple trade-off between tax burden on working population, retirement age and the level of the Citizen's Pension. Fast forward to 2038, using the ONS population pyramid and assuming level prices etc, we'd need a CP age of 74.5, which could be achieved by shuffling up the CP age by 3.2 months every year, which is pretty much in line with the increase in average life expectancy over the past century.

Reader's letter of the day

From the FT:

No more dividends - no tax to pay

Sir, I inherited some shares in Royal Bank of Scotland from my mother many years ago. Since then I have reinvested all the dividends in the bank's dividend reinvestment scheme. I had, though, to pay tax on those reinvested dividends.

Now for the good news. No more dividends - no more tax to pay! And when I come to dispose of the shares, at a knockdown price, just think of that big capital gains tax loss*!

James Macdonald, Ickleton, Cambs, UK

* Or indeed a smaller loss or a larger capital gain taxed at much lower rates than the dividends would have been. To be read in conjunction with my earlier post.

"Workmen ignoring asbestos risk"

Today's award for Perpetuating Myths goes to this BBC article, as it fails to point out the difference between blue and brown asbestos (very dangerous) and white asbestos (relatively harmless); or that 95% of asbestos used in buildings is of the white variety (Wiki).

The only redeeming bit is right at the end, "... the HSE stresses that asbestos which is sealed and in good condition rarely poses a risk unless it is disturbed", so think about that next time you hear that a building has been closed to enable a specialist asbestos removal company do its worst.

UPDATE: GS has provided an even better link in the comments. There is an important economics point here; notwithstanding that white asbestos removal is a waste of time and money, it is not sufficient for lobbyists to have regulations to create business for them; successful lobbyists also need barriers to entry, or else the extra profits would just be competed away by new entrants. The clue is here: "... shameless exploitation by many of the firms to which the HSE gave the exclusive right to handle asbestos." As and when the victims complain about the scam, the lobbyists shed crocodile tears and suggest that the victims be given subsidies to help them pay for the 'service', boosting the lobbyists' incomes even further ...

What's £40 billion between friends?

The much vaunted taxpayer-funded bank bail-out is supposedly going to cost £37 billion*. My own worst-case calculations indicate that the hit to banks from the house price crash might be in that order, call it £40 billion. This all sounds pretty grim, as does the thought that our banks are now under control of the gummint or the thought that this equates to a 1% hike in income tax for the next few decades.

So let's look at that £40 billion figure from the perspective of UK banks (workings below).

£40 billion is barely 1% of total bank sterling assets***
£40 billion is a 3.3% write-down on mortgage advances
£40 billion is three-and-a-half months' worth of gross cash receipts from existing mortgage borrowers.
£40 billion is seven-and-a-quarter months' worth of pre-tax, pre-bonus profits.
£40 billion is 1.7% of total bank bonds, mortgage backed securities (should you agree with me that the best way to solve the 'banking crisis' is debt-for-equity-swaps).

So, er, to cut a long story, why is the government telling us that banks are close to collapse? Why are they asking the taxpayer to bail them out? Seriously, why? More to the point, why are we falling for it?

The following figures are from the Bank of England's "Monetary & Financial Statistics (Bankstats), September 2008":

Total lending secured on dwellings: £1,216 billion (Table A5.3)
Hence, total gross interest income at typical SVR 6.5%: £79 billion
Regular repayments and other lump sum repayments on mortgages (excl. repayments on redemption) in the year to August 2008: £57 bn (Table A5.5).
Hence, total annual cash inflows from existing mortgage lending: £136 billion.
Total sterling* assets: £3,029 billion; total sterling liabilities £2,991 billion, of which £603 billion is common-or-garden current, deposit and savings accounts, so the balance is thus £2,388 billion in bonds, mortgage backed securities etc.

Further, we know that UK banks paid about £15 billion in corporation tax last year, as well as £16 billion in bonuses, so pre-tax, pre-bonuses, their profits were in the order of £66 billion.

* Follow the link for a fairly well researched article, by Torygraph standards, which outlines what this means in extra tax burden.

** There's also a shedload of foreign currency stuff, which I have ignored for now.

*** Probably a bit more than 1% if you exclude double counting, but hey.

The Axis Of Diesel*

Cause for much celebration was an article in last Saturday's Times, which explains that now crude oil prices have collapsed, a lot of these Petro-States have had the carpet pulled from under them, as beautifully illustrated by the pretty graph that accompanied the print version:

It'd be nice if crude prices dropped below $55 to teach the Saudis a lesson in humility!

* If you Google the phrase, it appears to have entered common usage last weekend, although I'd love to know who coined it. In the absence of any evidence to the contrary, I think I'll credit James Bone, Tony Halpin and Michael Theodoulou.

Tuesday 21 October 2008

The demise of the small shareholder

Per last week's FT:

... private shareholders now own just 9.6 per cent of the UK’s listed companies – the lowest level since the privatisations of the 1980s.

In the grander scheme of things, of course, it doesn't matter who owns the big companies (as long as they're not nationalised!), but the demise of the small shareholder is usually - and probably rightly - seen as A Bad Thing. Why? Because small shareholders are more likely to be in it for the long term and be prepared to kick up a stink at AGMs, as opposed to hedge funds etc who are in it for a quick buck* or pension funds and other 'institutions' who are in cahoots with the Board Of Directors and are happy to nod through their bonuses and turn a blind eye to underperformance.

As I have said before, this is easily fixed.

* Not that there's anything wrong with making a quick buck, but it often seems to go in tandem with dodgy accounting, insider knowledge etc.

As easy as ABC

The Atheist Bus Campaign is up and running again, the BBC report thusly:

Stephen Green of pressure group Christian Voice said: "Bendy-buses, like atheism, are a danger to the public at large. I should be surprised if a quasi-religious advertising campaign like this did not attract graffiti. People don't like being preached at. Sometimes it does them good, but they still don't like it."

Dude, WTF!

Is he blaming atheists for the lousy safety record of bendy buses?

Is he condoning vandalism?

"People don't like being preached at"???

Pots, kettles?

"India Moon probe ready for launch"

£825 million of UK taxpayers' finest is enough to pay for 18.333 of these:


The Goblin King, from Hansard, 20 October 2008: "...the massive reduction in global financial activity and the fracturing of the global financial system has been the result of irresponsible and often undisclosed lending that started in American sub-prime markets."

Doesn't this chart sort of ... er ... completely contradict that?

"Japan backs Afghan naval mission"

Can anybody else see the fatal flaw in this plan?


"Bush says economic panic easing"

Panic? Are we supposed to panic? Or stop panicking?

Monday 20 October 2008

Moneyweek: the best blogs

Moneyweek featured my recent heroin diatribe in issue 405. Drewster (who comments over at HPC and Alice Cook) kindly sent me the pdf today (click to enlarge).

Pile 'em high, sell 'em cheap...

The Scotsman, 30 September, bemoaning the fact that the mortgage market is gradually returning to normal: "The pile 'em high, sell 'em cheap days have gone"

The FT, 19 October 2008: "Barratt also has offered steep reductions on some of its completed homes, particularly ones designed for first-time buyers. These are attracting discounts of up to 43 per cent for buyers who purchase five or more properties at a time."

"Scouts could be given condoms"

Tee hee, is that before or after they take them to special screenings of Brokeback Mountain?

Another day, another desperate throw of the dice (4)

Hot on the heels of the tomfoolery in Australia* comes this 'exclusive' in The Daily Mirror:

Thousands of empty houses are to be bought by the Government in a bid to beat the economic crisis, it will be revealed today. Housing Minister Margaret Beckett will announce the plan to buy from developers who cannot sell their newly built homes.

Look. What is important is that people are living in those homes, whether as owner-occupiers or as tenants is neither here nor there.

As things stand, the tax system encourages builders to leave new homes vacant:

1. Construction and sale of new homes is zero-rated for VAT, but letting them out is VAT-exempt. This means that if a builder decides to rent out new housing 'until the market recovers' (snort, giggle), they lose all the input VAT (yes there is a way round this, that is not the point).

2. There are Council Tax exemptions for part-completed, new and vacant homes.

So let's fix this:

1. Make the construction of all new homes zero-rated for VAT, whether for sale or for letting (or even better, just scrap VAT).

2. Get rid of Council Tax discounts for part-completed, new and vacant homes. Or even better replace it with Land Value Tax, it's all sticks and carrots. The LVT stick is cheaper (as it raises money) and more effective that the 'government buys up new homes at above market value' carrot**.

* Bloody hell, that was quick!

** By definition, the homes must be up for sale at above market value, or else they'd have been sold by now.

Different continent, same old shit

From the New Zealand Business Day:

Australia unveils A$10.4b stimulus plan

The housing sector is a major beneficiary. The Government will triple to $21,000 the current $7,000 first-home buyers grant for people buying a newly constructed home. Those first-home buyers moving into existing properties will receive a doubling of the allowance to $14,000. The plan is "designed to support activity in the housing sector and the housing sector is critical to the economy overall," Mr Rudd said.

How long will it be 'til those geniuses that we call a government try something like this over here?

Via The Clunking Fist.

"Cameron proposes 1p cut for firms"

Hurray! The Tories finally propose something half-way sensible: a modest cut in Employer's National Insurance, the Second Worst Tax Of All.

But it's only for six months and for firms with four or fewer staff, blah blah. So a firm with five staff will be able to qualify ... if they sack one member of staff? Have they thought this through?

Here's a better plan, Mr Camerosborne, scrap Employer's National Insurance. Once you factor in all the dynamic effects, the overall net fall in revenues would be minimal.

Sunday 19 October 2008

The Tin-foil Hat Brigade

"Tories urge VAT holiday for firms"

This appears to be another silly gimmick from Camerosborne, but with a couple of little tweaks it would be brilliant, namely:

1. Don't charge interest on the late paid VAT.

2. Make the holiday indefinite/permanent.

To cut a long story short, scrap VAT*, the worst tax of all**.

And if the EU get in a strop and chuck us out, that's icing on the cake!

* Where appropriate, replace it with a small per cent tax on the sale of new goods to cover any external costs, in particular refuse collection/disposal costs, but that's a user charge rather than a tax.

** Employer's National Insurance contributions are just as evil in principle, but this tax raises slightly less than half as much as VAT, so let's deal with VAT first.

UPDATE: Obo looks at this in more depth.

Yvette Cooper

They didn't see it coming!?!

Here's one of my favourite charts again:
As a general observation, each of those house price booms is followed by a house price bust and a recession. In economics, it is of course always difficult deciding (a) whether such things are pure coincidence (which I much very doubt); (b) whether there is merely correlation (both phenomena are caused by something else); or (c) whether there is cause-and-effect (and if so, which causes which).

AFAIAC, it is a mixture of (b) and (c). As simple matters of observation, housing is in fixed supply in the short/medium term and in the long run the ratio of house prices to earnings is pretty stable. The ratio of rents to earnings is even more stable, in fact it is the most stable variable in the whole housing market, whether short or long run. We also know that all things being equal, falling interest rates lead to rising house prices.

House prices are driven by what first time buyers are prepared to pay (they are referred to as the 'life blood' of the market, 'cannon fodder' would be more appropriate, really); FTBs continually compare the cost of renting with the cost of buying. Therefore, if interests rates fall, for a given housing budget, FTBs are prepared to pay higher prices (albeit for exactly the same house - they are not getting more house for their money).

To kick start the bubble again, you need three basic ingredients:
1. House prices are lower than the long run average;
2. The economy is picking up again;
3. Interest rates are low or falling.

Once the bubble has kicked off nicely, it becomes self-sustaining. People who sell their houses deposit the proceeds with banks, who can on-lend 90%-plus of that straight back to purchasers. The banks get lulled into a false sense of security; they are prepared to lend ever higher multiples at ever lower interest rates. Property price bubbles and credit bubbles are two sides of the same coin. Thus banks become ever more thinly capitalised and embark on ever riskier lending practices using an ever larger pool of 'money'. 

There are then several triggers that lead to the bubble bursting (a few too many mortgage defaults, a slight increase in interest rates, risk aversion on the part of people who provide the banks with money, a modest fall in prices, a spike in oil or food prices etc).

The downward spiral is then self-enforcing of course, as we are now seeing. Falling house prices lead to falling consumer confidence; which leads to falling business confidence. Banks rein in lending to households for home buying and businesses. Banks' mortgage advances are secured on property prices, so people are less willing to lend money to banks etc etc.

So fair play to Camerosborne for finally laying into The Goblin King's economic record; but I refuse to take Camerosborne seriously until they stop yapping on about excessive debt and start talking about what they are going to do in future to prevent house price bubbles arising*.

* It's actually dead simple; you need a combination of sensible banking supervision; liberal planning laws and replacing existing property-related taxes (Council Tax, Business Rates, Stamp Duty Land Tax, Inheritance Tax, Capital Gains Tax, the TV licence fee, Insurance Premium Tax etc) with Land Value Tax. And scrap all subsidies for housing, such as Housing & Council Tax Benefit, obviously.

Another day, another desperate throw of the dice (3)

Continuing my occasional series* on "Crazy measure that the gummint adopts in the vain hope of staving off the house price crash", they are coming thick and fast now. Here's today's attempt ...

The Treasury's Yvette Cooper has also urged lenders to be more lenient on people who default on mortgages [and has] called for banks and building societies to have a more responsible approach when home owners default on their mortgages. The government is working on ways to tighten the rules when courts have to decide on repossessions. "We need to do everything that we can to keep people in their own homes," she said.

In other words, repossessions are bad for house prices, so you fix this by making it much more difficult for the bank for repossess houses. And seeing as the gummint writes the laws and has nationalised half the banking sector anyway, they can push this through quite easily.

Gentlemen, the Age Of Irresponsibility is about to go to the next level! 

* Here, here, here, here, here and here.

"Negative equity to reach 2 million"

According to The Times:

Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash. At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.

Let's check that against the MW Negative-equity-o-meter. Assuming that house price are in the range of 10% to 20% below the peak, for each 1% fall, there would be an extra 44,459 in Nequity, prices are falling a bit faster than 1% a month, so 60,000 actually looks about right.

If The Times assumes that overall 2 million will be in Nequity, you can read backwards from my chart to see that this means a one-third drop in prices from peak.

Saturday 18 October 2008

Internet on the blink again

Although there are loads of good stories at the moment - for example the gummint's immigration policy moving towards what UKIP have been recommending for years, if it's good enough for Sir Andrew Green, it's good enough for me - but Ye Olde Internet Connection has been really slow since yesterday evening and keeps shutting down again, so I can't do proper posts at the mo'.

Twat of the day (9)

Iain Martin in The Telegraph asks a dumb question:

How will pension funds cope without dividends from banks, a ruling imposed by ministers at the instigation of Brussels?

It would appear that he is yet another financial commentator who hasn't even done the crash course in dividend policy, as follows:

1. Share prices are ultimately the net present value of future income streams. The timing of dividend payments is actually not so important, what matters is the likely total amount of future dividend payments.

2. Businesses in need of capital - because they are going through a short term bad patch or because they are reinvesting profitably in growing the business - shouldn't pay dividends. 

3. Mature businesses with no particular expansion opportunities, on the other hand, are well advised to pay out all profits as dividends, if they hoard the cash they just end up earning interest on the money (thus earning a lower return for shareholders than if the shareholders got cash dividends and put it in the bank themselves), or they end up spending it all on something stupid (see GEC/Marconi)

Microsoft is an excellent example of points 3. and 4. It only started paying dividends in 2003 once it had reached some sort of upper limit: "Microsoft long had opposed calls from some shareholders to use some of its cash reserves to pay a dividend, arguing its vast prosperity was better spent on research and product development."

4. Raising capital is expensive; paying dividends (or buying back shares) is expensive in terms of transaction costs, it would be madness to do both at the same time. We are constantly told that banks need more capital; if they can afford to pay dividends, obviously they don't.

Therefore, a pension fund which owns shares in banks does not need the dividends in the short or medium term!

If profits are retained/reinvested/used to pay off other liabilities, the value of the shares goes up faster than if the bank paid out dividends. If the pension funds are investing long term (and I would like to think they are), they should be quite happy to wait for a few years; what they lose in cash income, they gain in capital growth. If a pension fund needs cash in the short term, all it has to do is sell off some of its shares; this does not 'erode' capital because the remaining shares are increasing in value faster than they would be doing if the bank paid out dividends.

Twat, honestly.

In any even, as a final thought, it appears to be the case that the value of pension funds' investment in bank bonds is far, far higher than the value of their bank shares; remembering always that bail out has not been particularly good for shareholders but it has been supremely good for bondholders, as I have explained before, so pension funds have done very well out of the bail-out, all things considered.

Friday 17 October 2008

AC/DC: Black Ice

Out next week some time, most of the songs are already on YouTube.

Track listing (wait for it) ... Rock'n'roll train; Skies on fire; Big Jack; Anything goes; War machine; Smash'n'grab; Spoilin' for a fight; Wheels; Decibel; Stormy May Day; She likes rock'n'roll; Rock'n'roll dream; Rocking all the way*; Black ice ...

... but the best bit of the promo video (about 20 seconds in) is this: "Will be sold exclusively at Wal-Mart and Sam's Club". I have no idea who Sam's Club are**, but I do know that Wal-Mart are much hated in leftie circles ("Wot? Cheap goods for lower income people? Jobs for semi-skilled workers? Trade not aid? Pah!"). For $11.88 ("Wot? An evening's entertainment for under twelve bucks? Do they know how much an opera ticket costs nowadays? Pah!"). 

The State of Maryland once went so far as to enact a punitive law that only applied to Wal-Mart, which was thankfully ruled 'not enforceable' by District Judge Motz***, decision affirmed by the US Court of Appeals For The Fourth Circuit a year later, Judge Michael dissenting.

* On a pedantic note, why the "g" at the end of that particular present participle? And why do the official song titles miss the apostrophe after the "n" in the word "and"? Ah well, who cares...

** JP point out in the comments, Sam's Club is part of Wal Mart

*** 'Motz' is German for 'whine' or 'moan', which adds yet another level of hilarity.

And we're supposed to trust these people with taxpayers' money?

13 October 2008: Sarkozy hails "massive" €360bn bail-out package

17 October 2008: €600m 'lost' in French banking disaster

Dave don't got no clue (5)

Continuing my occasional series on what a complete and utter vacuous twat our likely next Prime Minister appears to be, let's look at his speech at Bloomberg:

Mr Cameron said his party's support for the Prime Minister's bank bail-out did not mean he backed its wider economic policies which had been clearly exposed as "a complete and utter failure".

What is particularly infuriating about this is that Dave had - briefly - appeared to have grasped the concept of debt-for-equity swaps when he was interviewed by Andrew Marr on 28 September 2008, but hey. Turning to the last paragraph quoted:

"I will never pull my punches in explaining how this Government has brought Britain down." Mr Cameron repeated promises to freeze council tax, reform insolvency law and stop pensioners being forced to buy retirement annuities as he again rejected calls for him to give up-front tax cut pledges.

I have never seen any evidence that he understands or ever tried to explain where The Goblin King had gone wrong. He certainly didn't in the bits quoted from his speech. Yes, Camerosborne are forever wailing about the wall of debt that has built up under Nulab, but they fail, in the main (this speech is an exception) to distinguish between government debt (I agree that this is raging out of control because of public sector waste and overspend of £100 billion per annum) and household debt. This either stems from the fact he is genuinely thick, or perhaps because he knows deep down that The Tories are the homeowners party, and that 85% of household debt has gone into mortgages; which pushed up house prices to ridiculous levels; which in turn generated handsome profits - albeit largely on paper - for homeowners.

And so what are his solutions?

"Freeze council tax" *Sigh* Again, I agree that local councils waste billions; the solution however is not to cut Council Tax, but to cut central government grants to local councils (which are heavily skewed in favour of Labour-run councils, of course, so fair's fair); this means that central government can then reduce far more damaging nationally raised taxes on production and employment */sigh*

"Reform insolvency law" This pre-supposes that there is anything wrong with insolvency law as it stands ...

"stop pensioners being forced to buy retirement annuities" I totally agree with this one, actually, it's already in the MW manifesto. But it's hardly going to solve our economic problems, is it?

"reject calls to give up-front tax cut pledges" *Sigh* see above. In any event, as Tax God Art Laffer once explained, if businesses know that there'll be tax cuts in the near future, they shuffle their profits around so that they declare less income now and more later. So a sneaky but cunning move on Dave's part would be to promise cuts in tax rates; this means that in the first year of a Tory gummint, tax receipts will increase as if by magic! People who misunderstand The Laffer Curve* will claim that this is evidence that cutting rates boosts revenues; it is of course only a short term thing, but so what? Politics is a dirty business.*/sigh*

* The most common fallacy is that tax cuts always increase revenues; Art Laffer never said that! In any event, the UK's corporation tax rate of 28% is on the upward slope of the Laffer Curve; we could achieve the best results by cutting VAT and Employer's NIC, but that's another story.

What's $6 billion between friends?

One of the excuses/reasons given for the taxpayer funded bail-out* is "Ooh, but they've got all these credit default swap derivatives, didn't you know!? Nobody knows where the losses are, the whole system might come crashing down!"

MW's Golden Rule is, the more scary that a story churned out by the gummint is, the less likely it is to be true. We are constantly told that the total value of 'over the counter credit default swaps' is $58 trillion or something and that the total losses could be ... well ... humungous anyway. (Nobody mentions the corresponding gains, of course - the overall net losses will be nil.)

As yesterday's FT editorial rather sheepishly explains:

When Lehman defaulted, the total amount of CDS on its debt was unknown. Estimates suggested that as much as $400bn might have to be paid out. That would have had the potential to cripple even the biggest banks, and may have added another element of fear to already panicky markets. While banks could work out their own exposure, neither they nor regulators could be sure what other banks owed.

To make matters worse, Lehman was itself a writer of CDS and other derivative contracts. The bank’s collapse rendered them void and left protection buyers scrambling for new hedges. Counterparty risk – ignored in the good times – was back with a vengeance.

The Depository Trust and Clearing Corporation, where most CDS trades are registered**, now estimates that only about $6bn need physically change hands next week when Lehman CDS are settled. The vast majority is netted out, and systemic risk appears marginal.

And don't forget, that $6 bn is the gross amount, that is being spread out between hundreds of different winners and losers.

There was one bank that did lose $6 bn recently, as it happens, that was Société Générale. Has everybody conveniently forgotten about Jérôme Kerviel, FFS?

One single French bank lost $6 bn and continued trading as normal!

* People tell me that debt-for-equity swaps wouldn't be a better way of sorting out the banks that the bail-out "Because they doesn't sort out the losses on the derivatives, does it?" (which is complete cockwaffle - neither does the bail-out, but hey).

** The fact that these trades are registered makes mockery of the headline to that editorial, which is "Clearing up the credit swaps fog".

Thursday 16 October 2008

Climate Of Fear

I am not a conspiracy theorist as such, but it is indisputably true that our gummint enjoys creating a Climate Of Fear in order to be able to ram through restrictions on our freedoms, increasing taxes and/or enlarging the power of the state.

Whether this is creating ...
- fear of terrorism (-> 42 day detention),
- fear that cannabis drives you mad (evidence tenuous at best -> reclassification to Class B),
- fear of global warming (-> bin inspectors, ludicrous landfill tax, green taxes, HIP certificates, subsidies for nuclear power and windmills etc),
- fear of 'financial crisis (the banks are in rude health, frankly -> increase taxes to nationalise banks),
- fear that 'the countryside is being concreted over' (-> illiberal planning laws, high house prices -> key workers schemes, which make many public sector workers into 'tied workers', i.e. slaves),
- fear of racial tensions (-> race relations industry, 17 page forms for coppers to fill in),
- fear of passive smoking (-> higher taxes on fags, smoking ban in pubs),
- fear of paedophiles (-> regulations and restrictions on school trips, CRB checks for Scout troop leaders and nursery nurses), or
- fear of identity theft (-> ID cards. Don't ask me how they worked that one out)
etc etc.

The only thing that really worries me is power cuts, which the EU/LibLabConsensus are more or less guaranteeing with their stupid rules against coal fired power stations.

(Crossposted from HPC)