Calm down
30 Sep 2008 [2 Comments | 255 views]
So, when the history books describing this time are written will they really look back at yesterday’s decision by Congress as the pivotal moment? Will the decisions of those 228 Law makers really send the global economy into a 1930s style depression? Was this really a one off opportunity to fix the problem?
Last night, EU Commissioner Peter Mandelson was interviewed on BBC2 Newsnight. He said “I feel they've taken leave of their senses and I hope that in Europe we will not see politicians and parliamentarians replicating the sort of irresponsibility and political partisanship that we have seen in Washington.”
And yet, consider this. The Paulson plan had many flaws. There are strong arguments to suggest it was the wrong plan. Some say, well, at least it was a plan. Any plan is better than no plan.
But is that right ?
Most successful business people will tell you it is a mistake to make split second decisions. If you enter into a hire purchase agreement to buy a new TV, you are given a seven days cool off period. If you are buying a house, the lawyers seem to do their best to slow the whole process down, with their due diligence. In business, it sometimes feels as if lawyers call the shots – their "moreovers" and "whereupons" can be irritating, they can slow transactions down, but most would agree they are essential.
Sometimes you may find yourself under pressure. We are usually suspicious of take it or leave it deals. Here is some advice for a would be buyer subjected to a high pressured sales techniques: walk away. Anyone who tries to persuade you the deal won’t be available tomorrow is usually bluffing.
Now we are told we face financial Armageddon. That it is 1929 all over again, that yesterday’s no vote by the House of Representatives spells the end of prosperity. That the US is a third world economy in the making. And markets do their headless chicken impersonation. Paulson wanted $700bn, yesterday the US stocks markets had more than $1trillion knocked off their value, therefore goes the argument, Congress's reticence has already cost more than the money Paulson wanted to spend.
Yet, you know that’s not true. Markets rise and fall, even the US government has only limited opportunities to spend $700bn.
Right now, what is really called for is thought, a considered response to the financial crisis. Those who can keep their head while others panic, should be the ones who set the pace.
Yesterday’s decisions by Congress does not spell disaster. And this is why.
Building societies protest too much
30 Sep 2008 [0 Comments | 213 views]
There are some unhappy bunnies at Building Societies, at the moment. The Financial Services Compensation Scheme means that banks and building societies have to bail out depositors when one of the fellow banks and building societies goes bust. That’s what happened to Bradford and Bingley this weekend.
The government stepped in of course, and put its money into the pot, on the understanding it would be refunded in due course. But, its action came at a price. Our venerable financial institutions have to pay the government around £450 million a year in interest payments, and that has left our Building Societies hopping mad.
Oil drops again
30 Sep 2008 [0 Comments | 205 views]
Oil fell $10 yesterday, gold soared. Volatilility was of course the order of the day. It was not a day of rational decision making. Yet the changes in oil and gold are perhaps, highly significant.
Retailers prepare way for the great land rebellion
30 Sep 2008 [0 Comments | 155 views]
A rebellion is occurring amongst retailers. They have had enough. They are being stymied by a tradition that dates back to the Middle Ages. If their rebellion is a success, its significance will be far reaching. Maybe at last we are seeing the long needed change in attitude to property ownership – a move away from the dominance of those who create little of the country’s wealth, to those who really are wealth creators.
Tax payers off the hook with Bradford and Bingley rescue
29 Sep 2008 [0 Comments | 181 views]
It’s a funny thing. When Northern Rock went down, it was as if the sky had fallen in. When it was finally nationalised, you could barely see the faces of Messrs Darling and Brown, so encased were they in egg. The bank run on Northern Rock occurred when the US Treasury secretary was in Britain. What must he think, asked the press? Henry Paulson, the highly respected former boss of Goldman Sachs, no less, must have thought he had come to the wrong country, and that he had arrived in some third world nation, not the land that boasts the so called finance capital of the world.
Then this morning it was déjà vu. Bradford and Bingley went the way of Northern Rock. Is Hank, gazing across the pond, wondering about the collapse of Blightey? Does this leave our European partners laughing over their Croissants? Well no. Hank is too busy worrying about that pain in his knee, which must surely have developed after be begged Nancy Pelosi, Speaker of the House of Representatives for help.
US bankers won’t be laughing at our ineptitude, instead they will be fretting over the demise of Washington Mutual, the biggest US bank to ever fail.
As for our cousins across the channel, it appears that at least in the three countries that make up Benelux, they would be delighted to swap our problem for theirs. They would be more than happy to take Bradford and Bingely off us, if we took the giant bank Fortis off them.
And so it came to pass, that during the midst of the great financial crisis of 2008 to 2009, (or should that read 2008 to 2010?) Bradford and Bingley was nationalised. But, on this occasion, the British government got very clever
Paulson throws off ghost of 1929
29 Sep 2008 [1 Comment | 229 views]
Here is an idea for solving the economic crisis. Liquidate. Maybe we should liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate. This will in turn purge the rottenness out of the system.
Ummm, controversial advice. Here is another idea. If we do all these things, high costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.
Well, that was the suggestion that Andrew Mellon of the US Treasury had in 1929 for solving the crisis in that era.
Until a week or so ago, commentators were drawing similarities between Mr Mellon and today’s Treasury Secretary Henry Paulson. Like Paulson, Mellon was a very rich man indeed. Paulson is a former banker, Mellon, was a highly successful investor. And when Lehman Brothers went down, many concluded Paulson just wanted to let the full and vicious force of capitalism do its worst.
It is not like that now, of course. Now Henry Paulson has become a great nationaliser, a socialist applying policies that arch protectionists in Europe today, or in the UK back in the 1950s, would have been proud of.
The Paulson plan has now been accepted by Congress. Sure it been tweaked – pay is to come under the microscope, and banks which benefit from the Paulson plan, and which pay out salaries in excess of $500,000, will have certain tax breaks removed.
The thing you need to understand about the Paulson plan, though, is this.
Robin Hood could have solved economic crisis
29 Sep 2008 [0 Comments | 183 views]
Okay, the writing is a tad old fashioned, but consider the views of John Maynard Keynes, writing during the outset of the 1930s depression:
“It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924-1929] should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it, a nemesis on man's speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again.”
It seems there is one massive parallel between the crisis of today, and the 1930s which few seem to have spotted. Ironically, the similarity lies not in foolhardy markets, rather, in the
Is debt bubble a myth ?
29 Sep 2008 [1 Comment | 241 views]
In yesterday’s Sunday Times, the august newspaper’s economics editor David Smith headlined “if this is the bust, why wasn’t it preceded by a bigger economic boom ?”
As you know, bust is the price we pay for too big a boom. But Mr Smith, who we have previously said must be hoping to win the award of most optimistic economics writer of the year, doesn’t see it like that.
“In the run-up to the last recession, in the early 1990s the economy was characterised by runaway growth in consumer spending, ” he said, then added “ this time, however, one striking but unappreciated feature of the economy has been the absence of a consumer boom”.
Is he right? Are we really seeing bust without boom? Maybe, therefore, we can all assume all this talk of crisis, is overdone. A few banks got their sums wrong, but that is it. The slowdown will end in no time.
The problem with Hank
26 Sep 2008 [0 Comments | 172 views]
The Hank Paulson plan is quite possibly the most important business plan ever written. It seems it will get tweaked, it may even get tweaked quite a bit, but it will get through.
At the time of writing, it appears all is recrimination. Republicans are blaming Democrats, Democrats are blaming Republicans. Hank Paulson is at once a hero and a villain. Bankers have become evil incarnate, and even America’s poor, with their subprime loans and trailer homes, are getting the blame.
But eventually the blame game will end, and it will dawn on senators that unless some kind of Paulsonesque plan gets through, and gets through quick, the US economy will face catastrophe, and even US politicians will finally see their urgency and need for that, even the ones who double up as hockey mums.
But just because a Paulson-type plan is vital for saving the global economy, it doesn’t mean it is a good plan, it is just the best plan anyone can come up with.
But it does have major flaws: some we are stuck with, some are more serious, some, well, watch them unravel.
The US is finished says German finance minister: we need to re-invent capitalism, says Sarkozy
26 Sep 2008 [0 Comments | 171 views]
Nearly headless Nick Sarkozy has been waiting for a moment like this. So too has Germany's finance minister Peer Steinbrück, and yesterday they put the boot in.
Capitalism may not be dead, but unbridled, Anglo-Saxon, laissez-faire capitalism has gone the way of the dodo, or so the two men seem to believe.
In fact, Peer Steinbrück's outburst really was something extraordinary. As for Nick, well, he reckons there's a lot of madness about.
"The world will never be the same again," said, Herr Steinbrück. "The U.S. will lose its status as the superpower of the world financial system."
He continued:
