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Week Ending 11th October 2009
9th October 09
– That was the (credit) year that was
There were some poor folk across the pond
and a cold shiver is slowly wending
The Fed puts up the interest rate ‘cause
there’s been some very lax lending.
The credit checks were not that sound, housing
market collapses,
with assets bundled up and sold,
Sold in securitised packages.
If you’re the buyer, it’s not your fault
The world’s like a ram on the tup,
but some clever sods in some distant bank
just sold you the world’s biggest pup.
US bean-counters quickly make the great money bets
Although historical records will tell
that $700bn of green backs for bank toxic debts
went some place else, and a bit extra as well.
Back home in Blighty and in the Brown stuff
we’re a match for the old Yankee troopers,
£500bn of huff and of puff (37% of our entire GDP)
- Come on Europe, wake up, follow suit,
Don’t play the old party poopers.
But No 1 i.e. Germany is not on our side
Not that Keynesian you see,
Yet, by the time this year is played out,
as before, they are down on one knee.
Spain is a shame, the Costas are missed
We went there each year to get pissed,
But with apartments all built on sand
unemployment is now15% and the casa takes 65%
of that hard-earned cash in hand.
Ireland is green, and perhaps a bit green
to guarantee all bank deposits and bail out
its three biggest banks,
but, caught twixt a rock and a hard place
(in euros up to its shanks) since
it exports to us and to US
whose currency takes quite a slating,
so Standard & Poor think, ta very much Mik,
we’ll grab back your AAA rating.
The UK now enters the second dark ages,
its economists spout forth as if new-age sages,
but theory is theory and like lambs to the slaughter,
output drops by 6.4%, and in one single quarter.
Shopkeepers are we and we used to ride high
but gone dear old Woolworths, and gone MFI.
The Brown stuff awakes “try fiscal” says he
and knocks 2.5% (temporarily) of the VAT.
Shareholders are bleeding, bleeding faces like thunder,
Why? 2008, down 34% - The Footsie 100.
Ever a silver lining, here’s one little beauty,
UK Treasury is down £6bn as house sales pan,
down on insidious stamp duty.
We had four banks that now are two, so you would
think competition needs no more glue.
Though not so. The Brown stuff says “waive that aside, I’ve £17bn
riding the new Lloyds Banking Group’s backside.”
It looks bad, it feels bad, there’s no good, you’ll see,
and no good there was, for shareholders like me.
No tale of woe is complete without its rogues.
We heard the word Ponzi and sorry, what did you say?
I said pay out today what you got in yesterday.
It’s easy and simple, just bluff and don’t flaff,
Security regulation? You are having a laugh.
Madoff made off and guilty the plea
while Stanford played cricket with wives on a knee.
When folks stop buying – no new motor for me,
especially of the big American gas-guzzling three,
GM, Chrysler and Ford,
down on their uppers with just one accord,
the first lost its Europe, after Chapter 11 ashes
Chrysler found Italy to save a few blushes and Ford,
good old Ford, just about held its sway
but never again, the American way.
It’s important to learn how economies got sick
Tell you what I’ve learned. Learned how to get rich.
Bought a new press and, if you please,
I’m printing and printing to quantitatively ease.
Using new money to buy up their bonds
that have to be auctioned to finance the debt wood
created by filling a banking black hole
caused by securities packaged though not understood.
Whirligig, whirligig – big hairy beast,
Wealth has just tilted, tilted due EAST.
Jgs – copyright reserved
Pearl of the week
“I don’t think there’s any reason why everyone is going to suddenly
feel much better. But I don’t think they’re going to feel much
worse.”
Sir Stuart Rose – Executive Chairman, Marks & Spencer plc
8th October 09
– Save it!
Desperately searching for good news in this penultimate
entry of my (nearly) year long diary, I found it nestling amongst
some soft undergrowth of green shoots courtesy of the Office of
National Statistics’ latest quarterly bulletin. At any rate, those
long-suffering loyal readers of my diary and blog will recognise it
as good news from my perspective given the encouragement to
consumers to spend and spend again, has never resonated with me.
Just as in business enterprises, culture is everything, so in
private households is behaviour. Behaviour, habit, custom, the
pattern of how life is lived. The economic crisis has produced a
change. The statistical measurement of how much British people are
putting under the mattress (seeing as how banks have lost all
credibility for Joe ordinary saver) has risen to 5.6% of their
earnings in the second quarter of 2009. This figure is the highest
since 2003 and compares with 1.7% in the same period last year.
The savings ratio – incidentally mirroring figures from the US – was
accompanied by a few bits of other comfort. The ONS’s final estimate
for UK economic growth in the second quarter showed a slightly lower
decline in GDP than previously at -0.6% from -0.7%. Surprisingly too
was a registered increase in household income of 0.9% and a drop in
consumer spending (hence the savings result).
To put the green shoots into some sort of perspective, the ONS said
that compared with last year, the economy has shrunk by 5.5%, the
biggest annual decline since comparable records began in 1956. To
conclude my good news search, the Bank of England said that in July
09, home owners repaid £203m more than they borrowed, the first time
lending has been negative since the Bank’s data began in 1993.
I cannot think of a better slogan (pity one of the political parties
didn’t dream it up prior to the current conference season) “Save and
get out of debt”.
7th October 09
– Road to Istanbul, and back
On what is fast approaching the anniversary of this credit
crunch diary, an even more important anniversary event is to be held
in Istanbul. The International Monetary Fund (IMF) will unveil its
“early warning system” designed to prevent future financial crisis
of the magnitude catalogued in this diary. Istanbul (extremely aptly
where the East meets the West) will witness the new set of models to
become the centre piece of the IMF’s new post-crisis role in the
economic world.
The future role of the IMF – agreed at the latest meeting of the G20
nations (refer back to the previous two diary entries) – is to
ensure that financial bubbles do not build to threaten world
economic stability. The crucial meeting is heralded as probably the
most important in the history of the venerable body.
Hitherto, and has been reported many times in this diary over the
past year in relation to specific nations, the IMF has been tasked
to bail out economies struggling to finance themselves. Now it moves
up a gear to actually monitor the health of the global financial
system. This monitoring is of the extent to which the major
economies stick to “balanced and sustainable growth.”
Julian Jessop, international economist at Capital Economics, said
“This is a positive development. It would make sense to monitor the
build up of financial instabilities. It will most likely focus its
analysis on asset prices, and perhaps credit growth. To be fair to
the IMF, it did lead the way in calling for a big fiscal stimulus
early on in the crisis, so has a good basis for this role. It was
quick to pick up on the scale of the problem and the need for a
fiscal stimulus. In a sense it has had a good crisis.”
On balance and having learnt much myself over the past year, I
concur with this view about the IMF. Wouldn’t it be nice if one day
soon it relocated from Washington to (say) Istanbul. One might call
it the half-way house in a changed world?
6th October 09
– G20 prognosticates and procrastinates
The meeting of the G20 nations (which is to replace the G8
forum as the world’s leading economic master) in Pittsburgh – see
yesterday’s diary entry – decided that their banks will be forced to
more than double levels of capital reserves for the riskier parts of
their operations. But, the meeting stopped short of placing specific
minimum requirements for both liquidity and capital.
The Basel Committee on Banking Supervision will be asked to draft
new rules on liquidity and capital reserves by the end of this
calendar year. The stated objective is to strengthen the global
banking system to withstand future shocks and make it less likely
that sovereign government resources will be called upon.
The conduit for details was the Financial Stability Board (FSB).
It’s final report said in relation to capital requirements that
banks should be retaining profits now to meet future capital needs
and to achieve this by a combination of:-
• Restricting dividends to shareholders
• Ceasing the practice of share buy-backs
• Limiting compensation packages for its top managers (see
yesterday’s entry).
In relation to trading activities, banks were instructed to ensure
that the capital held to cover positions should probably double by
the end of next year. The outcome would be a greatly improved
Capital 1 tier ratio. The Basel framework will also require banks to
be counter-cyclical by building capital reserves in the good times
to provide a buffer for the bad.
On bank liquidity, the Basel committee will draft rules for a
minimum global liquidity ratio to be applied across international
borders. There was more. Accounting standards are to be strengthened
and over-the-counter trading is to be watched more closely. Also, a
system of peer reviews of regulations and standards is to come into
play.
Some commentators wondered how any of this would bear fruit without
countries at least discussing the issue of conflicting currency
levels. It seems poignant that in the final communiqué no mention
was made of the imbalance between the Chinese yuan and the US
dollar.
Procrastination is not only the thief of time but maybe of economic
progress too.
5th October 09
– Delightful damp squib
Like so many long drawn-out sagas, it all ended like a damp
squib and much to the delight of the London and New York non-retail
bankers. It is another of these “us and them” stories that eke out
from the intended reforms aimed at making sure the credit crisis
never reappears. The “us” of course is the UK and US financial
market interests so vital to overall GDP in Britain and America and
the “them” are France and Germany who want Paris and Frankfurt in
the toppling zone.
The long and winding road can be summarised as the two mainland
European states wanting to hang the evil bankers from the nearest
and highest yardarm whilst the UK and US want a brain industry
largely in tact if somewhat shackled. And it’s ironic that the place
of decision was founded in 1758, named after a British prime
minister and not on neutral ground. Not a good omen for modern
France and Germany.
The G20 group of nations meeting in Pittsburgh allowed city traders
to avoid the threatened curbs on their remuneration and instead
agreed to align compensation packages to long-term risk and not
impose specific caps on bonuses. The final communiqué made a firm
pledge to bring bankers’ pay in line with institutional performance
and ensure that loss-making and government-backed banks do not
continue to pay out large sums based upon short-term results. The
three bans committed to were:-
• Multi-year guaranteed pay deals
• The inability to claw-back bonuses if future losses ensue
• Pay not aligned to risk.
If I was an erstwhile highly-paid city banker/trader, I would be
shaking in my moleskin shoes and cashmere jacket. Implementation old
boy, implementation.
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