Monday, 29 February 2016

Brexit - leap in the dark

The remain campaign is constantly telling us leaving the EU would be a leap in the dark through Project Fear, what reasons do they have to justify this?


The growing role of the EU in global diplomacy would be severely diminished if Britain left, well they are right but that is not bad news for the UK only the EU.

The EU is worried, really worried that the UK leaves and yet they fought tooth & nail over the meagre points made by the PM David Cameron during the re-negotiation summit.

Do we really want to stay in the EU, no, but there is plenty of time to change our minds.

Saturday, 27 February 2016

Dame Janet Smith Review

The Dame Janet Smith Review was established in October 2012 by the BBC to conduct an impartial, thorough and independent review of the culture and practices of the BBC during the years that Jimmy Savile worked there. It was released yesterday [25-Feb-2016], is it what was expected?

The review found that senior managers were not told of complaints about Savile because of an "atmosphere of fear" which still exists in the BBC.

Before I continue the report is extensive and I am sure will be written about by many but the point that frustrates me is in the last 24 hours Janet Smith has not been asked why she did not inter view the two NewsNight staff who were removed from the BBC and their Savile investigation was quashed as there were two Savile tribute shows being produced.

In October 2012 Peter Ribbon stopped a programme which was being made by Liz MacKean & Meirion Jones which was investigating Jimmy Savile and his abuse of young girls, neither of these people had been questioned by Dame Janet Smith during her three year review even though both had given evidence to the Pollard inquiry, why?

Friday, 26 February 2016

OFCOM need teeth

BT & OpenReach are still installing fibre from exchanges to street side cabinet and then the existing copper carries the signal, so no matter how super fast the fibre is, it comes to a crunching halt between the street side cabinet and the home or business.

This latest report was expected to recommend splitting off OpenReach from BT but that will not happen as OFCOM has only recommended a new set of rules and sprucing up OpenReach's governance.

OFCOM offers two arguments for not going the whole way with separation. One is that making BT spin off OpenReach would involve too much disruption to be useful and second is that the market for broadband is fluid and would reduce the flexibility of future projects, extremely weak excuses.

This is hardly surprising as ORCOM is one of the weakest quangos presently and BT has just released a statement saying they will put another £1 billion into OpenReach for the future. That would be clawed back if the split took place.

Thursday, 25 February 2016

Eurozone banking crisis

Can the eurozone survive another banking crisis?

The reasons for the nervousness were not hard to work out. The one thing we learned in 2008 is that the financial system is interconnected, and that losses in one market can easily turn up somewhere else. Oil and commodity prices have slumped across the world, and it would be surprising if at least some of those losses were not showing up in the banking system somewhere.

To make matters worse, economies remain depressed, and the ECB [European Central Bank] has imposed negative rates across the continent, making it very hard for banks to earn any sort of margin on the difference between deposits and loans. Against that backdrop, it is easy to understand why traders, who know how these things work better than most people, started to target the banks. Whether any of them are in genuine trouble, we will find out in the next few weeks and months. It may well have been a panic over nothing, then again there may be some genuine pain ahead.

The real question is what would happen then. In the United States, or Britain, if a major bank ran into trouble, the Federal Reserve or the Bank of England would step into rescue it. They have done that before and would do it again. In the first instance, the ECB would attempt to do the same. When Mario Draghi said he would do “whatever it takes” to rescue the euro, it surely included a bailout were one necessary.

But hold on. Stop and think about the politics of that and it all gets a lot more complicated.

At the height of the confrontation between the radical Syriza government and the rest of the eurozone last year the Greek banking system effectively shut down. Capital controls were introduced, and the amount ordinary Greeks could withdraw every day was heavily limited. Much the same thing happened in Cyprus.

But surely it would look very odd if German banks were bailed out, and the ATMs kept open, when Greek ones were not. It would make clear in the most dramatic way possible that the eurozone was about what worked for Germany, and not about what worked for anyone else.

The eurozone is young and still an experiment, there is room for improvement, but is there time?

Tuesday, 23 February 2016

Pound Falls

The pound suffered its biggest drop in more than six years on Monday [23-Feb-2016], as fears that the U.K. will leave the European Union intensified after London Mayor Boris Johnson came out in favour of a “Brexit”.

Now that was the sort of headline we got this morning from the media in connection with yesterdays drop and I wonder how four months before a vote takes place and the possibility of people changing their minds several hundred times during that period anyone can give credence to the suggestion that the pound was affected by this current situation.

So why did the pound drop?

Perhaps we should remind ourselves of a recent global financial crisis and foreign exchange scandal.

The forex scandal [also known as the forex probe] is a financial scandal that involves the revelation, and subsequent investigation, that banks colluded for at least a decade to manipulate exchange rates for their own financial gain. Market regulators in Asia, Switzerland, the United Kingdom, and the United States began to investigate the $5.3 trillion-a-day foreign exchange market [forex] after Bloomberg News reported in June 2013 that currency dealers said they had been front-running client orders and rigging the foreign exchange benchmark WM/Reuters rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmark rates are set.

It seems to me that yesterdays drop was caused by a few as there could be no evidence that everyone has made their mind up today on what they are going to vote on 23-Jun-2016.

Another reason could be simpler and yesterday's fall reverses the gain made last Friday when the PM David Cameron returned from Europe with a deal for Britain that would be good enough for us to stay in the EU. The status quo has been achieved.

Monday, 22 February 2016

The Referendum

The Referendum is set for 23-Jun-2016 and we now have 123 days to listen to the arguments and we should do, voting in this referendum is probably going to be the most important vote for this generation.

One thing we have to do is wait for the electoral commission to choose one group for each side of the argument, at the moment the remain campaign consist of strongerin / sayyes2europe and the leave campaign consist of Leave.EU / Vote Leave / BetterOffOut, only one of each can continue.

They also need to select a frontispiece for each side, the remains first choice wasn't much good as Sir Stuart Rose forgot the name of his group in the first interview and leave currently has the problem of too many choices.

Sunday, 21 February 2016

The Deal

What is the deal that David Cameron has brought back?

Child benefit - Child benefit payments to migrant workers for children living overseas to be recalculated to reflect the cost of living in their home countries.

Competitiveness - The settlement calls on all EU institutions and member states to "make all efforts to fully implement and strengthen the internal market" and to take "concrete steps towards better regulation", including by cutting red tape.

Eurozone - Britain can keep the pound while being in Europe, and its business trade with the bloc, without fear of discrimination. Any British money spent on bailing out eurozone nations will be reimbursed.

Migrant welfare payments - The UK can decide to limit in-work benefits for EU migrants during their first four years in the UK. This so-called "emergency brake" can be applied in the event of "exceptional" levels of migration, but must be released within seven years - without exception.

Protection for the City of London - Safeguards for Britain's large financial services industry to prevent eurozone regulations being imposed on it.

'Red card' for national parliaments - It will be easier for governments to band together to block unwanted legislation. If 55% of national EU parliaments object to a piece of EU legislation it may be rethought.

Some limits on free movement - Denying automatic free movement rights to nationals of a country outside the EU who marry an EU national, as part of measures to tackle "sham" marriages. There are also new powers to exclude people believed to be a security risk - even if they have no previous convictions.

Sovereignty - There is an explicit commitment that the UK will not be part of an "ever closer union" with other EU member states. This will be incorporated in an EU treaty change.

The questions is:- will this be enough for you to vote 'remain' on the 23-Jun-2016 -[as there is no second chance]- or do you consider it is time to leave?

Wednesday, 17 February 2016

EU Referendum

With the Thursday summit just around the corner, what are the main points of the remain campaign?

Stronger economy
Stronger security
Stronger leadership

How will staying in Europe give us a stronger economy when we cannot set our own business rules, less than 5% of UK businesses trade directly with the EU, but have to adhere to all EU Directives, and how can it be beneficially prudent to hand over £50 million a week to 27 other countries when we have a deficit in home finances.

How will staying in Europe give us a stronger security when Europe's idea was Shegen, which appears to have collapsed and walls and barriers are being erected all over Europe today. One of the strongest tenets of remain was tested when the break up of Yugoslavia happened. It was EU interference that helped trigger a major civil war and its dithering contributed to deaths of some 100,000 people.

How will staying in Europe give us a stronger leadership when the leaders we have in Europe are mostly unelected. Westminster is directly elected by the people of Britain as shown in the general elections of the past. The UK also lies at heart of the Commonwealth of 53 nations. Far from increasing British influence in the world, the EU is undermining UK influence and that can only continue if we remain.

It appears to me that leaving will allow us to deregulate the EU’s costly mass of law, restore Britain’s special legal system, control our national borders, make stronger trade deals with other nations and improve the British economy and generate more jobs. Luckily we still have time to find more reasons to leave until the referendum is held.

Tuesday, 16 February 2016

MSF hospitals

It now appears the tragic bombing of the Medecins Sans Frontieres hospital in northern Syria was deliberately targeted and the only people bombing in that area at the moment are the Russians. What happens when the Russian ambassador is questioned about this and he looks sheepishly across the table and says "It wasn't us!".

Nothing of course, Putin is still on his Land Grab programme and has been since Crimea. He does not care about Bashar al-Assad, the President of Syria as Putin will put his own guy in once the territory has been gained.

The violence risks drawing Turkey, a stalwart backer of the rebels, further into the conflict as it looks on with growing alarm at Kurdish expansion near its border, as Kurdish fighters take advantage of the rebels weakening and vacating territory under the Russian onslaught.

A group of Foreign ministers announced last Friday [12-Feb-2016] that a ceasefire would take place concerning Syria, unfortunately they forgot to include the actions of President Putin and the Russians into this equation, and while they cease hostilities the Russians will continue to bomb areas in and around Syria until there is nothing left.

Do not forget that Russia has tested Turkey's patience several times over the last few months and that will be the next stop for Putin and his advance.

Come on The West, wake up.

Monday, 15 February 2016

Banking Capital

In the autumn of 2012 the Vickers' report scoped ring fencing as one of the future safe guards to limit bank failure. It detailed which activities should be required to be within the retail ring-fence? The aim of isolating banking services whose continuous provision is imperative and for which customers have no ready alternative implies that the taking of deposits from, and provision of overdrafts to, ordinary individuals and [SMEs] small and medium-sized enterprises should be required to be within the ring-fence.

The aims of insulating UK retail banking from external shocks and of diminishing problems [including for resolvability] of financial interconnectedness imply that a wide range of services should not be permitted in the ring-fence. Services should not be provided from within the ring-fence if they are not integral to the provision of payments services to customers in the European Economic Area.

The Commission’s view, in sum, is that domestic retail banking services should be inside the ring-fence, global wholesale/investment banking should be outside, and the provision of straightforward banking services to large domestic non-financial companies can be in or out.

What this does is return banking to what it once was before someone had the bright idea of amalgamating all banks.

Today on BBC Radio 4 Today programme, Sir John Vickers has warned that the future safety of Britain's banks is at risk and has said that Bank of England proposals are not strong enough. He says banks need more capital because no-one can predict the nature or scale of the next shock to the system.

Sir John Vickers, who headed up the [ICB] Independent Commission on Banking, said: "The Bank of England proposal is less strong than what the ICB recommended."

But Bank of England Governor Mark Carney said in December that banks largely have or have access to the reserves they need. "We will not increase capital... the overall level of capital won't increase in the system."

The ICB report recommended that the six largest banks should have 3% of extra capital in reserve compared to loans, when taking into account their risk. The new Bank of England suggestion is for a 2.5% buffer for the very largest, and as low as 1% for the smaller lenders of the six.

There are mixed messages here and one of the reasons why after four years since the Vickers' report and eight years since the global financial collapse nothing of any substance has been done.

Thursday, 11 February 2016

Market panic

Something scary is going on in financial markets, where bond prices in particular are indicating near-panic.

Panic moves to prop up Deutsche bank underline fears about both the eurozone and a wider global financial crisis. And there’s a lot of volatility in the political as well as economic markets, when it comes to the EU referendum. The Mail splashes on plunging exports to the EU, while the Telegraph reports that the Companies Act will force firms to detail the risks of ‘Brexit’ on the eve of the poll.

The stock market had predicted nine of the last five recessions; the wisdom of crowds is often overrated. Still, bond markets are a bit less flighty than stocks, and also more closely tied to the economic outlook. [A weak economy has mixed effects on stocks, low profits but also low interest rates, while it has an unambiguous effect on bonds.] What plunging rates tell us is that markets are expecting very weak economies and possibly deflation for years to come, if not full-blown crisis.

The government and central banks world wide have spent the past seven years inveighing against both fiscal and monetary stimulus, and seems to have learned nothing from the utter failure of its predictions to come true. One of the most popular political outs is "we will have to learn the lessons from this" but it is now obvious that this is not true with financial regulation.

If I were a betting man putting a wedge down on the next financial crisis happening before 2020 would not be a difficult choice, however, I do not expect good odds.

Tuesday, 9 February 2016

Financial instruments

Last week I went to see "The Big Short" and enjoyed it for it's entertainment value, however it was remarkably accurate.

The FT has a front page story today [Tuesday 9-Feb-2016] suggesting The Big Short is on again, this time in London, luxury homes are being shorted by hedge funds in a bet on falling prices.

If you are unfamiliar with the back story, the gist of the unsavoury activities that led to the housing crisis was threefold:-

lenders handing out risky [sub prime] mortgages to borrowers with poor credit scores
banks bundling these sub prime mortgages into securities and treating them as if they were not risky
banks and insurers issuing insurance policies against the system’s implosion

The good news is CDO's [collateralised debt obligations] are dead. Pre-crisis, investors were gorging on these bundles of residential mortgages, to be more precise, bundles of bundles of mortgages.

Similar financial devices are still around, including private label CMBSs [commercial mortgage-backed securities] and CLOs [CDOs with regular bank loans instead of mortgages]. The Consumer Protection Act prevents people from issuing these securities to hedge or transfer all the risk, meaning they are still exposed to some of the risk.

Can another Big Short happen?

Well not in the same way, for one thing, the complex insurance products that "The Big Short" guys used to bet against the housing market so-called CDS [credit default swaps] are dead too. That is a good thing but it is now concerning that the solution to the crisis generated the seeds of another.

Essentially the government nationalised the entire residential mortgage market, handing the reins to Fannie Mae, Freddie Mac, and the Federal Housing Authority. Although these entities do not make dangerous CDOs, and you cannot buy a CDS from them, our reliance on them leaves the economy vulnerable.

Are we as safe as we could be from all the lessons learned? I think not.


Monday, 8 February 2016

Another charity scandal

Age UK and E.on have been exposed by The Sun as the charity was paid £6m by the energy giant for a deal to sign up pensioners to its fixed rate tariff. Some claim it is standard practice for price comparison websites to get a commission for passing on business, yet when a charity is involved then it looks quite different.

The main allegation is that thousands of pensioners were not informed properly that they could switch to newer deals that would save them £245 a year. Energy Secretary Amber Rudd said "I take very seriously this allegation that Britain's pensioners are being misled” and she has ordered OFGEM to look at it.

Last year Age UK warned that a third of older people are ‘anxious’ about ‘high heating costs’ and had criticised the Big Six power firms for overcharging, now it seems they are in league with the rip off.

Last week Age UK chief executive Tom Wright, who earns more than £180,000 a year allegedly, was announced as a non-executive director of the Financial Conduct Authority, where he will be regulating companies and helping to protect consumers, no conflict of interest there then!

In a statement, the Charity Commission said: “The Commission is aware of concerns raised in the media regarding Age UK’s partnership activities with E.ON. The Commission is in contact with both Age UK and OFGEM to determine what regulatory role the Commission might have and any action that might be necessary.” So be prepared for another whitewash report hitting the desks.

This special tariff agreed by E.ON and Age UK is not a good deal for old people, many of whom may be in fuel poverty.  The Conservative MP Dan Poulter told BBC Radio 4’s Today programme: “There is a moral obligation for the charity and E.ON to recompense them.”

Thursday, 4 February 2016

PM's sham reforms

Yesterday [Wednesday 3-Feb-2016] David Cameron laid out the re-negotiated deal that he has come back with from Brussels and after a two hour question & answer session in parliament he now stands accused of selling the country short. About half way through there were no more questions available from the opposition benches, only conservatives asked questions in the final hour.

Remember, this is the great deal that will encourage the public to vote remain on 23-June-2016, well it looks more like a damp squid.

The four points:-

were not really stunning to start with, he has now returned with a watered down version saying that this is not the final version, but time is running out. If I wanted to be cynical I would say the PM actually wanted the public to vote leave!

The Prime Minister claimed he had secured 'substantial change' to the UK's relationship with Brussels. In the chamber at Westminster angry Tory backbenchers lined up to denounce his 'slap in the face for Britain'. They said his supposed 'breakthrough' deal did little or nothing to curb mass immigration, restore sovereignty or end the hugely divisive splits in the Tory Party over Europe.

After months of negotiations, in which the PM flew thousands of miles to EU capitals, European Council president Donald Tusk yesterday released the basis for a draft deal intended to keep Britain inside the EU and it is worthless. There is only one way to vote now and that is to leave.

Monday, 1 February 2016

GDP 2015

Measuring output is the best way we have of taking the temperature of an economy. But the industry standard GDP [gross domestic product] has a host of weaknesses. It is reliant on an arbitrary definition of what is productive, so it includes childcare by nannies but not by house-husbands and wives. It takes no account of who is doing the producing, meaning an economy could have a single worker or full employment. It ignores the underground economy to a large extent, guaranteeing that production always undershoots reality. But more than any of these, GDP is extremely difficult to measure.

The UK economy grew by 0.5% in the fourth quarter of 2015, according to figures released from the ONS [Office for National Statistics].

GDP growth between October and December was up 0.1% from the previous three-month period. It also meant the economy was 1.9% larger than during the same quarter of 2014. But annual growth for 2015 was at 2.2%, down on 2.9% for the previous year. This pace of annual growth is the slowest for three years.

The ONS attributed the quarterly rise in GDP to a 0.7% increase in services, while agriculture also grew by 0.6% during the period. There were falls in construction output and production, which fell by 0.1% and 0.2% respectively. The figures released today are preliminary and are often adjusted up or down once more data become available to the ONS.

George Osborne said: “These figures show Britain continues to grow steadily. Despite turbulence in the global economy, Britain is pushing ahead. "With the risks we see elsewhere in the world, there may be bumpy times ahead – so here in the UK we must stick to the plan that's cutting the deficit, attracting business investment and creating jobs."

The ONS’ chief economist Joe Grice said: “Growth continues to be driven by the UK's dominant services sector, while the production and construction sectors shrank slightly in the fourth quarter.”

China’s growth is over 6% and we are still talking of 0.1% changes being good, we have such a long way to go to be able to say we are paying our way. How can we pay off the deficit support huge infrastructure projects shore up the NHS which is creaking like never before and still supply the public services the public expect?