Category: Blog

Yesterday’s Sunday Times reported a City analyst saying that RBS may report losses of up to £28 billion for 2008 when it reports its full year figures.

If it does, or if reports a mere £20 billion of losses for last year, that means all the extra capital pumped in by UK taxpayers will have gone in just a few months of ownership. Many of the losses will be on foreign banks and overseas investments within the RBS group.

In the meantime we do know, now that RBS shares are trading around 42p, that the taxpayer has lost a small fortune on the shares – around £8 billion at current market prices.

When the government first started briefing that it was thinking of buying stakes in several major banks I urged them to carry out due diligence, to ensure the assets they were buying were realistically valued. Why on earth, I asked, should taxpayers have to take the hit after they bought in? Surely any sensible person buying into such banks would demand write offs before putting in so much money?

I was told the government was in a hurry and would not therefore do what any commercial purchaser would do. They could have applied a sensible discount to the asset value when constructing the deal, but even that proved too much for this feckless and naïve government. Their bail out of the banks was their ERM – and its impact will be far worse than the damage the ERM did to the British economy.

Taxpayers have thrown their money down the drain, putting it into banks that had not written down their assets sufficiently to warrant the new capital. Nor have they cut their costs enough. If a bank is losing such huge sums it cannot afford all the people it is currently employing, and cannot afford the giddy level of salaries and bonuses it is paying to the managers and directors. The government should have insisted on proper write offs and proper action to cut costs before purchasing any shares. Instead we are all losing a packet, without helping fix the banks, who carry on incurring costs as if the world was still the same as during the boom.

Now we need to know from the Regulator whether it will inisist on replacing the lost capital or not. A few weeks agao when the government and Regulator increased the banking panic by insisting on extra capital we were told it was essential they have a higher capital ratio – i.e. more share capital relative to their lending. Does that rule still apply to RBS, or will it be allowed now post any losses to have a lower ratio again? If it is allowed a lower ratio can we have some assurance these losses mark the end of the likely write offs? Will the government do some due diligence on the figures this time to make sure they are prudent?

If the Regulator is still insisting on the higher capital ratio, where is the money coming from? Are taxpayers to be made to put more in, as Mr Bean of the Bank of England hints? Or will they now get on with selling assets and cutting costs in a way which gets the bank’s balance sheet back into better trim?

What should they do? Demand a full independent audit of the assets. Agree realistic values. Agree with Regulator and the bank an appropriate capital structure for the revised position. Then get the bank to raise any extra capital it needs through cutting costs and retaining more profit, selling assets, or finding someone other than taxpayers to put up the money. Taxpayers have had enough.

I pointed out in Parliamentary debates that the 3 banks with state shareholdings could lose the equivalent of the defence budget in a year. According to the Sunday Times RBS may have done most of that on its own within the first few months of state ownership!

On the economy we have heard from the President elect. Apparently the only thing wrong with the high spend high borrow strategy of George Bush is that he didn’t overspend and over borrow enough. We should expect more of the same when President Obama sits in the Oval Office.

On the alleged corruption within the Democratic party over the future of Mr Obama’s Senate seat in Chicago we hear loud and clear that whilst the police have interviewed Mr Obama he had nothing to do with whatever did happen.

Yet on the terrifying war in the Middle East that is daily claiming so many victims we hear the sound of silence. We are told that the USA can only have one President at a time. That is useful line when the wind is in the north.

The worry I have had about an Obama Presidency is twofold. Someone who was so good at persuading many that he is on their side will not find it easy to come off all the fences he has been elegantly astride. Being in power means taking sides and making decisions.Someone who put the case for change without specifying what changes will struggle in practise to differentiate what he is doing from what his predecessor was forced to do as he saw it by circumstance and by the mighty high spending Washington machine with all its vested interests.

With Mrs Clinton as Secretary of State it is difficult to believe there will be much change over Middle East policy. With Mr Obama himself wanting to intensify the war in Afghanistan it is difficult to believe there will be much change in policy. With the present Secretary for Defence staying in office it is difficult to believe there will be much change of policy. Yet surely, if change is needed, it is above all needed in the US approach to the Middle East?

Last night was doubly unusual for me. I had time to watch TV, and there was something on a Saturday night I was willing to watch. I tuned in to the story of the political awakening of John Adams, the 2nd President of the USA.

In their vivid and simplified documentary way the film makers captured the rising tensions in America against the bovine insensitivity of the British government. We saw John Adams, the honest and fair minded man, defend British redcoats against false charges of murder from an angry crowd that had taunted and assaulted them. We saw him turn down preferment from the clumsy colonial authorities, only to go on to advance radical proposals concenring the rights of man when even for him the autocratic inflexibility of the British government became too much to stand, let alone defend. He and his fellow delegates to the Convention fashioned the philosophy and the fine words of freedom that made the intellectual backbone of the new Republic. They shamed the gross incompetence of the British some 130 years after Parliament had had to make a stand for its rights against the Crown.The irony of Britain moving from home of liberty to colonial oppressor could not have been missed by the English gentlemen who made the Amrican revolution. I wondered if any Americans watching could see some of the irony now that America is viewed as the oppressor by some in countries where she uses her troops against the will of the locals. The cause of freedom requires tolerance to the differing views of others in most circumstances.

It made me think how much today we need to fashion a new coalition for liberty in our own country. The countless intrusions into our freedoms have often been criticised individually but when we look back over the last decade the total impact is large. Much damage has been done in the false name of security. More has been done by taking in vain the name of social justice, and still more in misguided ways to save the planet. The government has found causes it thinks are higher than liberty, and has then invented ways of seeking to further them that all result in the same dead and deadly end – more state power, more state control, more taxation, more rights and privileges for the governing and more duties and obligations for the rest of us.

When I go the local shops this morning I will doubtless see several people breaking the law, as many do now most of the time. Some will drive at 35 mph believing they do so safely in a 30 mph zone. Some will park on the double yellow lines in the side road close to the shop, seeing no harm as they will not bock the road. Doubtless some will fail to record cash payments for their businesses in their tax account file. Some businesses will be trading today in ways that doubtless violate some little known or unloved regulation. Some break laws because they cannot see the point of the laws, some break them inadvertently because there are so many to know about, and some break them because it makes their lives easier to break them. Recent research has unearthed just how many thousands of new criminal offences this government has introduced, finding new ways to ensnare the usually law abiding. If you invent enough complicated forms, difficult requirements and new rules for business and the general citizenry you will end up making criminals of most. To what purpose?

As I watched the Adams story unfold I knew I would have been with the crowd in demanding liberty in 1770s Masachusetts. I today I am with all those of you who feel there are too many taxes, too many spy cameras, too many new rules, too many needless interventions in our daily lives. We need to rebuild our free society. As we emerge from the Credit Crunch the message should not be that we need more government, but we need wiser government. We do not need more red coats with better weapons, but someone in charge who knows the temper of the people and trusts them to be freer and to make of their own decisions.

When we get a change of government we do not want managerialists who think it is just a question of running the existing system better, but freedom lovers who ask which bits of the creaking machinery of state do we need to keep running, and which can we pension off.

Men and women in Brtain are no longer born free, and live in chains. We need to burst them, to trust people more and governments less. It was big government working with regulated big banks that got us into our current economic mess. It was big government running scared of terrorism that sought to protect us with guards and gates in ways which cannot work when we need to win hearts and minds. I just wish the architects of the current autocracy had watched and understood last night’s docusoap of freedom. They should see that there is relevance today in Britain from those events long ago on the wintry Eastern seaboard of a great country.

Locally yesterday’s spree looked like a one day wonder this afternoon. In Wokingham there were long queues in Woolworths to pay small sums for items that are now heavily discounted and well thumbed through, but not a lot else going on. In Bracknell the furniture sheds were short of paying customers and the electrical and DIY shops far from busy. The MFI store looked forlorn. The car parks were half empty, which looks poor by Saturday standards.

It is true, as some have remarked on this site, that the big cuts in mortgage rates and the fall in petrol prices is helping those with the larger mortgages. At the same time the big reductions in interest rates is hitting many retired people who looked to the interest on their savings to supplement their pensions. What the shops might gain from the former they are going to more than lose from the latter, especially as many of the younger families are worried about job security and feeling they have to repay some of the debts.

This year there are three trends hitting the stores simultaneously. Two have become common in recent years.

We have become a nation of binge shoppers, with a temptation to all try to shop on the same few days each year when we think the prices will be keenest and when we have a holiday.

More and more people want to shop at a time of their choosing from the comfort of their own home, in a way which allows them to find the most competitive price for a good. They are choosing the internet in increasing numbers.

The third complication specific to 2008/9 is the savage downturn in the economy, undermining confidence and forcing people to keep what cash they have.

The retailers and shopping centres have strategies to handle the first two. They have responded to the wish to go shopping on special days by catering for the large numbers, spending on advertising, and changing some of the prices to create some excitement.The main stores are increasingly concentrated in large modern shopping centres where there is adequate parking, and plenty of catering alongside so people can make a half day out of their trip and combine it with a grand coffee or lunch.

The retailers understand that modern shoppers want to drive to the shopping area, park easily, have plenty of choice within and between the shops,and be able to sit down and relax over a drink. A few will still return home to find the cheapest version of what they have seen on the web, and others, especially men, will prefer not to venture to the mall in the first place, but the overall package is a good one which the majority prefer to scrolling through dozens of web pages which may give an imperfect representation of what is on offer. Some of us prefer to see and even touch the goods before buying, and like the event that shopping has become. Many see shopping as day out, something to do with friends or relatives.

Both customers and retailers understand the bizarre price dance retailers now have to lead to entice and complete the transaction. Why buy the items just before Christmas, when you expect them to be 20% cheaper in the January sale? Why then not offer a discount before Christmas, to prevent all the business being delayed until January? The stores need to attract the business when there is some need to buy. People need to buy some things before Christmas for presents and for the full enjoyment of the holiday. People also take advantage of the long Christmas break from work to buy those bigger items or special purchases that require some time to understand the range and to choose the right one. Retailers need to be there with persuasive prices when people might be in the mood and have the opportunity to shop.

But what can a retailer do to survive when there is, thanks to the authorities conduct of monetary policy and banking regulation, a massive belt tightening going on? It’s the same general rule – have the right products available at the right price in the right place, as applies in normal conditions. It is also more difficult, because there are fewer retail pounds to be attracted, so there will be more losing retailers. The general advice to retailers is simple – hold less stock as you will be selling less, buy more cheaply so you can sell more cheaply, and hold relatively more of the cheaper ranges. Make your price promotions more frequent and more dramatic to try to get people into the store, and train staff to sell other itmes once you have attracted the public through a knock out central offer.

Generating some more business in the three last days before Christmas, and at the start of the post Christmas sales, is a help, as shops appear to have done this year. Buying that marzipan which many of you have commented on clearly helped after all! The months of January, February and March will prove tougher, unless a retailers paces his or her price promotions and offers, and finds a magic touch with the stock they buy. It will not always be the cheapest line that sells. There will be scaling down that can sometimes help premium ranges. Yesterday I saw a news item to say higher priced fancy foods were selling well, probably because people wanted a cheaper treat at home instead of going to the restaurant. That is where retail is a real skill or art, requiring deep understanding of purchasing trends in a very depressed market.

Today we sympathise with the plight of Woolworths workers, facing redundancy on a big scale. There will be no governemnt handout for them. There will be more store groups going under in these conditions, which remain the cruellest I can remember. Cost cutting and care with merchandising are essential for survival. Not all will make it.

The Japanese industrial output figures show a drop of 8%. That should come as no surprise.
Other economies will also produce dreadful figures for manufacturing output in the weeks ahead, as there is now a big shut down underway which will last well into the New Year.

People ask why the lower interest rates and the budget stimuli are not working. The answer is simple. It always takes time for them to work in normal circumstances. Interest rates need to be moved about a year ahead for them to work through. That is why this site was calling for halved interest rates over a year ago, to try to fend off the worst of the downturn.

But nothing will work well unless governments and banks work together on how to fix the banking system. Together they wrecked it, and together they have to fix it. In the UK all the time the Regulators decide to throttle the banks with higher capital ratios, they will be forcing more people out of jobs and more factories onto short time. The choice is theirs. As they have been doing for the last five years they are making the choice which maximises the agony.

I was pleased to learn this morning that there is now a final deadline to get our remaining troops out of Iraq. They have done a great job in difficult circumstances, made worse by political disagreement about the desirability and nature of the mission and by the lack of certain vital items of equipment.

The return of those troops just highlights the issue about how much longer troops are going to remain in Afghanistan, and why there isn’t a clearer political strategy for resolving the conflicts of that faction torn country. The arrival of President Obama clearly does not make for the change we want in that direction, as he like Gordon Brown seems committed to digging us in more deeply rather than finding the least inelegant way of exit.

Meanwhile the continuing crisis in Zimbabwe leaves open the moral issue of why do we invade certain Middle Eastern countries when we do not like their governemnts, to impose democracy, but do nothing elsewhere however gross the misconduct? Would it have been any different were Zimbabwe a large oil producer?

This morning we learn that the government has hit a target it set for itself, by sending back some prisoners to their home countries. One cheer for that. The Conservatives have shown that many were let out early, and a lot are still not returned to their homelands. We also need to remember that the government is only talking about visitors from outside the EU, ignoring all the crimes committed by contintentals who come here. It’s a pity they threw away proper contorl of our borders with the EU that previous governemnts had carefully preserved.

I think UK taxpayers have plenty to complain about when we learn how many of the people our Borders agency lets in abuse our hospitality by committing serious crimes. Do they do no checks on criminal records of people before letting them in? Surely they don’t suddenly become drug dealers, murderers or sex offenders when they arrive here, having led blameless lives before? Why can’t we have arrangements with overseas governemnts to send them back for punishment in their own country? Can we at least make sure that anyone committing a serious crime here is sent home and never allowed back again?

The government is being criticised for not having enough jail places. It could help itself by being a lot tougher on how many criminally inclined foreigners it lets in and then puts in prison, and by reaching agreement with overseas countries concerning their punishment.

It also raises the more general question of does prison work? Most people want two things from prisons. The first is to lock up criminals who represent a serious threat to the rest of us for long periods of time to protect us. The second is the try to ensure that prisoners let out of prison are less likely rather than more likely to reoffend.

I am not sure putting so many people inside for theft and other financial crimes makes a lot of sense. If people are too greedy, let the punishment fit the crime. Why not make them stay at work or make them get a job, so they pay full reparaitons to the victims of their crime and pay full charges for the police and court work involved in finding them and bringing them to justice? I have never understood why, if someone is burgled, they not only lose their possessions to the burglar but then have to help pay to keep him in idleness in what can be a seminary for crime called prison. That only makes sense if the burglar refuses to co-operate with any sensible programme of rehabilitation, and refuses to work and pay recompense.

There will be no new posting tomorrow, Christmas day. I have a turkey to cook and a good wine to drink.
Normal service will resume on Boxing Day for those who are not rushing off to the sales, and for all who have already broken or consumed their Christmas presents.

A happy Christmas to you all. Thanks for all your comments. It’s good to know there are so many strivers after the truth in this world of spin.

I am pleased that the Conservative party has come up with more ideas for tackling homelessness, and understand their media savvy in launching them at Christmas.

However, as I have to remind people at this time of year, the Christian story is not about homelessness as the media implies. The Bible is quite clear. There was a hotel shortage in Bethlehem on that important night, brought about by the government’s insistence that everyone returned to their town or city of origin to register for some great new ID system, to be followed of course by some new tax.

It is typical of evil governments down the years that they think nothing of the convenience of their citizens. Poor Mary had to travel around the time of her confinement, just to satisfy some power mad government that could not be bothered to register her in Nazareth where we assume Joseph had a home, but required her to go somewhere else. I am sure the last thing Joseph wanted with a pregnant Mary and all the extra bills fatherhood would bring was to down his carpenters tools and travel to Bethlehem just to register and pay a tax.

As it turns out this was just the start of the evil of this barbarous regime. Hearing of the birth, their combination of insecurity, malevolence and incompetence made them decide to put all new born boys to the sword, forcing Mary and Joseph to flee. Is it, I wonder, because of the Roman influence that this ancient government escapes with such a mild press, when we should be condemning its brutal actions?

Wouldn’t it be a good celebration of the spirit of Christmas if instead our present government pledged not to carry on with new costly and inconvenient ID schemes, or extra taxes? That would show just how different it was, and show it had understood the true Christmas story of how good triumphed over evil, with the escape of Jesus.