Month: February 2009

The new President is busily mortgaging the country. I wonder if anyone told him the previous incumbent has been a bit heavy on the national credit cards and borrowing too, and he has to pick up the tab for all that as well.

The US Senate has shown there is still a vibrant democracy at work. The Republicans have been right to warn about too much public spending and borrowing, right to remind people that all the debt has to be repaid with interest. The economy will move ahead again when they have sorted out the money supply and got the banks operating more effectively. It does not take a massive spending splurge as well. They should concentrate on what has gone wrong.

They need to understand that the extra jobs need to come from the productive sector creating them to export to the rest of the world or to replace imports , to start to right the huge imbalances which have built up over the last decade. If you’ve been living beyond your means and are too much in debt, taking out another mortgage is not a great idea.

On Wednesday a leading retailer presented some findings on how the public think about green issues, whilst telling us of their progress in greening their company.

In a recent survey 26% of the public said it was not their problem. 38% asked what was the point of doing something, when whatever they did would be swamped by China and India. 28% said they would do something if it was easy. Just 8% said they would do what it takes because they strongly believed in the cause.

They also discovered that the biggest source of CO2 in their activities, including their supply chain, was the dairy industry producing dairy and meat products for their food sales. People would have to eat less meat and we would need to keep fewer cows to make a difference to that. The second biggest user of power and generator of CO2 is apparently washing all the clothes people buy in the shops. Cutting the wash temperature from 60 to 30 degrees would make a huge saving in power, far more than the retailer could do in their stores.

Like many big companies this retailer is working hard on reducing their energy use and controlling their waste. They are discovering like others that it makes good business sense, cutting costs and improving quality through better methods of working. It was a timely reminder that greenery begins at home, and can save you money.

It’s a grumpy adult who does not share some child like sense of fun at the possibilities of play in the snow. When I had young children at home we looked forward to the snow, to make Snowmen, hurl snowballs, and see if there was a local slope that you could slide down.

I also seem to remember we did all that before going to school and work in the morning, or when we got home, or at the week-end. This week we have seen two interlocking phenomena – adults enjoying play with their children, which is a good thing, and people deciding that snow provides an excuse not to do anything, which is not such a good thing.

On Monday when many decided not to go to work I had my easiest journey for years to get to the office. Yesterday I had to be in Wokingham for a short meeting in the morning, followed by a visit to a local school, and then emails and letters to do at home. I was booked for a meeting in Oxford at 4, had to be in Henley at 6.30, and turn up to speak at a dinner wearing a DJ in Aldershot at 7.45pm before going back home. The bus and train timetables confirmed the usual – even if they had all been working there wasn’t a prayer of doing that by public transport, let alone carrying the change of clothes round with me all day.

I heard that it would be unwise to venture onto the roads. However, I found to my pleasant surprise that cautious driving was quite possible. I made all the appointments, with just fifteen minutes delay by the end at Aldershot. I discovered during the course of the morning that the school which had invited me was closed. The other things I was doing were not public sector and they all went ahead as normal, without anyone coming to grief.

This week the UK and London have looked absurd to the outside world. A heavily indebted country gripped by recession and in the midst of a big balance of payments crisis found it difficult to deal with a few inches of snow. We need to prove we have the time to enjoy the natural world and export to the four corners of the globe as well. We need to show some grit in our response to adverse weather. After all, with all this global warming, we should be ready for the unexpected.

Many policy makers and commentators are looking for a magic bullet, a single package, a measure which will solve the crisis. They will look in vain.

We need to remember that the UK crisis – and the US one – were born of over borrowing. Collectively British people and their government spent too much and earned too little. Collectively they borrowed huge sums from banks and from abroad, to pay for large quantities of imports. Now it is the time of reckoning.

You cannot solve a crisis of borrowing too much by borrowing more. The UK private sector needs more cash – more earnings, more turnover – more than it needs more borrowing. The UK government, borrowing too much when we were apparently doing well, now wishes to borrow unheard of amounts. That just delays the full reckoning a little, and means much higher taxes in the years ahead when the money has to be paid back.

The banks too were mightily overborrowed and over lent. You cannot solve a crisis of too many bad loans in private sector banks by simply transferring the loans or the risk on them to the public sector. In the case of the UK the banks taken together are too large for the state to bail out comprehensively. Giving them new capital or subsidy merely delays the need to sort out their risky assets, trim back their commitments, cut their costs, and start making some proper profits.

Whenever people propose things that sound crazy because they say we need radical and new measures to tackle the problems of the time you should ask why the normal laws of arithmetic, and commonsense, have been suspended. Why does it suddenly make sense for the state to take on the debts of the banks? How can the state run them better? Why should taxpayers pay for the mistakes?

Let’s take the idea of a Bad bank which is surfacing again. In a way the UK already owns three or four bad banks – it has after all taken control of RBS, Northern Rock and the assets of Bradford and Bingley, and has a large stake in HBOS. These are bad banks in the sense that they are all coming forward with large write offs or trading losses, and have all needed injections of government capital. These are so large that they stretch the state’s capacity to fund them. Why should we want to create yet another bad bank to take on the dfficult assets of the other banks in the system, when those banks seem capable of sustaining themselves in the private sector? There has to be some limit to how much the state takes on, before its own ability to raise money is damaged and it has to pay a higher rate of interest for its money.

The truth is the banks have to work their way through their positions, reducing the scale of their risks in the most sensible way possible. This may need management change in the case of the banks that are losing large amounts. It does not need nationalisation to do it. Indeed, nationalisation may delay such a necessary process, as politicians would want the banks to do more than just sort themselves out and slim themselves down.

How do you sort things out? The banks should close down their overextended positions in financial instruments as opportunity presents. They should net out positions that can be netted out, to degear the overall system. Where they have non performing loans extended to private companies, they should consider debt for equity swaps or delays to interest payments where they think there is a viable long term business that can one day repay with suitable penalties.

There is no quick fix. Swelling the public deficit too much just creates another problem of too much borrowing, which will become a crisis or a major problem at some point in the future. We need some good bankers who can patiently work through the bad debts, doubtful loans and huge positions which their banks have taken. The state should be the lender of last resort, making sure no major bank goes under. It should not be the funder of first choice, subsidising bad practise, bonuses and overextended banking. If a bank needs short term state lending it should get it, but on terms which protect the taxpayer and encourage them to stand on their own two feet.

What is it that makes the MPC hate us all so much? In 2006-8 their decisions meant lots of people would be sacked in industry and commerce by keeping rates too high, despite warning. They did that well, as forecast.

Now they want to bash the savers, by almost eliminating interest on deposits. They are doing a great job on destroying the savings culture and pushing prudent pensioners into poverty. The savings rate will of course go up, as people borrow less and it is a net figure. That will merely conceal the pain and anger of true savers.

Why don’t we put them onto performance pay? That way we could avoid paying them anything, as their performance has been so poor.

I do support free trade, and I don’t think strikes are a good way of resolving disputes. Yet I do take my hat off the strikers this morning who highlighted the manifest injustice of EU law, and have won the concessions of some jobs for locals.

It shows the foolishness of making these laws at EU level where it so difficult to get them right, and even more difficult to get them changed when they manifestly are not working. I do not accept that those of us who want the law changed are anti free trade and competition. We are asking that local people should have the chance to compete for the work, so we are the free traders. If locals have the skills and want to do the jobs, why should they be prevented?

The government should promise to use its much advertised “influence” in Brussels to get this law amended. If they don’t we will have to conclude they don’t have influence after all.

Half a cheer for President Obama saying no-one in a semi nationalised US bank will earn more than $500,000. Where the bank is loss making and dependent on taxpayers dollars it is difficult to see why anyone is paid as much as $500,000.

Here in the UK I am blocked from asking questions about pay and bonuses at our state banks. Parliament is meant to follow public money wherever it is spent, yet I am told firmly by the House authorities that the government will answer no questions on bankers’ remuneration at RBS or Northern Rock. It is typical that the government wants to pay them too much, and then does not want to defend this provocative decision.

As RBS has announced it lost around £28 billion last year, and has therefore written off all the £20 billion of capital we so recently tipped in, I can see no case for paying a single bonus to any executive in that bank. The management should explain that saving more jobs at the bank requires restraint on pay. They should be grateful they still have jobs, given the lamentable performance. Anyone else working for a non bank that lost that sort of money would be worrying about getting the sack as the business fought to control the losses by cutting costs.

Many of my constituents are paid a lot less than these top bankers at RBS. Why should they have to work harder and pay more tax, just so those who presided over the business catastrophe at RBS and Northern Rock can still get a bonus for their record breaking losses last year?

The Governor should keep base rate where it is this week. The problem is not that base rate is too high. The problem is the shortage of money at sensible rates for the banks to borrow and lend to customers. That requires a different fix.

It has been fashionable this week for people to find it too difficult to get to work. The MPC could proftably catch that habit this month. Their track record has been so poor, keeping rates too high for too long, and now taking them down in panic to levels where savers are badly damaged. At a time when it is also fashionable to say banks should just collect deposits from the public and lend that money on, they should be careful not to make it even less worthwhile to place money on deposit. Penalising the savings habit at a time when they want the financial system to rely on savers is silly.