Rio, China and British investors
Are there greater hypocrites in the world than British institutional investors?
These days, they bellyache about the excessive risks that were being run by big companies in the boom years.
They've put irresistible pressure on banks to raise regulatory capital and on other big companies to pay down debt.
Which is fine and dandy but long overdue - a closing of stable doors after more or less every horse has galloped over the horizon.
Lest we forget, it was these same shareholders who less than two years ago were putting extreme pressure on companies to gear up, to increase borrowings, to take advantage of the availability of cheap plentiful debt for takeovers and to finance buybacks of shares.
If Royal Bank of Scotland and HBOS were recklessly lending a massive multiple of capital resources - as no one today can possibly deny - they were doing so for years in the full view of their owners, who said thanks for the dividends and rarely asked whether the dividends were sustainable.
And here's the tragedy. Those owners were us - the millions of British people saving for a pension, who innocently mandated a bunch of numpties at investment institutions to look after our retirement savings.
These investment institutions were supposed to ensure that the big companies in which we're invested serve our interests - instead of which they encouraged these companies to maximise short-term profits regardless of whether the future was being dangerously mortgaged to the hilt.
To call this a failure of corporate governance is the equivalent of describing the second world war as a breakdown of diplomatic relations between Britain and Germany.
Which brings me to today's historic investment of $19.5bn by Chinalco - a giant Chinese resources group - in Rio, the metals and minerals group.
Doubtless we'll hear carping from the investment institutions that Rio is selling at an inopportune down-phase of the commodity cycle and that it's flogging too much influence over its affairs to a minority investor.
But there is another way of seeing this deal.
Rio is securing a 60-year loan from the Chinese.
It's selling a right to buy its shares in the future at a massive premium to the prevailing share price.
And Rio is forming partnerships with Chinalco in individual mines - which should bring in new Chinese customers and help with the development of new mines in China's growing sphere of influence throughout the emerging economies.
Of course Chinalco's investment can be seen as another worrying manifestation of how economic and financial power has shifted from west to east.
But if that's happening, it's in part because the Chinese are prepared to invest for the long term to create sustainable enterprises.
And can Rio's board be blamed if - under pressure from its existing shareholders to pay down borrowings - it concludes that it's in the interest of all its owners (whether they acknowedge it or not) to lock in a relationship with a Chinese business and a Chinese economy which commit their capital for the rewards that may come in ten years, not ten minutes?
I'm 
© MMX~RS~q~RS~~RS~z~RS~57~RS~)
Comments
Sign in or register to comment.
and you can be sure that CEO's of top chinese companies are not a bunch of unqualified or underqualifed lightweights
i.e. John Varley who is a solicitor with no banking, finance or accounting qualifications in charge of barclays...
Complain about this comment
It's a shame it does not work both ways as equal trading partners
A British Company having 50% interest in a Chinese Company
as well as
A Chinese Company having 50% interest in a British Company
i.e. Global Mergers for Global Trading (No Sell Outs)
Complain about this comment
A colleague once told me that if every country in the world had the same standard of living as the British, we would need 3 planets to provide all the natural resources required. I don't know if this is accurate, but I do think that as other nations increase their wealth, Britain's wealth will diminish.
Wealth is moving from the West to Asia. I don't think Asia is going to take over the world, but history tells us that Britain's world dominance has declined, Europe's also, and now the USA's economic influence is falling. The wealth of nations is being evened out.
Complain about this comment
your best post for a long long time robert.
I agree on both points. But can we explore the first one a little more for a start - fund managers seem to have got off scott free from all this mess, despite the fact that their herd-like behaviour and short term focus on shareholder value (ie profits) was instrumental in blowing up the bubble.
And why? Because they got massive annual bonuses, based on discrete annual performance. Sometimes this means beating the index or peer group average (hence herd like behaviour most of the time) OR hitting the top quartile, which means taking massive risks.
Massive bonuses based solely on short termism, without a thought to the long term consequences of their actions. Sound familiar at all? The fund managers and the bankers were all in this together, laughing as they went along.
Complain about this comment
The man looked into the mirror and said "Mirror Mirror on the way, who is to blame for this fall?"
And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! A Banker", he said "I knew it!".
The man was thought for a while and said to himself "But surely the Bankers couldn't have done it all by themselves". And so he returned to the mirror
"Mirror Mirror on the way, who is to blame for this fall?"
And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The FSA", he said "Well blow me down with a feather!".
The man was now on a roll so he asked again, "Mirror Mirror on the way, who is to blame for this fall?".
And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The Auditors", he said "But how could they?!".
Again he asked, "Mirror Mirror on the way, who is to blame for this fall?"
And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The GOVERNMENT", he said "But WE gave them their mandate", he sighed.
Again he asked, "Mirror Mirror on the way, who is to blame for this fall?"
The man's jaw fell wide open and the colour drained from his cheeks. He sat and looked into the mirror for what seemed like an age, "But how?", he said for all he could see was his own reflection.
Complain about this comment
Is anybody looking at the excessive salaries of the investment managers who manage our money. Perhaps the BBC could start a campaign in that direction.
How did they get paid during the downturn?
As you point out a review of their behaviour should take place as they are supposed to be the responsible trustees of our money
Complain about this comment
"...bunch of numpties..."
That's a bit red-top for you Robert, is it not?
Complain about this comment
Robert, I think we are all noticing a more "annoyed" tone in your writings.
Perhaps it's the realisation of what a bunch of "numpties" (your word) have been running the economy.
And we keep hearing that no-one saw all this mess coming.
Well, i think that millions of us saw it.
Who are we?
Anyone over 50 who watches the news, and is careful with money.
After all, we saw the US savings and loan disaster of the mid 80s, we saw the UK property spiral and crash of the late 80s, we saw the dot-com bubble burst in 2000.
We may not have known anything about sub-prime, but we knew something was going to crash.
300% property inflation in 7 years.
Bank staff on 10 million a year.
Crashes have a giveaway beacon...its called excess.
Complain about this comment
UK Economic Meltdown Continues Towards Price Deflation
http://www.marketoracle.co.uk/Article8829.html
Complain about this comment
We are collectively guilty of constantly electing politicians who promise jam today, rather than rewarding foresight and prudence so that at least we have a crust tomorrow.
One might say, "You get the government you deserve".
It would be extremely naive to believe that many of these institutions is actually run for the benefit of the common weal. In practise they're run for the benefit of those running them.
And the only way to stop that would be proper regulation. But when the relationship between the politicians and businessman is so incestuous how can that possibly happen?
Complain about this comment
RP, their is obviously a lot of opinions here, imo, some fair some not so.
A lot of individuals who invests in shares, if not most, wants better than we can earn elswhere and a little better than the market average, blinding ourselves this forces the companies or funds we invest into, to take on ever increasing risk.
Also as i understand it, it was the pressure of british institutional investors who prevented Barclays buying the poison chalice of ABN Ambro, so yes they have vast power, but they are not stupid.
I totally support your stance to report all the facts, but i would say it is vital to the UK economy that we do not unduly talk down our financial sector, we do still have a large number of skilled hard working and responsible people.
It is therefore vital that confidence is brought back by ensuring the errors of the past cannot take place again i.e. the FSA having teeth, auditors being challenging, prosecutions taken against wrong doing, irresponsibility or not being strong enough to do the job needed, the end of cosy old boy networks, the end of short term greed culture and government responsibity
Complain about this comment
Robert,
for the first time you are hitting the nail on the head...FINALLY...
The failure of insisutional shareholders of banks, property companies, house builders, retailers, etc. and all other companies riding the debt-inflated boom must surely count as the greatest organized loot of the British public by our incompetent financial elite.
In fact, I have never, ever in any of my employments, agreed to have x% of my pay docked, so that these guys can CHARGE me for the privilege of LOSING it. I take the cash, pay the 41% tax and that's that.
To have no control over where the investmetns go, and then to have Gordon Brown change his mind every few weeks about whether I can get my hands on it at 80 or 85, and THEN to pay tax on the paltry annuity income anyway from your death bed, is quite simply bananas. It also explains the British obsession with housing to a great extent.
I think this is the area of greatest reform, an unsustainable pensions system, where a proportion of hardworking peoples' wages are simply taken off and sent to some ridiculous fund management house with nincompoops in charge. Free money and free fund management charges for them with almost no performance demands. Seriously, how many people on the street have ANY clue as to how their cash is performing. They are simply bamboozled by jargon from a terrible IFA system and swindled.
Much better for the government to reform the system completely with ALL pension contributions paid into a UK sovereign wealth fund which invests CHEAPLY with proper fund managers. Economies of scale and performance metrics. There will be an argument for passive bond funds and cheap tracker funds, given how 'well' our fund managers do in bust times.
Otherwise, we must at least have some sort of financial education in all schools, so that fund managers who lose money for 10 years don't just carry on as before, because the money just keeps rolling in from pensions contributions by an uninformed public.
I thnk perhaps the Calpers system in California, some of the US university endowments, and some SWF's like the Singaporean one are perhaps decent templates for the UK to follow. Our current system WILL run out of money, because NEW MONEY PAYS OLD LIABILITIES.
Madoff anyone?
Complain about this comment
Robert
I agree with the thrust of your point but do I recall you complaining in your book that fuddy duddy institutions werent allowing plcs to gear up balance sheets to exploit assets and letting the Phillip Greens in to take the pickings.
Rio must be aligning with Chinalco to feed China with commodities and get an angle. Because we are not widget-makers why should we be worried. I might get worried about other strategic foreign joint ventures or swf investments which gain a hold on vital national interests.
Complain about this comment
Excellent points Robert.
Say it as it is.
Isn't this how business was once conducted in the days when the current financial markets workforce were still in kindergarten or nappies?
Bravery, forward planning, responsibility are 'dirty words' in modern financial models.
'Dirty money' used to be associated with crime.
Now its the accepted currency of the Financial Markets.
The road to recovery is long and hard, so Mr Brown says.
The road from Downing Street to the Palace is short and sweet, I say.
Complain about this comment
Only a handfil of posts in over an hour?
I guess this blog is too far wide of what everyone is really concerned about today... The PM being questioned and bankers bonuses!
Complain about this comment
Collective – non culpability (aka ‘pass the parcel’)
Robert , your use of the word numpties is spot on.
The one person who has got away with all this is that multimillionaire capitalist, Tony Blair, who was architect of this sorry mess along with his poodle, Brown who was the architect of the current regulatory system. One of its 4 statutory objectives is to ‘Maintain confidence in the financial system’ Well that’s another Labour success story but will he own up to that one…the collective says ‘ Not me, not us, not them but we inherited blah blah blah’…
The people who will suffer most are our children who have been unashamedly used as the collateral for future payment of this country’s massive, massive, debt burden.
Until the culture is changed, nothing will change.
Isn’t it about time people took responsibility? It’s quite clear to me and probably many people reading this blog that the people responsible in these organisations are the ‘numpties’, the executive board and the senior managers driven by the need to enhance shareholder value whilst enriching their own pockets via the irresponsible bonus culture they awarded themselves.
Where were the non executives in all this, supposedly holding the board to account? What actual qualifications do these people have? I was astonished to hear that not many had any banking qualifications at all at HBOS.
So convince me …..What right do they have to run a bank or financial institution when they do not understand the business themselves?
You may argue that the necessary safeguards were in place, remuneration committees, non – executive directors, auditors, regulators etc. I would say it all depends on the scope of any review or audit and who is paying the fees.
Don’t you get the distinct feeling that provided that this ‘elite’group do a reasonable job, tick the right boxes and don’t look too hard at the detail everything will be ok and if they do find one or two irritations then the board or senior managers acting as a collective, can remove it or conveniently forget about it because they know they will have moved onto the next highly paid job before the ‘xxxx hits the fan’. Maybe these organisations have adopted the Labour’s governments approach to reviews – keep commissioning them until you get one you can agree with.
What real weight does a risk manager or compliance manger actually carry in these organisations when at the back of their minds they may get sacked? The boards collective action is simple corporate bullying of a lone voice.
Let’s hope Labour keep going until the next election so they can sort out this mess (yeh right) and then the electorate will give them what they rightly deserve…
Complain about this comment
Call me an old cynic, but were the "bunch of numpties at investment institutions" paid a bonus depending on how well their investments performed?
Bonuses are incredibly corrupting - they actively encourage people to close their eyes to the bigger picture, and to just think of the short-term reward instead.
Complain about this comment
I strongly recommend anyone with a pension pot with an institutional investor, to switch it to a SIPP which you control yourself. There are some very inexpensive ones out there which you can manage easily on line, and if enough of us did this, the 'small' investor would start to have a say in things.
Complain about this comment
SPOT ON BLOG MR PESTON
THE DEAL DONE BY CHINALCO SOUNDS PERFECTLY REASONABLE TO ME IN TERMS OF LONG TERM STRATEGY.
Complain about this comment
As set up, the personal pensions industry in this country - whose peerless excellence was cited as one of the reasons why we should not touch the euro with a bargepole - was run by great, reliable, ultra-cautious benevolent associations. We just made our contributions and when the time came the pension was there. Now in connection with our pension plans we all have to be financial experts. We have to make a set of more or less technical choices, when starting the plan, throughout its life and above all at the end. A wrong call, even of one day's timing at the end, can cost a substantial proportion of a pension built up over 30 or 40 years. Being thrifty, and leaving it till the last moment to draw down the pension, can be fatal. What is worse, it is a pig in a poke - we only discover the result of our choice after we have made it. We have the illusion of a range of options - which gives the fund-managers their let-out when the choices prove wrong - but no real control, because we are still at the mercy of the fund-managers for the actual outcome. No wonder people are finding other ways to provide for their old age.
Complain about this comment
Q:
Are there greater hypocrites in the world than British institutional investors.
A:
No.
If it hadn't been for the British institutional investors there wouldn't have been the bonus driven senior managers and directors who created bonus and greed driven corporate cultures within the banks which led to bankers making decisions to suit their needs and pockets rather than the needs of customers, the public or the UK or global economy.
That's why I'm so glad to see more and more people from that yesteryear school of greedy, bonus-grabbing banking going out of banking (and also out of the FSA).
Once the financial industry is rid of these predators, then perhaps it can rebuild into something of some use to ordinary people and indeed to the UK as a whole.
Don't get me wrong, a worker deserves his/her wages and a fair days wage for a fair days work. But the myth that we have to pay people vast amounts to get the best people is just nonsense. We paid vast amounts and people who wrecked everything for everyone.
This culture of fat bonuses and fat and fast profits has destroyed the finanicial industry - not saved it.
Complain about this comment
My comment is more of a question to Robert or anyone else who may be able to answer it, regarding the "credit crunch".
I understand how the banks lent excessively and recklessly particularly on mortgages both in the UK and the US, we are told that they then "packaged " these debts into saleable chunks and offloaded them to institutions and other Banks, resulting in the "toxic loans" situation they now find themselves in. These debts are referred to in £billions as though the whole loan needs to be, or is, written off.
But surely when the packages of loans were sold off, each loan had its collateral accompanying it ie the mortgaged house deeds etc and when the borrower defaulted, the loan was called in, the house repossessed and the property sold off to repay the loan. Ok there may well be a loss, in terms of lost interest, legal fees and maybe some resultant loss due to a fall in property prices but surely the bulk of the loan would be repayed.
So where does this money go? Or am I being niaive?
Complain about this comment
The meek shall inherit the earth..but not it's mineral rights!
China invests in ITS future. very clever.
Complain about this comment
I think you are being a bit disingenuous Robert.
I am the owner of my own pension fund. All I have ever asked for is steady growth over the decades in which I invested in the fund. In the thirty or more years life of this fund there have been periods of boom and bust: to coin a phrase.
Why has the last ten years been any different from the first twenty? I gave no new instructions, so why did the fund holder allegedly go off and demand higher and higher returns?
Was this perhaps because the company was taken over by a bigger finance house which then needed to sweat the assets a bit? Possibly, because the income of my fund suffered from the late Nineties by both the behaviour of the managers and the greed of the government.
What we have experienced was a financial system going progressively out of control. The defect goes back a long way and I think it lies in perceptions of and within the financial institutions. Who was it who asked them to take bigger and bigger risks? I think we will find it was Mr. Nobody. They did it because they could and they liked the outcomes.
However, we will also find that Mr. Nobody also asked them not to take bigger and bigger risks. Only in this instance Mr. Nobody has to be somebody and so we end up with a squalid list of bank executives, regulators and politicians.
The failure lies within the concert party which went on in the City and Whitehall as the great and good revelled in the joys of easy money. Money has never been easy for me as I know it has to be earned. I have too much respect for my money to slosh it about like champagne at a Labour Party conference.
This is really what the difference is between the real economy and the great and the good. In the real economy you have to make your money. This is what the City forgot for a few years. During those years the Chinese did not, so now they have the money and we have the debts.
If we had chosen to work for our money by adding value, ensuring there was a return on our investments and putting some money aside for a rainy day we would not be where we are now.
Why is it that I have more in common with my Chinese colleagues than I do with the leading members of my own country? The simple answer is that in the real world people have to work for their living. Reality is so embracing.
Complain about this comment
If you disagree with how our banks are using our money, take it out. I have just opened a savings account with our local credit union. As a member, I am entitled to a share of annual profit (as dividend, circa 2-5%). All the money is lent in small amounts to local people to use, and due to the amounts, more than likely in the local economy. No bonuses to staff and well respected local responsible people on the management board. Note, as they are registered with FSA, they qualify for FSCS.
Complain about this comment
And don't forget those "numpties" in the instituations, holding Lloyds shares, who agreed Lloyds takeover of HBOS - thereby acting in the interests of their HBOS holdings, not their Lloyds holdings.
Anybody holding just Lloyds shares has been *@!+#^*ed.
Complain about this comment
Are they any more hypocritical than the Government who were happy to take the increased tax on profits, or consumers who were happy to take relatively cheap loans and mortgages.
Complain about this comment
ROBERT PESTON
Your comments regarding Mr James Crosby yesterday have incited numerous allegations that you enjoy a cosy relationship with the aforementioned.
I invite you to clear your name by disclosing the nature of your relationship, or otherwise, with him.
If you do not, people may assume that you toned down criticism deliberately.That would make you part of the problem, rather than part of the solution.
Which could make things difficult when we eventually arrive at the solution, as people are getting angrier by the day.
Complain about this comment
and what about gazprom buying centrica possibly too?
State ownership by potentially hostile foreign owners is somehwo less risky than ownership by our pension funds, for all their failings?
Complain about this comment
Th late Sir Derek Hicks identified the problems (yet again) in his report of 2003 - everyone including Journalists knew of the root cause of this governance problem so don't blame the users of the system - blame the legislators who caved in under pressure from the City to not implement the reports recommendations (even though they were themselves watered down).
Both parties are complicit in this dereliction of duty. Labour for not producing the legislation and the Tories for attempting (on behalf of their friends in the City) to water down what was included in the legislation.
Your journalists knew, we investors knew but above all the regulators knew, the accountancy profession knew, the Bank of England knew the FSA knew the Treasury knew. The Bank even knew it should have done something about house price inflation, as Sir John Gieve said.
We are all hypocrites. We got what we deserved. We voted for it. We borrowed absurd multiples of income for a house. The fools who ran the banks did not see the buffers looming (as we might have expected them to have done.) Now we have the train crash. It was going to happen - one could have said that ten or fifteen years ago and now it has!
What we should be concentrating on is the the way forward - this navel gazing will fix nothing. It may be cathartic and fun but it is pointless unless things are done as a result!
Complain about this comment
Institutional investor / shareholder 'numpties' that we 'innocently mandated' to look after our pension savings - so Robert, can you tell me whether there is such a thing as professional probity or duty of care involved - such as a minimum standard? And is there any possibility for challenging any of these people / institutions on such a basis in a court of law? Or is there a mechanism for claiming compensation from the Government, on the basis of its continual failure to regulate effectively - especially after removing regulatary powers from the Bank of England?
I also note that the Prime Minister, in defending his position vis a vis Sir James Crosby's appointment to the FSA, calls in aid advice from an 'independent committee'. How brazen. Who was on that Committee, and who appointed them?
Complain about this comment
Well Robert - if yeasterday's offering got 3/10 this is more like 8 or 9.
This is what Britain needs to do: invest for the long term. I'm not so sure about Chinese sustainability - there is a very high fossil fuel dependence. However, I suspect that ALL major economies are secretly hoping that fusion power will come good. Otherwise, I can't see a way out for the human race without a very significant reduction in population. NOT nice.
Complain about this comment
You're absolutely right; this is probably a sensible and even inevitable deal, given the situation at the moment, but it signals the continuation of a slow and largely self-inflicted shift of power.
It's pretty obvious that, when a recovery does occur (and no-one can abolish the boom part of the cycle, anymore than they can avert the busts), commodity prices will return to their previous levels, and exceed them - but we've left ourselves so weakened that we will not be able to derive much benefit from that rise.
I never really approved of the privileged position we used to enjoy in the world economy; but I'm going to miss it when it's gone.
Complain about this comment
China is the nation investing most in eco towns and research, sustainable towns with no net contribution to the environment.
China is the nation that has taken steps to try to control population. There are problems with the way they have approached it to be sure but at least they are actually trying to do something to prevent overpopulation with reulting fighting for resources / mass suffering.
China is the nation that has made and is making sensible long term decisions not decisions based on what personal gain can be had in a timescale of months.
Many people simply still see China as a totalitarian state that abuses human rights. Even that distraction serves China well in terms of distrating the world from what is really going on on a fundamental political and economic level.
China is leading the way, albeit it clubsily at the moment at least they are genuinly trying to create something disciplined and sustainable in the long term.
China is already leading the way, the west in its arrogance simply does not realise it yet..
China is not to be feared as once was the case, they want to engage with us and be responsible world players. The west should get off its high horse ( guantanomo/ torture flights / Iraq war weapons of mass destruction etc etc), positively engage with them and listen to many of the sensible pragmatic long term things China is doing.
Did I forget to mention, China is run by Engineers at the highest level, not bankers and lawyers. I wonder why they are progressing better than us?
I worked there for 5 years and have the greatest respect for them. Time to be honest about our own position and dubious morals and embrace them for the good of all.
No more throwing of shoes please, the shoe would have been better directed at ourselves, that would have been a more honest and useful demonstation.
Jericoa
Complain about this comment
It's the law, Robert.
Company officers are legally bound to act in the best interests of shareholders.
And those shareholders were mainly bankers, pension fund managers, mutual fund managers, hedge fund managers....stupendously paid experts looking after our money. Because, we all know, you GET WHAT YOU PAY FOR, and by paying large, we were getting the world's very best, right?
I mean, what could go wrong with such highly educated, highly paid talent at the wheels of industry?
Until they turned out to be highly paid sheep, none willing to shout about the naked emperor, lest they be sacked for rocking the gravy boat.
Complain about this comment
As long as we realise that this sort of 'hyprocricy' is not new - it's been going on for at least 30 years!
Was it not the duty of the accounts managers at pension funds to maximise their cash flows to the point where their jobs depended on their achievements? And did this not encourage over enthusastic risk taking and asset stripping and, inevitably, militate against long term planning?
As always, this is a culture problem. Perhaps it is also a legislative problem, if (and I'm not saying this is the case as I don't know) legislation requires pension funds to maximise assets, in the same way that charities are required to maximise assets.
Either way, maximising assets is in the long run the self defeating philosophy of accountants. Good housekeeping is to be preferred.
Complain about this comment
Once again Robert the question is - just what are the Government trying to salvage at the moment?
We know money has been too freely available and once again, on a domestic level, people are beginning to understand that there are rainy days that you need to save for (or at least have a buffer between income and expenditure). Just how many times through history people need to be taught this lesson is astounding!
What we seem to be lacking is anyone (a real Expert maybe) that seems to have a clue where we are going. All I hear is when we will recover.... anyone know what we will recover to?
I had to listen to another Expert from the world of finance talking on 5 Live just before 6pm last night telling us to imagine how bad things would be without the reduction in the Mortgages and VAT..... I don’t know, how bad would it have been? How many more unemployed would there be? How many more companies in trouble?....... and is it worth the money or could it have better spent. You are the expert... tell me how bad it would have been?
We are told the reduction in mortgage rates is helping, but helping who? It seems the most random way of helping people you could come up with as it’s not based on your ability to repay, but on whether you chose a Tracker type system. In addition don’t we need to deduct from this additional money these mortgage reduction are putting back into the economy the negative impact the reduction in interest payment to savers is taking from the economy? Just what is the NET effect?
VAT!!!!! I understand there is a trickle effect here, I don’t save a huge amount on a purchase and it’s not going to make anyone rush out and buy. But over a period of months there is a natural saving of a few pound – not enough to save and it therefore gets spent. But is this 13% reduction in VAT revenue (I am presuming the money saved is then re-spent on another VAT applicable product) is worth it – or is it. We all know that we are going to have to spend less in the future as the money lenders become a bit more choosey, so the High Street is going to take a beating. Is this just a parachute to make the landing easier or is it going to have a serious impact?
Someone tell me please – in a rising market there is no shortage of Experts telling us what to do. Now it appears their words of wisdom stretch only so far as “imagine how bad it would be if we didn’t do something”
I’m going to go and stand in the market square this afternoon and jump up and down waving my arms about to help fight the recession..... Just imagine how bad it would be if I didn’t..........
Complain about this comment
!!BBC Breaking News!!
"Gordon Brown says public support aid to banks!"
Other top stories this Thursday lunchtime!
Public support aid to Africa
Public support repossessions
Public support foreclosures
Public support liquidations
Public support aid from China
Public like Gordon Brown
Public hail hero Brown
Public never happier says Brown
Public love me says Brown
O'Reilly says do this
Brown says do that
Also coming up!
London bus found on moon!
Miracle cure for cancer!
Lord Lucan traced!
Headless man walks streets!
Brown walks streets!
And now the sport.
GC
Complain about this comment
# 3. At 11:35am on 12 Feb 2009, MrTweedy wrote:
"A colleague once told me that if every country in the world had the same standard of living as the British, we would need 3 planets to provide all the natural resources required. I don't know if this is accurate, but I do think that as other nations increase their wealth, Britain's wealth will diminish."
Similar "statistics" have been quoted for the USA standard of living, especially in some of the scientific press concerned with resource allocation and distribution issues. In the cases I have read the figure is usually 6 to 8 planets, assuming a global population of 6 Billion. Since global population forecasts are for between 9 to 12 billion over the next 30 years, then clearly we need even more planets!
Unfortunately, the process is unlikely to lead to a simple sharing of resources and net reduction per capita. Rather, history shows that like most animals faced with severe competition for resources, humans will kill to gain dominance of their neighbours' resources. Hence, I don't think there will be an "evening out", except as a result of warfare that literally levels everything, at least in human terms.
Complain about this comment
Numpties indeed. Not before time that this subject of pensions was raised. These very same numpties are bullet proof. however badly they perform they still are entitled to their fee whilst all the individual can do is watch the investment go south. Why can't ISA's be extended to allow people to invest direct into them and cut out the numpties?
Complain about this comment
Meanwhile.... No evidence of regaining confidence, faith, or any of the other synonyms for credit...
Ho Hum...
Complain about this comment
"it's in part because the Chinese are prepared to invest for the long term to create sustainable enterprises."
The truth is far more pragmatic than that. The Chinese are not interested in the enterprises at all. They are interested in securing their access to raw materials. They couldn't care less if it's Rio or Fred Bloggs.
Your article does not go far enough. It's not just the institutional fund managers who also need hauling over the coals. It's becoming clear that there is not one element of the financial services industry - brokers, traders, hedge funds, etc. etc. who do not bear some responsibility for this mess.
In the immortal words of Forrest Gump, " and that all that I have to say on that".
Complain about this comment
And, some prescient observations from June 2007
Ho hum.....;-)
ed
Complain about this comment
Many of the investors were managing pension funds for companies who's schemes had deficits and they probably did encourage risks to be taken to maximise returns and reduce those deficits. But it is worth remembering that these deficits were caused in no small part by the tax grab of Gordon Brown. His 'boom' year policies have had both a direct and indirect impact on how the 'bust' is effecting us.
Complain about this comment
But weren't these "investors" driven in turn by us? Weren't we the ones demanding the highest return on our ISA's, pensions, savings etc? Weren't we the ones luxuriating in how much the value of our "property" (NEVER call it a house or a home), had risen.
Responsibilty for the current foul up doesn't stop just with bankers and politicians, (and I'm neither), but also with the great whinging, hypocrites called the British Public. Who cared that their kids were being priced out of the housing market? That jobs went to the lowest bidder, usually overseas, but the price here was the same and the extra profit went to the company/shareholders and thence to our "investments". As long as the good times rolled, no-one gave a @"*$ for the less well off, or the need for regulation, or for a sustainable economy. It was dip yer bread in time! Now guilty and innocent alike have to pay the price for "World class rewards for World class management" We've certainly got a World class frolics!
Complain about this comment
Don't worry kiddies. The chief clown, Brown,
has a cunning plan. He told us so - again and
again - this morning. The circus will continue as before,
Complain about this comment
Speaking of sustainability - it looks like the goods trade deficit will be of the order of £90bn this year. That's £1500 for every man woman and child in the country. Financial services won't make up the difference, so how do we manage? Does tourism balance what Brits spend on holidays abroad?
Analysis please Robert!
Complain about this comment
Another clear point of view by RP. Long term investment is ultimately the answer to current debacle - not printing money either.
Which brings me to RP......
Economics is based on all sorts of things and RP has had a loud voice exposing all sorts of foolishness surrounding these. It is also based on confidence; be confident to spend a little, save a little, to innovate.
I like the idea of all the new businesses being created by the flow of redundancy payments. Great. Lets help them.
There is a direct correlation between column inches/broadcast minutes of media doom and gloom and people's ability to spend money (if we save our pennies then we really are doomed).
Why doesn't RP spend more time on articles like this one (exposing the need to invest for the long run) rather than "jail worthy" bankers and a very silly chancellor?
Either that, or start talking about the next general election!!
Complain about this comment
It is about time someone laid a fair amount of the blame at the door of investors.
Unfortunately in this capitalist country the public is not educated in a how a capitalist system works. It should be part of every schools curriculum.
Only then can we lay the myth that shareholders are fat cat individuals. They are every person with any insurance, investment account or pension.
Complain about this comment
If Halifax and the other building societies hadn't been allowed to convert into PLCs they'd have no shareholders. I think that the Tories were responsible for the legislation that allowed this to happen.
Complain about this comment
Mr peston you touch on "mortaged to the Hilt" So I put this to you is we had not become mortaged to the Hilt since 1997 what sort of economy would we have been.
Maybe the dt com bust of 1999? would have seen britian into a smaller recession and labour as a result loss the next election.
An that is the route of all our troubles the desire of Nu lab to get re-elected time and again for the sake of being in power but not actually doing anything positvie with that time.
It seems there where problem at HBOS way back in 2002 and also with many banks going for wholesale borrowings that should have been the trigger to take action. But was ignored buy those that maintain they are best of governing us. Why are they the best if they could not spot that then ?
As an aviation engineer I have to consider all the "angles" all the "time". Not just the next election which was dominating NU lab thinking and NOT upsetting the "golden goose" ie the City as they would have turned on NU-lab and they would have lost the election.
So for 12 years we have had no industrial policy whatsoever as long as the Tax rolled in to cover the vaste increase in the size of the state and its influence on us all (for the bad)
I say this again look at the Family Courts and how much money has been wasted for politically inspired results, more single families and therefore more dependancy
its the only policy that they have create dependancy then up create control and though control they will get voted back in until the rest of you wake up and smell the coffee, or there is a electroll revolution
Complain about this comment
Oh its all so easy with 20/20 hindsight, its easy enough to moan today I wasn't moaning (and I don't remember anyone else moaning) when my Barclays,Soc Gen & Hitachi capital shares were paying big dividends, my house was increasing by 2% a Month and I was getting regular pay rises from my employer (I worked for a big commercial bank) and banks were happily offering 100% mortgages (with cashback)
At the same time ads in the USA were offering mortgages to people who had no job, just got out of prison even illegal immigrants.
Please please stop with all this 'the world is going to end' the economy runs in cycles I can understand anyone under about 25 thinking the world was going to end but come on don't you remember the dot com bubble, the recession in the early 90's (remember 16% interest rates anyone?), a deep recession in the 80's and not forgetting the 70's with 3day weeks, huge inflation, high interest rates, strikes, etc, etc.
Please keep a balanced view in 10 years it'll all hapen again and no doubt it'll be the end of the world, AGAIN.
Complain about this comment
The pension issue is at the heart of this. People have an unrealistic expectation that they can retire at 65 and live to 85+. Companies, governments and people also have a limit on how much of their income they are able to save and this limit is falling.
Rather than say 'this is impossible' pension funds require higher and higher yields from their investments. Listed companies get pressurised to make the dividend payments pension funds want to see and therefore get more short term in focus (which actually reduces future profits) and start to trade risk for profit through leverage. After a while the whole thing inevitably breaks down.
Meanwhile the Chinese and Asians work hard, invest in industry rather than houses and banks and take a long term view.
We need to wake up and start wresting control high technology back from Asia. The first step is to put tariffs on imported high tech products from China and taxes on outsourcing IT work to India. The next step is to create a bank that only lends to technology companies and fund it well so that these sectors can expand even while the rest of the economy is shrinking.
All the Asian countries have banks that finance manufacturing whereas all our banks want to do is lend on houses and create ever more complex financial instruments. It is typical that at the height of the boom Royal Bank of Scotland closed down its Venture Capital business unit which funded high technology because they could get better and 'safer' returns on property and debt.
Complain about this comment
There is exposure of incompetence and abuse in the international banking system but other than President Obama who is going to do anything about making sure it dosn't happen again ?
Do not rely on the Hurrah Henrys in the City and their political oiks in Westminster or the Marxist political dogmatists in the EU.
Complain about this comment
#8 Stevewo
I couldn't agree with you more - and I'm only 37.
You know what really stood out for me though as the absolute confirmation that a crash was on the way?
Country Life magazine proudly introducing a weekly double page spread for domestic staff. If ever there was a sign that there was just too much money about, that was it for me.
Complain about this comment
"... they encouraged these companies to maximise short-term profits regardless of whether the future was being dangerously mortgaged to the hilt."
and our problem is that this attitude prevails across all areas of government: food, energy, transport water, climate... If money can be made today and the people that will really pay are future generations then, too bad for the future.
We are moving into the 'Age of Consequences' as I call it, the one where we realise that, blinded by the vast amounts of fossil-fuelled energy available to us, we've thought that we can all keep living in a fantasy world where we can everything we want as cheap as possible, and then some more of it. Forever. With no consequences.
I include a relevant quote from February 2005 from the US company 'Sprott Asset Management':
"Indeed, the game being played in the economic world is all about interest rates and the availability of credit. Nothing else seems to matter anymore. It’s truly become a finance-driven economy, where the single most important factor is the cost of borrowed money. People and governments no longer care about debts and deficits. They no longer worry about rising energy costs and commodity prices. Even inflation in general just doesn’t matter anymore. As long as increasing quantities of money can be borrowed to pay for it all, then that is all that matters. What seems to be forgotten is that borrowing is a claim against the future. It will someday have to be repaid. But perhaps the faulty premise in all this, the sin qua non, is that it is being assumed that there is a “future” to borrow against! The future that we once expected is quickly disappearing. Debts will more likely be defaulted than be repaid. Or if they are repaid, it will be in currency that is worth substantially less than it was when borrowed. Social contracts are being rewritten as we speak, first by corporations, then governments. The promises made to employees and citizens, respectively, can no longer be afforded. There will be no social security or Medicare or corporate pension plans or retiree medical benefits (and, of course, still no energy policy). Debts will come due and everybody will be broke."
Mother nature will soon be teaching her unruly adolescent children it's time to grow up or face the consequences. And we will find that the politicians overseeing this mess are just as negligent in areas far more fundamental to our way of life than stocks, shares and loans.
Complain about this comment
No.5 - fair enough but it wasn't me who forced all UK manfacturers to relocate to China.
UK, the US and Europe all thought it was a good idea - the demise of the western economies was handed to China on a plate.
Manufacturing was seen as a dirty word. Getting your hands dirty being a plumber for eg. was looked down on by every Business Studies graduate who thought that usuary was the way forward.
As reported by PJ O'Rourke, yesterday FT., western economies brought to their knees by 1930's Thatcher, Reagan etc etc.
Complain about this comment
Isn't it time the Royal Bank of Scotland had it's name changed to something more accurate?
Perhaps...
The mainly English bank.
The English taxpayers bank.
You know something that represents the majority shareholder?
Complain about this comment
Bravo. Let's hope the great and the good take some notice of the double and triple standards so ably pointed out by Robert Peston
Complain about this comment
#1 - Good point, and I would also add that 'failure under the pain of death' is a damned good motivator and should be adopted here.
I bet Fred 'the shred' Goodwin and brood of in-bred crooks really WOULD BE SORRY then.
I'm sure banks would have had more respect for the FSA if they were armed and had a secret police division.
I hope this puts into perspective all those anti-China sentiments about their authoritarian state.
AT LEAST THEIR BANKERS AREN'T LAUGHING AT THE PEOPLE AS THEY RUN OFF WITH ALL THE MONEY.
Complain about this comment
I have always thought that in some small way we have all had some hand in what has happened. I still blame our government in leading us into an inflated view of our overall expectations.
I worked for a very large private US company for over 25 years and they had a couple of rules of how the business should be run. One of those rules that at the time I couldn't quite understand was that they never borrowed money. The reason for this was because the original family who started the business lived in the 30's in the US and he had seen at first hand what happened then.
I was always told that any bill I had incurred on behalf of the business had to be paid within a month. I was paid a bonus which was only paid if the business was profitable. For a couple of years I (as a manager - shop floor workers were immune from any wage drops) earned less than the previous years - painful for us managers but very good at concentrating the mind. And finally, the owners of the business always told the managers never to blame the worker as it was the managers who were employed to manage. Suffice the say the company is finding things hard but surviving.
Complain about this comment
#37 Thinkb4
I'd vote for you - what you are proposing to do certainly makes more sense than the guff spewed daily by politicians and would about as effective.
Complain about this comment
Whilst its true that shareholders could have put the brakes on the corporate derring-do, in practice this is well nigh impossible. The pension funds have a voice, but this is generally inaudible as they are complicit (and in bed with company boards) in the stampede for short term growth and profits. What I am amazed at is that there is no statutory requirement for boards to have an "Small shareholder" representative. This individual would have to demonstrate that they had no links to big business or funds and was voted for only by small shareholders (say less than 50,000 shares?) Currently, individual shareholders have no voice at all ...ok, they may attend the AGM, but the voting has already been stitched up by the pension funds etc, so what's the point?
Complain about this comment
The first part of this blog was correct and hilarious. One of the best yet.
I am not bright enough to really understand the second bit unfortunately.
Complain about this comment
Robert,
I have to take issue with your inaccruate picture painted above.
Shareholders do NOT control companies, majority shareholders do.
Making a statement like that is akin to suggesting that Gordon Brown was chosen by the public and not cronies like Bernie Eccleston and a myriad of wealthy bourgoisie.
More people didn't vote than voted for Labour in the last election. Small shareholder stakes in companies do not often vote due to the feeling of powerlessness (just like a Democratic voter).
Even when they do they are often fed incorrect information by directors and other shareholders who are promoting their own interests.
I'm sure if HBOS had announced a couple of years ago "hey, we're going to start investing in some right wild stuff, it's dangerous, risky but might make a lot of money" - then maybe the shareholders would have made the right decision at the time.
....but please show me from any past AGM where the risk assesment is in black and white and not buried deep within the accountants artistry.
Remember that a lot of investors are not accountants, nor are they industry experts. They are merely working people who believed successive Government lies of "you don't need a state pension - a private one will be better"
As most of the majority shareholders in any bank are a) Other banks b) Hedge funds run by ex-bankers
.....it doesn't say much for the objectivity of the large shareholders.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Your comments about hypocritical investors simply highlight (again) that we are all, collectively, responsible for the mess we are in. Loads of people have been greedy, concentrating on the short-term, irresponsible, stupid etc - and hindsight is a very convenient tool for identifying scapegoats and coming up with "I told you so" comments.
This all brings us back to those over-seeing the economy. One of the main purposes of the government and the regulators is to keep an eye on the individual actions of the population as a whole, and to keep them under control for the collective good. To assist them they have armies of economists, statisticians and other qualified people. What is increasingly becoming very clear is that our government did not have any eyes on the ball and simply allowed things to get out of control. To learn that 29 similar "over-heating" reports were in the hands of the FSA simply proves a lack of joined-up thinking. It is increasingly clear that the main responsibility should be allocated to the government.
Brown is trying to make himself even more teflon coated than Blair as he tries to spin his web that the good times were thanks to his brilliance but he has nothing to do with the bad times and is not responsible in any way for the wholesale myopia of the government/regulatory system. We need an election before even more damage is done.
Message to all Labour MPs - out of loyalty to your country, please call for a vote of no confidence and get rid of Brown and his government. Your constituents may then recognise your gallantry and you might be re-elected as an independent MP.
Complain about this comment
I wonder if this was the subject of conversation between Gordon Brown and China's Premier Wen ?
Complain about this comment
So, all the numpties' fault then. No blame whatsoever attached to the pension fund trustees and pension fund owners "like you and me" putting pressure on the numtpies to finish in the top performance quartiles each quarter.
Ho hum.
Complain about this comment
#49 - very true....however if society was educated as to how a Capitalist society works then they would reject it.
.....that's why the 'masters of the universe' keep the rules to themselves, for without their inside knowledge the public would clearly see what a bunch of ignoramus's they all are.
Complain about this comment
@52 Paulie
Sorry to dissappoint you but we wont be in a position to crash in 10 years time because we wont have recovered from this one by then
Complain about this comment
Well done Robert glad you've moved on from bankers.
I suppose by the time you have worked your way around all those to blame for this mess, this mess will be over.
You're like a good book on a cold winter night.
Complain about this comment
#52
"when my Barclays,Soc Gen & Hitachi capital shares were paying big dividends, my house was increasing by 2% a Month and I was getting regular pay rises from my employer"
...and not once did you ask yourself "Where does the profit come from?"
If you had thought about it you would have realised the situation was unsustainable.
You need to aks yourself "Why was my bank offering 100% mortgages".
The answer you seek is competition, which forces market participants to continually cut margins to ensure survival, taking bigger and bigger risks to achieve this.
It's how capitalism works, and with the combination of every other company doing the same you end up chasing a diminishing profit.
A fisherman may work alone, but collectively (and without realising it) he and his peers will over-fish reducing stocks in the chasing of the increased haul.
....replace fisherman with Banker and fish with Money and it's the same story over and over again.
Complain about this comment
So we're meant to congratulate Rio?
They had the opportunity to sell all of the company at the peak of the market to BHPB, but were too proud to do so, and now they've done a 'good deal'?
This is the same bunch of incompetents whose senior managers live on expat salaries in company-provided Belgravia houses while bleating about the need to make 14,000 redundancies. And why? To pay back debts incurred to buy an integrated aluminium maker at the peak of the cycle? All to stop BHPB wasting their shareholders' cash on the mega-merger?
At least the Alcan purchase was highlighted by all the technical people within Rio as not making sense according to any of Rio's long-held views on commodity prices, the value chain and strategy. It was forced through by all accounts by Chairman Skinner, and ever since shareholders and employees have been paying for it.
If that's true, let's hope for the sake of shareholders and employees at BP that Chairman Skinner has learned his lesson by the time he take up his new position there - although quite why someone that earns as much as he does should get a second chance after betting the company and getting it wrong is beyond me...
Complain about this comment
4. angelcontrarian
Good points on the way fund managers work, namely herd-like behaviour, benchmark-driven, obsessed with positions in league tables. All true (most of my working life has been in fund management firms). I'd take issue with what you think is the motivation. Fund managers are a bit more (personally) risk averse. If they weren't, they'd be working as traders. Fund managers are actuallt obsessed with losing business due to poor performance, rather than gettinb ig bonuses due to "shooting the lights out" on performance. The explanation below sheds light on this I hope. The big bonuses then flow from winning new business: I'm not saying they don't exist in this sector of the industry.
My take on the weakness of fund managers as guardians of people's savings is as follows. A large proportion of pensions investment is now managed passively, ie in what are effectively tracker funds. Even most "active" managers are not much more than glorified "index huggers", in other words their investment decisions are based more on not deviating too much from benchmark weights for individual holdings rather than any real conviction on the attractiveness of a company. On top of this you can chuck in the growth of quant investment strategies. These are model driven, and very cheap to implement in a world of low cost computer power, telecoms costs, and dealing costs. Put all these together, and you have a fund management industry that is almost divorced from the entities in which they invest.
Like you say, the obsession is with beating the benchmark (the usual measure for "institutional" clients such as pension funds), and/or peer group comparison (effectively league tables and a more common measure for "retail" funds, eg sold within ISA wrappers etc).
What drives this behaviour? A large part of it is the role of investment consultants. The top 4 of these advise 70% of all UK pension schemes. The control access to their clients, ie they are effectively the gatekeepers. Therefore, to have a chance of winning mandates from the pension schemes requires getting onto those consultants' buy lists. Doing that requires consistently beating benchmark or being highly ranked versus peers. For fund managers that do that, the benefits are enormous in terms of cash flow into their Funds. And, to a large extent, it's total assets that drive earnings for those managers, not absolute or relative performance. And don't forget that the biggest drivers of the move to passive management are these consultants. They have been advising clients for years that active management is, in most cases, expensive for the performance it delivers. A consequence of passive management is less need to engage with management of the companies in which fund managers invest.
Taking all this together, fund managers are driven by the need to meet the purchasing standards of effectively 4 organisations. It's a bit like the supermarket industry if you think about it: 3-4 dominant distributors to the end consumer versus many many providers of product. Just as food manufacturers have a tough time getting space on supermarket shelves, so do fund managers getting recommendations from consultants. The system encourages obsession with benchmarks, a "me too" approach, and passive/quant techniques which really treat the investable universe of stocks pretty much as a commodity. Very few fund managers see value in engaging with the firms in which they invest (certainly the large cap stocks). Very few Funds hold concentrated portfolios consisting of a manager's "best ideas". Instead they hold vast numbers of positions simply for risk control, ie to hug the benchmark (why do you think there was such an overlap of shareholders in Lloyds TSB and HBOS?).
Complain about this comment
"buch of numpties" is this the same bunch that we are told we must continue to pay bonuses to so we can get out of the mess they created?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Costmeabob wrote:
'The road from Downing St to the Palace is short and sweet'
Personally I would have enjoyed his comment if he'd said the road from Downing Street to the Tower is short and sweet.
The Tower is where those who have allowed this situation to occur should go.
Who is to blame here in the UK?
Bankers & Traders? Yes
FSA? Yes
Gordon Clown? Yes
Rating Agencies? Yes
Personal greed for some but not necessarily all persons who were 'economic with the truth' when self declaring their income on mortgage applications? Yes
Pension Fund Managers? Yes
Need we go on?
Complain about this comment
all good but how do you control how your pension fund invests?
And, here is a theory.
In our current economic system, the lending decisions of individual banks were out of their own control anyway and were driven by the market.
Only if the banks made a collective decision could they take a less riskier (and for a time less profitable) position. A lone ranger would have suffered lower profits than its competitors, pushing down its share price and leaving it wide open for a take over.
I would venture that is someone suggested taking this approach, they would get the sack.
Hmm.
Complain about this comment
RE: No 58.
englandrise, perhaps you meant to say:
.. the mainly UK bank.
The UK taxpayers bank.
UK tax isn't just paid by those dwelling in England.
Royal Bank of the United Kingdom ... sounds not bad to me.
Complain about this comment
Robert,
Another "worrying manifestation of how economic and financial power has transferred from west to east" will be when China outsources its manufacturing activities to skilled, low cost operating centres such as the UK.
Don't larf, it's going to happen.
Complain about this comment
It is very interesting comparing east vs west when it comes to invetsment horizon. In the West, as our financial markets have been americanised we have become short term ie next quarters results are what drives investment. Whereas in the east, the short term is five to ten years, medium term is ten to twenty years, and long term anything over that. Guess where they focus their investment.
I am an investor in unquoted comapnies, we invest with an investment horizon of between 3 and 7 years. That is considered long term. Many of my competitor investors are focused on exiting their investments less than 3 years. You may think that is exceptionally short. But compared to the stock markets it is a lengthy holding period. Investors on the stock market can have completely charged the constituents of their fund in days or weeks.
It isn't only in financial markets that people want instant gratification. We have a society that wants everything now (my wife included - tho she is learning the hard way....).
This is an opportunity to re-jig society.
Complain about this comment
What was very obvious at todays questioning of the PM is that he is most definitely not a leader of anything.
And waiting for the answers to the problems to be supplied by others, and to think that the present status quo banking operations, which gamble with invented capital/ the leverage which the corrupt fractional reserve system delivers with its free virtual money, is going to remain in much the same way as its presently is, with the same heads/Intellectual Property running the Global Governance System, is an Arrogance and Delusional Psychological Flaw which afflicts many feathering their nests with the present calamitous Ponzi Scam.
And if you print money on a wholesale scale with a notion to deliver it through/to the Banking System to charge interest to customers who would apply to spend it and allow practically worthless paper currency to work its magic and Energise Supply and Demand, and also to expect them to return the sum, you will have a ...... well, revolution which sweeps away parasitic bankers for a start along with numpty, out of their depth, politicians who wannabe in a leading gang, but who are unfit for ITs Purpose and Active Service.
I do not need some upstart in a suit advising/telling me, once I have told them what I need and what I am going to do with what I need, which is spend on a Program so that currency can do its Trick, that a) no you can't b) yes, you can but we want our cut too and the money back too, whenever trillions have been and are being lost by their dumb actions and trillions more are being supplied/deposited with them for free to start people spending again on the things that they need/want
They seem to forget that if they are in banking, the protection and supply of money, the shekels are not theirs to play with, although they will try to tell you otherwise, of course.
The problem is the not the supply of paper wealth, it is the non-supply manipulation of it and its private bankers club use for a perverse, holier than thou, control for power, which is the Problem.
Fix it or it will continue to Fail Catastrophically.
And as we have seen/heard/witnessed regarding the recent Crosby/Moore/FSA/HBOS exchange, which I imagine to be only the tip of the iceberg, once a problem has been Flagged Up and its Resolution ignored, is it only a matter of time before it boomerangs back to claim its prize scalps.
And what you should all realise nowadays, is that the Intelligence Dynamic has changed Fundamentally with Open Source Sharing for Transparency as provided by Networks InterNetworking.
Something new to get used to as IT Virtually introduces the SMARTer Great Game Bigger Picture Player into Control and Power Systems.
Complain about this comment
Many small shareholders have been hustled out of their money by these fund managers.
For example I bought shares in my pension company in 2000 expecting reasonable long term growth,
Shortly after buying them they had a shares issue which diluted the value of those shares overnight.
After Gordon Brown raided the pension funds and everyone else seems to have made money out of me and millions of other naive and trusting small shareholders those shares are now worth only a third of what I paid for them and the pension is worth much less than anticipated.
Someone has paid for all of this and it is the likes of you and me and every other man and woman on the street who has been conned.
I do not blame the ordinary shareholders but I do blame the greedy fund managers and their obscene salaries and bonusus.
Beware any financial advisor trying to approach me again.
Complain about this comment
60 years eh??
I think there is a statistic that says, over the last 100 years, only 5 companies out of the top 100 have survived as a business.
Only 23 from the Ftse 100 in the last 20 years are left.
btw.....
Did I ever mention (before now)the Local Income Tax as proposed by the SNP ??
No.
Ah well,there you go.
Complain about this comment
Re No 65.
TheresOnly1Soupey, I actually think Robert Peston is absolutely right.
As a group, the shareholders of the banks, whether large institutional investors, small investors or even staff shareholders, all failed to keep their directors and senior managers in appropriate check.
That in turn allowed them to increasingly create and promote corporate cultures based on ever increasing personal returns for themselves and for their shareholders.
Common sense tells you that you can't keep on milking the same cow and that sooner or later something is going to go wrong. But shareholders did not manage to break into this greed culture. And poor calibre, short-sighted, highly-rewarded bankers failed to change the way their organisations were operating until it was too late.
Now I accept that for various reasons, certain individuals may have been disempowered from taking individual action, but those individuals still profitted from it.
However, the issue is not about a blame and shame game, the issue is about how do we prevent the financial sector recovering from the current slump and just going off and doing the very same thing all over again?
Preventing a repeat performance IS going to require shareholders, especially the larger institutional ones, to recognise and realise their collusion in the processes too.
Complain about this comment
What about the Ukraine Robert ??
Some time ago they got a $2 billion loan from thre IMF.
They then paid the Russians $1.6 billion at the new year to settle the gas bills...
Bankrupt.
Complain about this comment
About 25 years ago I worked for a credit company who had a very tight criteria for accepting applications for credit. About 50 to 60 per cent of applicants were turned down.
Then we were taken over by a bank following which only about 10% were rejected.
Store cards appeared giving £1000 credit limits without any real credit checks being made.
They were all to blame for our current mess the bankers and institutions were just greedier than the rest.
T
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
I can make no comment about this deal with Rio. But I wonder when / if the role of the 'institutions' who invest in banks and companies (eg pension funds) will also be called upon to explain their strategy and their attitude to risk. After all, they are in charge of the future wealth of most workers, in the shape of pensions. Did they take a long view? What did they do to stop companies in which they were investing taking too many risks?
Complain about this comment
Never let anyone forget that Chinalco IS the Chinese government.
John C.
Complain about this comment
#81 I can't ever see the UK being a low cost manufacturing base. Population density is too high for a start, allied with increasing regulations that stop development of industrial sites, means that we can never compete on construction of manufacturing facility let alone compete on wages.
One point that should be debated is what is / should be the true link between average house prices and average wages. Historically it was 3.7X, ie you would borrow 3.0x salary via a mortage after saving up the balance. This moved to 3.5X salary mortgages being the norm in the '80's. When you consider not just the increase in UK population, but also the change in demographics, in particular the increase in divorce, lone parent families etc, the strain on the UK housing stock is monstrous. Therefore will we see a more continental housing market where people rent rather than buy, or we say that 4.0X salary mortgages are the new norm?
Complain about this comment
Robert,
You put your finger on a well understood downside of listed companies as opposed to Private Equity owned businesses.
It has long been accepted that listed companies perform sub-optimally because of the pressure to perform against short termism in the public equity markets. So nothing new in that. And, nothing has changed that is going to stop such short termism continuing.
Unless..we see more businesses de-listing and/or we see more asset nationalisation.
Complain about this comment
@ #38 guycroft
Always enjoy your posts, but this one really made me laugh. I needed that -- thanks!
Complain about this comment
Point taken. The British Public are mainly the owners of these companies. BUT the dash for cash was to balance the books needed to meet Pension requirements.
A few years ago the rising FTSE could be relied upon to help generate the wealth to provide pensions, but when this began failing shear raw profits were needed too.
Complain about this comment
If Institutional shareholders were reckless in not objecting to dividends paid from the bank's gigantic profits, was not the Government even more so to bill them for corporation tax on those profits? PLUS getting taxation out of the bonuses the bank bosses received?
sonofadamsmith
Complain about this comment
Please excuse my ignorance but what does 'pay down borrowings' mean?
Complain about this comment
12. courteousnewcitizen
24. stanilic
right on the money (or lack thereof...). We have (well, most of us) sleepwalked into this one...
Complain about this comment
@ # 49 Borisnorris:
"Unfortunately in this capitalist country the public is not educated in a how a capitalist system works. It should be part of every schools curriculum."
There are few things I can agree with 100% --but this is one of them! Absolutely.
The same thing is woefully true in North America, and I can't believe it's accidental neglect.
If citizens were well-educated, would they be as willing to accept the gross inequality in benefits for the average human being in exchange for so much wealth and power concentrated in the hands of a very few?
No, I believe someone has a vested interest, now more than ever, in keeping our children ignorant. Unfortunately, our children may soon be too busy trying to survive, to take much interest in how a system betrayed them.
Complain about this comment
Pay down borrowings quite simply means the borrower repays his debt to a pre agreed schedule or in one go.
Complain about this comment
#86 sutara
I agree with your sentiments, but this is not how businesses work in this system.
If the shareholders are (by proxy) pensioners (or will be pensioners) who are merely trying to save money whilst working so they have a future income when they're not - are you saying that they need to brush up on their corporate Governance and accounting skills before they want to indulge in future security?
That would be all well and good, if it wasn't for the fact most people don't choose private pensions, the Government has been pushing people on to them for sometime by making the state pension more and more unappealing.
I don't believe for one minute that "Mr A small shareholder" would have accepted his good returns if he had any idea about the risks that were being taken.
How can he know what risks were being taken when the banks are unaware themselves.
I have worked with risk in finance before, most banks think it's a guide for them and a marker for their 'riskyness'.
In reality it's merely a probability of everything going wrong (and the probability of the effects of that). It doesn't tell you when that will happen nor does it give you a magic formula for avoiding disaster. You can use it to position yourself to mitigate certain risks (Credit, Currency, Market), but they all rely on you deciding which is most likely to affect your business (i.e. a guess)
The last few days have re-emphasised my original belief that the men at the top do not understand risk in any way shape or form.
...which is fine, so long as you listen to the experts you employ for that purpose and not sack them when they aren't telling you what you want to hear!"
Complain about this comment
I hate to sound almost Maoist about this - I work on a commission income in a sales-related job, so I'm far from it - but I sense a merry-go-round of blame in this 'crisis' (I use the word advisedly) when in fact the system is the problem and we, as voters and participants, each have our share of culpability.
Instead of sitting down with a cool head and saying 'blimey, that didn't work, did it?' we are playing the blame-game: the media blames everyone; investors blame the banks and fund manager; everyone blames the bankers; politicians blame who they can while trying to avoid some of the blame themselves.
In fact, successive generations have encouraged a culture not especially of greed but of corrosive gain, with everyone encouraged and incentivised to gain an advantage wherever they possibly can (from whom? well, anyone less fortunate/powerful/quick/clever etc) without much care as to how individual actions affect the system as a whole.
I was reading a frankly stupid post on another blog the other day moaning about staff at top law firms getting together and preventing redundancies by reducing hours, taking sabbaticals and so on. Why should we support the less efficient, the poster said; they should be made redundant so that the organisation 'thrives'. What the poster had - typically - failed to realise was that he, and we all, will bear the cost of every redundancy, directly in increased benefits payments and indirectly in the damage to society, community and family.
I'm not arguing for a command economy, creating full employment by treating people as commodity. But I do think we need to create a political and regulatory framework which supports co-operative and structurally-positive behaviours and curbs, disincentivises or outright bans behaviours which can cause the kind of catastrophic 'cascade' effect we have seen (and which - obvious in hindsight - was known and ignored by many).
The majority of people in this country would prefer, I think, to live in a society with a stable, fiscally conservative environment, want to save for retirement without wondering whether their investments would actually be there when they do; I think they'd prefer a gentle rise in house prices than the ridiculous leveraging we've seen. I question our blind adherence to the yoke of relentless growth, "increased" wealth (whatever that means) and a drive to constantly consume without a thought as to the consequences.
The kind of rampant, free-market capitalism we have been seduced by is not gravity: it is not an immutable law of life.
We have the choice. Let us hope as individuals we do not walk blindly into letting it run riot all over again.
Sadly, I think that is our history, and our collective fear and greed will get the better of us once again, when the memory of these times fades...
Complain about this comment
Looks like the Chinese will have the level of control over these commodities that our Eastern European friends have over our gas supplies.
Let's hope that we adopt the same attitude to our assets as we do to our valuable paintings. Not let them into foreign ownership, if we can raise the equivalent amount ourselves.
Complain about this comment
encouraged by the government to save in a pension for my old age I was a thwarted by a certain Chancellor- who went on to glory on the back of city bankers and rampant house inflation. I did not borrow but invested wisely but now have to beg for a small percentage of the fund that was plundered by said Chancellor.
Now you are telling me that,
"in the kingdom of the blind the one eyed man is still king!"
Complain about this comment
#80
"UK tax isn't just paid by those dwelling in England."
80% of UK tax IS paid by those dwelling in England.
Not only is "Royal Bank of Scotland" misleading, it's also an insult to the squeezed English taxpayer.
The English would be so much better off going it alone.
Complain about this comment
> Those owners were us - the millions of British
> people saving for a pension, who
> innocently mandated a bunch of numpties
> at investment institutions to look after our
> retirement savings.
Those fat cats interposed themselves between
us and our money, and took off with it, as if
they had some right to do so.
Now we want our revenge, but nobody's
punishing the devils. It'll happen again unless
the numpties are seen to suffer greatly.
Complain about this comment
re No 82
propsupthebar, I think you're right.
We somehow need to get the UK's - and more generally the West's - financial industry to move away from the quick buck culture to the longer term approach.
Or to put it another way, we need to de-Americanise our approach to investments.
Complain about this comment
12. courteousnewcitizen
Liked your post, as I invariably do. And I share your view of fund managers. Most (but not all) add no value and charge you for the privilege of doing so.
Where I'd take issue with you is that SWF's and big public sector pension schemes, such as CalPERS, are somehow better models currently. They use exactly the same fund managers with the same benchmarks as everyone else. They are open to innovation, however. For instance, they're big investors in private equity, hedge funds, emerging managers etc.
I think the real question that needs to be asked is what do people really want to achieve with their savings? Intuitively, it seems to me that people want their savings to grow by "inflation plus a bit". Current investment choices, in the main, do not cater for this. They tend to produce mainly market returns (ie down 40% over the last year!), with perhaps "a bit" of market outperformance. I suspect most normal people regard an investment that falls 38% against a market fall as 40% as poor. Fund managers would regard it as good.
The debate we need to have is over what normal people want from investment products. At the moment there's a lot of assumption by consultants and others about what's best for us. However, most of us have now taken on the market risk of our savings (with the demise of defined benefit pensions). You're right about the need for better financial education. I'd add that those running our banks etc would appear to need this most, given recent oversight of the businesses they allegedly were running.
We also need to see a shift in the way people percieve how they should pay for financial products. I note your comment about IFAs, but I'd contend these guys are not advisors, and certainly not independent. Typically at present, if you go and see one, you will get "free" advice. They get remunerated via a commission payment from the provider you decide to invest with. There are two conflicts here. Firstly, the IFA is incented to make sure you buy something. If you don't the IFA gets paid nothing. Secondly, there's a risk you are sold a product yielding the highest commission for the IFA. It will probably meet the suitability tests, ie it won't be mis-selling, but is it the best option for you? We need to move much more to a system where you pay a fee (time spent? ongoing investment performance?) to the IFA. That way the IFA is indifferent as to what you buy, or even if you buy anything.
We have an opportunity to rethink the entire ethos and structure of the investment process, and how we purchase advice and products. This is just as important as the debate on how the industry should be regulated and its staff remunerated. Indeed, I think it's part of the same debate. We should not allow government, regulators, or the industry to get away with doing nothing more than rearranging what's left of the deckchairs.
Complain about this comment
Farmers Face Empty-Nest Syndrome Amid Chicken Housing Crisis
You couldn't make it up....Complain about this comment
A couple of interesting comments about fund managers chasing every increasing returns. In my view there are two very simple reasons why pension fund managers have had to do this. when pension funds were set up they had contributions based on the likely cash requirement to buy an annuity in a number of years time. Which was fine. Fairly standard rates of return were targeted, based upon reinvestment of income from dividends and loans. However Flash Gordon, in his infinite wisdom decided to impose two thinsg which have destroyed pensions, firstly a windfall tax on pension fund surpluses (so if your pension fund had been wisely invested and had surplus monies to that which the actuaries thought was neccessary he stole for HMRC). the second thing he did was stop pension funds from receiving gross dividends. this had the effect of massively reducing the compounding nature of investments (eg instead of receiving say £1 in dividends, the pension fund received £0.78p. Now this might not seem alot, but when you factor all the dividends that a pension fund would receive, and stop that being reinvested it has a major impact on the value of that fund.)
These two factors have changed pension fund management, the funds have to be more aggresive at chasing returns otherwise they have a cat in hells chance of delivering the required return for the pensioners. This is also why final salary pension schemes in the private sector are nearly all now closed.
So besides the bankers with their stupidly structured bonus schemes you have a financial numpty stealing from the pension funds and forcing a change in behaviour.
Complain about this comment
Halleluijah!!!! At last, the first time someone has dared to venture that it ...may... just.. have been our fault.
The scapegoating of Bankers and Government has been thoroughly reprehensibe - a blame culture we are, and always will be...
Complain about this comment
Robert's point is brave and hurtful but neverthless absolutely right. Be they the bankers themselves or our institutional shareholders, those charged with the custody of our investments all failed miserably.
Institutional investors were accessories to the crime. " We didn't know what was going on" is just as incriminating an explanation as "Nobody was trying to stop us".
To the old adage that "If it looks too good to be true, then it almost certainly is" you could add "if you didn't know what was going on then why didn't you either ask or step down?"
Complain about this comment
Ally was very surprised to find Tubby in such a foul mood this morning. Nearly put him off his egg banjo but he was all ears. Seems that Tubby was seriously displeased with the way Mr Pesto handled the 'resignation' of the previous gaffer of HBOS from the sleep factory. Tubby wondered why Mr Pesto had not followed up on the story and trid to throw more light on to what had happened in the time between Mr Moore going public with maximum media coverage of his alleged sacking by the gaffer and the run into yesterdays PM's question time. Was the gaffer contacted by civil servants acting on behalf of third parties? Did he speak with Mother Brown? There is a timeline here which Tubby thought would be meat and drink for Mr Pesto but no. Yesterday is air brushed . When Ally said that Mr Pesto had run into considerable flak for the way he reported the gaffers departure Tubby was all ears. Surely Mr Pesto remembers that the gaffer was sent to the red seats by New Labour. Who recommended him for the elevation? Tubby then gave the whole cafe a lecture on why Mr Pesto should not leave the kitchen when it gets hot because in this country business, finance and politics are woven together into one fabric. If Mr Pesto could not recognise the potential political minefield for Mother Brown which the gaffer had created then he is not the scribbler which Tubby had hoped. Even a lox bagel and a warm cuppa couldn't calm Tubby so Ally headed for the door.
Complain about this comment
"Are there greater hypocrites in the world than British institutional investors?"
Yes, Robert, there are lots of far bigger hypocrites:
- Ministers and regulators who were wise after the event.
- Ministers who plundered pension schemes and now grumble about the low savings ratio.
- Union leaders who dislike all big corporates.
- So-called 'professional' local authority and charity treasurers who greedily invested money in Iceland, and now want the taxpayer to bail them out.
And that's just for starters.......
Complain about this comment
We elect politicians to lead, to enact laws and ensure they are enforced.
We employ experts to act on our behalf.
We have some responsibility to do our own diligence, but when the people we select then turn their backs on honesty, decency and integrity the blame must rest squarely on their shoulders.
Complain about this comment
Well done Robert. At least we can rely on you to get the balance right.
It seems you take a look at the big picture before commenting. Some of your media colleagues appear to have crystal balls... but they are a bit misty.
Our financial system is in ruins so we shouldn't try to bring down our producers who are having to change their business plans due to a lack of liquidity. Rio Tinto has to take a very very long view. Mining lead times are measured in years and £20 Billion agreements are very complex and take a good deal longer to conclude than it takes to knock out a 600 word derogatory commentary.
I read the Business Section of The Times today, P43. David Wighton the Business Editor's commentary is headed "Miner's strategy looks full of holes" and he recommends Rio Tinto's shareholders should dig deep into the detail. I have and it makes good sense to me. But then I am an engineer with an MBA and have work on major project around the world.
Obviously, the Rio Tinto strategy is beyond Mr Wighton. Journalists and commentators along with past heads of our major banks (without banking exams) should stick to what they know best. What does Mr Wighton, a banking and financial services sector specialist, with a degree from City University Journalism School know about mining or business strategy?
Perhaps some of our esteemed financial journalists are too embarrassed to comment about our current financial plight since they didn't exactly predict our current credit crunch. In April 2007, Mr Wighton gave a speech about the World Economic & Business Outlook until 2010 in which he was reported as "basically optimistic about the world economic outlook. He admits that this year (2007) will see a slowdown of the domestic economy, but the outlook should be rosier for the coming years". Perhaps Mr Albanese, CEO of Rio Tinto, decided to go ahead with the Alcan purchase after hearing Mr Wighton optimism!
Those that can get their heads down and produce something. Those that can't pontificate... sorry comment.
You can see a synopsis of Mr Wighton's 2007 predictions here.
http://www.worldaffairsflorida.org/bcal2sp4.php?L=sp65.php
Complain about this comment
Horse stable door bolt????
Still a lighter touch though.
http://uk.news.yahoo.com/22/20090212/tpl-uk-britain-financial-watchdog-d1a0d5d.html
Complain about this comment
I think Deepwolf, #102, makes some very interesting points. In addition I would add taht society as a whole is as just as much to blame as any specific part of society.
If people think it is acceptable to lie on loan applications, where people worship the cult of celebrity, where people do not work but expect their fellow citizens to pay for their latest flat screen tv, where we have allowed the dumbing down of educational standards, toleratied anti social behaviour by young adults etc etc then we get the society we deserve.
Complain about this comment
One other problem with the fund managers is the way they attend Company AGM's and always vote for massive increases for Executives. Thus executive pay has increased way above inflation every year and allowed executives to claim that salaries of a million a year is modest. This has been compounded y the total uselessness of the Non-executive Director program. These hopeless parasites are paid a minimum of 30K to turn up once a month for a gourmet lunch followed by a meeting. When anything goes wrong these people profess total ignorance of everything. What a gigantic waste of money.
Complain about this comment
Robert, it's a bit rich for you to complain about the slamming of stable doors and "numpties" at investment institutions.
I don't recall hearing any Peston siren voice warning us two years ago that it was all going to end in tears.
Complain about this comment
I'm sure that it was Margaret Thatcher who allowed the Building Societies to become Banks and also deregulated the Financial System. Blair and co can be blamed for not correcting her mistakes but they were always scared of the Right wing Press who would have torn them to shreds for changing anything Saint Margaret set up.
Complain about this comment
No. 108 JayPee28pbr
I'm basically suggesting an SWF or similar as a way of a wholesale 'slimming down' of the financial services industry - including fund management, IFAs, etc.
As you point out, the warped incentive schemes of IFAs are smaller versions of the same flawed schemes that encouraged bankers to gamble for immediate gain.
IFA's exist (as i understand) so taht the financiall ignorant 'public' will have fair impartial 'advice' since they know nothing of investing.
Why not therefore replace the entire poorly-performing IFA system with a SINGLE large govt. pension provider that CHEAPLY uses a mix of investments in bonds, PE, trackers, fund managers, etc. The public would simply keep buying units in the said fund, and that would be their pension saving. It may not necessarily perform better, but it'll be much cheaper and much less fraudulent. Compulsory deductions could go into this fund, with additional voluntary contributions given tax benefits so that investors who want to choose their investments can also do so.
A bit like replacing the banking system with a BORING bank that accepts retail deposits to keep them safe (primary purpose?) and gives out conservative mortgages and loans. Let the investment banks / hedge funds backed by expert private investors gamble away in an unregulated setup of their own which does not create problems like those we now face.
At the same time, I would like to see a government which publicly declares an aim of cheap housing that stays cheap. A bit like Germany where people don't mortgage their lifelong purchasing power away and they have large centralized landlords with thousands of apartments to let. It will gradually dawn on people here that houses are not pensions and will never be, and perhaps the well managed central pension fund is a good option, whilst at the same time continuing to enjoy the same 2 bedrooms or the same garden, but just at 1/3rd the price!
No. 24 Stallinic, your post is so true. Its a culture thing with Asian people as opposed to Americans / Brits. However, just look at how the Germans save! Clearly, when you lose confidence in demographics, future economic growth potential, etc. the Germans obviously know something we don't and are saving so that they dont spend their retirement in penury.
Once we realize that we will also depopulate in the bust, and that large parts of our pension system are simply another Madoff scheme, we WILL save.... a lot
Complain about this comment
Thatcherism didn't work, Majorism was a sad joke and Blair's version of Thatcherism with a human face was no better. I can't see that Cameron's version of Responsible Capitalism has a chance in hell of sorting out the capitalist system. What we need is a strong Socialist Approach as adopted in Dave's favorite country, Sweden. It's time to lock up City swindlers who've been making Hay while the Capitalist sun has shone.
Complain about this comment
Hypocrites? Neanderthals! Their understanding of the markets has always been low, or they'd have pulled the plug.
1. As a foundation, it's still too early to talk about how to rebuild, because we're clearly still on quicksand. Firstly, we need a viable financing function and a funds buffering function which works, and it's now clear the banks will never provide that.
2. The problem is, who's going to bell the cat? HMG, never in a million years, they ARE the cat. The Opposition has kindly reminded us they're little better, being caught red-handed for about the third time in as many weeks. LibDems? Well, they have a Cable to haul us out of the mess, but have they anything to attach him to? Or do we really need more legislation? It's been used to shackle us, perhaps we need something trustworthy.
3. I've researched Mammon, in passing - turns out it comes from a Chaldean word meaning "Confidence". so those preaching Confidence may well not be serving God. As I always said...it's trust, not confidence, we need. And to build that requires an ounce of faith in each other and much delivery.
4. Regulation? No, KISS, and transparency.
Turning now to RP
Numpies is too kind by half for these criminal delinquents. Your moderators let me post a bit of
W
H
A
T
I
M
E
A
N
and nobody could be bothered to look it up. Click on Rahere's name to look back in his postings and you'll see where the bodies are buried.
22
The SCOs did not have any paper attached. That's where this electronic market went wrong, they sold the same mortgage twenty times over, sliced and resliced so nobody can find who owes what to whom. The answer is to revert it to the original debt - because nobody compensated the borrower for the mutation of his mortgage, that's for sure - and leave them to explain to the pack of bloodthirsty wolves he conned that he didn't mean it, reallly...
23
Hooray, a man with sense at long last. Just don't lend it to the men, but the women. MicroCredit's going to be the road out, and you'll keep it doing the UK some good.
28
Add his moderators to that list. Perfectly good and valid postings spiked for no reason. Go get Ashley's Book of Ropework and join me on the Tree.
Complain about this comment
With so much talk about returning bonuses, the fund managers should be more appropriately incentivised too and return their bonuses supposedly earned over the last 5 years or so.
These people do not look after the interests of the true shareholders - ourselves, but their own self-interests, and generally lead a rather comfortable life losing other people's money.
Do we have any say in appointing these people to manage our pension funds? - no - some of us can vote with our feet but only after the damage is done.
We cannot even vote at AGM's etc on directors' pay or on strategic decisions- we rely upon these rather ineffectual characters whose personal interests are best served by not rocking the boat.
It would be rather easy to set up systems whereby members of pensions schemes or nominee account holders could vote electronically on major issues and indeed directors' pay, and the reappointment of auditors, who would then become more independent of management.
Is it in the Government's interests to set up such rights for the real shareholders? - no, because they do not want to upset the City and the directors who provide lucrative political contributions, consultancies, jobs when out of office etc.
Was anybody else annoyed today on seeing Gordon Brown looking so pleased and laughing with McFall - perhaps given their government guaranteed extremely lucrative pensions they were laughing at us.
I would like to see Brown and King humbly apologise for their incompetent handling of the credit crunch, and give up say 50% of their pension entitlements.
Complain about this comment
actually it wasn't the fund managers but the present prime minister that ruined your pension...before he came to office the UK had the finest private pension industry of the western world...now it is on its knees!
Re the smug bankers........given that they all did business in the USA it will not be long before they are extradited in handcuffs.....the americans will extract their revenge!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
John_from_Hendon wrote:
"What we should be concentrating on is the the way forward - this navel gazing will fix nothing. It may be cathartic and fun but it is pointless unless things are done as a result!"
John, you could not have said it better. There are a few of us who feel exactly the same way. We may not agree on the 'right' strategy to pursue but we are united on the URGENT need to get on with it!
WELL SAID
Complain about this comment
I'm baffled by your sources of information. Why does The City continue talking to you?
Complain about this comment
Hey Robert, are you aware a cartoon in Private Eye is depicting you as a horseman of the apocalypse?
Complain about this comment
Save your breath till warmer weather will make the storming of Westminster more agreeable.
Complain about this comment
Goods in the UK should be charged at half the current price
in line with the cost of living in the US where people spend
more on material goods because they are better value
Complain about this comment
"16. At 12:18pm on 12 Feb 2009, obsidian_white wrote:
Until the culture is changed, nothing will change."
Until the monetary system is changed, the culture will not change.
Complain about this comment
Robert, thank you.
We paid numpties. Remeber the food riots not so long ago (places like Egypt). We played Black Jack even with the basics, and to hell with those are not rich.
#39 is making the point, the point we all know from history.
We all know we need to look to the future. We've screamed about shortermism for years. Well done China for planning to be around for a while - we obviously are not.
Complain about this comment
We tried socialism, look what happened in the 70's; the Winter of Discontent, 3 day week, regular power cuts, bodies piling up waiting to be buried, no refuse collection for weeks on end, property prices crashing, taxation going through the roof, industrial action, racism rife. On top of that British manufacturing was a joke producing products that were light years behind america, Germany, Japan. We had to go cap in hand to the IMF for a bail out.
Oh spot the similarities.....
Socialism does not work. It dumbs down to the lowest common denominator. We need capitalism with rules and standards. And a big stick for those who transgress.
Complain about this comment
#105 englandrise:
"0% of UK tax IS paid by those dwelling in England.
Not only is "Royal Bank of Scotland" misleading, it's also an insult to the squeezed English taxpayer.
The English would be so much better off going it alone."
England is, presumably, free to leave the UK whenever it decides to do so.
Complain about this comment
Robert, I work in financial services with clients and must constantly take care not to go outside and boundaries laid down by the regulator, the FSA. Not that I want to because if I do not look after my clients I will have no business.
When is someone anyone, you? going to demand an investigation to how they have regulated the city and the banks. Where is the integrity and independance. The FSA is there to protect the small investor. Any idiot could have seen what was coming. When did a market last rise exponentially and not correct itself. Who is demanding accountability is there no legal process, for if this is not a crime against the British people then I do not know what is.
Complain about this comment
Robert, you are absolutely right to illustrate the sheer hypocracy of fund managers who only ever allmost in totality underperform.
Paying bonuses to underachievers is a total waste of money and maybe just maybe shareholders will register taht thought and expect change in eth immediate future.
What you do not comment on though is all the funds who are sitting on toxic paper, that have chosen to put then into the longest term funds they can to write the value down yearly without too much pain.
This is singularly wrong and a well practised policy. But who is going to regulate over off balance sheet liabilities when this Government chooses to ignore the advice of the National Audit Office in regards to PFI liabilities.
Cameron was right yesterday even
(scumdog - a term used by the Sun)bankers are apologising but not Crash Brown.
Is this sad tired old man so into denial that all hope of a reality check is now lost until he is kicked out of office?.
How much will the UK Taxpayer have thrown down the hole whilst he, Darling. Mandleson and Co sink this once great country?
his capability to do the job has undeniably been a classic failure ad he should now. Possibly only a dead sheep might perform worse!
Complain about this comment
Many British institutional investors have taken a very short-term view to the world, rather than pressurising the boards of our biggest companies into making decisions for the long term they were happy to sit back and as long as the dividends kept on coming they didn't care what the company was doing. I don't know why this is the case but here are some possible reasons:
* Lack of accountability on institutions to invest their customers' money wisely. Indeed £7bn of investors' money is languishing in so called "dog" funds where they have consistently underperformed their index over a three year period.
* Because institutional investors' performance is assessed relative to their peers. They don't want to deviate from the crowd in case they make a mistake. A cause of bubbles, with everyone feeling the need to jump on the bandwagon even if rationally they should not.
* Believed that they could rely on board members to make the right decisions, not necessarily a failure of the investors but of the implementation of corporate governance guidelines.
more here: http://richardthinks.wordpress.com/2009/02/12/the-failure-of-british-institutional-investors/
Complain about this comment
5. King_Athelstan
Magnificent!
Thank you King for your words of wisdom. They won't help us one jot but may well serve to remind some of us of the pitfalls of greed in future
Complain about this comment
The tax change on dividends introduced by one Mr G Brown has probably removed £60,000,000,000, yes £60 billion from pension funds. I'd call that pretty numpty.
Then there's the tax on surpluses and now the frozen lifetime allowance which I assume they think no-one now has a cat in hell's chance in attaining.
To be frank, I'd stop anyone with a final salary pension from being able to change pension policy. They haven't got a clue.
And actually, I might not like the fact that I use a pension provider but I can decide what funds and when and how much. It called taking responsibility and most of us can do this
Complain about this comment
RP your comments about the behaviour of British institutional investors raises further disturbing questions about the manner and way that the UK financial insitutions operate.
It is becoming increasingly evident that the people working in the City are operating on one wavelength (and using their own rules) while the Treasury and ordinary businesses working outside the City are operating on a completely different wavelength, under more stringent rules.
It seems that the CEO's of all those financial institutions that operate out of the City (such as banks, investment funds, hedge funds and other even more secretive funds (Maddox springs to mind) all believe it is possible to have short term business plans that will go on producing double diget returns ad infinitum regardless. Unfortunately these nebulas returns can only be achieved using complex mathmatical formulas that nobody fully understands or trusts with any certainty. In other words they can be used to generate any profit figure desired.
Whereas most of the people working in businesses that operate in real everyday world (outside the City) know that in order to survive they have to plan much further ahead and will only be making marginal returns on their investments. That is why ordinary businessmen can only smile and when they hear about the impossible ammounts of money the City folk claim they are making for the economy, because they know it is simply not just true.
These outrageous claims goes someway towards explaing why ordinary people businesses still consider the people working in the city to be little more than a collection of well to do theives, cheats and liars.
Complain about this comment
Robert,
I believe your comment on the Rio deal misses the point. Institutional shareholders are not objecting to Chinalco investing in the company (they even sold them their original shareholding at £60 a share vs the £20 current price, numpties?). Chinalco are free to buy shares in Rio every day between 8.30am and 4.30pm in London.What they are objecting to is the management of Rio's having taken on a load of debt at the top of the market to buy overvalued assets, trying to save their jobs by doing a cozy deal with one shareholder without offering the shares being issued on a discount (if you think it is a premium robert you need to take a finance qualification,) to all shareholders. In effect the institutions are protecting all shareholders interests.
You rightly critisize fund managers for not being more forceful with bank boards for buying assets at the top of the market. They learn from their mistakes and are more active to protect their clients interests from poor boards of directors and you critisize them again. I am afraid the hypocryte is you Mr Preston.
Complain about this comment
Robert,
In my simple little mind you perhaps have not got your Head around this one.
The Dividends you refer to in your artical were Paper profit Divs,not real ,hence the crash.The Chinese buying forward Share Values come from the same cupboard.I would say a bad Management decession from Rio Tinto but ,Hey,London is full of this and this is why Jim Rogers has this one ,London is now finished in the big boys league.
Complain about this comment
Makes sense to me surprised they didnt do it 6 to 8 years AGO.
Complain about this comment
Robert, good report...
...but speaking of the horses that have "galloped over the horizon", where were you and your likes at that time? Did you tell anyone - who for unknown reasons couldn't (or didN#t want to) see - that the stable doors were open?
Complain about this comment
@58 next you will be saying only those of English descent can have a say , and maybe have blue eyes and blonde hair , those pesky scots take and peddle the money and never give anything back, they are asking for it, sounds like a familiar theme that occured during the last depression.
Dont fall for the divide and conquer tactics.
do you really think this is Scotland getting back at England for being invaded, having a lot of its peoples killed, enterprises during the empire squeezed out, land grabbed etc etc ,
no of course not.
If you want to be picky RBS was set up by England
Complain about this comment
Tubby has just got off the phone. Seems that one of the esteemed clientele had been talking about a Mr Moreno walking the plank. Being a simple fella Tubby thought it was our friend from West London and lately of Milan Jose. However he could ardly believe his ears when he learned that this Moreno was being groomed to look after public bail out funds for the assorted band of banking brothers who were unable to understand that borrowing short to fund long term is a passport to Carey St. As Tubby only accepts cash in the cafe these matters of high finance never trouble him. However when this new Moreno is allegedly linked to tax evasion through Liechtenstein havens then it is time for Mr Pesto. Once again there is the potential for Mother Brown to end up with egg over her chops and Tubby hopes you don't bottle it.
Complain about this comment
Interesting the obscene amount of pressure HSBC was out under by one of its investors to do 'perform' better. i..e raise the short term gain. Also why is noone mentioning them much - why the low profile? Boring or hiding?
Complain about this comment
Haven't commented on here for ages, and I'm not her to talk about China taking over the world. That's for another time. There a few things I have to say to put forward my baby economic model. I've been quiet for too long so now let me diatribe!
With regards to price discovery, I think my handle (noinvisiblehand) describes my thinking very clearly. I am slowly, but with determination, trying to blend together government agencies, traders, investors, treasuries, banks, producers, consumers, the environment and supply and demand to show that a price is guided by circumstance and human judgement (or lack thereof) to reach a logical equilibrium, NOT guided by a mysterious invisible hand which is a fundamnetally flawed and outdated concept, which gives economists a bad reputation.
The Keynesian Neo-Classical model is a dead fish, and it's smelling rotten. Now is the time for brave new thinking which accepts that this current recession is an oppurtunity for us to slow the inevitable downfall of humankind.
There needs to be a balance found between reward and consequence. Perhaps consequence can be the new buzzword for the profit motive which is the driving force for every boom and bust we've ever known. I'm not saying that profit needs to be eradicated, for free enterprise does create efficient new technologies. The ecological and social consequences of the profit motive need to be better appreciated. The more co-operative the global economy becomes (global localism), the better for society. WE do, after all, want to see our descendents inheret a liveable world! Profit for sustainable development is what I hope for.
Although I reject almost all of Keynesian thinking as I train myself up, I do find the concept of global currency fascinating. The current poor state of the developed world's balance of payment accounts has a lot to do with the freeze of the global finacial markets, but is hardly mentioned. If BOP accounts around the world were more evenly balanced, trade would become both freer and fairer, without too much political interference.
The rich poor divide will aways be a fact of life. But reality of expectation is something which needs to be taught to everyone from a young age. Stupendous, obscene wealth, as well as credit addiction, need to be relegated to the history books. Social and environmental responsibilty should be the new badges of honour, the post-post modern way of becoming famous, of becoming a politician.
So, I sum up this little diatribe by saying that this is what I envisage:
capitalist co-operative sustainable low debt development led by a polical party called The Conservative Left!
View my writing:
www.redbubble.com/people/noinvisiblehand
and my blog
www.ianjamesmcadam.wordpress.com
Complain about this comment
short term medium term long term... come on, lets be more specific!
Complain about this comment
China is trying to promote its internal market. If it succeeds, the West will be an irrelevance.
What does Britain have? The banking industry which we now know was based on fraud, North Sea oil which is drying up fast as we hurtle our way towards peak oil.
We should be trying to work out a new order for Britain and this new order should be based on qualities of hard work, creativity and sustainability.
We value the wrong things in this country - banksters earn so much more than our top engineers and they don't deserve their obscene salaries and bonuses.
As for our retirement - pension funds were fair game in the eighties when downsizing became the new religion. Companies got rid a whole tranche of their workforce, but avoided paying redundancy and raided the pension funds instead. To add to the misery, the government allowed institutional investors to take appalling risks with the earned money of millions of hard-wroking people. All for the sake of a fat bonus or two.
I say - sack the politicians who allowed all this and put a stop to their cosy second jobs and the conflict of interests which arises from this. The revolving door is the cause of most of our woes. Anybody like to bet against Gordy retiring to the banking sector???? There will be some very grateful banksters who won't forget what he has done for them!
Complain about this comment
Are not our Pension funds also the source of 'Loaned Shares' for the Short sellers?
Complain about this comment
Sorry Robert but your piece is pure diversion.
Slightly interesting but pure diversion and mildly fatuous.
The conduct and ethos of Companies (Banks) is the responsibility of the Board. Full Stop.
You know that.
Trying to blame the shareholders for dodgy bank activities is like trying to blame voters for the fact that NewLabour has mismanaged the Economy.
Oh for a Reporter with an attention span somewhat greater than a MayFly and who is willing to look into the misconduct issues squishing out of the sides of the Governance cover-up soggy sandwich.
I smell political and financial blood spilling and you want to switch focus and direction on a daily basis ?
Wherein lies the Numpty ?
Complain about this comment
I watched the former Bank bosses for their first 10 minutes or so before the Treasury select committee, and I almost fell about laughing as they all tried to blame the 'Authorities' without actuall having to say the Magic Words 'Gordon Brown' - There must be so many people somewhere who know so much about this mess that they could be in clover for the rest of their life if they spilt the beans, or maybe Dr Kelly was the victim of something more sinister than his own demons and they know that too.
Complain about this comment
I'd like to hear the details of how Rio Tinto can negotiate iron ore prices in the interest of the share holders when their major customer has a seat at the board table. This is an utter nonsense to the duties of a director. How can they serve two masters - share holders and customers?
And on another matter, what on earth happened to Mr Leng? One can only suppose (due to a lack of forthright disclosure) that he delivered some inconvenient truths to his brother directors. When will the old-boys-club group think end?
Complain about this comment
Is it true that the board of AIG think that Rio Tinto plays centre half for Manchester United?
Complain about this comment
I just watched the Geert Wilders video.
Does that make me persona non grata?
Complain about this comment
Incidentally, Bloomberg is carrying a story tonight entitled: "China Economy Shows Signs of Recovery as Stimulus Takes Effect".
The highlights are:
1. Growth expected to improve to 6.6% in Q2, versus 6.3% in Q1
2. “China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse.” according to Lu Ting, an economist with Merrill Lynch in Hong Kong.
3. The government’s stimulus plan is beginning to gather pace, eg house building in Shaanxi province and Shanghai began in December, Shandong province started work on three new railway lines the same month
4. The value of new loans in January was more than double the record set a year earlier according to figures released by the People’s Bank of China
5. Growth will accelerate to 7.2 percent for the full year, according to Wang Qian, an economist with JPMorgan in Hong Kong
6. China has public debt of only 18.5% of GDP, FX reserves of USD1.95 trillion, and a balanced budget
7. The Purchasing Managers Index, a measure of manufacturing, showed a second monthly increase in January after a record low in November
8. Some commodity prices signal a tentative recovery may be under way, as Chinese companies rebuild inventories
There are some downsides, though, so it doesn't signal the return of the good life, merely suggests things won't get much worse. To counter the points above:
9. Exports fell by the most in almost 13 years in January, imports plummeted by a record 43%, and house prices declined by the most since data began in 2005
10. Companies fired workers at a faster pace in January than in December
Just thought it made a change to see talk of expansion on these blogs for a change.
Complain about this comment
Worth re-reading
#34. Jericoa
#61. Jomo2205
Complain about this comment
Latest: Glen Moreno will not be standing for the permanent job of UKFI Chief, he's only a stop-gap.
Two down, about five hundred to go.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Oldinvestor,
You state that "Chinalco are free to buy shares in Rio every day between 8.30am and 4.30pm in London".
Not so I'm afraid, at least if any purchase takes them over Australia's Foreign Review Board limits (I think 14.99% of total capitalisation across London and Melbourne exchanges).
That's why Rio has come up with a backdoor solution that Australia's Treasurer is scrambling to close.
Complain about this comment
Ye Gods, the Treasury's even advertising the job, they might evem start getting competitive bids in for the work. AC, how about it?
Complain about this comment
I remain dubious about whether we can correct in time. That Bank of England fan chart, to repeat something I think the mudpups killed, shows an unjustified pick-up early next year, to quote Obama the time's very short and we're so slow off the mark we're not going to make it.
A year and a half before we get a clean shot and a year to get our ducks in a line, that'll see the bottom of their fan at about -30, which is Black Death scale, taking a generation of stone-age life before we start to rebuild. Three generations to get back to the same level. And that's not counting the simultaneous hit of the peak of the baby-boomers hitting 65, being forced to stay on while the youngsters do Real Life 101, first module Reading, Writing and Arithmetic. Nor does it count the financial chickens starting to come home to roost about then.
Complain about this comment
~22 go look at #43 for your answer.
And #38 guycroft - yes I also needed a laugh - sometimes it get's too serious - nice one!
Complain about this comment
Reading the comments of the fifth poster who illustrates their point with a reference to Snow White and a mirror, I struggle to see myself in the metaphorical mirror despite being a Northern Rock 100% mortgage customer who lost my construction related job at the start of the ‘crunch’.
I resent the implications as an attempt by the bankers and Governments to deflect culpability for the current recession and place it firmly on the shoulders of the poor. I use poor in this sense as a relative term.
In the real sense I can recall reading that one of the biggest growth markets for banks was ‘micro lending’. Banks were looking for new markets were lending to co-operatives (groups of extremely poor people in the third world.) The banks sell this loan sharking as a social service to uplift the poor from the grips of poverty. If somebody did not pay their instalment, it would be paid by other members of the borrowing group. This is the morality of the banks. It is non-existent.
Is Caveat emptor applicable when lenders behave immorally and irresponsibly? The law’s principal purpose is to protect property, so we can safely say that legally onus is firmly on the borrower no matter how reckless the lender.
As I said, poverty is relative and you can no more blame the ‘sub-prime’ mortgage borrower in the USA or the UK than you can blame the peasant farmer micro-borrower for wanting a stake in the wealth of the world.
It is has been clear that pension funds were never going to deliver. This has been evident for years from about the time Maxwell took a swim.
Concern that even a paltry State pension would be unavailable to me should I reach retirement age is what decided me to take on a mortgage. Tony Blair was taking the country and the Labour Party same polarising route the USA had travelled of private health care pensions.
As I said, poverty in society is relative and I have never been in a position to have portfolio of investments and was forced to put all my eggs in one basket.
This was similar to what Margaret Thatcher did with her economic revolution, put the Nation’s eggs in one metaphorical City basket.
The claims were that the nature of work was changing, we would be the bankers and consultants of the world. Manufacturing and mining were killed in the vendetta against the unions.
We were to be the bankers and servants of the noveau riche. We would lose the jobs in the factories and foundries and get new jobs in the service industries as the upwardly mobile sought ways to while away their increased leisure time.
Manufacturing is the strength of the Chinese economy. It does not exist through snake oil and pyramid sales.
The bankers have said ‘Sorry (but you still can’t have your bonuses back)’ and nobody is ever likely to face responsibility for the institutional fraud that has occurred on an unimaginable scale.
The repackaging of mortgage guaranteed to disguise the true level of lending (in a supposedly regulated market) is and there is unlikely to be any significant prosecution?
How could you ever get a jury to comprehend what the world’s leading financial experts do not?
The fifth post is primarily about responsibility and perhaps they are right. It is time for us at the bottom of the food chain to take on the responsibility because the privileged City gentry are patently unable. It is time to storm the Bastille.
Complain about this comment
Dear Robert
China's interest in Rio Tinto, is purely economic as an investor, it will lead to the Company being sold to the Chinese, China's interests are in Africa so it does not need a Rocket Brain to realise that Chinese expansionsim is well under way.
Complain about this comment
It cant come as a shock.
Every year we run a huge trade defecit. This means our money goes overseas to buy their goods.
Guess what, this means those countries have lots and lots and lots of our money.
Now they are spending that money buying the best bits of our country.
"No one saw it coming" , i dont think so, I think everyone saw it coming, but didn't want to say anything for fear of pouring cold water on the party of greed and excess they were enjoying so much.
At the end of this little episode of History, those in charge of our wealth will still be very rich. The rest of us will be quite a lot poorer than we woud have been, and we will recognise our place as a minor player in a new world order.
Neil ... Buying Silver and comodities for when inflation comes steamrollering back soon.
Complain about this comment
An extension to the Magic Circle starts to appear: British Land.
Robert Swanell, VP Citibank Europe, British Land non-exec.
Chris Gibson-Smith, Chair of the London Stock Exchange. Chair of British Land.
Stephen Hester, Chair of RBS (and that makes a clean sweep of their execs).
Lord Turnbull, formerly Head of the Civil Service and Cabinet Secretary.
Oh, and while we're about it, the next case of jobs-for-the-failures: Dame Clara Furse is replaced by Lehmans' Xavier Rolet as Chief Exec of the Stock Exchange.
Complain about this comment
I really can't see the point in these blogs. But I suppose it gives pub bores something to do during the day.
It really is full of the most preening self-indulgent claptrap
Complain about this comment
171
And it keeps putting oil on the fire on the end of the world scenario
One gets transgley adicted to reading this tough
We all know we are being lied to, everyone turns up to the committee with a script/knoweledge of the question, it is just a PR exercise for the plebes, do they thing we really are that stupid. In the meantime, as quited higher up, should we not worry about fixing the stuff, all the energy and angst seems to be here
Complain about this comment
From greed we have moved to fear. Now we have one of the best times to buy assets and grow; especially as interest rate, oil, raw materials all have fallen.
What is stopping us is proper leadership both in government and in private sector.
China buying assets is not a long term threat as increase in unemployment in China will destabilise the country and they will be forced to sell these to bring stability in their country.
Complain about this comment
No 150,
noinvisiblehand, actually you make a pretty relevant point.
The issue of managing expectations, whether that be our coporate way forward, the national approach, an employee's expected performance, is a very important part of developing a corporate culture.
One of the great tragedies of the overpaid bank executives is that they failed to manage expectations in a realistic and acceptable way.
This is wide ranging, from excessively encouraging customers to take out loans irrespective of risk, through the 'we won't tell you our surnames' policies of customer services people you are talking to about your money and your accounts, to a general 'you can't touch us, we're a big company and we've got lots of money and power'.
What really did for the UK (and global) economies was allowing businesses, governments, investors and middle men to promote a culture of fast-buck-quick-bonus thoughout the entire system.
A significant lack of prudence and humility and of basic long term planning.
Comparatively, many years ago, in what has been referred to as the Captain Mannering era, the corporate cultures were based on different things that produced more wholesome outcomes.
But they didn't produce a fast buck or a big fat bonus and that is very probably, in the main, why they were replaced. Becase people's expectations were that they ought to be getting rich fast (and preferably for little effort).
And the more we recognise this - and promote and teach our children this - the more likely the new economy that will come about from this current crisis will have some chance of having some long term outcomes for everyone's benefit.
On another level, we probably all know that one person or group being greedy always leaves others the poorer. It's just common sense.
The real question for individuals is - are you going to be part of the solution, or part of the future's problems?
Complain about this comment
One of the reasons the Chinese are more likely to invest prudently for the long term (i.e. get some tangible assets for their cash) rather than risk it all going horribly wrong in search of short term gain may be the risk of a show-trial followed by a some very unpleasant consequences.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
#171
One reason it's boring is the censorship, the leading investigative and proactive posters are discussing matters elsewhere now.
Complain about this comment
the amount of fiddling and sleaze going on now in this goverment is incredible, for a party thats supposed to be helping working class people its discusting., jacqi smith..a real people s hero champion!! ha ha i dont think.the problem with the tories is they dont stick the boot in enough..to hell with pc ,get brown where it hurts on his mismanagement of the economy.
Complain about this comment
At last Robert gets round to the shareholders. The other day the CEO of Barclays justified the bonuses because they were designed to align the interests of the management with the 'owners of the business' ie the shareholders. So, if in 'shareholder capitalism" shareholders 'own' companies and directors manage to give em what they want, surely they are to blame when the whole thing goes bottom up. But then who are they? Institutional investors are pension funds, unit trusts and insurance companies, selling products to us the consumers who wanted low pension contributions, high capital gains from our ISA's and and a good return to pay the mortgage from our insurance investments and a lot over to take that round the world trip(they died at at early stage of this post millennium crazy capitalism).
So when are we all going to be shamed by the HoC Treasury Select Committee? Or do we just blaim GB for tempting us? (where does the Cameroon keep his money... ?) At least GO was in 'trade')
On China... I have been chatting this morning to my Chinese friend in Shanghai who works for a top British civil engineering consultancy . He is busy with the steel structure for a new Tesco distribution centre in China. We sell em supermarkets while they corner the world market in commodities .. fair do's??
Complain about this comment
#171 so much clap trap that you wrote something on it.
Complain about this comment
Robert
Couldn't agree more with you - until recently I was a CFO of a respected FTSE 100 company. We had a clearly defined approach to gearing which took account of the significant commodity risk faced by teh company. Investors (including 'stars' regularly recommended by newspaper columns) consistently pushed for higher debt levels in order to accelerate returns to shareholders. The company resisted and finally when the credit crunch hit, investors were quick to congratulate management on their approach to balance sheet management!
Complain about this comment
A thought provoking programme from BBC Radio 4 on how to run businesses and economies.
Complain about this comment
These would be the Hedgefunds and Shareholder activist groups.
Not to mention the Private Equity buy em up and sell em on loaded with debt groups.
Complain about this comment
But of course with our economy slowly but surely whizzing around the toilet bowl of economic depression does it really matter ?
More Companies will close, unemployment will reach and all time high (maybe twenty percent)
Housebuilders will start going bust.........
Complain about this comment
Of course Investors will end up deserting the Pound completely.
Complain about this comment
yesterday exbanker talked about unqualified lightweights. The two most recent incumbents of Chancellor are a historian and yet another lawyer. Very shortsighted of the historian to say he has consigned boom and bust to history. Has he never read of the saeculum?
Complain about this comment
174:
Managing expectations.
Hmm.
Nearly everyone can expect to have far less.
Less disposable income, less employment opportunities, less holidays, less housing, much less Pension.
Nearly everyones lifestyles will be reduced.
Except MP's they will vote themselves something nice I'm sure, but it won't help inject money back into the economy.
Complain about this comment
It may help the obesity problem though.
As food becomes much more expensive, people will be put on forced diets !
They won't be able to afford as much food !
We need a good Depression Cookery programme, and I don't mean cooking with chocolate.
Complain about this comment
"Are there greater hypocrites in the world than British institutional investors?"
Yes, they're called banks. The banks that one day offered 125%LTV x5 salary mortgages one day and virtually the next day wouldn't lend to anyone without a 20% deposit and at x3 salary. Common sense dictates that the best time in the cycle for a bank to lend at 125% LTV is at the bottom of the housing market whereby if a posession order is necessary after a few years then the vale of the house at auction might surpass the mortgage lent. The banks did the exact opposite - all the silly lending took place at the height of the bubble. This in itself exposes exactly what this crisis is all about - a pyramid selling scheme on house prices - housing chains can't exist without new buyers - when first-time buyers stopped buying because house prices were too high, the banks invented new ways of enticing them back in (the silly loans I've just mentioned), convincing fools they could make easy money with BTL and not checking the background of fraudulent self-certified borrowing.
Yes, they're called journalists. Firstly the 'respectable' side of the media who completely failed to discuss the creation of the biggest asset bubble in history, despite the fact that a good proportion of the population knew the day of reckoning was going to come sooner or later as house-prices continued to soar. The same journalists that now try to make out that nobody could see this coming. Secondly, the tabloids and tabloid style (BBC/channel 4 property porn) ramping of house prices - convincing people they were all aspiring property developers because they could make a few grand by doing up a pwoperty - where in reality they were 'making' money because of the continued growth of the bubble. The same kind of journalists write gloom and doom stories now - why - because they sell papers that way. A story about steady, sustainable growth in house prices in-line with wage inflation is never going to shift many papers from the stands.
Yes, they're called (a significant proportion of) the general public - who were happy to keep remortgaging their house and pay on the never never for luxuries. Many of these same individuals who now bleat about the bankers/government being to blame - surely they're the ultimate hypocrites.
This entire economic meltdown really is nothing more than a global housing crash - arguing over whether the credit bubble or housing bubble caused one another is a chicken and egg argument - they both grew because of each other. Why? - because of old fashioned corruption and greed on behalf of the bankers and incompetent regulation by governments. The truth is there are many parties that were responsible for the growth of the bubble and are hypocrites for simply blaming someone else. The list starts with BBC journalists and doesn't end with institutional investors.
And on another point, echoing earlier comments - we live in a Country whereby the likes of lawyers run banks and historians become prime-minister. Two requirements for such jobs would have prevented much of this crisis - 1. basic numeracy. 2. Having a conscience. There are simple tests available for such qualities and they should be used to bar anyone from public office/boards of directors/etc. I know if we tested most of those in those positions at the moment then we would need to sack the majority. Bring it on.
Complain about this comment
Reflecting on the Commons Committees encounters with Journalists & Prime Minister this week it is clear , that with few exceptions , the level of questioning showed up the abilities of our MPs to understand what is going on in the Financial World and their lack of ability to penetrate the smoke screen put up by in particular our PM .
Complain about this comment
so NR shareholders, many who got free shares on floatation, have lost their court case claiming they should be compensated for their bank going bust !
sorry, peeps, but that is Capitalism !
you enjoyed all the plusses but you want the rest of us to cover your losses, no way Jose !
Complain about this comment
#165 - your're reference to the aging baby boomers strikes a chord with a conversation I had with a work colleague recently. We are both fairly gloomy over the economic prospects but the only silver lining we could see in the current sitiation is that instead of having unemployed young men rioting in the streets as would have been the case in previous recessions/depresssions, this "lost generation" of school leavers and graduates will be staying at home with their parents and will be able to care for them in their dotage. Hey presto, a solution to the care for the elderly problem!
Complain about this comment
Stevieyorkshire is spot on regarding the mortgage lending of banks. They should have had to put more capital aside during the boom (and therefore lent less) and have to put less capital aside during the bust (thereby allowing a softer landing and a recovery in short order). As it is the current Basle II capital adequacy rules work the opposite way round, allowing banks to lend in a gung ho way during the boom, and even accelerating as the boom nears peak, whilst in a downturn have to put more capital aside and therefore delay any form of recovery.
This is in fact what the bank of England used to do years ago to control house price lending - when I started as a banker in the 80's mortgages were rationed. Incidently I quit retail banking in 89 when I was being pushed to effectively be an IFA.
When Crash took the oversight of banking activity away from the BoE, and forced them to follow the CPI instead of RPIX he destroyed a significant brake on house pricing.
If you reread some of Mervyn Kings speeches from the past few years you can see a significant number of comments about the unsustainability of house prices. BUT he could not do anything about it, it was not in his remit, which was solely targeting CPI at 2%.
The real criminal in all of this is Crash. He has destroyed the City and allowed the Greed to take control. He has forced the middle and working classes in to over indebtedness by being ever rapacious with taxes (just look at how Tax Freedom Day has moved since ZanuLabour came to power) - they have to borrow increasingly to maintian a level standard of living. Top rate of income tax was designed for very high earners - would you say that earning £35k was high earning? Why should people pay significant amounts of tax only to be able to claim there money back as working family tax credit? Don't tax them in the first place...
Complain about this comment
Regarding bonuses.
I'm not hearing much about why bonuses are being paid to anyone in the first place? I know that for years we have been fed the line that the best brains would leave the country if they didn't get their bonus, or that these people must be motivated by the opportunity to earn big. But recent events make that sound just a tad hollow.
Surely it is much better to properly assess the value of a job and pay an approporiate salary. This is what happens to most working people and it seems to work okay. I have worked in the public, NGO and private sectors and in all have been surrounded by skilled, loyal, hardworking, committed people who are passionate about their work. None receives a bonus!
Instead of bonuses it would be better to complete an annual review and award a predetermined value increment if it's been earned. Okay too, to reduce or not award an increment if performance does not merit it
Among the benefits of this approach would be the removal of the stimulus for short term perspectives; it would be more likely to breed a commitment to the long haul.
But the really radical benefit would be that the value of what would have been distributed through bonuses would be available to give back to customers and even shareholders.
Complain about this comment
the real dilema in the UK economy is speculation, UK happens to have no valuable commodity i.e. expertise in technology we are focused on retail and property which are only in demand when people have money but vital technology is something all nation needs
Complain about this comment
In the 80's I worked in London for a Hollywood Studio. Their bonus system was generous but had the following safeguards:
1. you received 25% of your bonus 3 months after year end (in case any sales you created in the final months came back as returns)
2. 25% after another 3 months - same as above
3. 50% 12 months after year end to ensure the sales you had created were for real and you hadn't screwed the system for maximum bonus then flown the nest to leave the company to pick up the pieces.
There is simply no excuse on God's Earth why Boards and remuneration committees cannot adopt a version of the above. If employees don't like then fine let them go to a company that's free and easy with bonus payments - we've all seen how that story ends!!
Threatening taxpayers with the claim that talented staff will leave is a bluff - call it. Why don't the US, Europe, UK, Japan etc agree a deal whereby any banks they've bailed out with taxpayers money stops all bonuses till our money's returned - that'll also call the bluff of those who say they'll jump ship if that can't have bonuses.
The bottom line is this, bankers, institutional investment managers, the woefully incompetment FSA/SEC and Government have fleeced the ordinary tax payer - they've allowed our savings to be used in a casino style free for all.
There needs to be a radical overall of salaries etc throughout the sector - the majority of these people create no real lasting value so their inflated salaries/ego have to be culled. We need to pay proper salaries to people who create real value for society. Let's start by getting rid of this present disaster of a Government and voting in one that promises (in blood) to bring MP's into line with their allowances etc that are an out and out scam. If something radical doesn't happen there will be a backlash from the public that could spill over onto the streets.
Complain about this comment
Bonus/target management removes the employees discretion to do what is best for the firm and the customer, and places all decision making at the top. It leads to
employees becoming disconnected from the business. They spend time hitting "management's stupid targets", take the money and run.
This management style is rooted in an ideology that views employees as incompetent and management as all knowing and all seeing.
Interestingly this stlye of management has principally been adopted in those countries with an elite who from birth to death live a completely separate life from the majority of the population. Private crammers masquerading as schools, whose pupils dominate the elite universities and go on to occupy the most powerful and influential positions in the society and the economy.
This suggests the crisis is economic for many countries, but for the US and UK it is social. And that why our longer term prospects are so poor.
Complain about this comment
And a lot more power will shift from Europe to Asia if the Telegraph's report is correct:
'European Commission officials have estimated that “impaired assets” may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book’ total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.
In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.'
Looks to me like RBS and HBOS are just the tip of an iceberg.
Complain about this comment
38
"Other top stories this Thursday lunchtime!
Public support aid to Africa"
As a matter of fact, I do. Now that it turns out that we had the odd £trillion to spare, I can't help wondering why we didn't give more.
Whatever you might think about the whole bonuses row, wouldn't you rather see your money go to fund a village school in Sierra Leone than to help someone keep up the payments on his Porsche?
It would be a shame if, having made ourselves a little poorer through our own collective over-excitement about money, we used this as an excuse to stop giving money to people who, on the whole, haven't had a chance to make similar fools of themselves.
Complain about this comment
189 - Stevie
Good points, though your denunciation of the general public should extend to those who, for the last umpteen years, have been smugly regaling us with tales of how their pension fund or other investment fund had yet again returned huge profits.
To many of us it was long clear that much of this profitability came on the back of exporting jobs to low-wage/low-regulation economies. Too many of our fellow citizens failed to address the fact that if you go on exporting jobs then ultimately nobody has a job and nobody has much money to spend. So long as the job losses were somewhere else then let's rub our hands and look forward to another big jump in that Emerging Markets fund.
So we've had classic Pastor Niemoller. First they came for the steelworkers, but we were not steelworkers, so we did nothing. Then they came for the garment workers, the shipbuilders etc etc etc. It got a bit hairy when they started coming for the IT workers and customer service workers - these were, after all, part of the brave new post-industrial world - but we acquiesced so long as our investments were going up. Now they're going to come for us and we're going to be alone.
This for me is the biggest hypocrisy of the whole thing - we all bought into money-for-nothing culture so long as we weren't the poor sucker at the end of the line who gets the P45. Now we find ourselves in a situation where however much money is pumped into the economy by whatever means it is unlikely to stay in the country.
Any Roosevelt-style new deal depends heavily on the financial injection staying in the country, but this can no longer happen here. Within one or two transactions even this funny money is gone - into the coffers of those who now make the things we are all used to make.
What next? Mention trade protection and the intellectual superiors who lurk on these pages will be down on you like the hounds of hell. Yet it may be an idea whose time will come. Right now it's a heresy but if Obama breaks ranks or if the EU starts unravelling into a series of nationalistic squabbles over a diminishing number of jobs then all bets could be off.
Complain about this comment
Continuing my 165 then.
In his spare capacity, the aftermath of a corporate raid on Papal assets resulted in the Papacy asking Rahere, via their local Cardinal and a Law Lord, how to survive in these markets. So yes, Rahere does advise the oldest organisation in the world.
The problem my judicial interlocutor has is that I insist that there is a strong foundation for believing that the previsions of Revelations 11:19 are in place. For those of you who have difficulties accessing a bible, it says:
Then the doors of God's sanctuary in Heaven were opened, and the Ark, in which His Covenant was, was seen in His sanctuary...
This happens just after the endgame starts.
Rahere's problem is that he has been investigating what Rome has declared to be the earthly home, perpetually and universally, of the current Christian covenant of the pentecost, in other words God's sanctuary on earth, if not in heaven.
As part of his research, he finds that there is independant corroboration of a fundamental doctrinal text claiming that the Ark, the real thing, was placed under the control of the Order in charge of that earthly home, by the real founder of the Inquisition. It was again corroborated by an Emperor several hundred years later, and has clearly been protected by the Inquisition ever since, righat the root of the split between the Church and Science. There is independant symptomatic evidence that it was there in the mid 1800s, but it was moved at the start of the 20th Century and there is strong current physical evidence that something unusual is in where I think it was moved to. This is corroborated by the most respected of the country's historians, who was clearly on the track before giving up in incredulity.
The Pope, formerly Head of the Inquisition, is aware of the current situation and is working with the said jurist to sort it out. This is part of the underlying reason the Papacy is currently having to review its situation on quite a lot of hard science, as hard science has been coming closer and closer to the Ark. It may also bear on the Malachy prophecies.
It s not Rahere's function to decide to go in after it, and certain acts which may have precipitated the crisis have been blocked to him.
And as that means a bigger player is playing, be careful. The bigger player has played a longer game recently, but may call time if circumstances justify it.
In other words, Rahere reprises Jeremiah: finish with your arrogant practices, Heads of State and Heads of Industry, or you will destroy the world. Clean up your act. Return to love, and then maybe some time the people will start to trust the system again.
That's the difference between the US and UK, Obama has their trust, Brown has lost it irretrievably and with it the mandate to govern. The more he delays, the deeper he plunges the country into the pit.
Complain about this comment
So the crisis was caused by a fall in house prices; which have fallen arounf 20 - 30%; as they were overpriced on historic measures of value.
Equities were considered not to be overpriced prior to the financial crisis.
Equities have now fallen by around 40%; obviously the banks have falen further.
How is this the case; most of the world has changed very little, we still have roads, water, schools, hospitals, food, energy.....
The fall in equity prices must be caused by the largest investors - the institutional shareholders. Their job is to manage our money and look after our interests.
Yet their collective action has caused the value of our money under their trusteeship to fall faster than virtually every other asset.
They also feel that they should lend our shares to hedge funds; to enable the hedge funds to go short and depress the value of our money even further.
Are these people acting in our interest or their own. Perhaps the regulators should investigate if there is a conflict of interest here????????
Complain about this comment
Bit of a rant this morning, Robert!
As an economist I can see the advantages of any venture where the parties bring something of value to the business. Absent a hefty loan with the usual Chinese one-sided terms, what does this bring to RTZ? Chinalco is,to use EU terminology, a Third Country player that is Controlled by the government of China. As the Chinese government will exercise control over Chinalco, so too will it be a major influence over Rio. The proposed Electricity Directive contains a so-called "Gazprom" clause prohibiting such control over strategic assets. Isn't the EU's major mining group worthy of similar protection?
By the way, what on Earth are we doing allowing the World bank to lend China hundreds of millions for "reconstruction" at minimal rates when China has demonstrably more than sufficient in the bank to buy influence in RIO?
Complain about this comment
#171 DMJeffery
Read your comments on various BBC blogs: Intriguing Politics, Election Fever, We are banks, Steve Jobs, Sterling, Short-term loans, Motor Industry, Obama, Barclays.... so was a little surprised at the one on here where you say you can't see the point of the blogs!
Then I had a look through them and realised you are here to feel superior by picking out the not so good comments and bad mouthing them .... but you are right in some respects - like you, many are just moving their lips and saying nowt!
Complain about this comment
Rethurning to earth now, after what Rahere means in all seriousness, it is to be noted that the European Charter of Fundamental Rights, which GB has pushed through, includes the following clauses:
No one can be deprived of his opr her possessions, except in the public interest and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss.
Every person has the right to have his or her affairs handled impartially, fairly and within a reasonable time by the institutions and bodies of the Union.
This right includes:
- the right of every person to be heard, before any individual measure which would affect him or her adversely is taken.
...
- the obligation of the administration to give reasons for its decisions.
There is no exclusion clause for Reasons of State, which makes the judgement of the High Court in the Northern Rock case a fine and rather specious line, as the shareholders appealed under Human and not Fundamental Rights. Their Fortis peers in Belgium, for instance, won a vote and won the vote under not dissimilar circumstances.
The peculiarity in the Northern Rock case is that the company was not legally bankrupt in a net worth sense, but was bankrupt in the pragmatic cash-flow sense of not being able to cover the calls on it. That presents the shareholders with a strong case for challenging Stoy Hayward's current valuation as being in breach of the entitlement to have his affairs handled in a reasonable time, and to seek compensation from the State for the loss of share value between 14.9.2007 and whenever they finally get compensated. I choose the earlier date as there is written evidence that Oliphant was frightened off from a bid by HMG's and not Northern Rock's conditions, which places the onus on HMG. At that date, the share price stood at about 640 just before the announcement of the Bank of England emergency funding call, fell immediately to about 420, and is now a problem to assess.
That combination of clauses may yet be quite nasty for HMG, in other words us.
However, I quoted the lot because these clauses may be the thin edge of a very, very big wedge as the administration comes under ever more pressure during the recession. I'm in particular thinkng of what would happen here if the UK were faced with the kind of experience being faced in the US by the huge wave of welfare claimants overloading the system.
Complain about this comment
#202 Andywr
"So the crisis was caused by a fall in house prices; which have fallen arounf 20 - 30%; as they were overpriced on historic measures of value.
Equities were considered not to be overpriced prior to the financial crisis.
Equities have now fallen by around 40%; obviously the banks have falen further."
Houses are a very illiquid - the average price simply can't drop at the same rate as the likes of equities. It took six years to reach bottom during the last crash in the UK- common sense leads one to the conclusion that it will take longer this time (especially with low IRs inhibiting a quick explosion of forced sellers). Why has the share price of the banks collapsed? - something to do with mortgage lending? Why have other equities dived? - something to do with expectation of future profits - and when the futures market predicts UK house prices to fall 55% (in line with long-term affordability ratios) doesn't that have a significant effect on the expected future performance of the economy and hence equities values (in a country whose population is obsessed with and overindebted with home ownership)? A significant proportion of the population of the UK saw house prices as a store of value - as a pension - one of the numerous reasons why the bubble inflated and one of the biggest reasons why there will now be less spending as people realise they need to start paying down their debts and find some other way helping fund their retirement.
#193 propsupthebar
What is subprime other than a bunch of dodgy mortgages? What is the credit crunch other than the realisation by a bunch of foolish banks that they hadn't properley taken into account the risk of house prices declining and the numbers of people defaulting - the 'credit crunch' occured after and because house prices had started to decline in the US. I'm not an economist but there is nothing as far as I can see in this whole mess that does not lead directly back to dodgy mortgage lending and a huge house price (and securitised mortgage credit) bubble. Ok, the situation may not be as simple as I'm making out perhaps, but I can't see how the biggest cause of all this is not the housing bubble (and that the countries that will suffer the most are the ones with the biggest bubbles).
#193 propsupthebar
Interesting point about Basle II capital adequacy rules. As an engineer, well versed in the likes of control theory - things like the response of systems to different stimuli/feedback - it does seem annoyingly obvious to me that the old rule of thumb about lending 3.5 times salary for a mortgage (regardless of the position in the housing boom-bust cycle) was exactly the right thing to do. There would probably still be housing boom and busts to an extent, but they would would be much smaller. It is very frustrating to live in a regressive society rather than a progressive one.
Complain about this comment
The Chinese are an interesting bunch because in business and in national strategies they think in generations instead of months and years or even decades.
There is much to be learned from such a cultural perspective.
Complain about this comment
so our econimic mess is Chinese ?
not by some unqualified retired bankers who did not know the risks being undertaken by their employees ?
then it is the fault of GB ?
get real, Capitalism failed !
the Thatcher-Reagan experiment has failed and we ALL have to pay for their unproven Economic theory !
and this country now wants a Tory Government ?
God help us !
Complain about this comment
We have now had 30 years of unfettered Thatcherism and what a mess we are now in.There is however a darker tyranny to come,a power unburdened by the costs of a free society,China-a Thatcherite dictatorship!We could hope that its people rise up but there is no guarantee that they will in the short term
Complain about this comment
Robert
It might suit British shareholders to have China Inc owning a large part of Rio and its Australian assets in return for some of its sovereign wealth. It’s not so great for Australians to have Beijing exerting increased control over our boardrooms (and thence our managers employees and shareholders. As a British born Australian and a BHP shareholder I am dismayed at Rio’s paranoia. It seems to me Rio would rather sell themselves to the Chinese government than to a competitor. It seems also they would rather sell Rio to China than to their own shareholders since they have shown disdain for the option of an equity raising.
I think Rio bought Alcan as part of a strategy to fend off BHP as much as for valid business reasons. They may not have intended it to be a poison pill but it turned out to be so. Also it is no coincidence that the CEO of Chinalco and the head of the Government owned bank funding the proposed transaction are mates and both sons of top communist party officials. No wonder the Chinese steelmakers can hardly contain themselves with glee.
Complain about this comment
Robert,
Firstly what excellent reading this site is.I too notice that your thoughts and writings are becoming more focused and forthright against the absolute shambles of London as a World Economic Centre and its Institutions and the Mirage of Westminster as a Democracy that looks after its people.
For the UK to survive both must change and quickly or the World will move on and leave us behind.
Complain about this comment
Robert Preston:
Are there greater hypocrites in the world than British institutional investors?
I have to say maybe to the question...And, thanks Robert for the posting of this item...
~Dennis Junior~
Complain about this comment
View these comments in RSS