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Friday, 28 December 2007

It could be hasta la vista for Brown as judgement day approaches

To see the whole article, please go to:

HERE is my festive advice to anybody who wants to understand how the credit crunch will affect Gordon Brown next year: as soon as you can catch a break from playing secret santa, run out to the video store and grab a DVD of Terminator III.
Besides the thoroughly enjoyable pyrotechnics and action scenes, the film, the last starring Arnold Schwarzenegger before he became governor of California, has a simple, typically religious message: judgment day is inevitable.
For years, Brown piled on higher taxes and red tape, gradually eroded Britain’s competitiveness and presided over an increasingly unhealthy and unbalanced economy. For almost as long, few noticed and even fewer cared. But 2008 will be the year in which Brown is finally faced with the consequences of his actions: the public, long anaesthetised by the house price and credit boom, is finally coming to its senses now that the good days are ending.
Brown’s record has long had much to be desired. All the main English-speaking economies have grown faster than Britain since 1997, including America, Ireland, New Zealand, Australia and Canada. Others that have expanded at a better rate than Britain include Luxembourg, Greece, Iceland, Spain and Finland – as well, of course, as all the emerging economic giants, led by China and India.
Britain’s productivity growth has slowed; the trade deficit has exploded, with the current account only kept afloat by dividend and interest payments from overseas; the Exchequer has accumulated vast debts, mostly off balance sheet, at a time when it should have been enjoying a surplus, and faces an explosion in the budget deficit to up to £50bn ($102bn, E69bn) in 2008-09; entrepreneurship and business creation rates lag those of many other countries; savings have collapsed; the markets expect inflation to be a percentage point higher than any other G7 country; and Britain is facing a long-term pensions crisis.
The list of woes goes on and on. Even Britain’s supposedly robust job-creation record is misleading: of the 2.7m or so jobs created over the past decade, up to 1.5m have gone to immigrants and between 700,000 and 1m are public sector jobs, depending on definitions (though the two categories overlap). Few new jobs have been created in the private sector for British-born workers, which helps to explain why the number of adults on out-of-work benefits – the most accurate measure of unemployment – has only fallen from 5.7m to 5.2m.
So why did so few people understand how unimpressive Britain’s economic performance has been, at least until the past few weeks, when his ratings started to plunge in opinion polls?
Surging house prices, cheap and easy mortgages and the credit-based retail boom served as a powerful opiate; as long as their wealth and spending keep on rising, voters can be remarkably forgiving.
At the same time, an inflow of foreign money and unprecedented levels of immigration helped to camouflage the long-term wounds inflicted by Brown’s misguided policies. Without these factors, the economy would have performed appallingly; but most important of all, they made an average economic performance feel like a great one.
There is another reason why so many failed to see just how poor Brown’s stewardship of the economy has really been. The establishment – in business, the media, culture and politics – is almost entirely based in London and its surroundings. Our great city’s astonishing prosperity, its emergence as a preeminent global centre for finance, sky-high wages, cultural vibrancy and cosmopolitanism all combined to convince the commentariat that Britain must be doing better than anyone else.
The reality is that London’s performance has indeed been outstanding: had its rate of growth been that of the UK as a whole, Britain could fairly have been deemed to have undergone an economic miracle. But for the most part, London’s success had nothing to do with Brown; in fact, on balance, he has hindered rather than helped its performance. The use of the City as a milch cow to fund a massive UK-wide increase in state spending – on top of appalling schools, massive crime and welfare problems, and crumbling infrastructure – have all meant that London has performed well below its potential.
While the economy could just about cope with Brown’s tax and spend policies and obsession with regulating all that moves when it was being lifted by a global financial tide, the damage caused will become unbearable next year. April’s hike in capital gains tax and corporation tax for small companies, as well as the crackdown on non-domiciled wealthy foreigners, come at the worst possible time.
Like in Schwarzenegger’s film, it will prove impossible for Brown to put off judgment day forever. The credit crunch, the crisis in the City and the ending of the house price boom mean that the public is now starting to look at Brown’s record in a very different way. Citi estimates 1.7m households will face large increases (worth more than one percentage point) in their mortgage rates in 2008, as previous fixed rate mortgages expire and discount periods on variable rate loans end. With a reduced supply of mortgage credit, spreads between fixed mortgage rates and swap rates have spiked in recent months and are likely to stay wide. As a result, lower Bank rates are unlikely to produce much, if any, near term drop in fixed mortgage rates.
Brown is not to blame for the credit crunch or the cyclical element of the current slowdown; but the hit to their finances and declining house prices mean voters will look at his overall performance in a far more dispassionate light in 2008. Unfortunately for the Prime Minister, there will be no Arnold Schwarzenegger to rescue him from their wrath.

Tuesday, 25 December 2007

Merry Christmas & a Happy New Year

Merry Christmas
A Happy New Year

This card is made from 100% recycled pixels. No trees have been felled in its manufacture or delivery.

Monday, 24 December 2007



BETHLEHEM, JUDEA -In the early morning hours, the Social Services Hotline received a call from a worried neighbour who had discovered a young family living in a stable. On their arrival, the Social Services Emergency team, together with police officers, found a new-born baby, clothed only in strips of cotton and lying in a feeding trough, and its 14 year old mother, Mary D. from Nazareth.

During the arrest of the mother and infant, a man, later named as Joseph D., also from Nazareth, attempted to hold the Social Service staff back. Joseph, helped by local shepherds and three still unidentified immigrants, tried to keep the girl and her infant from being taken away, but were removed by the police.

The police also arrested the three immigrants, who described themselves as "wise men" from a Eastern country. The Home Office and Customs & Excise have asked the public for any information about the origins of the three men, whose immigration status is unclear.

A police spokesman said that the men carried no form of identification, but had gold with them, and certain other high value substances. They also resisted arrest and claimed that God had told them to return home immediately and avoid all contact with officials from any governmental departments. The substances have been sent for further inspection.

The present location of the infant has not been made public. A Social Services spokeswoman informed a press conference, "The father is middle-aged and the mother is under age. We are currently in contact with Nazareth Council Offices to find out what the relationship is between the two of them."

Mary is in Bethlehem Regional Hospital under medical and psychiatric observation. She will be charged with neglect. Her condition will be of great interest to psychiatrists in view of the fact that she claims to still be a virgin intacta and that the infant was from God.

In an official statement the Head of the Psychiatric Department said, "It isn't my job to tell people what to believe, but when their belief leads to the endangerment of a new-born child, as in this case, then such people must be viewed as dangerous. And the fact that drugs were found makes the situation even worse."

On questioning, the shepherds found in the stable said they had been instructed to go there by a tall man dressed in a white nightshirt and with wings on his back. A speaker for the Drug Squad said, "That is probably the most idiotic thing that I've ever heard but we get a lot of this at this time of year."

Friday, 21 December 2007

Grim data undermine Brown's claims

Official figures are showing a very different economic picture from the one painted by the Prime Minister and the Chancellor
Gary Duncan, Economics Editor

Claims by Gordon Brown and Alistair Darling this week that the economy is fundamentally sound and well placed to ride out worsening world conditions were badly undermined yesterday by a spate of bleak official figures.
City economists lined up to sound warnings that the latest grim economic news suggested that Britain's economy is badly exposed to a global downturn and “dangerously unbalanced”.
In a double blow to an increasingly embattled Chancellor, the slew of worrying data showed the Government's finances in the red to a record extent last month, and the country as a whole living far beyond its means, with another record-breaking deficit on the balance of payments.
“The latest flurry of UK data painted a distinctly ugly picture of a dangerously unbalanced economy, supporting our view that the coming slowdown will be a prolonged and potentially painful period of adjustment,” said Jonathan Loynes, of Capital Economics.
The biggest shock in yesterday's figures came as balance of payments data showed that the current account — the broadest measure of the country's international financial position — was in deficit by a huge £20 billion in the third quarter (Q3), the highest figure since records began in 1955.
The vast total marked a ballooning of the deficit from £13.7 billion in the previous quarter, and saw it swell to a massive 5.7 per cent of national income.
As a proportion of GDP, this left Britain's balance of payments as deep in the red as that of the United States.
The percentage deficit matched records set in the 1980s boom.
Earlier quarters' current account deficits were also revised up, with the overall total for 2006 now put at 3.9 per cent of GDP, against previous estimates of a more modest 2.5 per cent.
The pound's overall value on its trade-weighted index tumbled to its lowest level for a year and a half, and shed more than two cents against the dollar, as economists said that the situation looked unsustainable and left Britain exposed to a difficult rebalancing of the economy.
Analysts cautioned that a further slide in the pound, fuelling inflationary pressures, could hinder the Bank of England's ability to fend off a downturn with aggressive cuts in interest rates.
The severe deterioration in the balance of payments was driven by a combination of a record £22.6 billion trade deficit in Q3, with an abrupt shift in Britain's investment income from abroad. In the past, Britain has raked in far more on income from its direct investments in companies and projects abroad than it has paid out to foreigners investing in the UK, but the position has now worsened markedly.
The nation's surplus on direct investment income in Q3 fell to £4.9 billion, from £7.5 billion in Q2, while £23 billion was wiped off a revised surplus for the past 18 months.
Economists pinned the blame on a boom in foreign direct investment and takeovers in the UK, meaning the country must pay out more overseas on income on the assets that have been bought up.
In a further headache for the Chancellor, yesterday's poor data on the public finances sparked renewed warnings that government borrowing could surge well above £40 billion for the present financial year, against a £38 billion Treasury forecast, and reach annual totals as high as £50 billion in future years.
November saw monthly public borrowing in the red by a record £11.2 billion, compared with £9.2 billion in the same month last year, as government spending rose faster than implied by Treasury plans, and despite strong tax revenues.
For the eight months of the financial year so far, borrowing has reached £36.2 billion, up from £26 billion in the same period last year, and also a record.
Economists said Mr Darling could be forced to impose tougher curbs on spending if the credit crisis hits tax revenues from City institutions.
“The Chancellor is likely to be playing Scrooge for some years in order to get this uncomfortably high budget deficit back under control,” John Hawksworth, of PricewaterhouseCoopers, said.
Other GDP figures yesterday showed that while GDP growth remained strong in Q3, at an upgraded 3.3 per cent annual pace, this was driven by resilient consumer spending that seemed to come at the expense of households dipping into savings.
The savings ratio, a key gauge of what people are putting aside from pay, fell from 4 per cent to 3.4 per cent in the quarter.

stanislav,a young Polish plumber said...

A Christmas thought from abroad.

A film is released shortly, I am Legend. Stanislav won’t see it; avoids special effects, Hollywood homo-erotic shit like the fucking plague. The original book, however, written in the late fifties/early sixties, by Richard Mathieson, who went on to write a lot of Star Trek, was a great vampire romp, a lifetime before the delectably violent Buffy -and that prat off the Gold Blend advert - tickled the fancy of a global, literary, Goth-fancying audience.

In the original, the hero, the world’s last surviving non-vampire, Robert Neville, is taunted nightly by blood-guzzlers outside his fortified home, anxious to dine on him, calling Come Out Neville, Come Out Neville.

Our country will continue to fester until those in positions of influence take up the cry Come Out Gordon, Come Out Gordon. Matthew Parris, for instance, in yesterday’s Murdoch-Times comes, eventually, to the conclusion, long arrived at by plumbers, that the prime minister of the UK is profoundly mentally ill, but stops short of pointing out, as he should, the problems of a closet gay fearful of being outed by colleagues and what that means for the proper conduct of his duties. Brown’s position means that we are misgoverned by a knowing privy council of Brownite co-conspirators, organised crime families, like the dismal, lacklustre Alexanders and Ballses, in on what is really an open secret.

And everything's fucked. The schools are fucked, the hospitals are fucked, the army's fucked the navy's fucked, the airforce is fucked, the farms are fucked, the jails are fucked, the banks are fucked, the BBC is fucked, the roads are fucked; morality and decency and civility are fucked; patriotism is fucked, freedom is fucked. And at the top of this mountain of fuckery sits a great, gibbering nancy, stuttering about his fucking vaah-lewes, pretending to be a heterosexual.

We are misinformed by toadying, cowardly, lazy ponces, like the revolting Maguire and White; the smirking, up his own arse Jock Neill, the hustling Marrs and Warks and the ever so fretful people’s tribune, Paxman, who, memorably, slithered around, as fast as his scales would carry him, to apologise to the repellent Mandelson for Parris having stated the obvious about him.

Homosexuality isn't noncing and shouldn’t matter, and probably, to the majority, doesn’t. Dishonesty, though, and spin and fraudulence and masquerade and secrecy and loathsome, spurious, hypocritical, filial piety, however, are their own relentless torture; and Brown, and through him the whole country, are on the rack. Matthew should have formally outed Gordon, as he did Mandelson. Half-truths butter no parsnips. Brown is mad, why is he mad, Matthew ?

it is arguable that Brown's sexuality is of no concern to the world at large and few would condemn him for it. It is the towering, impudent falseness of the man which so rankles and which is quite clearly tearing him apart. His whole existence is a confection; HE defeated the would-be car bombers, HE defeated the floods, HE defeated the foot and mouth outbreak although none of these events were anything to do with him; on the other hand, as chancellor for ten years HE is not responsible for any financial catastrophe which flows from his decisions, HE didn't know, HE wasn't told. As chancellor and effectively domestic prime minister, HE, imprudently, did not give a thought to where millions of pounds of Labour money was coming from, as though his mad father sent it down from Heaven. Brown, at an age when most are grandfathers, suddenly decides, as the premiership looms, to wed and become a normal young parent. This aberrant, contradictory behaviour is deeply offensive to an observer; God knows the impact it has on Jihad-busting, floods-beating, cattle plague-curing, all around Superman Brown, sitting behind his curtains, gnashing at his fingernails.

A recent plumber’s comment was that if Brown had any real friends they would have him sectioned under the mental health act; poor stuttering, twitching, paranoid, droning, nail-biting, snot-eating, cowardly, bullying, delusional Gordon, though, swims friendless, in toxic, muddy waters. Like Hitler, in the bunker, none of his gutless generals, all anxious, still, for advancement even amid the ruins, has the courage to tell Gordon the truth - that he should have come out on John Smith’s death and trusted the people; instead, darker, viler creatures like Mandelson and Campbell and Blair and Kinnock, all now filthy rich, played him for a fool, granting him his Clever-Boyhood dream only as it turned nightmare and they were glad to be shot of it. Let him as he is doing, take the blame, all of it. Must the country be utterly ruined by this man’s fitful delusions, by his ghastly, sermonising father’s Presbyterian voice in his head, by his infantile foot-stamping, his insistence that black is white, day is night; Gordon says it, so it must be so ?

Shifty war criminals like Straw, tacky necromancers like Balls and Alexander; braying, flatulent nincompoops like Benn and Harman, dodgy chancers like Alan Dirty Hospitals Johnson, floundering clowns like Milliband and Darling and egregious, cack-handed spluttering imbeciles like Jowell, Purnell, Blears and Cooper and the utterly obnoxious and useless spiv, Hain, care only for their own grubby survival and not a fig for the country. Honourable members like these will have, before all else, ensured their own financial futures whilst wrecking ours and will cling on, discredited, in power, regardless of the harm they do; they will stick, unpleasantly, malodorously, like shit to a blanket.

Matthew Parris pleads winningly that he really does, hand on heart, believe the prime minister of the United Kingdom to be mad; yet offers only symptoms, no diagnosis, no remedy, no, shall we say, straight talking.

What ails Gordon Brown and paralyses him requires that straight talking and not Emperor's New Clothes collusion; the poor man has none around to tell him. The people, then, in kindly, non-judgmental voice, should take up the cry: Come Out Gordon, in the name of God, before you beggar us all and destroy yourself, Come Out Gordon, Come Out Gordon, Come Out Gordon............


Tuesday, 18 December 2007

Her word in court against Santa's

She doesn’t have a chance:


Monday, 17 December 2007

Move over Mervyn

The Government is sidelining the Bank of England by asking Goldman Sachs to find a solution to the Northern Rock problem.  What is the Bank of England for, and why does the tax payer have pay salaries to Bank of England and fees to Goldman Sachs?



Friday, 14 December 2007

England appoint a foreign manager

Perhaps they will see sense and get an experienced foreign manager to run the country.

Wednesday, 12 December 2007

Divorce is costing the Earth

From the New Scientist:

COULD a rising tide of divorce be helping to kill the planet? It looks that way from a 12-country analysis of the environmental impact of broken marriage.

When couples split, they and their families move into separate properties, so collectively occupy more space, burn more energy and consume more water than they did as a family unit. "Divorced households are smaller than married households but consume more land, water and energy per person than married households," says Jianguo Liu of Michigan State University, East Lansing.

In the US, for example, 2.37 trillion litres of water, 38 million rooms and 734 billion kilowatt-hours of electricity would have been saved in 2005 alone if no one had got divorced. Divorced households spent 46 per cent more on electricity and 56 per cent more water per person than if they'd stayed married. Following a split, US households consumed 42 to 61 per cent more resources per person than while married.

The problem is likely to get worse, Liu warns. Between 1970 and 2000, the proportion of US households headed by divorcees soared from 5 to 15 per cent. Divorces are also steadily increasing in China (Proceedings of the National Academy of Sciences, DOI: 10.1073/pnas.0707267104).

Wednesday, 5 December 2007

Some choice quotes from PMQ's

We can do it because we run a successful economy; it is not the failed economy that we inherited from the Conservatives.” – Gordon Brown, Prime Minister in Cloud Cuckoo Land, 5 December 2007


“ The hon. Gentleman should make up his mind whether he wants Northern Rock to be rescued or not. The important thing, for the stability of the economy, the security of mortgage holders and the company’s shareholders, is that it be rescued.“ – Gordon Brown, not giving a damn about the interests of tax payers, 5 December 2007


Monday, 3 December 2007

Iran not the nuclear threat that we thought

... says the US government. Poor old Gordon Brown. Nothing seems to go right for him. Just when he needed a good war to boost his poll ratings.

57% think Gordon Brown is tainted by sleaze

Only 57? What about the rest?

Bouncier than a rubber ball

"I am announcing today that I will be standing down as HMRC chairman as a result of a substantial operational failure in the department. The chancellor will be making a statement to parliament later today." Paul Gray, Nov 20th 2007.

Mr Gray is now working in the Cabinet Office on "Civil Service Skills"

The pips are beginning to squeak

Morgan Stanley's take on the British economy, as reported by HM Telegraph is here.

The US bank said that the British Government squandered the chance to discipline public spending during the fat years and had allowed excesses to proliferate "across the system".

The UK budget deficit is now near 3pc at the top of the cycle (one of the worst in the OECD club), while household spending has reached 97pc of disposable income - matching the level last seen at the peak of the 1988 credit boom.

"As our Prime Minister has been so fond of telling us, the UK economy has enjoyed a record 15 years of economic growth," said the report. "However, instead of using this golden period to bolster savings and prepare for leaner times ahead, the public sector is in deficit."

Morgan Stanley concluded that both Mr Brown and British households had bet that the economic cycle would never turn against them, a bet they are likely to lose.....

Thursday, 29 November 2007

The state of the nation

It’s becoming clear that we are living in a CIA fronted, Mossad directed, Jewish conspiracy milked by canny Scottish friends of Dorothy hoping to retire on savings invested via Northern Rock in sub-prime mortgagees stupid enough to vote for them.
The last lot ran to a similar formula but with Arab money, arms and oil dealers, Essex girls, adulterers, philanderers and jobs in privatised companies.
I want to know who I can pay £25,000 to get a piece of the Olympic action, gain a few contracts for painting multi-coloured lines all over the roads, removing them, re-painting them, and doing the same with bumps, speed cushions, cycle paths, paving etc. There is money there and I am not getting it. If I put money in the Rock will they give me a couple of landing slots on the new third runway?

NatWest 3 to keep £1m each?

The NatWest 3 have agreed to pay the $7.325 million they earned from the Enron deal back to RBS, the new owners of NatWest. But all things considered, they have come out of it pretty well. Assuming that they converted their dollars to sterling at the market rate at the time (0.6672) they would have converted it to £4.887 million. Reinvested it at 5% for seven years it would have grown to £6.876 million. To pay back the $7.325 million they only have to pay £3.539 million (converted at 0.4831), which means they keep £3.338 million.

Of course they would have been entitled to a higher bonus from Nat West for the extra income they produced for 1990, so it's a shame they quit before bonuses were paid. Of course they don't have to pay the $7.325 million to RBS; they could just do the time, so they have a bit of leverage over RBS. Sounds like they should be able to cut a deal. These guys need a broker.

Monday, 26 November 2007

NatWest 3 to change their plea to slightly guilty?

HOUSTON (Reuters) - A U.S. judge has scheduled a hearing next week to take new pleas from three former British bankers accused of fraud in an Enron-related case, court records showed on Saturday.
David Bermingham, Giles Darby and Gary Mulgrew, known as the "NatWest Three," are scheduled to appear before U.S. District Judge Ewing Werlein at 4 p.m. CST (2200 GMT) Wednesday for a proceeding called re-arraignment.
The three were indicted in 2002 and pleaded not guilty to charges they conspired with rogue Enron Corp executives in 2000 to defraud National Westminster Bank (NWB_pa.L)of $19 million, dividing $7 million among themselves.
Free on bond since being extradited to Texas in 2006, they are scheduled for trial January 7, 2008.
Lawyers involved either declined comment or could not be reached to explain the new development, but re-arraignment sometimes means a plea bargain has been made for lesser charges or an agreed sentence, ending a criminal case.
Enron, a Houston-based energy giant, collapsed in a tangle of accounting fraud in 2001, costing employees and retirees their pensions and losing investors billions of dollars. Top executives were prosecuted and sent to prison.
(Reporting by Bruce Nichols)

Monday, 19 November 2007

A brief explanation ...

of why the government is supporting Northern Rock with subordinated loans. The story about the sub debt comes from Robert Peston of the BBC. Nothing from the Treasury on this yet.

Northern Rock reassures it's customers

Moody's: NORTHERN ROCK'S BFSR, subordinated debt, and Tier-1 securities fall to D+, Baa1, Baa3 on delay finding corporate solution to expected lower profits.

Actually that's not so bad. BFSR ratings go all the way to E.

Friday, 16 November 2007

Terrorism: Detainees

David Davis: To ask the Secretary of State for the Home Department how many people have been detained without charge on suspicion of terrorist offences for 28 days; and how many of these were (a) charged and (b) released without charge. [164065]

Jacqui Smith [holding answer 13 November 2007]: The maximum period of detention pre-charge was extended to 28 days with effect from 25 July 2006. Statistics compiled from police records show that to date six people have been held for 27 to 28 days. Of these, three individuals were charged and three were released without charge.

David Davis: To ask the Secretary of State for the Home Department whether any suspects detained without charge on suspicion of terrorist offences for 28 days and then released without charge have been subsequently re-arrested and charged with a terrorist offence. [164066]

Jacqui Smith [holding answer 13 November 2007]: The maximum period of detention pre-charge was extended to 28 days with effect from 25 July 2006. Statistics compiled from police records show that to date six people have been held for 27 to 28 days. Of these three individuals were released without charge. We do not keep figures on re-arrests.


Saturday, 3 November 2007

The difference between Citigroup and Northern Rock

Some revealing differences between Citigroup and Northern Rock.

Citigroup is the world's largest financial institution. Being American it is hardly surprising that they have some exposure to the sub-prime loan market and to CDO's. Their Chairman promised shareholders that there would be no surprises, but it looks as though Halloween brought Citi more tricks than treats and by the time I publish this post, the Chairman may be gone, forced to resign by shareholders. Citi is a big bank, and the one trick pony in Newcastle it is a major player in many partkets and many sectors. It also hires more talent in a week than Northern Rock hires in a lifetime, so it will not fail.

Contrast that with Northern Rock, where the board did little to address the problems and the Chairman is still there and the MD was there far too long. Equally reprehensible is the performance of the UK regulators, who between them couldn't decide what to do and in the end left it to the tax payer to pick up the tab. The Federal Reserve would never let it go so far. The blame for this problem probably rests with Gordon Brown who passed responsibility for bank supervision to the FSA. For all its staidness, the Bank of England knew what it took to run a bank, whereas the FSA palpably did not.

The FSA may know how to administer a regulatory system, but that is not what is required to understand whether a bank is well run and whether the management is making the right decisions. Hence all the wrong decisions have been made and we have to listen to politicians telling us how throuwing £23 billion of tax payers money at a problem is nothing to worry about.

Tuesday, 9 October 2007

Those CGT changes at a glance

  • Rate of CGT on shares held in small businesses goes from 10% to 18%
  • Rate of CGT on second homes goes from 40% to 18%.

But then Labour MP’s usually have tax payer funded second homes, but own their own small businesses. In fact, Ed Balls (a public schoolboy hiding behind a working class accent) and his wife Yvette Cooper (who curiously has chosen not to take his name), manage to take two separate interest subsidies for the same house on top of their ministerial salaries.

Sunday, 7 October 2007

Ten Brown bottles sitting on the fence

It is hard to not feel sorry for Gordon Brown after 3 months in office …. but on balance it is worth making the effort.

Wednesday, 3 October 2007

Bids blossoming for the bank up north?

Has the beleaguered Northern Rock finally found a suitor which is willing to not only acquire it, but keep its business intact? Reports that the American buyout firm JC Flowers is mulling a bid and could keep it whole, rather than split it up, sent shares in the mortgage lender soaring by more than 10.0% in morning trade in London. Christopher Flowers, a former Goldman Sachs partner and founder of the private equity firm JC Flowers is said to have secured up to £15 billion ($30.6 billion) to make a bid for Northern Rock.

Saturday, 29 September 2007

Ranking economies

Christophe, our French intern has produced some fascinating analysis comparing the performance of 15 of the most developed economies (OK he stole the numbers off the back pages of this week’s Economist). Britain is right up there in 14th place slugging it out with Greece and just ahead of India.

Scored ranking by
1 Current acct balance as % of GDP (Rank)
2 Budget balance as % of GDP (Rank)
3 Average of long (3m bank) and long (10yr Govt bond) interest rates/yields (Rank)
Countries are scored by summing ranking in 3 categories and ranked by score

Netherlands 7.90 (2) 0.60 (3) 4.73 4.47 4.60 (5) score:10
China 10.70 (1) -0.70 (8) 3.86 4.52 4.19 (3) score:12
Germany 5.10 (4) 0.40 (5) 4.73 4.38 4.56 (4) score:13
Canada 1.60 (8) 0.60 (3) 3.97 4.40 4.19 (2) score:13
Japan 4.40 (5) -2.50 (11) 0.73 1.65 1.19 (1) score:17
Russia 6.80 (3) 3.00 (1) 10.00 6.33 8.17 (15) score:19
Austria 2.90 (6) -0.50 (7) 4.73 4.49 4.61 (7) score:20
Belgium 2.20 (7) -0.10 (6) 4.79 4.54 4.67 (9) score:22
Spain -8.80 (13) 1.70 (2) 4.73 4.50 4.62 (8) score:23
France -1.20 (9) -2.50 (11) 4.73 4.47 4.60 (5) score:25
United States -5.70 (12) -1.60 (9) 4.72 4.61 4.67 (9) score:30
Italy -2.30 (10) -2.50 (11) 4.73 4.65 4.69 (11) score:32
Greece -10.50 (15) -2.40 (10) 4.73 4.68 4.71 (12) score:37
Britain -3.30 (11) -2.70 (14) 6.28 5.07 5.68 (13) score:38
India -9.60 (14) -3.30 (15) 6.96 8.32 7.64 (15) score:44

Friday, 28 September 2007

Houli who?

According to Her Majesty’s Daily Telegraph US investment bank Houlihan Lokey Howard & Zukin (no, I’ve never heard of them either) and law firm Bingham McCutchen (likewise) have been "asked by holders of a significant principal amount of Northern Rock subordinated notes to call a conference with other noteholders to discuss recent events and form an ad-hoc committee with other tier two investors".

HMDT goes on to say that the bank's "tier two" debt investors are anticipating a sale that will see both equity and preference shareholders wiped out, and their own bonds put at risk. Well no, there will only be a sale if the equity holders and bond holders agree to sell for nothing. A default on bonds is possible, but the bond holders may do better to hold on to their paper and collect the default interest.

According to their website, in 2006, Houlihan Lokey ranked as the No. 1 M&A advisor for U.S. transactions under $1 billion. So that’s less than 500 mill. Looks like the current shareholders are going to be low-balled.

Err.. this is not investment advice etc etc.

Sunday, 23 September 2007

Just when you think you've seen it all...

... your breath is taken away by [potentially libellous comments redacted].

A harmless looking IPO filing at the SEC here from Babcock & Brown Air Limited here. Babcock & Brown are a well established US/Australian investment banking boutique and I have no doubt that the particuular company, an Irish aircraft leasing company, leasing 47 mostly narrowbody commercial passenger jests, is very well run. Since their chairman is a Harvard educated lawyer (no doubt familiar with the laws of libel) I am especially certain that it is an extremely well run company, but there is a curious item under the list of company directors:

Susan M. Walton has been a member of our board of directors since June 2007. Ms. Walton is the chief executive of Hampshire & Isle of Wight Wildlife Trust (‘‘HWT’’), a leading wildlife conservation charity in England, where she is responsible for biodiversity projects in two counties and developing partnerships with key stakeholder groups. Prior to joining HWT in 2006, she served as general manager – structured finance and export credit, for Rolls-Royce Capital Limited I for over ten years. Ms. Walton was also a Principal at Babcock & Brown from 1989 to 1997 where she was responsible for producing and implementing Babcock & Brown’s annual European marketing plan. Ms. Walton is a trustee for Buglife – The Invertebrate Conservation Trust and a member of Chichester Harbour Conservancy. Ms. Walton holds a degree in Environmental Conservation from Birkbeck College, University of London.

That's right, a professional "green" who is a director of an aircraft leasing company. I have no doubt that the person's experience makes them a perfectly suitable candidate to be a director of an aircraft leasing company, but do the people of Hampshire know about this sideline? After all the Trust’s website makes the following statement regarding corporate sponsorship:

“The Trust expects its corporate supporters to demonstrate a commitment to reducing the environmental impact of their business and protecting the wildlife heritage of our two counties. The Trust can offer advice and work co-operatively with companies to help them achieve this. However the Trust will not work with, or accept membership from, corporate organisations whose activities are fundamentally in conflict with the aims of the Trust.”

This is the same Trust that objected to housebuilding in Hampshire here:

Sue Walton, chief executive of Hampshire and the Isle of Wight Wildlife Trust, added: 'This revised plan is a step too far at a time when there are huge uncertainties about water resources, waste water disposal, flood risk and rising sea levels. 'How much more evidence does the government need that we cannot keep hammering our environment?'

As we all know, the key to success in business is total sincerity. Learn how to fake that and you're made.

A shadow of its former self

We're talking about the logo on his shirt obviously.

Some better than average thinking from Jeff Randall

Ten lessons we can learn from the Rock that rolled downhill

Northern Rock has been left looking like the Lender from Lilliput. Jeff Randall, to my mind a better communicator than analyst, hits the nail on the head here.

Saturday, 22 September 2007

This will only feed the sense that politics is an elite racket

If the unions let Brown scrap the right of Labour's conference to vote against the party hierarchy, they would weaken democracy
Seumas Milne
Thursday September 6, 2007

The Guardian

He would, Gordon Brown promised in June, be a listening prime minister. The Blairite era of spin and headline-chasing, the message went out, was over. In its place would be a new spirit of engagement and dialogue with a population increasingly mistrustful of government and alienated from official politics. Brown was at it again this week, highlighting the decline in voter turnout and party memberships and pledging to embrace a "new politics" of civic participation. The political system too often "ignores or neglects the new ideas that flow from outside Westminster", he declared, announcing regular citizens' juries to investigate issues of public concern, as well as an all-party conference to work out why 40% of the electorate isn't voting in general elections.
But despite all this enthusiasm for giving people more say in political decisions, Brown has other ideas when it comes to his own party. Later this month, the prime minister wants to abolish the right of Labour's conference to vote against the government on policy. After enduring a string of conference defeats in recent years - from privatisation and pensions to council housing and agency workers' rights - Brown has lost patience with such public displays of dissent. Hoping to trade on his leadership honeymoon in the run-up to a general election, the prime minister plans to end the opportunity for unions and constituency delegates to vote on so-called contemporary motions, shuffling off controversial issues to private sessions of the machine-dominated national policy forum.
Far from being an arcane issue of internal party management, the move goes to the heart of the political alienation that Brown himself has expressed such concern about. All the issues on which the conference has seen off the party hierarchy in recent years have been ones which command majority public support. If he succeeds in convincing the Labour conference in Bournemouth to ditch its vestigial rights to vote on policy - completing the transformation of Labour's conference into a purely showcase event on the Tory model - it can only reinforce the growing sense that mainstream party politics is an elite-controlled racket, closed to genuine participation from outside or below.
Some around the prime minister have been putting it about that Brown regards this latest gutting of Labour democracy and union influence as his main challenge at Bournemouth - there's even been speculation that he fancies his own Clause 4 moment, in emulation of Blair's symbolic break with Labour's ideological past. That would certainly chime with his transparent attempt this week to court the conservative press and destabilise the Tory party by comparing himself to Margaret Thatcher and recruiting Tory MPs as advisers.
Praising Thatcher as a "conviction politician" who "saw the need for change" may have seemed a clever piece of positioning, but will have scarcely reassured Labour people already alienated by Brown's commitment to corporate feather-bedding and privatisation. After all, the problem with Thatcher's government wasn't just, as Brown said on Tuesday, that "there was a large amount of unemployment which perhaps could have been dealt with", but that it broke the back of whole communities, triggered widespread riots, wiped out a fifth of Britain's manufacturing base in a couple of years, ran down public services, and redistributed heavily from the poor to the rich. Many would welcome a Labour prime minister with convictions - but not those convictions.
The most recent noises from the Brown camp, however, suggest he's not looking for confrontation over his party reform plans, circulated under the creative marketing title of "Extending and Renewing Party Democracy". The prime minister and his lieutenants argue that the current system doesn't only lead to damaging stories of splits and leadership defeats every year, but delivers nothing for those who support the rebel resolutions: ministers routinely declare they will ignore them. Far better than such outdated "resolutionary politics", they say, would be for controversial issues to be dealt with by a souped-up policy forum, where things can be settled quietly in the Labour family. Then a full policy programme can be put to a ballot of all party members.
In fact, negative coverage of leadership defeats has been modest in recent years, perhaps because it's hard to paint as outrageous positions which are shared by the majority of your readers. Brown's reforms would mean the end of Labour conference sovereignty and the transfer of all policymaking to a closed forum, the majority of whose members are effectively under party hierarchy and government control and where the union share of the votes is 16%, rather than 49%. The take-it-or-leave-it members' plebiscite would be a meaningless rubber stamp. And while ministers have long rejected conference decisions they don't like, repeated defeats have clearly helped shift government policy on, for example, social housing and the pensions-earnings link.
For the unions, which have been the motor behind recent Labour dissent, Brown's proposals would mean the final relegation of their federal role to lobbyists-cum-cash cow. At a time when working-class participation in politics has fallen more sharply than that of any other section of society, you might think a collective relationship with organisations feeding in the concerns of millions of workers from outside Westminster would be an asset to be nurtured - and exactly the kind of link a prime minister worried about political disengagement would want to strengthen. But of course real-life social organisations have interests and views of their own that can't be switched on and off like, say, citizens' juries.
Some will point out that most of Labour's internal democracy was hollowed out by Blair in the mid-1990s, and dismiss the latest changes as mere funeral obsequies. But so long as Labour remains a party of government in a first-past-the-post system, its openness to political pressure is a matter of far wider social concern. The current plan would make it less open. The trade unions, who can block these changes if they choose, have started to signal that they're ready to negotiate. There is room for compromise, but if the unions were to trade away their own right to vote at Labour's conference, they wouldn't only be undermining themselves - but the wider interests of democracy as well.


Friday, 21 September 2007

If it says so in The Economist... it must be true

What the credit crunch means for bonuses

“DEAR Valued Bloomberg User,” began an e-mail sent out recently by the information provider to the universe’s masters. “This is...to remind you that we can still provide complimentary access to our service should you find yourself temporarily in-between jobs.” Having the bad news broken by another firm’s computer could be a new low for an industry not known for letting people go tactfully (“Your pass stopped working today? I’m so sorry”). Happily things do not seem to be as bad as all that.

In London some jobs will probably go. The Centre for Economics and Business Research (CEBR) reckons that more than 5,000 people will be hauled in for a talk about career progression by the end of the year. For comparison, the City shed 20,000 jobs after the dotcom bubble burst and 40,000 after Black Wednesday in 1992. However, the CEBR reckons that 10,000 new jobs were created in the year to July, so any reduction would still mean a big net gain in jobs over a two-year period.

As for bonuses, one financial headhunter that specialises in finding drones rather than filling corner offices says that at least one City firm has told its managing directors (who are less senior than the title makes them sound) that a certain number of them will receive no bonus at all this year. This gloom is not widely shared: most report bonus expectations being managed rather than vaporised—provided, of course, that things get no worse.

In New York the picture is similar. Some areas that have been booming over the past year will be affected. Mergers and Acquisitions mbanking, where the pipeline of deals looks less than inspiring, leveraged loans and a few other corners of fixed income may do badly. Conversely, anyone who trades volatility, of which there has been plenty, or sells options, which should be a good business in uncertain times, will have prospered.

Even the people most at fault for the recent turmoil—the creators of the collateralised-debt obligations (CDOs) and conduits that spread subprime-mortgage debt around the financial system—may end the year with new Porsches. Headhunters on Wall Street report that some have been snapped up by hedge funds looking to extract some value from these illiquid instruments. Just as imprudent banks have been saved from their mistakes by indulgent central bankers, so CDO-makers could be rewarded for the mess that they helped to create. Vroom-vroom.

A nice diagram

From Pictet & Co via FT Alphaville

From Alphaville to Nowheresville

The following letter went out from Global Alpha, a Goldman hedge fund to their investors. My comments inserted in italics

September 18, 2007

Dear Investor,

As you are aware, August was a difficult month for many quantitative hedge funds. Global Alpha was hit particularly hard. While the fund has experienced both challenging and rewarding periods in the past, the dislocation across capital markets during the latterpart of August resulted in unprecedented stress to the fund. This deterioration in performance was particularly dramatic, though Global Alpha’s returns had been under pressure for some time before that. As a result, we are actively working to adjust our process to minimize the negative impact of future market dislocations and position the fund for positive returns going forward. We want to take this opportunity to briefly describe how we are doing this.

Translation: Run for the hills!

Historically, our investment models have used market data to apply lessons learned from the past to current economic conditions. Our investment approach has been to adopt a longer time horizon, with positions being adjusted over the course of weeks and months. Recently, market activity and volatility have indicated to us that we need to adjust our positions more quickly.

Translation: We were wrong!

Having taken a comprehensive look at the models and processes we employ, we are addressing the following issues:

Leverage and Volatility: We have traditionally viewed leverage as a means of achieving our target volatility. In addition, most of our trading has been in what are considered extremely liquid markets and, therefore, leverage has not generally been an independent constraint. We are now giving greater consideration to leverage as a separate risk factor in constructing our portfolios and we are applying new leverage constraints.

Translation: We made our performance look better by gearing up, but that has its risks and we (or rather you) got kicked in the pants when the market went against us (you).

While our factors may continue to change over time, given the current level of market volatility, we currently expect to run the portfolio at the lower end of our leverage range. We are also implementing some additional risk management measures and techniques to help us to better predict and react more quickly to highly volatile periods and adjust positions accordingly. These changes may result in us maintaining at times a lower volatility than the historical long-term target of 17%.

Translation: The market is so volatile that we don't need to gear up to reach our target volatility, but without that gearing you can kiss any super returns goodbye.

Agility: There is more money invested in quantitative strategies than we and many others appreciated. While we’ve always been aware of our key competitors and the general size of their businesses, the recent liquidity crunch has highlighted a broader proliferation in related strategies. We foresee fewer and smaller participants in the quant space, which will benefit Global Alpha investors. Our intent under these circumstances is to more aggressively limit the size of our fund to reflect this new environment and to increase our agility in times of market stress.

Translation: There are lots of people in this market and frankly, we don't look so smart so we are getting out.

Innovation: Innovative and differentiated factors are critical to the success of quantitative models. We place a premium on the development of unique and proprietary factors and will continue to devote our research capabilities to this end. We intend to increase the weight given to differentiating factors and strategies.

Translation: We'll try to think of something. Don't go away.

We appreciate your forbearance through this difficult period.

Translation: Please don't take your money away.

The quantitative investment space has historically been rewarding for investors, and we believe investment opportunities remain attractive. You should not hesitate to contact us if you have questions about our approach or any other issues.

Translation: Hey, look some you win, some you lose. Form is temporary, class is permanent. We are Goldman Sachs so we can't be wrong, am I right?


Mark Carhart & Ray Iwanowski

Thursday, 20 September 2007

A Liberal view of taxation

Vince Cable, the party’s Treasury spokesman, has “promised” to close the loophole that exempts non-domiciles from tax on their British homes. Under his proposals, they would also lose their status if they stayed in Britain beyond a few years. The promise is a weak one because the Lib Dems will never take office.

“The rich and well-advised exploit loopholes and end up paying 10 per cent tax rather than 40 per cent. Non-domiciles taking advantage of offshore trusts avoid capital gains tax and people avoid stamp duty by registering their house as being owned by a company,” he said.

This howver, didn’t stop the Lib Dems accepting £270,000 from Alpha Healthcare, a UK company owned by Harberry Investments a Tortola based company, run by Bhanu and Dhruv Choudrie, owners and residents of substantial properties in West London, who nevertheless claim non-domicile status with respect to the income accruing in their Tortola company. A fine example of how UK profits can be routed offshore so that UK residents can avoid tax.

Wednesday, 19 September 2007

So much for the Independent Bank of England


I suppose he who pays the piper calls the tune. Let's see how Swervin' Mervyn gets on before the Treasury Select Committee.

Tuesday, 18 September 2007

The great financier

The government’s bail-out of Northern Rock reminds me of the story when J.P. Morgan (the man not the bank) was a pproached by a young man who asked him if the banker would finance his business. “No”, replied the great financier, “but I will put my arm round your shoulder and walk you across the floor of the New York Stock Exchange”.


There is no risk and has never really been any risk to the depositors at Northern Rock.  With most of the liabilities incurred through commercial paper, the demand depositors would always have been able to withdraw their deposits.  The bank could always sell some of its prepackaged assets to make up the shortfall.  So the government’s guarantee was always meaning less.  The only reason to withdraw a deposit would have been to buy the shares after the 75% fall in three days.


The problem for the government is that they will now be obliged to underwrite all retail deposits.  Apart from some Clinton-esque weasel words (“It depends what you mean by ‘deposit’”), it looks as though the government are exposing themselves to substantial liabilities, which can only be met by higher taxation which would cause more mortgage defaults, bad loans, bank problems etc.

Monday, 17 September 2007

Would they have done the same for the Chelsea Building Society?

Northern Rock deposits to be guaranteed

LONDON (Reuters) - The government will guarantee all existing deposits at embattled mortgage bank Northern Rock, Chancellor Alistair Darling said on Monday.
"I can announce today that following the discussions with the Governor (of the Bank of England) and the Chairman of the FSA, should it be necessary, we, with the Bank of England would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability," he said in a statement.
He said he had taken the decision "in the current market circumstances and because of the importance I place on maintaining a stable banking system and public confidence in it."

Clearly going for the northern Labour vote. Will the Chancellor do the same for the Alliance and Leicester?

LONDON (Reuters) - Alliance & Leicester said on Monday it was successfully funding itself and had not sought any assistance from the Bank of England, after its shares plunged over 30 percent on fears it could face some of the problems that have battered rival mortgage lender Northern Rock .
A&L, the country's seventh-largest bank, saw its shares tumble in the last minutes of trade to close down 31.3 percent at 600 pence, its lowest level in almost 7 years.

Good news - the Saudis are buying our planes

The MOD confirmed today that Saudi Arabia is buying 72 Eurofighters. That's funny because they bought 72 last year. Is this just a reannouncement? Is it possible that somebody wants to create a headline for the 6 o'clock news to distract attention from the bank meltdown? After all, the market reacted to this story last week.

Keep on Rocking

They do these things so much more discreetly on the continent. So much so that, while all the heat and light was coming from Gosforth, nobody noticed Barclays asking the ECB for a few billion to see them through to the weekend.

French Foreign Minister talks tough

French Foreign Minister Bernard Kouchner has again raised the spectre of a conflict with Tehran, warning the world "to prepare for the worst... and the worst means war".

The Iranians responded in no certain terms (sic) viz. "Dealing with international developments in a way mostly different from the US hegemonic approach was an old tradition for Europe that considered it as a way to maintain its independence from its transatlantic ally. In the US-Europe coalition, France was, most of the time, less obedient to Washington's policies than Britain although Paris has always been a partner of Washington. The occupants of the Ellyse have become translators of the White House policies in Europe and have adopted a tone that is even harder, even more inflammatory and more illogical than that of Washington. At the international level, the new government of France has possibly preferred more tension than peace as it has now stepped on the road of creating more tensions by adopting extremist stands. The French people will never forget the present time when a person with a non-European approach has moved into the Ellyse." I can say no more.

But if the worst really comes to the worst, what will the French do about the 2 Iranian aircraft that are currently sitting on the French Civil Aviation register (F-OJHH and F-OJHI)? Don't forget: April 10th is Nuclear Technology Day in Iran.

Getting to the Soul of Northern Rock

John Redwood's reading of the situation is poor - but Guido Fawkes has called it right, but then Guido was a trader and Redwood was an investment analyst, so Guido probably understands these things better, even though he may have worn white socks.
Redwood implies that NR's problems come from the BoE leaving the discount rate too high - but if this were the case it would create systemic problems for all lenders, which apparently is not the case.
Alternatively there could be problems if there was a mismatch in the "basis" of funding (i.e. fixed vs floating), but this could happen at any time and does not appear to be the issue here.Ministers have told banks to lend prudently, but again that does not appear to be a problem especially for NR. The may have grown their loan book at fine rates of interest, but they aren't reporting serious write-offs and nobody is accusing them of imprudent lending policies - or at least no worse than any other bank.
As Guido points out, the issue is a classic case of liquidity risk. NR funded itself through the wholesale market, using short term commercial paper in particular, to a much greater extent than other banks who finance themselves with a more stable deposit base. Other banks may have very large demand deposit bases, but the sheer number of depositors ensures that they don't all their money back at once, unlike commercial paper programs which have a nasty habit of being repaid in large amounts.
If NR has problems, that is the fault of their management and to a lesser extent their regulators, but it is hardly the fault of ministers.So Guido has it right, ministers have it wrong (but with this lot you don't expect much), and to a certain extent Redwood and Fraser Nelson are wrong too.

Saturday, 15 September 2007

Where are the vultures?

Northern Rock's have led the market down over the last few days. Government ministers and their mouthpieces at the BBC have said there is nothing to fear: the company has sound assets and the problem is a short term liquidity issue.

So where are the asset strippers when you need them?

Wednesday, 12 September 2007

Business tips from Clive Woodward

Yes, you read it right. The man who happened to be the trainer of a team that happened to feature Jonny Wilkinson in his prime thinks he can tell the business world a thing or two. Not sure what those pearls of wisdom might be but you can read about them here.

Perhaps it would be worth remembering that this was the man who was also in some way associated with Southampton as they ended many years of playing in the top division of English football.

Wednesday, 5 September 2007

You have nothing to fear if you have nothing to hide

A judge says here that we should all be on the national DNA database.

He reasons that it is unfair that there appears to be a racial imbalance between the representation of various ethnicities on the database, and life would be easier for the police if everybody was on the database. This misses the point. "Fairness" should be irrelevant, because DNA testing is an objective test. If the police have a DNA sample from a crime scene and a list of suspects they can eliminate or identify each of those suspects by comparing their DNA with the DNA sample.

Having a DNA database of convicted criminals could be justified on the basis that empirical evidence shows a high level of reoffending, and hence any convicted criminal might reasonably be considered a suspect.

But to extend the database to the entire population would be offensive. Why? Because assuming a possibility of a few hundred thousand to one of an individual matching a DNA sample, then in a population of 60 million there will potentially be hundreds of people matching that sample. The odds may vary from sample to sample, but who wants to be suspected of a crime just because of a statistical fluke or even operator error. Who wants to be forced to account for their innocence of a crime when there is no other basis for suspicion? If the police have another basis for their suspicion of an individual, they don't need a DNA database, they just need to match the suspects DNA with their crime scene sample.

And to extend it to tourists and other visitors is a sure way to kill off tourism, the City of London and international business.

Tuesday, 4 September 2007

Things are looking up for David Mills

Corporate lawyer David Mills may be going through a tough time in Italy but it seems his star may not be waning elsewhere. One of his other long term clients, ILTC, an Iranian company manages investments on behalf of the Rafsanjani family. Indeed one of former President Rafsanjani’s sons works for Finco, an ILTC subsidiary in Dubai.

Why is this such good news? Well ex-President Rafsanjani, who many have considered to be a leading power figure despite his retirement, has just been appointed as head of the Assembly of Experts. In the arcane world of post revolutionary Iranian constitution the Assembly of Experts oversees the Supreme Leader (not all that Supreme then), who in turn can overrule the President (who thus sits lower than the gods, not surprising because he was the Ken Livingstone of Tehran).

What this means for Mills and his friends are more lucrative contracts. They are big investors in Mahan Air, nominally the second airline in Iran, but the fastest growing because it has better access to foreign routes and none of the forced employment practices of Iran Air. Likewise, construction contracts and the all important access to foreign exchange for the purchase of food and commodities will flow more easily to Mr Rafsanjani's friends in the bazaar.

Things are indeed looking up for David Mills.

The party of choice?

So George Osborne has said that a Conservative government would continue Labour spending policies.
As regular readers may remember, I stood as the Conservative candidate for Grimley (or was it Grimthorpe ? anyway an episode best forgotten). Try telling those voters that Conservatives are really the same as Labour. And what about giving the voters some real choice.

Think again Mr Osborne.

Saturday, 1 September 2007

Banks caught at their own game

Oh how we laughed 20 years ago whenever a bidder paid a drop dead fee on a leveraged buy out. It was truly a mug's game. Every bidder had to line up finance, which meant paying commitment fees, but there was only one winning bidder, but even then there was a good chance that the banks would pull out on due diligence, and pocket the fees. I remember Triangle, Isoceles or whatever bidding for Safeway. What fees we made without lending a penny.

Now the boot is on the other foot according to The Times here. It seems that the banks have caught a cold over TXU. Remember them? They bought Eastern Electricity and went bust a few years later when all their gas contracts wre out of the money. Now it seems that, despite losing hundreds of millions in that disaster, US banks were still happy to pony up several billion for KKR to buy the Texan utility. And why not, for all I know Henry Kravis may be a whizz with coal fired power stations. Anyway, it seems that the banks are worried that they will not be able to sell down their underwritings. The banks' solution is to pay KKR a billion to pull the deal.

Sounds like the banks and KKR were playing poker as the credit markets crumbled and the banks blinked first. Reminiscent of the fees that changed hands over RJR Nabisco (Barbarians at the Gate), only this time they are going in the other direction.

Wednesday, 29 August 2007

Now here's a strange thing....

Widespread press reports yesterday mentioned that the National Audit Office had reported that nearly a third of UK companies pay no corporation tax. Now that seems a high number, but curiously there is no mention of this report on the NAO website. In fact all it does say is: “Please Note, the National Audit Office will not be publishing any reports during the Parliamentary Recess between 27 July and 8 October 2007.”

Let’s not speculate on who “released” this report, but instead think about whether it is reasonable. Certainly plenty of firms spend a lot of money on capital investment on which they have claimed capital allowances of 25% of unclaimed expenditure each year (reduced to 20% from next year by this parsimonious government), and that includes a lot of our utilities and airlines who feature in the list. Then there are the barely profitable engineering companies who also make heavy capital investments, and the trading companies with highly taxed foreign operations and head office costs. Then there are the high tech companies who get R&D write-offs courtesy of the government

So what are we left with? Banks and insurance companies who seem to be paying a lot of tax, energy companies who the chancellor is into in a big way with PRT and a higher corporation tax rate on North Sea profits. It all adds up to £52 billion of corporation tax receipts. Perhaps that doesn’t sound a lot in a GDP of £1,300 billion, but figure this: Of that £1,300 billion, 45% is in the public sector, so let’s call that £6 billion spending in the public sector. Let us assume that half of that £6 billion is spent on private sector goods and services, so assume that total spending subject to corporation tax is about £1,000 billion. Corporation tax is only payable on company profits at 28%, so to raise £52 billion in corporation tax receipts, the government needs companies to declare taxable profits of $52 billion/28% or around £185 billion. Yes, £185 billion of taxable profits on £1,000 billion of turnover. OK those numbers don’t take account of taxes on overseas profits that might be outside the scope of VAT, but it includes a lot of other things like corporation tax on chargeable gains, so it seems a fair approximation.

But to put it in perspective how many companies can make a profit of £185 on a turnover of £1,000? The answer is not very many - most mature companies would hope to make a profit of around 10% of turnover. The subtext is that a company’s taxable profits are not the same as company’s accounting profits, and it would appear that in many cases the taxable profits are higher. How does that happen? Mostly because of government legislation. On the one hand, companies are restricted in their ability to deduct various classes of losses against current profits and these losses are eventually written off. For example, a group with losses in several companies in one year will carry forward the losses in each company if it cannot use the losses for group relief. But losses carried forward cannot be group relieved in later years, so if any company in the group goes into terminal decline its carried forward losses will be trapped even if the rest of the group is eventually profitable. Similarly, many companies have substantial capital losses that never get set against capital gains. On the other hand, the depreciation rates for “long life assets” are so low that they effectively never get written off, so that the assets are depreciated faster for accounting purposes than tax purposes, making the taxable profits higher than accounting profits. On the third hand, the legislation can disallow some expenditure, although that expenditure is a real cost in accounting terms.

So the real question the NAO should have been asking is not why so many companies pay little tax in the UK, but why the UK raises £50 billion of corporation tax when our neighbours raise a far lower proportion of their tax revenues in this way?