House prices are rising again. Oh wait a minute, they've still got 17 per cent to fall. Ah, but we're alright because a 'survey of estate agents' has told us they are confident about the market again. (Who'd have thought?). Property and personal finance correspondents must be getting giddy by now as ratings agencies, building societies, the Land Registry and the Royal Institute of Chartered Surveyors continue to churn out their daily contradictory housing market research.
But just as we were getting bored of the 'are they or aren't they' debate, the regulator this week announced its latest initiative to prevent a re-run of the irresponsible lending that fuelled a large part of this decade's housing market boom. As part of its mortgage market review the FSA has proposed that mortgage applicants must disclose exactly what they spend in a typical week when they apply for a mortgage. And yes, that includes admitting to how many pints of beer you drink on a Friday night.
Now I'm not afraid to tell my mortgage lender how much I spend on shoes and wine – and thankfully I haven't taken up smoking since I last applied for a mortgage - but it's hardly a carrot for those all important buyers trying to get onto the housing ladder. Nor is it likely to revive the market by encouraging the banks and building societies to increase the number of home loans they offer – something that the government is trying to encourage. Sounds like another contradiction to me.
But there's mortar life than house prices.
LW
Thursday, October 22, 2009
Wednesday, October 21, 2009
Too big to fail?
Mervyn King's impassioned address to Scottish business organisations yesterday has been described as a declaration of war on the banking industry which is fair enough considering his decision to paraphrase Sir Winston Churchill.
King's cri de coeur has been brewing for some time. Regulators and policy makers around the world have recognised that in pulling the financial system back from the brink we have created a new predicament. Previously, banks may have suspected that central banks would bail them out if they got into trouble but recent intervention has now proven that banks can indulge in risky business without risking salvation from the taxpayer.
King said that "The 'too important to fail' problem is too important to ignore" and that "The massive support extended to the banking sector around the world...has created possibly the biggest moral hazard in history". The powerful rhetoric employed in his speech shows how much is at stake if regulators waste this opportunity with ineffective reforms.
Little over a year ago, when Lehman's employees were looting office buildings and the rest of us were contemplating what it would be like to live through another great depression, there was a sense that these events would mark a sea change in financial services. Reform was long overdue and the industry as we then knew it would be a much different beast in the future. A year hence though, what has actually changed? With the return of bonuses and the recovery of risky assets, there is little sense that any lessons have been learned or that the culture of financial services has much altered.
King's speech may have focussed on banking but it speaks to a much bigger problem. Now the industry is back on its feet and making money the impetus for reform has been lost. Self-interest once again dominates discussions and the topic of regulatory reform is being turned into a showcase for politicians. Policy makers must recognise that more regulation is not necessarily better regulation and engage in open and honest dialogue, not polemics and posturing.
The battle over how best to address the 'too big to fail' quandary is a worthy fight but is just one conflict in a much bigger war that must be waged if we are to avoid another crisis of this scale.
NS
King's cri de coeur has been brewing for some time. Regulators and policy makers around the world have recognised that in pulling the financial system back from the brink we have created a new predicament. Previously, banks may have suspected that central banks would bail them out if they got into trouble but recent intervention has now proven that banks can indulge in risky business without risking salvation from the taxpayer.
King said that "The 'too important to fail' problem is too important to ignore" and that "The massive support extended to the banking sector around the world...has created possibly the biggest moral hazard in history". The powerful rhetoric employed in his speech shows how much is at stake if regulators waste this opportunity with ineffective reforms.
Little over a year ago, when Lehman's employees were looting office buildings and the rest of us were contemplating what it would be like to live through another great depression, there was a sense that these events would mark a sea change in financial services. Reform was long overdue and the industry as we then knew it would be a much different beast in the future. A year hence though, what has actually changed? With the return of bonuses and the recovery of risky assets, there is little sense that any lessons have been learned or that the culture of financial services has much altered.
King's speech may have focussed on banking but it speaks to a much bigger problem. Now the industry is back on its feet and making money the impetus for reform has been lost. Self-interest once again dominates discussions and the topic of regulatory reform is being turned into a showcase for politicians. Policy makers must recognise that more regulation is not necessarily better regulation and engage in open and honest dialogue, not polemics and posturing.
The battle over how best to address the 'too big to fail' quandary is a worthy fight but is just one conflict in a much bigger war that must be waged if we are to avoid another crisis of this scale.
NS
Thursday, October 15, 2009
Shake your moneymaker
Amidst much hand-wringing over the slump in sterling over recent months, perhaps it's worth taking a slightly broader view of currency. A good while ago, our ancestors were looking for a medium of exchange to trade goods, and experimented with various things such as furs, stones, iron bars and blocks of salt. All proved to be fairly unsuccessful until gold evolved to be the most practical medium. For many years, most currencies were backed by physical gold, and the price of gold determined the value of a currency.
In today's society, the basic act of commerce has not changed, but entrepreneurs try to find new alternative ways to facilitate transactions. With the help of their new own currency, local retailers in Brixton hope to boost spending in the area, and this is just a recent example of a long list of micro-money and local denominations. There are more than 2,500 different local currency systems worldwide. All for a reason, probably.
The Internet has also created a range of digital currencies to be able to sell and pay for goods online. The Wall Street Journal recently produced a video covering this new world of peer to peer finance which also features our partner Hub Culture’s Ven, the only digital currency that can be used both online and off.
Whether this is the future of currencies, and the future of money indeed, remains to be seen. Clearly, the way we're going to pay for goods in the future is tightly connected to the way we'll interact and communicate in the future. And as far as this can be assessed today, there is an irreversible trend towards an even more digital life as we know it.
RR
Tuesday, October 13, 2009
Alienate the Veteran Voter at your peril….
Is the Telegraph being a bit churlish today, in reporting "anger as state pension rises by just £2.40 a week"? Fair enough, £2.40 a week is not a lot, nor is the £97.65 a week that state pension recipients will get from next April.
But if the then Chancellor, Gordon Brown, hadn't changed the rules in 2001, the state pension may not have gone up at all. The increase has, for many years, been linked to the increase in the September Retail Price Index which, as the Office for National Statistics announced this morning, actually fell by 1.4% last month.
Mr Brown's 2001 change meant the pension would increase by the September inflation rate or 2.5%, whichever is the higher. A point the Telegraph overlooked today. Along with the fact that it was Mrs Thatcher's administration which pegged pension increases to prices back in 1980. Before that, the benchmark was based on whichever was the higher between prices and earnings. Of course, the latter have outstripped the former fairly consistently since 1980, so the state pension, as a percentage of average earnings, fell from over 23% in 1981 to less than 16% by 2006.
In the interests of scrupulous impartiality, however, I should refer you to the same newspaper's coverage of David Cameron's commitment, announced last month, to match the government's intention of restoring the earnings link by 2015 at the latest. As a shrewd politician, Mr Cameron is all too aware of the power of the grey vote at next year's election.
AF
But if the then Chancellor, Gordon Brown, hadn't changed the rules in 2001, the state pension may not have gone up at all. The increase has, for many years, been linked to the increase in the September Retail Price Index which, as the Office for National Statistics announced this morning, actually fell by 1.4% last month.
Mr Brown's 2001 change meant the pension would increase by the September inflation rate or 2.5%, whichever is the higher. A point the Telegraph overlooked today. Along with the fact that it was Mrs Thatcher's administration which pegged pension increases to prices back in 1980. Before that, the benchmark was based on whichever was the higher between prices and earnings. Of course, the latter have outstripped the former fairly consistently since 1980, so the state pension, as a percentage of average earnings, fell from over 23% in 1981 to less than 16% by 2006.
In the interests of scrupulous impartiality, however, I should refer you to the same newspaper's coverage of David Cameron's commitment, announced last month, to match the government's intention of restoring the earnings link by 2015 at the latest. As a shrewd politician, Mr Cameron is all too aware of the power of the grey vote at next year's election.
AF
Monday, October 12, 2009
Commodity oddity....Citi loses the energy to trade
There's an old investment adage that says 'run your winners and cut your losers' – a refreshingly simple concept for an industry that often does its best to confuse and befuddle. Lately however, this truism has been challenged by the two words that will terrify even the most hardened of bankers – 'executive compensation.' Citi's decision to sell Phibro, its energy trading division, has clearly been motivated by little else than regulatory pressure.
Phibro is a consistently profitable business (I know, how many can say that these days?) that has netted Citi around $371m a year in annual earnings over the past five years. This, as Anthony Currie of breakingviews highlighted: "equates to a profit margin of more than 50%, and has been a bright spot in the last couple of years as Citi posted billions of dollars in losses elsewhere." Granted, Phibro is not a huge business given the monolithic scale of Citigroup. Nevertheless, profits are profits and it was nice to see that a division could stand strong while the rest of Citi's edifice seemingly crumbled.
Occidental Petroleum, the energy and chemical giant, picked up Phibro for just $250m, which many market observers have described as "a pittance" considering the profits it once netted the bank. That said, the sale is not exactly a surprise given Citi's political and economic situation: a troubled bank propped up by the US taxpayer, an obligation to pay star trader Andrew Hall a whopping bonus of $100m, and a government that has executive pay firmly in its sights. Not exactly peaches and roses for the folks at Citi. So, to be fair to their embattled CEO Vikram Pandit, the pressure to hive off Phibro was so overwhelming that to do otherwise would have been untenable.
It's not actually the sale of Phibro that's alarming, as it was undeniably a forced hand, but rather the political machinations that promoted the sale. We all know the era of light touch regulation is behind us but politics and economics don't often make good bedfellows. In a fiery research note from Rochdale Securities' Richard Bove, dramatically titled "Socialism in Action", he argues that the sale does not make good business sense. Bove says the decision was not in the interest of the Citigroup shareholders and "also sets the pattern of what may prove to be a series of similar actions by other banks reacting to the government takeover of the banking industry." It's this aspect, rather than his socialist rant, that's of note and as FT's Alphaville concludes: "the regulatory environment for banks, and the government's tolerance for the high-risk, high-reward model of years past, is changing and not necessarily in what some bank-shareholders see as their interests."
The whole affair also throws the spotlight on the world of commodities trading and the growing band of non-financial players, including producers, dedicated commodity trading houses and utilities, who play an increasingly influential role in the energy trading markets. Many of these companies can dominate sectors of the energy markets, derivative as well as physical, without the same transparency and scrutiny that a bank is under.
Occidental's purchase of Phibro is illustrative of a wider shift in the commodities business and as the FT describes: "the latest episode in an exodus of specialised commodity trading talent from banks coping with greater government say over compensation." After all, why stay at an investment bank and face the constant ire of regulators when you can quietly trade elsewhere and continue to pick up huge pay packages. The FT says that "we live in Financial Times" – more like strange times if you ask me.
JS
Phibro is a consistently profitable business (I know, how many can say that these days?) that has netted Citi around $371m a year in annual earnings over the past five years. This, as Anthony Currie of breakingviews highlighted: "equates to a profit margin of more than 50%, and has been a bright spot in the last couple of years as Citi posted billions of dollars in losses elsewhere." Granted, Phibro is not a huge business given the monolithic scale of Citigroup. Nevertheless, profits are profits and it was nice to see that a division could stand strong while the rest of Citi's edifice seemingly crumbled.
Occidental Petroleum, the energy and chemical giant, picked up Phibro for just $250m, which many market observers have described as "a pittance" considering the profits it once netted the bank. That said, the sale is not exactly a surprise given Citi's political and economic situation: a troubled bank propped up by the US taxpayer, an obligation to pay star trader Andrew Hall a whopping bonus of $100m, and a government that has executive pay firmly in its sights. Not exactly peaches and roses for the folks at Citi. So, to be fair to their embattled CEO Vikram Pandit, the pressure to hive off Phibro was so overwhelming that to do otherwise would have been untenable.
It's not actually the sale of Phibro that's alarming, as it was undeniably a forced hand, but rather the political machinations that promoted the sale. We all know the era of light touch regulation is behind us but politics and economics don't often make good bedfellows. In a fiery research note from Rochdale Securities' Richard Bove, dramatically titled "Socialism in Action", he argues that the sale does not make good business sense. Bove says the decision was not in the interest of the Citigroup shareholders and "also sets the pattern of what may prove to be a series of similar actions by other banks reacting to the government takeover of the banking industry." It's this aspect, rather than his socialist rant, that's of note and as FT's Alphaville concludes: "the regulatory environment for banks, and the government's tolerance for the high-risk, high-reward model of years past, is changing and not necessarily in what some bank-shareholders see as their interests."
The whole affair also throws the spotlight on the world of commodities trading and the growing band of non-financial players, including producers, dedicated commodity trading houses and utilities, who play an increasingly influential role in the energy trading markets. Many of these companies can dominate sectors of the energy markets, derivative as well as physical, without the same transparency and scrutiny that a bank is under.
Occidental's purchase of Phibro is illustrative of a wider shift in the commodities business and as the FT describes: "the latest episode in an exodus of specialised commodity trading talent from banks coping with greater government say over compensation." After all, why stay at an investment bank and face the constant ire of regulators when you can quietly trade elsewhere and continue to pick up huge pay packages. The FT says that "we live in Financial Times" – more like strange times if you ask me.
JS
Thursday, October 8, 2009
Old age isn't so bad when you consider the alternative
George Osborne's proposals on raising the state pension age have helped bring the longevity issue into sharper focus this week, and not before time. An interesting feature of the general reaction to Mr Osborne's comments is the relative equanimity with which the idea has been greeted – even The Guardian approved.
The state pension age has remained unchanged (at 65 for men and, at the moment, 60 for women) since the 1940's. Given that average life expectancy has been increasing by some two years every decade since then, it seems ludicrous that pension ages have failed to keep track. Even allowing for some quite extreme regional variations (figures from Punter Southall show male life expectancy is nearly 84 in Kensington and Chelsea, but only 70 in Glasgow), neither the demographics nor the economics add up.
Clearly, and regardless of who wins next year's election, this will have to change. Post-war UK births peaked at just over one million in 1964. Put another way, more Britons are celebrating their 45th birthday this year than any other age. As a member of that particular cohort, I have to say you'd be hard pressed to find a finer, more upstanding body of men and women. But if all of us retire in 2029, our creaking pension system – already severely stretched – could be brought to its arthritic knees.
So maybe the best way to look at this is, as Hamish Mcrae wrote in yesterday's Independent, to embrace the fact that we are an ageing society, and recognise that "countries that adapt well to ageing, which is happening to every society in the developed world, will become richer, healthier, better balanced and in all probability happier communities than those that fail to tackle an inevitable and indeed welcome feature of this century."
AF
The state pension age has remained unchanged (at 65 for men and, at the moment, 60 for women) since the 1940's. Given that average life expectancy has been increasing by some two years every decade since then, it seems ludicrous that pension ages have failed to keep track. Even allowing for some quite extreme regional variations (figures from Punter Southall show male life expectancy is nearly 84 in Kensington and Chelsea, but only 70 in Glasgow), neither the demographics nor the economics add up.
Clearly, and regardless of who wins next year's election, this will have to change. Post-war UK births peaked at just over one million in 1964. Put another way, more Britons are celebrating their 45th birthday this year than any other age. As a member of that particular cohort, I have to say you'd be hard pressed to find a finer, more upstanding body of men and women. But if all of us retire in 2029, our creaking pension system – already severely stretched – could be brought to its arthritic knees.
So maybe the best way to look at this is, as Hamish Mcrae wrote in yesterday's Independent, to embrace the fact that we are an ageing society, and recognise that "countries that adapt well to ageing, which is happening to every society in the developed world, will become richer, healthier, better balanced and in all probability happier communities than those that fail to tackle an inevitable and indeed welcome feature of this century."
AF
Subscribe to:
Posts (Atom)
Posts
