Oct 26 2009
Be a banker, not a manufacturer. Live in London, not the West Midlands.
One of the most suprising things about current policy is the way the government is creating two nations.
Bankers are subsidised, financially supported, allowed large bonuses and protected from the cold winds of competition and financial reality. Manufacturing workers are subject to the full force of competitive pressures, are unsubsidised, face wage cuts and receive no bonuses.
House and flat prices in Central London have remained largely detached from reality throughout the slump, and are now roaring up again as loads of money sloshes around the financial districts and comes in from abroad to take advantage of the cheaper pound. House prices in the West Midlands and the North continue to fall, after substantial falls for the past year or more.
The government seems determined to continue on its subsidising way for the banks. Rumours abound that Lloyds would like to avoid the toxic debt insurance scheme the government is busily designing. Good for them. Let them out of it then. Why should the taxpayer have to stand behind all their past errors? Why are RBS to be allowed into such a scheme, when taxpayers are already on risk for too much in RBS anyway? The answer is they subsidise the banks so they direct all their extra money to the government to spend.
Surely both Lloyds and RBS should be given a simple remit. Sell your assets and businesses back to the private sector as quickly as possible, selling toxic debts with other assets in suitable business units and packages so we the taxpayers get rid of the lot. If some units end up needing a dowry, then I guess we will have to put up with that, but the aim should be to minimise taxpayer losses given the folly of past subsidy policy. In the meantime all pay and bonuses for people earning six figures in state funded banks should be frozen or cut, to get costs more into line with revenues and write offs.
The current behaviour of central London house prices, commodity prices, share prices bankers bonuses and the rest shows that monetary policy is selectively very lax. We have asset price inflation all over again, and once again the Bank of England thinks that does not matter. Presumably the government wants more inflation. As a collosal borrower, it has everything to gain as it sees it from debauching the money it has to use to repay the debts. Meanwhile manufacturing shivers to death, as the banks cannot spare them a dime.
21 Responses to “Be a banker, not a manufacturer. Live in London, not the West Midlands.”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
If the Government lets its pet money supply go short, they’ll lose the means to bribe their supporters. To that end, they are concentrating on keeping this little bubble inflated – it’s the only thing that will exercise them until May.
Were there such a thing as justice in Westminster, it would be possible to prosecute members of the Cabinet for …. expenses, conspiracy (trying to buy the electorate), negligence (the economy), aiding offenders (the Police and the prisons), and so many other crimes. The opportunity to vote them out of office once every five years just isn’t enough to keep them in line. Could you find such a thing as an unbiased jury in these cases?
Quite apart from the fact that the government has not got, and will never get, the necessary amount to cough up if just one of the banks goes under, the people who run the banking industry ought to be the bankers not the politicians.
As much of the huge state banks as possible should be unloaded onto the market, in bits if necessary. Even Northern Rock.
I thought that Acorn’s little piece yesterday was outstanding.
But the bankers do not have the upper hand if only the economy is managed properly.
And for the next few months, it will not be managed properly.
I keep referring to the ominous silence about the “toxic assets” the banks have on their balance sheets which taxpayers are underwriting courtesy of Brown. Is anyone looking into this? Are bank profits real or just as imaginary as they were previously? Is the government so complicit in all this that they are party to covering up the truth?
Morning Mr Redwood; Pete the Pusher here, Estate Agent.
Fortunately for me, London property is an international property market punt at the moment. Foreign investors see the possibility for a capital gain over the short term. Rental yields are piss poor but they will put up with that. Would you believe, some of them actually intend to live in these investment properties themselves!
Naturally, they have no interest in buying some foreclosed ex council house in the West Midlands. The currency risk is a problem, so they have to hedge against that for when they dump the property. Still, it is a nice little foreign currency earner for UK PLC and it helps stop the pound Stirling sinking. So Mr Politician, don’t bite the foreign hands that are currently feeding us. What else have we got to sell, apart from Banks. Christ, it’s not like we are a large export manufacturing country!
Meanwhile, before ZaNuLabour introduces capital controls, you may want to think about putting some of your assets into overseas property and out of the pound Stirling. I can help you with this for a very reasonable fee.
If banks are overpaying staff they must be inefficient. My personal experience is that they are very expensive in low-risk, normal transactions. Is there an opportunity for a few entrepreneurs to open up in competition but rewarding staff more modestly?
These institutions could specialise finance for SME’s and manufacturing businesses in areas where industrial growth is needed. The Industrial Banks of Birmingham and Manchester? They could cream off some of the profits presently made in London to help fund their investments whilst conducting normal banking operations. They might also find that depositors would be very happy to place funds with institutions whose objectives and modus operandi reflected their own values.
I agree with most of what you say. One thing is for sure – don’t be an engineer. I have two degrees and 30 years experience, my own one man band business and no work – at all.
Well, yes. The state is corrupting the financial system in order to preserve the power of the ruling elite. It is using inflation to diminish its own costs of borrowing and in doing so is savaging the wealth of the prudent. It’s nothing other than fraud and theft.
What is the role of parliamentary “democracy” in all this? As JR has pointed out in other posts here it is a sham, a fig leaf to allow the ruling elite to fulfil its power and exercise its money grab. It’s time to press the re-set button; to rediscover the principles of liberty and justice that were the hallmark of the Enlightenment and the American revolution.
The Bank wants asset inflation, it really thinks it can just inflate the economy back to 2007 and pretend nothing happened! Shame the currency is 30% off and the asset rises are not evenly distributed. The Keynesian experiment will end in disaster as they always do.
Please get rid of the Bank of England and bring in some monetary discipline!
The government needs to announce that it intends to slap a great big tax on property (preferably the subtle LVT rather than weird Schedule A ,abolished in 1963) but becoming operational in six months time ,so all the smart money gets out of property and invests in something producing goods or services.Then the tax watches over property prices (why it is called the Sentinel Tax) and up its rates whenever property prices go up and a bubble starts to form. Local rates can be levied to deal with different rates of house price inflation ,( though better land value inflation).
The whole problem with banks is that we are giving them money to prop up their ruined reserves ( ruined by overseas housing bubble),and then borrowing off them.This is insane.We could just spend the money into circulation without the intermediation of the banks.If the money were spent on public works building infrastructure any inflation would be sure to show up in raised land values which you could recoup with the LVT .
Not just that manufacturers are subject to the full winds of competition, which I have no problem with, but also that they are subject to extra government parasitism throgh the ‘elfinspectorate & electrcity prices 4 what they could be – both of which hit manufactuers hard & barely touch bankers.
The government owns most of the shares in RBS and Northern Rock and the bulk of the shares in LLoyds.
There is nothing to stop them calling an EGM with one resolution which is to buy back government shares through asset sales.
They could even declare a special dividend to distribute the cash. All sorts of existing corporate mechanisms could be used.
I suppose the real problem is that no one in Labour understands how a business works so they sit there wondering what on Earth to do with all this banks. There’s no guidance in Marx’s writings….
Nothing should be to big that we cannot let them fail. The Banks need to be broken up into a lot more smaller banks. Perhaps some sold to the likes of Tesco, Branson.
The market needs to work, I dont like suggesting this but the market was not allowed to work when the Banks failed so we must get them back in the marketplace, at the moment they are a “nationalised, private” outfits.
We need to get industry back to being run by the managers not by the bankers. We seem to be getting back to the “who governs” situation like we had in the 70s with the miners.
John, are you absolutely sure you’re allowed to say this? I mean the idea that the bank bailouts weren’t entirely necessary and the implication that we wouldn’t all suddenly have dropped dead had they not happened… well it’s a little outlandish isn’t it?
Report to Room 101! It is not enough to tolerate your Leader “You must LOVE him”.
There is a lot of talk at the moment concerning the revelation from a former New Labour spin doctor that mass immigration was done specifically to destroy the old order and enhance Labour’s voter base. It sounds crazy, but wouldn’t the destruction of manufacturing industry in former industrial cities across the midlands and the north boost dependency culture even further and support the gramscian endeavour.
Sure, these are crazy thoughts, but you never know……
There has been one certain expansion in the economy that will last. That is the underclass of poor, those needing care, those at the margins, those to whom the RPI and CPI are fictions, and those facing long term liabilities that amount to debt slavery. Welcome to the New Serfdom, formerly New Labour.
John East.
Yes surprising what information crawls out of the woodwork after a few years isn’t it.
So we are informed by press reports that mass immigration was, after all the excuses have been made, a Tony Blair idea, or thought of the day somewhere around the year 2000 and was actioned thereafter.
Do not remember seeing this in any manifesto pledge!!!!!.
Actual reason given by estate agents for house price rises in London (as Acorn points out) is, overseas investment in property (due to weakness of the Pound) and a shortage of properties on the market, in particular good ones.
Been speaking to a number of agents myself during the past few weeks, rises not yet filtering out from London yet.
In this Country we have a fantastic academic structure, English language, and an entrepreneurial spirit far better than the Franco-German-Italian one. We are good traders. We just really miss that middle ground between inventing things and selling them, i.e. PRODUCTION of goods. It’s a dirty word here, whereas in Continental Europe it’s still at the heart of business. The whole culture will need to be turned round if we are to keep 70 million people alive here in 20 years time.
There is SO much to do. Tear up chunks of employment law, business rates, planning, corporation tax. Bring some consistency to business policy. Bring back great incentives for overseas and UK investors to lend to UK business. Free up Pensions for people to invest in UK trading companies. Bring in Continental banks to lend to businesses these lousy UK clearers don’t even understand. Marginalise them. Break them up. Privatise them.
If Pete the Pusher is selling to Piotr and Pierre then that ought to be good news, since Piotr and Pierre will take the fall in real values, and if they’re paying cash, the sellers can redeem their mortgages without the banks issuing fresh ones. Not sure who is going to take the hit on the exchange rate hedge, but that’s still a liquid game of pass the parcel. Unfortunately although Pete and his mates in Survey and Conveyancing will be getting their cuts on the deal, I’m not sure whether the Government will manage to collect its 4% Stamp Duty because of some wizard offshore ownership schemes.
Whether Parvez in bond trading gets his bonus and decides to blow it on property, despite the ~7% turnround cost, rather than on commodities and forex may be an interesting question. You’d have thought by now he knew it was last chance saloon to find greater fools like Piotr and Pierre to sell his short lease Mayfair pad to.
Evening, Brian from Barnoldswick here, Sales Manager for Specialist Springs Ltd. I’m out for an evening drink at the Widget and Spring Makers’ Conference, with my colleagues from overseas, and we’ve been comparing our fortunes.
Joe from our US competitor isn’t here this year. His prices are still good, but volumes in Europe have been very low, and frankly he can keep his head above water with his massive domestic market, so that’s where his focus his. Infact his EU distributor in the UK looks like he’s for the chop.
Heinz from Stuttgart is enjoying mixed fortunes. The automotive industry is looking up after a grim few months, but his wise decision to invest in selling to the medical and special engineering sectors in S Germany in the past five years has paid dividends, as these sectors haven’t deteriorated in the same way. His local machine tool manufacturers are offering some attractive deals, which his/their bank is happy to back with attractive lease arrangements. He thinks the worst is over as he hears the German economy is coming out of recession.
Mireille from Lausanne is finding export business tough, but her Swiss Francs have paid for a meal for all 5 of us, when they barely covered a round of drinks when we met 2 years ago. She says the domestic market still has opportunities as the Canton is encouraging hi tech start-ups and multinationals are setting up in her area despite the strong Franc, citing quality of life, 10 year Corporation tax breaks for a start, and a skilled workforce. Her Cantonal bank supports long term development of Widget & Cie through 3% fixed rate loans repayable over 15 years.
We rib Zhang Li from China about the unfair aid he receives from his government and his weak currency. His products are chasing ours in quality, and with many of our customers moving out of the UK we are fighting an uneven battle to keep him away from them. His workforce is cheap and becoming highly skilled. So far we are ahead on quality, but the gap is narrowing.
I’m Brian, and frankly caught between pillar and post. Three of our major UK customers re-located last year, one to the Phillipines, and the others to Mexico and India. Despite this we kept the business, but are now under pressure to keep inventory without order cover for customers a world away. We used the slow down in business 12 months ago to clear out some old machinery and free up some space but we still had to pay an increased Business Rates Bill last year. We placed 5 workers on short time but 3 of them requested redundancy, which meant their skills are lost for the future, and their redundancy bill came just at the wrong time. On top of that our raw materials are also 30% higher than a year ago, yet when I tell the customer in the Phillipines our prices must rise he threatens to look elsewhere. That quote for new machinery to increase our efficiency, made in Germany is now 25% higher than a year ago. Despite that, we approached the Lloyds Bank Manager who was really apologetic and quite unhappy that he wasn’t being allowed to lend to people like us, as we are in a “risky” sector, and times have changed on his lending criteria. He just couldn’t understand how his management in a good bank like Lloyds had taken such a “brave” decision as to take over HBOS. It sounded to him as though they had been misled, and were now paying the price.
Frankly this is all a major headache, and the uncertainty as to what will happen next means that I’ve decided to apply for that Economic Development Director job advertised by Manchester Municipal Authority. The starting pay’s the same, around £35K, but at my age I have to think about the pension and a more comfortable lifestyle. And with my experience I’m sure I’ll be well placed to help struggling small Companies.
Charles I tried to raise money without Parliament and Gordon bRown bails out banks without Parliament. It is incredible that the Executive can commit so much money in such an opaque fashion and MPs seem to think they have a role and expense themselves accordingly.
Far too many people comment on banks as if they were pillar boxes rather than the wiring of the economic system. If they could be liquidated so easily there would not be the crying need for mortgage and other credit to revive the economy. The simple fact is the current value of real estate in Britain depends upon refinancing of mortgages – if and when it becomes difficult to refinance existing mortgages then defaults could wipe out balance sheets.
The Cross-Collateralization of Debt with debt-funded Assets is largely a Ponzi Scheme and the banks are prisoners of the Regulators obsession with increasing Reserves and reducing Credit in a counter-cyclical policy more suited to boom conditions.
We have politicians who are incompetent. They were rolled over by bankers a year ago and gave them huge amounts of capital without any controls. Lloyds should have been forced to run HBOS as a satellite Bad Bank on behalf of HM Treasury and not to integrate it onto Lloyds Balance Sheet.
It is hard to see how so many mistakes could have been made.
Bravo! I particularly like your penultimate paragraph.
Meanwhile, back in the real world, attention is drawn to two items on page B2 the Daily Telegraph business news of Monday 26 October.
“RBS hires continue with Asian expansion”. A new banker has been recruited to build up RBS’s Asian equity derivatives business. More hires are likely to follow. In case anybody raises an eyebrow and says “more risky business”, let me remind people of the deal that RBS’s new CEO is on. He gets a good basic salary but his bonus is dependent on taking RBS from loss to substantial profit. So, if this Asian punt comes off, he is well on the way to his bonus. If not, he can take salary, pay-off and run. We all know who is taking most risk.
“Lloyds plan for APS exit with politicians”. Lloyds want to raise £25bn and their plan is with the FSA and the Treasury for approval. There would be a £11bn rights issue before the Xmas break. There are plans to convert £15.5bn of debt into a new capital instrument. Snags? Bondholders owning £4bn of the debt are not too keen on the new capital instrument. Oh, and the state would pay £5bn for its entitlement. I wonder who the “the state” is – no prizes for guessing.