The great interest rate rip off part 1

interestrateripoff · September 12, 2009

OECD calls an end to the global recession

Surge in optimism as British economy grows 0.3 per cent in three months

Stephen Foley: Time Fannie and Freddie are sold off

US Outlook: The nationalisation of Fannie Mae and Freddie Mac, the US mortgage giants, one year ago this week was the most shocking event ever in American finance – for precisely seven days. Unlike for Lehman Brothers, there have been no television dramatisations of the last days of Fannie and Freddie, but the anniversary was marked by a provocative report from the independent Government Accountability Office here, which sets out the options for restructuring these enormous institutions.

interestrateripoff · September 12, 2009

Breaking news:

MG Rover: how the Phoenix Four hit the jackpot

Report into demise of car manufacturer reveals owners bought software to wipe clean hard drives 35 comments
[*] Iceland banks' fraud trails 'lead to UK'

Prosecutor Olafur Hauksson meets Serious Fraud Office to discuss cases regarding Nordic institutions

[*] Primark's chief executive Arthur Ryan steps down after 40 years

Septuagenarian founder turned 'cheap chic' into £2bn sales. By Zoe Wood

[*] Bosses' pensions up 23%

Directors of Britain's biggest firms can look forward to an average of £250,000 a year in retirement, 30 times what workers will receive
- Morgan Stanley chief hands over reins

Hip-hop stars make Alpine, New Jersey, the richest place you've never heard of

Unassuming US town ousts LA and the Hamptons as America's most expensive place to live
- In pictures: Alpine
[*] GM Europe takeover deal under investigation by European commission

Questions are raised about Germany's £4bn subsidy to Magna, the new owner of GM's Vauxhall car plants

More business news

interestrateripoff · September 12, 2009

http://www.nytimes.com/2009/09/12/business/12nocera.html?ref=business

What if they’d saved Lehman Brothers?

What if, a year ago this weekend, the government and the banking industry had somehow found a way to keep Lehman from filing for bankruptcy? How might that have changed the course of the financial crisis?

We know, of course, what did happen; it is seared in our memory. On Monday, Sept. 15, 2008, when the news broke that, despite nonstop efforts that weekend, there would be no last-minute reprieve for Lehman, à la Bear Stearns, all hell broke loose.

The stock market tanked, dropping more than 500 points that day. The Reserve Primary Fund, a money market fund that held Lehman bonds, “broke the buck.” Shortly afterward, the American International Group nearly collapsed, and had to be bailed out with an extraordinary $85 billion loan from the government. Morgan Stanley was rumored to be next. Banks all over Europe were teetering. There were even fears about the stability of mighty Goldman Sachs. On Wall Street — indeed, in financial capitals all over the Western world — the panic was palpable.

Ever since that weekend, most people, including me, have viewed the decision by Henry Paulson Jr., the Treasury secretary at the time, and Ben Bernanke, the Federal Reserve chairman, to allow Lehman to go bust as the single biggest mistake of the crisis. Never mind that the two men have insisted ever since that they had no other option; surely, they could have created some options if they’d wanted to. Or so goes the conventional wisdom.

Christine Lagarde, France’s finance minister, for instance, called the decision “horrendous” and a “genuine mistake.” According to David Wessel, author of a book about the crisis, “In Fed We Trust,” the head of the European Central Bank, Jean-Claude Trichet, has said the same thing in private. He quotes one of Mr. Trichet’s aides as saying, “It never occurred to us that the Americans would let Lehman fail.” In speeches and articles, in books and television appearances, commentators of every political stripe have pointed to the Lehman bankruptcy as the event that turned the subprime crisis into a full-blown financial collapse.

As we approach this anniversary, though, I’ve begun to question that conventional wisdom. Yes, the fall of Lehman Brothers set off a contagion of panic. And I’m still convinced that Mr. Paulson and Mr. Bernanke could have found a way to save Lehman had they been so inclined (more on that in a moment). But I’ve become convinced that, if Lehman had been saved, the collapse would have occurred anyway.

John H. Makin, a visiting scholar at the American Enterprise Institute, wrote recently, “If the Lehman Brothers’ failure had not triggered the panic phase of the cycle, some other institutional failure would have done so.” I’ll go a step further: it is quite likely that the financial crisis would have been even worse had Lehman been rescued. Although nobody realized it at the time, Lehman Brothers had to die for the rest of Wall Street to live.

•

A week ago, a Reuters reporter traveled to Richard Fuld’s vacation home in Ketchum, Idaho, to see if the former Lehman chief executive would say anything about the anniversary. (When Mr. Fuld walked outside to meet her, he said, “You don’t have a gun; that’s good,” according to the reporter.)

Standing in his driveway, leading, as ever, with his chin, Mr. Fuld talked about the “pummeling” he had taken for presiding over the bankruptcy. “They’re looking for someone to dump on right now and that’s me,” he said. “The facts are out there. Nobody wants to hear it, especially not from me,” he added.

Mr. Fuld’s bitter remarks reflect the way many former Lehman executives feel, even now, about the fact that their firm was the only one to go under during the crisis. After all, they say, Lehman’s mistakes — too much leverage, an overreliance on shaky real estate assets, playing down the risks on its balance sheet — were the same mistakes just about every firm made. Bear Stearns made those mistakes — and was rescued. Citigroup made those mistakes — and was rescued.

What’s more, they say, in the months and weeks leading up to the September crisis, the firm, realizing that it might need a Plan B, proposed that it be allowed to become a bank holding company. It also asked for access to the Fed’s discount window, which is reserved for troubled banks. (What Lehman didn’t do, however, despite the repeated urging of Mr. Paulson, was find a partner with deep pockets or raise additional capital.) These are the “facts” Mr. Fuld was referring to when he spoke the Reuters reporter.

But Timothy Geithner, then New York Fed president, now Treasury secretary, didn’t like the idea of letting an investment bank become a bank holding company — so he said no. Immediately after the Lehman default, however, that is exactly what he allowed Morgan Stanley and Goldman Sachs to do, which helped stabilize both firms.

Of course, politics played a role, too. Congress had no stomach for another bailout on the heels of the takeover of Fannie Mae and Freddie Mac just a week before Lehman weekend. In his book, Mr. Wessel, the economics editor of The Wall Street Journal, quotes Mr. Paulson as saying in a conference call, “I’m being called Mr. Bailout. I can’t do it again.”

Although Mr. Paulson would later say that he had no legal authority to save Lehman Brothers, it seems pretty clear from Mr. Wessel’s account that he wasn’t really looking for any authority. He wanted to send a message. That Monday morning, in announcing the Lehman default, Mr. Paulson told the media: “I never once considered that it was appropriate to put taxpayers’ money on the line” to save Lehman Brothers

More at the link.

Was Lehman allowed to go bust to save Goldman Sachs? Another competitor gone and that means more trade will go the GS and JP Morgan?

whistleblower2009 · September 12, 2009

Hi All,

I'm looking for some advise and I am sorry if I have posted in the wrong area of the site.

I am having a real hard time with my Mortgage provider Bank of Scotland.

The story is back in 2004 I was forced to give up work to care for my Wife, I was getting my mortgage intrest payed by the D.S.S. but I had a shortfall between the D.S.S. payments and the amount of my mortgage so I agreed to pay £100 per month which I found a real struggle anyway my wife died in May 2009 and as I was on my own the D.S.S. payments have changed so I got a fresh letter from Bank of Scotland saying I had a shortfall of £20 per month.

I phoned the bank to query this amount as up to this point I was paying £100, the bank said in May there was no need to set up a standing order for £20 per month as the would take the £20 of the £2734.87 I had accumilated to my account as a result of my £100 per month payments.

I asked why they had let me run this amount up when I was struggling to pay the £100 per month and they should have informed me that £100 per month was to much, I got the usual waffle, I then asked for the overpayment to be returned and they said no as the D.S.S. could ask for their money back at any time, I stressed that the £100 per month was my personal money and not D.S.S. money but they wouldn't move their position.

I contacted the D.S.S. who said that even if major fraud was proven against me the D.S.S. would reclaim the mortgage intrest payments from me and not the bank.(they also said the banks statement was rubbish)

I wrote a letter to the bank back in May asking for them to reconsider their position and told them of my finding with the D.S.S., I also asked them if they are going to continue to hold my overpayment as a sort of deposit/retainer does this mean that everyone who is having their mortgage intrest payed by the D.S.S. must lodge the same deposit/retainer?

I to date have been given a real runaround from not receiving the original letter even though I have the proof of delivery, I phoned in June for a update as I had heard nothing and was told no letter had been received I was given a number to fax a copy to, I left it a week and phone and was again told the fax wasn't received and no record of my last call was logged on my account, I was again asked to fax my original letter to a secure collections number which I did.

At the beginning of August I received a letter saying they have appointed a senior member of their team to look into the issues I have raised and would be back in contact no later than 4 weeks.

On 8th Sept I received another letter from the bank saying they need another 4 weeks.

Where do I go from here?

Am I right or wrong to demand the overpayment back?

Why are they dragging their heels?

Any thoughts would be appreciated.

Whistleblower.

interestrateripoff · September 13, 2009

Cut public spending, say voters - Times Online

Voters are overwhelmingly in favour of cutting public spending rather than tax rises to close the budget black hole, a Sunday Times/YouGov poll finds today.

Sixty per cent want to shrink the size of the state to curb the £175 billion deficit amid mounting government disarray over the public finances.

The survey finds that just 21% would prefer the government to raise taxes to close the growing gap between what the Treasury spends and what it receives in revenue.

The findings will put further pressure on Gordon Brown, who has already announced plans for increases in income tax for the wealthy and in National Insurance.

There was growing evidence last night that ministers are still divided over how to respond to the public clamour for a spending squeeze. The cabinet disagreement comes as backbench Labour rebels begin to muster for a final bid to oust Brown from the leadership before the general election.

In his speech to the TUC conference in Liverpool on Tuesday, the prime minister will acknowledge the need for “tough choices in public spending”, but will imply that these can be made without cutting jobs or services.

Brown will say a Labour government will “protect public services” and “invest in the future”, contrasting his approach with the Tories’ “obsessive anti-state ideology”.

The prime minister is understood to have told union bosses during a private Chequers meeting last Friday that public sector jobs would be safe under a future Labour government.

“We won’t take any spending decisions which would in any way slow the recovery,” Brown said at the meeting. One union baron said: “The prime minister bent over backwards to make it clear that our members’ jobs would be safe.”

However, tomorrow Lord Mandelson will send out a much tougher message on public spending. In a speech to Progress, the Blairite think tank, the business secretary is expected to warn of “less spending in some programmes” and to admit that some government projects may have to be scrapped altogether.

Brown is a deluded feckwit surely even the union bosses aren't that stupid to believe his lies. Low paid workers should be protected it's the pointless management positions that need to go as well as big cuts in salaries of the higher paid public sector workers.

Low paid workers need protecting as they spend most of their cash in the economy so cutting there wages significantly would cause huge problems.

However management would rather cut low paid workers salaries than there own.

interestrateripoff · September 13, 2009

Estate agent Knight Frank insists property market is bouncing back - Times Online

Knight Frank has shrugged off a 66% drop in full-year profits, insisting the stricken property market is bouncing back and its business remains in rude health.

The upmarket estate agent, which sold Compton Bassett House in Wiltshire for about £8.5m to the pop star Robbie Williams early this year, said house prices were stabilising and residential sales during August were up 37% on the same time last year.

Nick Thomlinson, senior partner and chairman of Knight Frank Group, said commercial property prices also appeared to have hit bottom after a slide of almost 50% in the past 18 months.

“In the four months to August we have continued to trade profitably across the group, with particular strength in our UK residential business, which has once again outperformed the market,” Thomlinson said.

He sounded a note of caution, however, saying that recovery in the housing market remained fragile and patchy and that further price falls continued to be a possibility because of the shortage of mortgage finance and the economy’s struggle out of recession.

On commercial property, Knight Frank warned that despite improved pricing for investment sales, it could be 2012 before rents begin to rise again across the market.

The group’s accounts showed that in the year to April 30, 2009, turnover fell from £333.9m to £255.7m and pre-tax profits plummeted from £59.2m to £20.8m.

Knight Frank remains conservatively financed, with no debts, and at the year-end it had £28.5m of cash in the bank. It has a £30m revolving credit facility which is currently unused.

During the boom the firm’s partners collected bonuses of more than £1m but as a result of the more difficult conditions they received an average payout of £169,000 last year.

Could it be that trade has picked up because competitors have closed?

interestrateripoff · September 13, 2009

Cheap dollars are sowing the seeds of the next world crisis - Telegraph

In a world of systemic instability, reserves mean power. Reserves mean you can defend your currency, stabilise your banking system and boost your economy without resorting to yet more borrowing – or, worse still, the printing press.
More than half of China's reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you're talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China's wealth takes a mighty hit.

In recent years, America has run massive budget and trade deficits, both of which put downward pressure on the dollar – so devaluing China's reserves. Beijing has remained tight-lipped, worried less about diplomatic niceties than the financial implications of voicing its concerns. If the markets thought China would buy less dollar-denominated debt going forward, the US currency would weaken further, compounding Beijing's wealth-loss.

American leaders have relied on this Catch-22 for some time, guffawing that China is in so deep it has no choice but to carry on "sucking-up" US debt. But Beijing's Communist hierarchy is now so worried about America's wildly expansionary monetary policy that it is speaking out, despite the damage that does to the value of China's reserves.

Last weekend, Cheng Siwei, a leading Chinese policy maker, said that his country's leaders were "dismayed" by America's recourse to quantitative easing. "If they keep printing money to buy bonds, it will lead to inflation," he said. "So we'll diversify incremental reserves into euros, yen and other currencies".

This is hugely significant. China is now more worried about America inflating away its debts than about those debts being exposed to currency risk. Economists at Western banks making money from QE still say deflation is more likely than inflation. As this column has long argued, they are talking self-serving tosh.

The entire non-Western world rightly sees serious inflationary pressures down the track in the US, UK and other nations where political cowardice has resulted in irresponsible money printing.

..........

"Carrying" credit in this way is currently the source of huge gains. No one knows the true scale, but the world has, of course, been flooded with cheap dollars.

This presents serious systemic danger. A dollar weighed down by Chinese divestment, then suppressed further by carry-trading, could easily spring back. Those who had borrowed in dollars would owe more, while their dollar-funded investments would be worth less. This "unwinding" could send financial shock around the globe.

This is what happened in 1998, when yen carry-trades went wrong, causing the collapse of Long-Term Capital Management and sparking a global slowdown.

So even if the Western world manages to fix its banking system, the Fed's money printing could well be stoking up the next financial crisis. The dollar carry-trade. You heard it here first.

Another ticking timebomb to go with the rest.

interestrateripoff · September 13, 2009

http://www.nytimes.com/2009/09/13/business/economy/13excerpt.html?ref=business

Millions of Americans have lost homes, jobs and savings to the financial crisis and recession. While greed and extravagance played roles, many lived beyond their means because their paychecks shrank. This article is adapted from “Past Due: The End of Easy Money and the Renewal of the American Economy,” by Peter S. Goodman, a reporter for The New York Times. The book, to be published Tuesday by Times Books, explores the origins of the crisis and suggests ways to reinvigorate the economy.

ONE afternoon in November 2006, a policeman spotted an expired license plate on Dorothy Thomas’s 10-year-old Toyota Corolla as she drove through San Jose, Calif. He ordered her to pull over.

Struggling under the weight of thousands of dollars in credit card bills, Ms. Thomas was perpetually short of cash. She had not bought a $10 auto registration sticker. The officer checked his database and recognized that she had already been ticketed once before for the same thing. He arranged to have her car towed away.

“I got down on my knees and begged that officer,” Ms. Thomas recalled.

As she watched her car being hauled off, she sensed that this was the beginning of a descent into a crisis from which she might not easily escape. Without money to pay the towing and storage fees, she could not extract her car from the lot, and the tab soon grew to $1,600. Without a car, she could not reach the hospital where she worked in the administrative offices, so she lost her $16-an-hour job. Without a paycheck, she could no longer pay the rent on her modest home. She moved to Oakland, where a friend lived in a beaten-down, rented house on a street they called Crack Avenue. By year’s end, Ms. Thomas, then 49, was occupying a bunk at a homeless shelter, searching in vain for a job in an economy plagued by unemployment.

Across the United States a sense has taken hold that the Great Recession and the financial crisis are predominantly a result of national profligacy, as if the economy had been undone by insatiable shoppers, foolhardy home buyers and greedy investment bankers. Extravagance and recklessness certainly played crucial roles, and yet they are only part of the explanation.

Many have lived beyond their incomes simply because incomes have been outstripped by the costs of middle-class life. By the fall of 2008, most American workers were bringing home roughly the same weekly wages they had earned in 1983, after accounting for inflation.

“For middle- and low-wage workers, the median wage basically went nowhere over these years,” said the economist Jared Bernstein.

Spirited and eloquent, Ms. Thomas had worked her way up from rural Oklahoma poverty, enduring the strains of forcibly integrated schools, before settling in California. She had become one of the first African-Americans to sell cosmetics at a Sacramento department store. Then, she forged a career in medical billing, at one point making $22 an hour. She had lived beyond her means, but not out of decadence. For years, she had rented homes in better neighborhoods than she could afford in order to send her two daughters to quality schools. She had run up credit card balances to pay for summer science camps and school supplies. She had never earned more than a high school diploma, but one of her daughters already had a master’s in education; the other was about to start college.

“I truly bought into the idea that education is the way out of poverty,” Ms. Thomas said. “If your kids are going to school with kids who are preprogrammed to go to college, then that’s what they will expect. I didn’t get myself out of poverty. But I got my daughters out. I was the bridge.”

Long before “subprime” entered the American lexicon, before Wall Street convulsed with the collapse of giant institutions and the financial world seized with fear, a slower-moving crisis was already under way for tens of millions of ordinary people like Ms. Thomas. The shock of recent times has merely intensified this deeper crisis, rendering void a mode of living that was already unsustainable.

As wages stagnated, and as the costs of health care and education spiraled higher, easy money filled the gap: shrinking paychecks were masked by an explosion of consumer credit and by a pair of investment manias that made money surge through the American economy — one centered on the supposedly limitless promise of the Internet, the other propelled by faith that real estate values could only climb.

On the backs of these fantasies, the financial system lent out ridiculous sums of money to businesses and homeowners, as if the laws of supply and demand had been repealed.

Several more pages at the link.

For a mere $10 someone has there life destroyed.

As I have numerous times before we need a low cost global economy but that doesn't generate the billions the bankers need and crave. The only way to create that sort of wealth is with continual inflation it looks like there own greed and stupidity has finally killed the host.

interestrateripoff · September 13, 2009

http://www.nytimes.com/2009/09/13/business/13unboxed.html?ref=business

IN the aftermath of the great meltdown of 2008, Wall Street’s quants have been cast as the financial engineers of profit-driven innovation run amok. They, after all, invented the exotic securities that proved so troublesome.

But the real failure, according to finance experts and economists, was in the quants’ mathematical models of risk that suggested the arcane stuff was safe.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

That failure suggests new frontiers for financial engineering and risk management, including trying to model the mechanics of panic and the patterns of human behavior.

“What wasn’t recognized was the importance of a different species of risk — liquidity risk,” said Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.”

In the future, experts say, models need to be opened up to accommodate more variables and more dimensions of uncertainty.

The drive to measure, model and perhaps even predict waves of group behavior is an emerging field of research that can be applied in fields well beyond finance.

Much of the early work has been done tracking online behavior. The Web provides researchers with vast data sets for tracking the spread of all manner of things — news stories, ideas, videos, music, slang and popular fads — through social networks. That research has potential applications in politics, public health, online advertising and Internet commerce. And it is being done by academics and researchers at Google, Microsoft, Yahoo and Facebook.

Financial markets, like online communities, are social networks. Researchers are looking at whether the mechanisms and models being developed to explore collective behavior on the Web can be applied to financial markets. A team of six economists, finance experts and computer scientists at Cornell was recently awarded a grant from the National Science Foundation to pursue that goal.

“The hope is to take this understanding of contagion and use it as a perspective on how rapid changes of behavior can spread through complex networks at work in financial markets,” explained Jon M. Kleinberg, a computer scientist and social network researcher at Cornell.

At the Massachusetts Institute of Technology, Andrew W. Lo, director of the Laboratory for Financial Engineering, is taking a different approach to incorporating human behavior into finance. His research focuses on applying insights from disciplines, including evolutionary biology and cognitive neuroscience, to create a new perspective on how financial markets work, which Mr. Lo calls “the adaptive-markets hypothesis.” It is a departure from the “efficient-market” theory, which asserts that financial markets always get asset prices right given the available information and that people always behave rationally.

Efficient-market theory, of course, has dominated finance and econometric modeling for decades, though it is being sharply questioned in the wake of the financial crisis. “It is not that efficient market theory is wrong, but it’s a very incomplete model,” Mr. Lo said.

For me they are trying to model the impossible because you can never fully understand the variables and how they interact. The models will always work for a time but ultimately something unpredictable will happen that proves the model to be flawed.

interestrateripoff · September 13, 2009

Lenders ignore Bank rate freeze

Two of Britain’s biggest lenders hiked the cost of new mortgages last week — one day after Bank rate was kept on hold for the sixth consecutive month.
Royal Bank of Scotland (RBS), 70% owned by the taxpayer, increased the cost of new mortgages by up to 0.7 of a percentage point. The move takes some of its five-year fixed-rate deals from 5.99% to 6.69%, increasing the cost of a £200,000 loan by £1,400 a year.

Nationwide, Britain’s biggest building society, also hiked rates for remortgages last week — by up to 0.2 of a point.

Lenders have consistently put up the cost of new mortgages in the past six months, despite Bank rate being on hold at 0.5% since March. Experts warned that fixed-rate mortgages could soar to 10% when the Bank of England starts to raise rates again, if lenders continue to profiteer.

Thank god for the recovery.

interestrateripoff · September 13, 2009

Cadbury blasts £10bn Kraft bid

Chairman Roger Carr says American rival Kraft Food's takeover bid fundamentally fails to reflect value of Cadbury 6 Comments

Cadbury’s survival rests on its chief

Lower share price and weaker dollar hit Kraft’s bid

Deloitte’s £30m fees at MG Rover and Phoenix

Accountant’s close association with Phoenix group has been revealed in government inspector’s report into scandal 6 Comments

Lies and cover-up at MG Rover exposed by report

The Rover debacle is down to sheer cowardice

David Tyler to be next chairman for Sainsbury

The board of £6 billion food retailer J Sainsbury has picked Logica's David Tyler become its next chairman

David Tyler is front-runner for chair of Sainsbury's

Mini-stores help put Morrisons on the map

'The property market is bouncing back'

Upmarket estate agent Knight Frank is shrugging off massive profit drops and insisting its business remains in rude health 5 Comments

It’s new and we like it

Homes in countryside limit leaks in value

RBS to relaunch historic high street brand

The bank is working on plans to resurrect historic Williams & Glyn's, which disappeared 24 years ago

Lord Myners talks about his City role

In an interview with The Sunday Times, the City minister says taxpayers will make money from the government’s banking rescue

Murray mania could be worth £405m to Britain

Tennis in Britain set to get £405m boost thanks to the emergence of champion Andy Murray as a potential Grand Slam winner

Beaten Murray is left searching for answers

The Net Post: how to save British tennis

Noble Energy joins UK exodus from North Sea

American oil group Noble Energy has put its North Sea oil business up for sale due to falling production and tax increases

£4m carrot for Candover boss Malcolm Fallen

Candover's new chief executive has been handed a £4m incentive package to turn round the struggling private-equity firm

O'Brien faces Cable & Wireless lawsuit

C&W has launched legal action against Denis O'Brien's Digicel mobile-phone empire, claiming it was overcharged for years

Carbon-trading hit by UN suspension

The biggest assessor of $100bn pollution credits has been suspended after failing to show projects were properly vetted

Britain falls behind in the race to win low-carbon trade

Climate change talks may fail, warns Miliband

Bids for music service Spotify live up to hype

Launch of free digital music service Spotify on Apple's iPhone could create a model for making money on digital pop

Is Spotify on the move good value for money?

Dial M for music on the move

Judge compares Iceland crisis to Madoff's Ponzi

Chief investigator probing Iceland's financial collapse has compare the banking system's implosion to Madoff's Ponzi scheme

Crunch time as Obama faces trade dilemma - Times Online

Cadbury’s survival rests on its chief

Todd Stitzer must convince investors he can achieve his ambition of growing margins to 15% by 2011 and share prices can lift

Cadbury boss blasts £10bn Kraft bid

Lord Myners talks about his City role

In an interview with The Sunday Times, the City minister says taxpayers will make money from the government’s banking rescue

interestrateripoff · September 13, 2009

Deripaska snubs London over $30bn mining float

United Company Rusal, the Russian aluminium giant run by oligarch Oleg Deripaska, is planning to list in Hong Kong by December in a huge blow to the London Stock Exchange.

Hamish McRae: We need UK talent in the driving seat for car industry to get back on track

Economic View

High and mighty: What the masters of the universe did next

It's a year since Lehman fell, so where are the masters of the universe now?

Irene Rosenfeld: the big cheese who wants to go to work on a Creme Egg

interestrateripoff · September 13, 2009

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Gloves off as Cadbury fights Kraft's takeover bid

A war of words has erupted between Cadbury and its US suitor Kraft after the British confectioner branded its rival a “low-growth conglomerate” and dismissed its proposed £9.6bn takeover as “unappealing”.

Cadbury staff's bittersweet feelings over Kraft bid

Cadbury takeover: Which companies are next?

T-Mobile owner eyes multi-billion dollar bid for Sprint

Deutsche Telekom has called in banking advisers to study a possible multi-billion dollar bid for Sprint Nextel.

Yell investors back £500m capital-raising

Institutional investors in Yell Group, the debt-burdened directories firm, have agreed to stake as much as £500m to revive the company on the condition that banks agree to relax lending terms.

Brown in key talks to save Vauxhall jobs

PM will meet GM bosses to discuss plans to build electric car in UK, protecting thousands of workers.

COMMENT: Car industry must be given right tools

St Modwen chairman approved MG Rover 'bribe'

Government asset scheme 'paralysing' private equity

Heavily indebted companies are being hamstrung by the impact of the Government's asset protection scheme, say private equity experts.

More Business News

Vultures hunt for Lehman 'gold'

Lehman is a footnote in the great East-West globalisation crisis

Cheap dollars are sowing the seeds of the next world crisis

Kraft needs a sweeter deal to woo Cadbury

interestrateripoff · September 13, 2009

Lehman is a footnote in the great East-West globalisation crisis - Telegraph

As my colleague Jeremy Warner puts it, Lehman no more caused the economic convulsions of the last year than the assassination of an Austrian prince caused the First World War. There was the little matter of a rising Germany then, and a rising China now. Both scrambled the international system, albeit in different ways.
The 48 hours that killed Lehman and AIG – and would have killed Merrill, Morgan Stanley, and Goldman Sachs within a week if Washington had not stepped in – merely brought to a head the inevitable exhaustion of a global order in which the West chokes debt, and the East chokes on export capacity.

As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.

The housing crash has tipped 15m US home owners into negative equity. A third of sub-prime mortgages are in default. Some 7.8pc of all loans backed by the Federal Housing Administration are in foreclosure or 90 days in arrears. This is why the US Treasury had to seize Fannie Mae and Freddie Mac, the $5.3 trillion pillars of US housing. It is not a liquidity crisis. It is a bankruptcy crisis.

Foreclosures reached 358,000 in August alone. More Americans are being evicted each month than during the entire Depression year of 1932. This is not to pick on America. Variants of the bubble occurred across the Anglosphere, Scandinavia, Holland, Club Med, and east Europe. Defaults will hit with a lag in Europe, but hit they will. The IMF expects global banks to lose $2.5 trillion by next year. So far they have confessed to $1 trillion.

We know why the bubble occurred. Call its Greenspanism. Central banks rescued assets each time there was a hiccup, but let booms run unchecked. They pulled "real" rates ever lower, creating addiction to monetary stimulus. Larger doses were required with each cycle, until we hit zero, and it is still not enough. Debt burdens rose to records across the OECD.

Couldn't they see that this was cheating: stealing from the future? No, they were seduced by "inflation targeting" – watch goods, ignore assets – just as cheap imports from China rendered the doctrine obsolete. It always takes ideology to consummate massive error.

Asia in turn caused a global bond bubble by accumulating $5 trillion in reserves (a side effect of holding down currencies to gain export share). Long-term rates collapsed too. The global credit bubble was complete.

The Great Game can continue only as long as deficit countries – currently, US (-$628bn), Spain

(-$109bn), Italy (-$62bn), France (-$58bn), Britain (-$53bn), Greece (-$42bn), and east Europe – are willing to bankrupt themselves buying Asian goods. Obviously, this is absurd.

America's baby boomers have lost 45pc of their net worth. US pay fell 4.8pc in June year-on-year as hours were slashed. US consumer credit has contracted for six months in a row, falling by record $21.6bn in July. The US savings rate has risen from near zero to around 5pc.

The recovery is here.

interestrateripoff · September 13, 2009

BBC NEWS | Politics | TUC warns of four million jobless

Public spending cuts would create a "double-quick, double-dip" recession and push unemployment over four million, the TUC's leader has warned.
Brendan Barber called it "astonishing" that demands for reducing the budget deficit were being seen as a priority, rather than funding economic revival.

Speaking ahead of the TUC Congress in Liverpool, Mr Barber said the outlook was "very precarious".

But Gordon Brown says the economy is "on the road to recovery".

The TUC's congress, which starts in Liverpool on Monday, will be the last one before the next general election and it comes at a time of strained relations between the unions and the government.

'Tough choices'

Mr Brown will deliver an upbeat message to delegates when he speaks on Tuesday, declaring "we are on the road to recovery", though he will say this will not be automatic and the recovery will need to be nurtured.

The prime minister will say that he will protect frontline jobs and urge TUC members not to disrupt the government's efforts with industrial action.

Mr Brown will also say: "People's livelihoods and homes and savings are still hanging in the balance, and so today I say to you: don't put the recovery at risk.

Maintaining current deficit spending will in the long run leave even more jobless. The debt repayments will see to that.

interestrateripoff · September 13, 2009

Wall Street's new shape: Rearranging the towers of gold | The Economist

AT THE press of a button, the double doors sweep open. Welcome to the office in downtown Manhattan of Lloyd Blankfein, chief executive of Goldman Sachs. A couple of years ago, such smooth gadgetry would have seemed a fitting symbol of the power of Wall Street. These days it stirs more sinister thoughts: of a screen villain rather than a hero of high finance. As it happens, it is rumoured that an institution not unlike Goldman will appear unflatteringly in Oliver Stone’s sequel to “Wall Street”, due in cinemas next spring.
Economists continue to debate the ultimate causes of the collapse of Lehman Brothers, Wall Street’s fourth-biggest firm, a year ago on September 15th, and of the havoc that followed. The public and most politicians, however, are clear: the blame lies with bankers, venal and incompetent in equal measure. “It’s like pre-Thatcher Britain out there,” sighs the head of a New York bank. At a hearing in February a congressman addressed JPMorgan Chase’s boss, Jamie Dimon, as “Mr Demon”. Deliberate or not, it captured the mood.

The name-calling may have died down a bit lately, but the Street will struggle to regain its swagger. Reforms proposed by Barack Obama’s administration would, if passed, introduce an array of penalties for bigness and boldness. Regulators, too, are determined to clip finance’s wings, even musing about reducing the “swollen” financial industry to a more acceptable size (see Buttonwood), a sentiment echoed by self-flagellating bankers. This week the arch-capitalist Mr Blankfein chastised Wall Street for letting “the growth and complexity in new instruments outstrip their economic and social utility”. Reducing banks’ leverage and their leeway to splash out on star traders will be a priority at the G20 summit in Pittsburgh this month.

The politicians are driven in part by populist urges and in part by a genuine wish to avoid a repeat of the week in which global finance suffered a near-fatal heart attack. In the space of two days Merrill Lynch fell into the arms of Bank of America (BofA), Lehman went bust and American International Group (AIG), a mighty insurer, buckled under suicidal derivatives bets and had to be bailed out. Lehman’s demise marked the onset of the worst financial crisis and global recession since the 1930s.

To be sure, the seeds of trouble had been sown years earlier, with the relaxation of lending standards in mortgages, corporate buy-outs and much more, and with the enthusiasm for using borrowed money to enhance returns. The debts of American financial firms rose steadily from 39% to 111% of GDP in the 20 years to 2008. But many of the subsequent policy choices—not least the $700 billion Troubled Asset Relief Programme—stemmed from Lehman’s demise.

More at the link.

interestrateripoff · September 14, 2009

http://www.nytimes.com/2009/09/14/health/policy/14kidney.html?_r=1&hp

Melissa J. Whitaker has one very compelling reason to keep up with the health care legislation being written in Washington: her second transplanted kidney.

The story of Ms. Whitaker’s two organ donations — the first from her mother and the second from her boyfriend — sheds light on a Medicare policy that is widely regarded as pound-foolish. Although the government regularly pays $100,000 or more for kidney transplants, it stops paying for anti-rejection drugs after only 36 months.

The health care bill moving through the House of Representatives includes a little-noticed provision that would reverse the policy, but it is not clear whether the Senate will follow suit. The 36-month limit is one of several reimbursement anomalies — along with inadequate primary care payments and incentives that encourage unneeded care — that many in Congress hope to cure.

Ms. Whitaker, 31, who describes herself as “kind of a nerd,” has Alport syndrome, a genetic disorder that caused kidney failure and significant hearing loss by the time she was 14. In 1997, after undergoing daily dialysis for five years, she received her first transplant. Most of the cost of the dialysis and the transplant, totaling hundreds of thousands of dollars, was absorbed by the federal Medicare program, which provides broad coverage for those with end-stage renal disease.

Despite that heavy investment, federal law limits Medicare reimbursement for the immunosuppressant drugs that transplant recipients must take for life, at costs of $1,000 to $3,000 a month.

Once Ms. Whitaker’s Medicare expired, she faced periods without work and, more important, without group health insurance, which disregards pre-existing conditions. Struggling financially, she soon found herself skipping doses of anti-rejection drugs.

By late 2003, her transplanted kidney had failed, and she returned to dialysis, covered by the government at $9,300 a month, more than three times the cost of the pills. Then 15 months ago, Medicare paid for her second transplant — total charges, $125,000 — and the 36-month clock began ticking again.

“If they had just paid for the pills, I’d still have my kidney,” said Ms. Whitaker, who shares an apartment in the La Jolla neighborhood with her boyfriend, Joseph D. Jamieson. “I’d be healthy, working and paying taxes.”

The Medicare program is not sure how many of the country’s 100,000 transplant recipients are without insurance for their immunosuppressant drugs. Officials with the National Kidney Foundation said some dialysis patients never put themselves on transplant lists because they fear that they will not be able to afford the drugs.

Clearly we need a system like this to replace the NHS, this is far more cost effective.

interestrateripoff · September 14, 2009

http://www.nytimes.com/2009/09/14/business/global/14trade.html?ref=business

China unexpectedly increased pressure Sunday on the United States in a widening trade dispute, taking the first steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires from China.

The Chinese government’s strong countermove followed a weekend of nationalistic vitriol against the United States on Chinese Web sites in response to the tire tariff. “The U.S. is shameless!” said one posting, while another called on the Chinese government to sell all of its huge holdings of Treasury bonds.

The impact of the dispute extends well beyond tires, chickens and cars. Both governments are facing domestic pressure to take a tougher stand against the other on economic issues. But the trade battle increases political tensions between the two nations even as they try to work together to revive the global economy and combat mutual security threats, like the nuclear ambitions of Iran and North Korea.

Mr. Obama’s decision to impose a tariff of up to 35 percent on Chinese tires is a signal that he plans to deliver on his promise to labor unions that he would more strictly enforce trade laws, especially against China, which has become the world’s factory while the United States has lost millions of manufacturing jobs. The trade deficit with China was a record $268 billion in 2008.

China had initially issued a fairly formulaic criticism of the tire dispute Saturday. But rising nationalism in China is making it harder for Chinese officials to gloss over American criticism.

“All kinds of policymaking, not just trade policy, is increasingly reactive to Internet opinion,” said Victor Shih, a Northwestern University specialist in economic policy formulation.

Looks like it's hotting up, now chickens are involved.

interestrateripoff · September 14, 2009

http://www.nytimes.com/2009/09/14/business/economy/14bubble.html?ref=business

This time is different.

That’s what people argue every time a bubble inflates, and what they think every time they are chastened by its popping. But century after century, decade after decade and year after year, human beings irrationally exuberate all over again.

Not long ago, the housing bubble burst and brought the global economy to a standstill. Now economists, recognizing that bubbles tend to come in bunches, are on the lookout for the next market to fizzle. They say that governments, central banks and international bodies should scrutinize a few markets that look likely to froth over in the next few years, like capital markets in China, commodities like gold and oil, and government bonds in heavily indebted countries like the United States.

“Globally, a lot of money is now seeking higher returns once again,” said Rachel Ziemba, senior analyst at RGE Monitor. The steadying of the economy, liquidity injections by governments and big returns reaped early this year by investment banks are encouraging more traders to dip their toes back in the water in search of the next big thing.

“As long as compensation and bonuses are based on short-term performance in the market,” she said, “that’s going to encourage risk-seeking behavior.”

Bubbles are episodes of collective human madness — euphoria over investments whose skyrocketing values are unsustainable.

They tend to arise from perceptions of pending shortages (as happened last year, with the oil bubble); from glamorized new technologies or investment frontiers (like the dot-com bubble of the 1990s, the radio bubble of the 1920s or the multiple railroad bubbles of the 19th century); or from faddish cultural obsessions (like the Dutch tulip bubble of the 17th century, or the more recent Beanie Babies bubble).

Often they are based on legitimate expectations of high growth that are “extrapolated into the stratosphere,” as the economist Daniel Yergin, chairman of IHS-Cambridge Energy Research Associates, put it. Such is the fear over investment in emerging markets like China.

“I’m a long-term bull on Asia, but right now it’s premature to be celebrating the ‘Asian Century,’ like some investors seem to be doing,” said Stephen Roach, chairman of Morgan Stanley Asia.

The Shanghai Stock Exchange Composite Index, for example, nearly doubled from November to July before pulling back last month. “People seem to believe the baton of global economic leadership is being seamlessly passed from the West to the East. That’s going to happen, but not for another 5 to 10 years at least.”

Similarly premature excitement inflated what became known as the South Sea bubble, a 18th century mania over British trade with emerging Latin American markets. (Aside: Even the brilliant Sir Isaac Newton, seduced by the mirage of infinitely rising stock prices, lost a lot in the South Sea bubble — which is somewhat ironic, given his famous recognition that what goes up must come down.)

Economists also worry that commodity bubbles, which tend to be more cyclical, may strike again. Oil and gold prices are rising, and though both of those commodities have boomed and busted many times in the last century, investors may bet on unrealistically high growth once more. Gold prices, for example, have risen more than 30 percent from a year ago.

“With every commodity bubble, you see a whole new set of rationalizations,” Mr. Yergin said. “People find ways to shut out the reality of economic processes. If oil prices shoot up, investors are always surprised to see demand go down again.”

In each of these markets, the inflation and deflation of prices would be painful to investors but may not have as far-reaching consequences as the recent housing and credit collapses.

But a sovereign debt bubble — which many argue is driving the acceleration in gold prices — could prove far more dangerous.

So many countries, like the United States, are running up such large national debts as a percentage of their overall economies that they could risk eventual default. Even without outright default on their obligations, the value of government bonds sold to finance these deficits could plunge, costing investors a lot.

“Talk about a big bubble that really affects the global economy,” said Kenneth Rogoff, an economics professor at Harvard whose new book, “This Time Is Different,” chronicles 800 years of debt-driven financial crises.

“The huge run-up in government debt has led to patently unsustainable fiscal policies across a number of major countries,” he said. “So far, the rest of the world’s been willing to finance it, primarily with savings from China and elsewhere, but if investors’ confidence is shaken, we might see the interest rates on long-term debt rising, and rising very sharply.”

Debt crises are usually associated with developing countries, like Brazil, Argentina or Zimbabwe. But they can affect big, rich economies too, where the scale of global damage can be much greater.

“Look at California,” Mr. Rogoff said. “It’s incredibly rich, but Californians want a lot of services but don’t feel like taxing themselves to pay for them. You can be incredibly rich and still go bankrupt.”

The depth and breadth of the pain unleashed by the recent housing bust have led political leaders and central bankers to reconsider their duties to pre-empt, rather than just respond to, potential bubbles, and the same is true with the potential bubbles that economists foresee today.

China has started to tighten monetary policy to rein in the hype surrounding its equities. Politicians in the United States, while torn over the means, are discussing ways to bring the deficit until control.

The Group of 20, at its coming meeting in Pittsburgh, is expected to address ways to calm financial frenzies. The solution may involve additional regulation, guidelines for financial compensation and possibly requirements for more market transparency so that, at least in theory, investors can better judge what they are taking on.

But however stringent such new regulations may be, economists say, they cannot completely defeat human nature. Investors will continue to be hypnotized by get-rich-quick deals, seeking investments that magically double, double without toil or trouble.

Forever blowing bubbles.

interestrateripoff · September 14, 2009

Used-car buyers unwittingly bought ex-rental vehicles - Telegraph

Some have paid thousands of pounds over the odds after being told that their vehicles had “one previous owner” when they were rented to multiple drivers.

Two of Britain’s biggest hire firms have used a “front” company and an abbreviated company name to register vehicles, meaning buyers didn’t recognise the previous owner on the registration documents.

Other buyers were told that cars were “fleet” vehicles, or owned by manufacturers, only to discover later that they were among the 400,000 ex-rental cars sold on each year.

The Office of Fair Trading (OFT) is carrying out an extensive investigation into the £35 billion used car market, which is focusing on dealerships. It is preparing to publish fresh guidance on when firms should be prosecuted for misleading buyers.

The Liberal Democrats last night called for legal action over “shady trading”. They said new regulations were needed to ensure every ex-rental vehicle was clearly labelled.

Motoring experts warned that consumers should keep an attitude of “buyer beware” and demand to know details of the car’s past before handing over money.

The most controversial cases involve cars that were previously hired out by National Car Rental, which is owned by Europcar, Britain's biggest car hire company, which has a fleet totalling 54,000.

The company registered vehicles in the name of Provincial Securities Ltd, a company it owns that did no business.

Several Peugeot drivers told The Daily Telegraph that they were shocked to discover that the former owner of their cars was a rental company.

Marc Owens, who bought a Peugeot 207 from an official dealership in Walsall, said: “If I had known before buying about its history I would have been dubious about buying it, due to the abuse rental cars can get by some of their drivers – the clutch, gearbox and so on.”

Norman Baker, the Liberal Democrat transport spokesman, said: “This is shady trading in an attempt to get higher prices for vehicles that have been driven by many people, possibly carelessly. Every ex-rental vehicle should have to be clearly labelled.

Fantastic economic news, that means a lot of these drivers will be looking for another car in the next few years.

interestrateripoff · September 14, 2009

London retail sales tumble to cast doubt on the sector's recovery curve - Business News, Business - The Independent

London's retailers will today create shockwaves by posting their worst monthly sales for four years, ahead of results this week from some of the UK's biggest store groups that will provide a health check for the high street leading up to the critical Christmas trading period.

The department stores Debenhams and John Lewis, the fashion retailers Next and French Connection, the DIY group Kingfisher, and the furnishings chain Dunelm will all update the market this week. Further August sales data will be unveiled by the Office for National Statistics on Thursday.

The British Retail Consortium said that like-for-like retail sales in Central London plummeted by 5.9 per cent in August – the first month they have fallen this year after seven months of growth, which has hitherto been partly supported by foreign shoppers taking advantage of the weak pound. Retail sales fell by 0.1 per cent outside of the capital, which was the first time they had been ahead of London's this year, although the gap had previously been narrowing, according to the BRC-KPMG Retail Sales Monitor.

Stephen Robertson, the director general of the BRC, said: "These results don't suggest the recovery is underway. This is the lowest London sales growth since August 2005." He added: "Central London footfall saw the biggest drop for over a year and a half. The pound is less weak that it was, eroding London's appeal for overseas visitors. Like domestic shoppers, tourists are also more cautious." The religious event of Ramadan also began in early August this year, in contrast to September last year, which led to Middle Eastern visitors returning home earlier.

However, the data from the UK and London further confirms a slowdown in the retail sector after robust trading in June and July. While strong retailers, including Morrisons, Next and Kingfisher, which owns B&Q, have already posted profit upgrades recently and the worst fears of store groups about 2009 have not materialised, retailers are still nervous about the crucial Christmas trading period, when most make the bulk of their annual profits, particularly given growing unemployment and the rising savings ratio.

But Mr Robertson pointed out that London's retailers were up against a strong August 2008 – the third highest figure last year – when like-for-like sales actually rose by 8.6 per cent. Last month's better weather in the capital after the downpours of 2008 hit footfall as shoppers favoured outdoor leisure activities.

This week, the comments by Charlie Mayfield, the chairman of the John Lewis Partnership, are likely to be given the most scrutiny given that the eponymous department store is seen as a vital barometer of consumer spend. While trading at John Lewis, which posts half-year results on Thursday, has picked up since the first few months of the year, its stablemate Waitrose, the supermarket group, has been powering ahead – delivering marketing-leading sales recently. Tomorrow, Debenhams is expected to post annual pre-tax profits of about £120m, but is expected to say that its fourth-quarter sales have dipped, partly because of the disruption caused by allocating store space away from costly concessions towards its own-bought ranges, say City analysts.

On Thursday, the ONS is expected to say that sales growth slipped in August. Howard Archer, the chief European economist at IHS Global Insight, said: "The fact is that consumers continue to face serious obstacles that are likely to limit spending for some time to come. These notably include sharply higher and rising unemployment, low earnings growth and heightened debt levels."

The pointless recovery gathers a pace.

We are clearly seeing a propaganda recovery. Can this defeat reality?

interestrateripoff · September 14, 2009

Recession fears receding as confidence returns to UK firms - Business News, Business - The Independent

Recession fears receding as confidence returns to UK firms

Most business managers expect to emerge from impact of recession intact

British business leaders are more confident than at any time during the recession that they will make it through the downturn, research reveals today, adding to the growing optimism about the economy.

A survey from Clydesdale Bank shows that 90 per cent of business managers now say they are confident they will make it through the recession, with a third saying they are certain they will not go under.

The research also suggests the downturn may not have had as savage an effect on some companies' business as previously thought. Clydesdale said only a third of the companies it spoke to had actually suffered a reduction in business during the downturn so far.

While economists believe the UK economy began growing again over the summer – and that the third-quarter GDP figures due to be published towards the end of next month will provide official confirmation of this – there is still scope for further problems. Unemployment figures due this week are expected to show another sizeable leap in joblessness to more than 2.5 million, with most projections suggesting the numbers out of work are unlikely to begin falling before the middle of next year.

Mike Williams, a Clydesdale Bank executive, said its research suggested business leaders were becoming increasingly confident about their prospects. "These figures are promising and show that businesses are beginning to regain confidence," he added. "This is a positive sign: where confidence exists growth often follows. It has clearly been a challenging time for businesses, but these figures show there are signs of stability creeping into the market but it is still important to retain a grounded and cautious perspective as the market changes."

Clydesdale Bank, traditionally stronger north of the border, said that companies in Scotland were actually more confident than those located elsewhere in the country, and that companies based in the North of England were more positive than their southern counterparts. This may reflect the greater exposure of the economy in the South of England, particularly in the South East, to the financial services sector, where job losses are continuing.

Clydesdale Bank said it had pledged to make £1bn of new lending available to business borrowers and that it had launched a £100m fund specifically for small business at the end of June. But, leading banks remain under pressure to increase the amount of lending they offer to the business sector, amid continuing complaints that some businesses are being starved of vital credit.

The most recent Bank of England figures showed that the amount being lent by banks to business actually fell over the summer months, despite all the banks insisting that they were doing more. Ministers have threatened the banking industry with further restraints on bonuses, or even new taxes, unless lending increases over the next few months. But sector sources point out that it is facing unprecedented regulatory action, which has required it to increase capital funding at the expense of activities such as lending.

And without a hint of irony in the same paper we have the following.

interestrateripoff · September 14, 2009

Stephen King: A more cautious approach to public finances will help to limit future risks - Stephen King, Business Comment - The Independent

Running the economy is no easy task. Sometimes, I get the impression that policymakers think there is some magic formula which, once unlocked, will allow strong growth, low inflation and full employment to continue indefinitely. But for chancellors and governors past, present and future, there is no simple answer.

Under the last Conservative government, an inflation target was introduced. Inflation had been the main bugbear of the UK economy for many years and there was, understandably, a strong sense that its removal would, once and for all, put the UK economy on the straight and narrow. Following their election in 1997, Labour's leaders cemented Britain's anti-inflation credentials by making the Bank of England independent, an apparently revolutionary idea even though other countries had lived with independent central banks for many a year.

With monetary policy now de-politicised, it was easy to be seduced by the idea that there would be "no more boom and bust". Certainly, there was a sense that the control of inflation would unlock the secrets of economic stability. In a speech to the Society of Business Economists in 2007, Mervyn King, the Governor of the Bank of England, said "the main challenge facing the MPC is to keep doing whatever is necessary to keep inflation on track to meet the target". The subtext of this statement is obvious: if inflation is kept under control, economic instability should be kept to a minimum. Given what followed, it's not so obvious that the achievement of price stability, on its own, is quite so economically-rewarding after all.

With the next general election looming, we may find ourselves with another policy wheeze potentially as revolutionary, at least to UK eyes, as the decision to grant the Bank of England its independence.

The Conservatives are promising to create an Office for Budget Responsibility. It won't have quite the same policy-setting powers enjoyed by the Bank of England but, staffed by a team of noted fiscal experts, it would be duty-bound to pass judgement on a government's fiscal plans, scrutinising the assumptions and projections which make up any fiscal decision.

This seems a sensible idea. Alongside the excessive borrowing of households and the excessive lending of banks, the other lesson from the crisis is that the Government, too, borrowed excessively. I'm not complaining about the necessary Keynesian fiscal stimulus, which was delivered as the crisis unfolded. The inappropriate fiscal deterioration happened earlier. The Treasury constantly redefined the economic cycle, making the so-called fiscal rules as tough as jelly. The Chancellor chose not to intervene too heavily in the City because big bonuses brought in big tax revenues. After all, without those bumper City tax revenues and increased amounts of government borrowing, Labour's cherished public spending projects would never have got off the ground.

Had an independent fiscal body been able to scrutinise the Government's arithmetic, perhaps we'd now find ourselves in a more favourable fiscal position, with less need to start slashing public spending. Nothing, however, is guaranteed. The Institute for Fiscal Studies' 2007 Green Budget noted that "by announcing £6bn of new tax increases and pencilling in an £8bn cut in public spending since the 2005 election, the Chancellor has followed our advice from earlier Green Budgets...we see no need for further tax increases at present, as long as he is able to stick to his PBR spending projections....If history is any guide, at some point the Treasury's fortunes as a fiscal forecaster will take a turn for the better." All fine and dandy but, given subsequent events, mostly inaccurate, even though the IFS is full to the rafters with fiscal experts.

Fiscal sustainability depends on an extraordinarily uncertain future path for the economy. If that path suddenly veers off in an unexpected direction, the fiscal outlook can alter dramatically. During the good times, when revenues are plump and social security benefits are low, governments look heroically prudent, even when they're not delivering budget surpluses year-after-year. During the bad times, governments simply look fiscally incompetent (and incontinent).

Even with an Office for Budget Responsibility, then, the chances of getting fiscal policy right may not be particularly great. Fiscal plans depend on projections about the future path of the economy and those projections, in turn, depend on knowing where the economy is within the economic cycle. All forecasters struggle to provide answers. The Bank of England may be independent of political influence, for example, but its central projections of economic growth, and the extremes on either side, proved particularly wayward in the first half of 2007. Back then, the worst that was likely to happen to the UK economy was a slowdown in growth to a little under 1 per cent in 2009. It now looks as though the economy will shrink between 4 and 5 per cent. You don't see forecasting errors much bigger than that.

So should a Office for Budget Responsibility just have economic "experts" on board or should is also have a role for the armchair economists who so far have predicted the crash far better.

One way to let the armchair economists have their say is to simply have a forum which the "experts" are required to read. Yes the "experts" would be free to disagree but would they really be so vocal at dismissing threats to the economy in such a public way. So far these people can easily dismiss forum's but if part of the role for the Office of Budget Responsibility was to listen to the people could govt policy be reigned in?

interestrateripoff · September 14, 2009

BBC - Newsbeat - Webcam models 'on the rise'

A Newsbeat investigation's found a rising number of British women are working as webcam models on the internet.

Market analysts say the overall webcam market is now worth more than a billion pounds, with online sex shows a big part of it.

Industry insiders say there's been a rise in applications, partly fuelled by the recession, with hundreds of British women signing up to UK websites each month, many more internationally.

They appear live on webcams that can be accessed on computers around the world.

Men usually pay premium rates for the privilege.

Twenty-three-year-old Lauren's been working as a webcam model for a few months.

She works with a few other girls in a basement of a semi-detached house that's been converted into a studio.

It's been furnished to look like two different rooms. On one side there's a bed, on the other a sofa.

The girls wear fancy underwear and headsets to talk to punters on the webcams. Lauren told Newsbeat she can make up to £30 per hour with bonuses.

"You can imagine, it is talking dirty. You know, if they ask me to take my top off, I will do."

Big demand

It's a secretive international industry. Women can work from anywhere in the world, posing naked and talking explicitly about sex.

Market analysts say overall the webcam market grew from around £730m in 2006 to £1.1bn in 2008.

It's predicted to almost double in worth again by 2015, with pornographic webcam sites driving much of that growth.

They say it's more hidden from analysts than other segments, but is a "lively" part of the market.

The most popular site is huge in size, claiming to have around 27,000 webcam models and 17 million members, with around 12,000 new sign-ups each day.

Brodie Fry set up one of the websites. He told Newsbeat the recession has contributed to more women working as webcam models.

"A lot of women in this sort of economic downturn will move into the adult industry.

"This is a safe alternative to becoming an escort or an adult model. There's total anonymity. Of course, the operators don't use their real names.

One site told Newsbeat for the last year it's put an extra 42 British women on average a month on its books.

Richard Smallbone recently set his own webcam site. He told Newsbeat up to 150 British women are signing up to UK sites a month, with many more joining international sites.

He said: "We started off with 12 profiles and there would be one girl working during the day.

"Eighteen months down the line, we now have 80 different profiles, anything up to 16 girls working during the day."

Wouldn't you only have anonymity if you don't show your face.

Certainly a safer option than going on the streets, although certainly not without risk.

Haven't a I seen you before could take up a whole new meaning from now on, not what you'd want to hear in an interview.

So how would you pub web cam model down on your previous jobs?

interestrateripoff · September 14, 2009

Executive pay keeps rising, Guardian survey finds | Business | The Guardian

Executives at Britain's top companies saw their basic salaries leap 10% last year, despite the onset of the worst global recession in decades, in which their companies lost almost a third of their value amid a record decline in the FTSE.

The Guardian's annual survey of boardroom pay reveals that the full- and part-time directors of the FTSE 100, the premier league of British business, shared between them more than £1bn.

Bonus payouts were lower, but the basic salary hikes were more than three times the 3.1% average pay rise for ordinary workers in the private sector. The big rise in directors' basic pay – more than double the rate of inflation last year – came as many of their companies were imposing pay freezes on staff and starting huge redundancy programmes to slash costs.

The Guardian data also shows that a coterie of elite bosses at the helm of multinational corporations are seeing their overall pay packets soar ever higher. The 10 most highly paid executives earned a combined £170m last year – up from £140m in 2007. Five years ago, the top 10 banked some £70m.

The Liberal Democrat Treasury spokesman, Vince Cable, said: "The Guardian's analysis shows the breathtaking cynicism involved in a lot of executive pay deals, which are unrelated to either personal or corporate performance and involve people who are very well off helping themselves to larger salaries when private sector wages in many companies are being cut."

The stealth increases in basic pay took much of the sting out of falls in bonuses tied to the performances of their companies. Overall pay for directors of FTSE companies, including bonuses, fell by an average of 5%.

The average chief executive of a blue-chip company now earns a basic salary of £791,000. However, adding bonus payments, share awards and the value of perks ranging from cars and drivers to school fees and dental work, the average pay package rises dramatically. Nearly a quarter of FTSE chief executives received total 2008 pay packages in excess of £5m, and 22 directors now have basic salaries of more than £1m.

Of course we need to reward these hard working people it's there skills at running big business that will get us out of this mess, clearly they need higher pay rewards year on year over inflation, whilst the workers get below inflation pay rises.

The bosses do all the work.

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