Of Pensions Gained. And Lost.

There has been an astounding furore over the Fred Goodwin pension debacle. Perhaps an element of jealousy from some quarters has been directed at Fred himself. The Government - via the mouthpiece of Harriet Harperson - has decided it needs to "do something" because of the public outcry (by retrospectively applying a new law that has been designed for one person, can't see anything going wrong with that, can you?).

Yet, of the people most likely to complain about Fred's pension, I'm sure most of them fail to see that Cristiano Ronaldo* "earns" Fred's annual remittance in a little over a month. For falling over a lot. And complaining. Ronaldo, like Goodwin, signed a contract guaranteeing him that money. Goodwin, like Ronaldo, should be paid that money. Whether it is obscene or not is a matter of opinion. Opinions are like arseholes, every one has one, but no-one really wants to hear someone else's.

I however, am an arsehole with a blog, so here's my opinion. Lord Mynas is the one who should be investigated and dealt with using the full scope of the current laws. It is he who agreed the remuneration package, and it is he who has deliberately leaked private conversations with Goodwin into the public domain in an attempt to smear him.

If there's anyone who actually needs their pension pot investigating and removing, I'd recommend Gordon Brown, who oversaw a disastrous collapse in the UK economy - as do the Daily Mash in genius fashion (re-printed below)

BROWN REFUSES TO HAND BACK PENSION

GORDON BROWN last night dismissed calls to surrender his £123,000 a year pension when he is forced to stop being prime minister next June.

He also has a nice big house which you pay for.

Mr Brown was defiant in the face of City outrage despite the UK government's annual operating loss of £100bn, rising to £1.5 trillion when the write-down of its banking assets is taken into account.

The prime minister said: "I've been building up this pension since I became an MP, it's all completely legal and now you want to take it away because I've been catastrophically bad at my job and you're looking for a scapegoat. What gives?"

He added: "Yes I've been in charge of financial regulation for 12 years, yes I encouraged the housing bubble, and yes I pissed billions up the wall giving pointless jobs to Labour voters, but I fail to see what any of this has to do with me being incredibly well off."

Brown's £3m pension pot is expected to cast the spotlight on the extravagant retirement packages of other failed politicians including Alistair Darling's inexplicable £1.7m and the £1.5m awarded to John Prescott for being a national scandal for 10 years.

Meanwhile Margaret Beckett has a fund worth £1.7m, something called 'Hilary Armstrong' has £1.2m and Tessa Jowell has £1m even though no-one has the faintest idea what any of them actually did.

Critics insist Mr Brown has a moral duty to hand back his pension fund as he will inevitably receive a multi-million pound advance for two volumes of eye-gougingly tedious memoirs which will end up in the bargain bucket at WH Smith within a fortnight.

Martin Bishop, head of pension rows at the Institute for Studies, said: "It's a fascinating dynamic. The politicians blame the bankers, the bankers blame the politicians, and the ordinary taxpayer is down on all fours with a confused look on his face, being fucked at both ends."

* - insert any current overpaid footballer's name here.

I Shall Call Ye Cassandra.

A spookily prescient blog from Crashomatic that pretty much covers why printing more money is a bad thing, and that it only benefits the people who actually print the money.

I heartily recommend you read the whole thing - even though it is with a US slant - as it does explain a lot of things very clearly and very quickly.

Hat-tip to The Devil for pointing this one my way.

Possibly A Bit Late

As it's already climbed back above $300 a share, but if Google drops back below that figure, then you may want to consider buying into it. There's a very good chance - IMHO, although I am not a stockbroker, thank fuck - that you could double your money within 12 months.

You can track Google's price here

Avoiding The Elephant

You may be surprised to see that I've not mentioned the Government and the current banking fiasco/crisis. I've tried to avoid it as I think I would find it difficult to stop once I've begun*.

I've been following it, obviously - both on the BBC and in the Metro (the only newspaper I actually read now I'm a commuter) - but I've been in an unusual position for me. I just don't know what to say about it. I've read an analysis from an economist's point of view (Timmy), a stockbroker's point of view (British Dude), a Libertarian's point of view (LPUK) and from the ex-trader's more political point of view (Guido). And I'm still not entirely sure I understand what's gone on.

As far as I can tell - and anyone can point out where I've gone wrong here - the American banks were told by their Government that they had to lend money to people who they would not normally lend to (the so-called NINJA loans - No Income, No Job) in order to allow said people to buy houses. I'm guessing that the American economy isn't quite as built on house prices as the UK economy, but that by having a credit history, these people could be proper consumers.

So the banks lent the money, knowing that it was more likely these NINJAs would default. In order to avoid having the debt firmly sat on their books, the banks wrapped it up in smaller packages and sold it on. To other banks. But with a AAA rating so that it wouldn't look as toxic as it would turn out to be. Hence the amount of banks that started to get into trouble when the NINJAs started defaulting to such a major extent that the house prices in America started to fall dramatically.

As the banks couldn't trust each other (as the amount of trouble they were in was hidden or just plain unknown) they then wouldn't lend to each other. As they wouldn't lend to each other, the banks were less able to pay off any short term debts they had in trading balances. And they couldn't get any money in from anywhere apart from the Bank Of England, and going to them cap in hand made the banks look desperate & likely to collapse. Thus confidence in them eroded further.

The Government claim that they tried to save the banks, but after Robert Peston informed everyone that the Government had had a meeting with all the big four banks who were looking for cash, bank shares fell even further. Whether this was incompetence of the highest order, or a deliberate attempt by the Government to get the banks nationalised on the cheap, time will only tell. But when both the Prime Minister and the Governor of the Bank Of England come out within a day of each other saying the UK economy is going into recession (thus sparking a sell off of Sterling by any sensible trader around the world) the impression I get is that it's incompetence.

At the same time, Iceland's banking fell over quite spectacularly. UK public bodies had somewhere in the region of £1bn invested - hardly a surprise as the interest rate was unbelievably (for good reason) generous - and despite warnings being issued some months earlier. I've even seen reports here that there were warnings in July 2007 about the fragility of the Icelandic scheme. Entertainingly, the Audit Office (whose job is to ensure that £180bn of public sector spending provides "value for taxpayers" and should oversee any investment advice) had £10m tied up in the Icelandic banks, and the Audit Commission are now being investigated by the National Audit Office.

In order to "protect UK savers" the Prime Minister then used anti-terror legislation to freeze the accounts held in the Icelandic banks. Interesting that this legislation was used against a NATO ally, but such is the joy of function creep and badly worded (or not, depending if you're a conspiracy freak) legislation. More interestingly, the legislation only freezes the funds for 30 days, so in a couple of weeks we should have another announcement about Iceland.

The strange thing is, I've been through two recessions before, some bad financial times and three stock market crashes (yes, I am old). This latest one didn't wipe as much off the share prices as the last one (when the dotcom boom suddenly went bust in 2001 - mainly after everyone suddenly realised that none of the internet companies had a business model that actually made, you know, cash). This one hasn't seen interest rates go up to 15%, indeed they've just come down again. There hasn't even been a single power cut yet, let alone dead people not being buried.

I'm not saying that this isn't a financial crisis, but it seems to be based more in the financial markets than in real life. How many people (outside of bank staff) have been directly affected by this in the UK? 10,000? 50,000? 100,000? Out of a population of 62,000,000 that's not a huge amount.

Okay, so if you need to get a mortgage then it is now more difficult, but that's not necessarily a bad idea. The UK housing market was (and still is) over priced. If it falls, then more new buyers will be able to afford to get on the property ladder (having got deposits for more expensive properties). If you already have a mortgage that you can afford to repay, keep doing that and enjoy the fall in interest rates. Your house is worth less than you paid for it, probably, but you still have a roof over your head and you aren't starving to death. Chances are, if you don't move in the next 10 years it may eventually be worth more than it is now.

If you have a mortgage and can't afford to repay it, then (unless you've been made recently unemployed or had a change of circumstances) how were you planning on keeping the house anyway? Getting yourself in HUGE debt by hoping to sell your house for more money than you paid for it (so you eventually had no mortgage and a free house) is pretty much the same as the South Sea Bubble in 1720 - eventually, it will fail.

Why the Government were so insistent about nationalising the banks, rather than just letting them fail and guaranteeing savers their money back, I have no idea. Surely by propping the banks up, they're being told that no matter what stupid thing they do, the Government will always bail them out. Not going to make them take better decisions, is it?

Why the Tories didn't complain about the Government's plan and ask if there was a 'Plan B', I have no idea on that either. There was no mention in Labour's pledges to bail out banks. There was no discussion in Parliament about whether it was the right thing to do. Nothing. The Government just wade in with half a trillion pounds of taxpayer's money and do what, exactly? The FTSE is still hovering about 4000, the pound is still falling against a raft of currencies and the entire country is out of pocket.

How Gordon Brown has managed to come out of this looking like the saviour, when he was the Chancellor in charge of the country's finances for ten years prior, I similarly have no single clue. I'm still slightly surprised he hasn't called a state of emergency yet, and become a proper dictator.

Perhaps it's just a matter of time.

* - And having read the post, I think I was right. Apologies for the rather long rambling explanation of how I see the financial crisis.

Exactly How The Credit Crunch Happened

But in a slide presentation of stickmen. Best viewed in full screen (click the little icon in the bottom corner)

Hat tip to Obnoxio The Clown (and if you think I swear a lot, you may want to cover your eyes)

Just Hilarious

Found this on Guido's site and it made me howl. Click the image to read the full document.

Next Domino To Fall?

Following on from the failure of the Northern Rock in the UK and Bear Stearns in the US, CNN are reporting that Lehman may be the next victim of the credit crunch.

The brokerage firm saw its shares drop as much as 39% in early trading in wake of JPMorgan Chase's $2-a-share purchase of Bear Stearns. Monday's sell-off took Lehman shares to $24.50, down from $39 Friday, before they staged a mild recovery. The recovery mirroring the general up turn in the Dow Jones.

The collapse of Bear Stearns has fueled fears of a widespread breakdown in the U.S. financial system. Lehman, like Bear Stearns, has been a big player in the mortgage market in recent years and investors worry that its exposure to now-toxic mortgage-based securities, combined with its relatively small size, might be fatal. Lehman is the fourth-largest U.S. player on Wall Street, behind Goldman Sachs, Merrill Lynch and Morgan Stanley.

I've also heard, separately, that the Fed are considering a 0% interest rate - like Japan did in the late 80s and early 90s, although they did go to negative rates at one point - in an attempt to kick start consumer spending again. As people are being told "there's a recession coming" so they start to save their money. Unfortunately, this actually speeds up the recession as there's a reduced demand for goods and services, leading to lay-offs and closures. Which prompts more people into saving.

You can see the spiral, can't you?

As far as I am aware, the Bank Of England has no plans to follow suit, although this is more likely due to the inflationary effect such a policy would have on the UK's housing market.

Northern Rock

I used to have an account with the Northern Rock when it was a Building Society. I closed it after they de-mutualised and then sold my shares. If I still had an account with them, I'd be using the money in it to buy shares now. Lots of them. The price is 30% lower than they were last week, and they're losing their stupidest customers. Double bonus.

Let's be clear, if you are a Northern Rock customer and you have less than £30k in your account(s) then leave your money where it is. You will get your money back, even if something astounding happens and the bank closes. If you have more than £30k in the Northern Rock, well done for having the cash, but you should spread the additional funds over other banks.

There's no point whatsoever in getting up at 3am to clear £1500 out of your account.

Good Analysing There Fella

According to a report (covered by the BBC) from Fitch, the credit rating agency, the UK Housing Market "is over valued by 20%" which is hardly a surprise. What is slightly more of a surprise is that total mortgage lending rose by £9.6bn in June, up from £8.7bn in May, which would lead me to expect a rise interest rates again (which I did predict a few months back).

Weirdly though, and back to the original report, the UK is only the THIRD most vulnerable housing market to higher interest rates, behind both New Zealand and Denmark. Apparently the obsession with variable rates is the cause of this and if you want to avoid this problem, buy in Italy, Germany or that oasis of cheap property, Japan.

Halifax Bank Of Scotland Customer?

Let's just hope you're not. Especially if you were one of the 62,000 customers whose personal details were on an unencrypted(!) disk sent via the Royal Mail(!!!) and unsurprisingly lost. HBOS blamed "human error" and suspect the disk was actually "lost and not stolen" although I'm not sure why they would assume this.

This continues a great year for HBOS in their attempts to lose customers and/or their personal details. In March HBOS, along with ten other banks, were shamed by the Information Commissioner for chucking out customer statements into pavement bins, and in January, sent the details of 75,000 customers to a woman from Aberdeen who'd asked for a copy of her statement.