CAPITALISM OR BUST

The Concise Oxford Dictionary states the meaning of the word feckless to be 1 feeble, ineffective 2 unthinking, irresponsible. It is a favourite word of mine and I have had the opportunity, of late, to use it often.

Be warned that unless we get rid of this fecklessness, we might all be in trouble. I smell hypocrisy that might fan the flames of the socialist dream, behind which is our sub-prime minister or call him, if you will, Mr Pendulum for he swings like one, just as surely as an Orangutan swings back and forth in a rubber tyre.

In an interview in The Guardian on Tuesday, GB [that is Gordon Brown not Great Britain] is stated as saying that ‘the consensus in favour of free markets has come to an end.’ You might want to ponder, for a moment, the thought that, as Brown and his cronies now control half our banks, whether it creates a springboard for increased government interference and meddling in what is already a nanny state to some tune. In other words, the very quintessence of socialism.

Let us look firstly at how our feckless government got to power in 1997. Gone (apparently) were the old Labour vestiges of socialism, of which Brown [and many others] was an ardent enthusiast, to be replaced by an embrace of capitalism. This saw just about any top businessperson and star of screen and stage (the likes of the sycophantic Bono for example) traipsing through number ten, where these folk [doubtless keen, along with Hello Magazine, for the publicity] and ‘New’ Labour indulged in reciprocal toadying. It was trendy to be with Tony.

Labour knew that it had no chance of coming to power unless the leopard could change its spots but it has not changed its spots, it has played Chameleon. It came to power because it acted as if it was embracing conservative values. It has utterly wrecked our nation and turned us into an ambulance chasing, politically correct, multi-cultural melting pot of mediocrity.

In Shakespeare’s Henry VI, it says ‘It needs not ..proud queen; Unless the adage must be verified, That beggars mounted run their horse to death. In other words set a beggar on horseback, and he’ll ride to the Devil meaning that those unaccustomed to power will abuse or be corrupted by it – ring any bells? New Labour, having had the reins of power?

In fact, Labour’s renaissance in 1997 was the beginning of a love affair, with the City, in which the likes of Blair and Brown stood in awe of the bankers who made their millions out of shuffling money around the World in ways they could never understand and never will understand [and nor ever will the regulators]. In fact, the City was actively encouraged, by ‘New’ Labour, to make the billions it has. After all, what else does this nation have in terms of industrial capacity? Save for a few notable exceptions, like Anthony Wedgwood Benn (who I don’t agree with but admire for his principles), this motley crew knew exactly on which side the bread was buttered, just exactly as they do now that the butter on that side has gone off.

Whether we like it or not, we need a strong financial system because our country depends upon it for its wellbeing – we have virtually nothing else to export. That is not saying that those who are responsible for the current crisis should not be brought to book. This should be via the concept of fiduciary duty; essentially, this is the relationship of trust that exists between an agent and his principal, or a company director and its shareholders. This duty imposes upon directors, the requirement to act in a company’s best interests, with reasonable skill and diligence. If there is a breach of this trust, the company or its shareholders can bring an action against those concerned and seek damages. There is no doubt that prima facie the odd director of the odd bank might be in breach of trust. Given that the taxpayer now owns a substantial proportion of the odd bank, it might be reasonable to ask why no action has been taken – perhaps it will be, but I have my doubts. And were it so, Goodwin et al would keep their wealth but pay damages and the system would demonstrate that in capitalism nobody is paid for failing.

However, let us temper this with another thought – it is hip to hate bankers at the moment and we would all probably like to hang many of them. Let us not allow this to deflect our angst against our Government, which is equally culpable because they were members of the club. Brown and Darling want us to hate the bankers because it deflects any anger against them. It suits Labour hypocrites for us to be manipulated into venting all our anger on the bankers. Goodwin and others have made fat, but then so have many others like, for example, Myners the City Minister.  He has lined his pockets well enough and signed off Goodwin’s pension to boot. We should remember that Goodwin was a New Labour hero, so much so that he became a knight of the realm and took his place at the round table of Blair trendies, Brown toadies and a whole host of other hangers on. Doubtless, he rubbed shoulders with Bob Geldof and Trevor McDoughnut et al. Goodwin’s ‘expertise’ was hailed and lauded, as he egotistically attempted to turn RBS into the biggest and best. It now suits Brown for us to forget all this and, presenting Goodwin as Dracula, creates a fog in an attempt to divert our attention from him and his fellow band of incompetents. Do not be fooled; this government loved the bankers when it suited them and the Iron Chancellor, as Brown was known, took all the praise for it and should share equally in the demise.

Brown, in his toadying to Barack Obama, with whom it is also trendy to be seen, delivered a rousing speech to both houses of the senate recently. Unless I am mistaken, the last British PM to do this was Sir Winston Churchill, during our darkest hours. I ask you to compare the two and compare a true knight to some of the bunglers, quack entertainers and newscasters who have latterly been knighted. Truly, Her Majesty the Queen should have slipped with the sword.

Here are examples of fecklessness: -

The audit commission is now highly critical over the way Labour handled Northern Rock. Apparently, at a time when billions of taxpayers’ money had already gone in, this mob allowed Northern Rock to sanction £800m worth of riskier mortgages (those at 100% loan to value and above). Labour, through Lord Turner, Chairman of The Financial Services Authority (FSA), states that this type of mortgage is more risky – really, you don’t say. It is evident to any fool that lending at 100% and beyond is a ticket to losses and yet the 100% and beyond mortgage is nothing new. My first house was a two up two down terrace, which I bought for £16,000 with a 100% mortgage from The Leeds Permanent Building Society in 1983. Northern Rock apparently had been lending at 100% and beyond since 2005. Given that mortgage regulation, under The FSA, was introduced in October 2004, the FSA knew very well that this type of mortgage was being offered and now the FSA’s response is to suggest that regulation was soft touch. Give me a break, you knew about this all along and if you thought it was risky, which you obviously did, why didn’t you do anything? The fact is the FSA is as inept as the government that controls it and should be scrapped. It has presided over the strongest period of bank growth and mortgage lending and has systematically failed. It is now suggesting tighter regulation that may stifle the banks with red tape and rules that we will all have to pay for. It is a Quango and should go. If regulation is required, bring in experts and start again from floor level.

Bear in mind that mortgage lenders, when they lend at higher loan to values, do not take all the risk on. They defer some of this by what is called mortgage indemnity guarantee. This is an insurance (for which often borrowers are charged) covering the top slice of a loan. If the lender was to take a hit, by not recovering all the debt through a sale on repossession, this cover would normally pick up the tab – well that’s the theory anyway. This would explain why AIG got into the mire in the States. They were faced with claim after claim from mortgage lenders after the property market collapsed over there and had to be bailed out by the taxpayer. They wanted the premium income on a rising market but could not foot the bill when it all went wrong. There will not be too many insurers out there now, if any at all and so the return to 100% mortgages is unlikely.

When Labour came to power, it delegated the responsibility for setting interest rates to the Bank of England under the Monetary Policy Committee (MPC). These grey men set interest rates to stimulate or depress demand, because the basic law in economics is that if demand exceeds supply, prices will rise and vice-versa.  They have meddled with the rate, to make credit more expensive, to keep us in check to ensure that inflation does not rise beyond targets. This is all very well when we buyers have control over the inflation in the first place; what possible control could we have over fuel (which incidentally goes up on 1st April through government tax), energy and food prices? In fact, in my opinion, so obsessed were they with inflation, that they kept the base rate of interest far too high for far too long. That is until the credit crunch, when panic set in and the pendulum swung the other way resulting in the reduction in the rate to 0.5%. This is all very well if you have a mortgage, but less than awesome if you are saving.

Let us briefly examine why the MPC panicked to reduce the rates. Given that the MPC increases rates, to reduce demand, then the opposite is the case when they drop rates. So some bright spark had realised that much of our fortune, in this land, depends upon our housing market because by stimulating demand, they are telling us to go and spend spend spend. The challenge is that to spend, spend, spend you might have to borrow a bob or two. This did not work, because the banks simply increased their margins and did not want to lend to us anyway. They took the taxpayers’ money and sat on it. But, the message was clear that what was required, by our government, was a return to lending levels at those of a year previously. It did not happen and it is not happening. In my opinion, the reduction in interest rates has made borrowers’ existing loans so cheap that there is little or no demand for re-mortgaging at all. Therefore, the reduction in interest rates, like the reduction in VAT in Darling’s DFS pre-Xmas sale [which I referred to in another article] has achieved nothing and was never going to. It has made us sit tight on what we have. In short, it’s a shambles.

Yes, I know I have mentioned the pension fiasco before. You will remember that Brown pillaged pension funds to raise taxes shortly after ‘New’ Labour came to power. The effect of the credit crunch, on share values, is well known so if your pension funds have suffered, add to that low interest rates which make any safe haven for funds desperately unattractive. Though cynically, the government can spend thousands of our money advertising for us to lend to it via National Savings. Evidently, they need the likes of Alan Sugar, Stephen Hawking, Germaine Greer and the ever-talented ‘Sir’ Bob Geldof to persuade us to do so. Doubtless, they provided their services for nothing. Almost gone are the days of the final salary pension scheme; unless that is, you work for the Government.

Perhaps the silver lining in the cloud, of cheap interest rates, was meant to be cheap money for first time buyers. Despite the Government message to spend and spend to fuel demand, the illustrious Lord Turner suggested, in his recent obiter and potential government U turn, that there might be a cap on mortgage lending, such measures to include a maximum loan to value or a three times salary maximum loan. Just where is this loon coming from? Talk about mixed messages (the pendulum again). As the average salary is below £30,000 and the average house price still over £150,000, perhaps he would care to explain where the deposit would come from. Whilst, his recent report stated that this type of consideration would be deferred, this is the very last thing the housing market wanted to hear. Brown, is apparently (now) in favour of this type of capping but then it’s okay for him, Darling and Turner (and two jags Prescott) because they too have been paid for failure and are all right Jack. These people are on a different planet and are completely out of touch with reality. Truly, Noddy, Big Ears and Noggin the Nog could do better.

Because the above measures have not worked, the government has now embarked upon Quantitative Easing, another of those high falutin terms that only Government geeks understand but never explain. Quantitative Easing or QE is an expansion of the money supply, The Bank of England has been allowed to increase its reserves by up to £150bn. In the first stage of QE, the BoE are going to use £75bn of the increased reserves to purchase "high quality" assets (private sector assets such as corporate bonds and commercial paper and government bonds) from banks, thereby giving them extra funds in their accounts that they can then use to lend to UK plc. As UK plc finds the resources to borrow more available once again, individuals within the system also decide to spend a greater proportion of their incomes. If the BoE were to use all of the £150bn (and there is no reason to expect otherwise) this would be the equivalent of raising the broad money supply by around 7.5% from current levels. Nobody knows whether this will work, whether the banks will lend and what inflationary pressures there may be. At present, inflation is expected to remain very low, if not negative (deflation), in the immediate future; just how this may change further on is unknown. Nobody knows whether this will work and just how much money has to be thrown into the system. And what is the definition of “high quality” assets? Of what value, at present, is a bank’s commercial paper? And should inflation return, we can expect higher interest rates though, what’s the betting, this will not happen until after the next election and when this happens, on past record, there will be an over reaction.

Public sector borrowing is now at extraordinary levels, making it obvious that after the next election there will have to be dramatic reductions in public expenditure and tax increases. The dole queue now stands at over two million with the public sector (as ever) bearing the brunt. In the public sector, there is job creation and pay increases. There will doubtless be more as the FSA moves to stifle us with ever more red tape. Remember the adage that those who can, do and those who can’t teach – or more appropriately regulate. Increased regulation to excess would be like putting the sweet shop in control of children or a return to the sixties and seventies when statism so undermined British success. The taxpayer may own a proportion of the banks but, as stated elsewhere, there is no way the Government or any of its departments should run them. They are not capable of doing so.

Of relevance to farmers, I note that the European Commission has recently fined DEFRA some £74.5m over the late payment of subsidies that brought many farmers close to the financial brink. The government blamed this on computer and administrative errors. Not surprisingly, The Environment, Food and Rural Affairs Select Committee has described your Government’s handling of the payments as catastrophic and has indicated a lack of accountability at senior ministerial level – now where have we heard that before? Apparently, Margaret Beckett introduced a system for making payments that everyone told her would lead to calamity but she went ahead anyway.

A recent announcement suggests that immigrants [that is those declaring themselves] and foreign students will be charged £50 on entering the country to pay for public services to immigrants. Excuse me, but I thought these people came here because they made an invaluable contribution to our country and added diversity through multi-culturalism. I dare say many of them will fork this out prior to getting it all back in their first GIRO. Perhaps a few of these payments might go to our veteran soldiers who fought for the freedom of this once green and pleasant land on D Day, 6th June 1944. This will allow them, probably for the last time, to celebrate the 65th anniversary of their day of honour; our Government is suggesting that the next celebration will be on the centenary at a time when all the old boys will not be with us. They would rather squander the cash on the London Olympics. Shame on them, though perhaps we can ask a few hoodies to tag along – they might have been less keen to stand around street corners had the odd bullet from an MG42 been whistling past.

CONCLUSIONS

It is all well and good Lord Turner lording it over how banks should lend. There is nothing wrong with borrowers who know the facts and are properly advised borrowing, irrespective of their status. The FSA has already been whining and moaning about self-certification and sub-prime mortgages and afore long nobody of a certain class, or age will get a mortgage and so will be deprived of their right to borrow and own a home, if they so wish, or to take a measured risk for some benefit to themselves and our community as a whole. I accept that this has to be tempered by a reasonable risk strategy. For example, for serious sub-prime cases, the loan should not be over a certain loan to value and banks need to look at the way they raise money to fund mortgages in a sustainable way. But, it does seem as though it is the mortgage industry that is getting it in the neck and if we are not careful taxpayers will pay, not merely for the bank bail out, but also for tax increases to pay for heinous public borrowing and by being unable to borrow if they do not tick all the boxes – and, as the recession bites, fewer people will tick the boxes concerned. Imagine you were lending your own money. Would you rather lend at 100% to a person with a pristine history or someone not so pristine at 60%. There might be a higher risk of default, but a far less risk of loss with the latter situation. Where is the problem with this, other than through state meddling and interference?

Whether we like it or not, the City was the very force behind the successful decade, after Blair came to power – this despite New Labour, rather than because of it. The City produced huge amounts of wealth for this country. Controversially, as also said elsewhere, capitalism is the only way we can get out of this mess. We should not allow bankers to be so discredited that we do not listen to them and we should not allow Government meddling to stifle our chances of recovery - those unaccustomed to power or luxury will abuse or be corrupted by it. Our economy cannot recover unless the City recovers and I do not believe it will do so if it is weighed down by excessive regulation, imposed by a government that it is so manifestly feckless and one that has taken the credit for the boom but which seeks to smokescreen any criticism for the bust. This lot, with breathtaking temerity, deprecated Margaret Thatcher’s boom and bust and yet has presided over a period in our history where the economic decline shadows it – hypocrisy on a grand scale.

I can only quote from Stephen Glovers’ article in the Daily Mail of March 19th 2009. ‘The greatest danger of spending too much energy hating Sir Fred Goodwin is that we blind ourselves to the fact that, for all its imperfections, capitalism is the most efficient method of producing wealth. At the end of every economic cycle, there are always foolish and arrogant people like him (author’s insert, referring to Fred Goodwin) who think they can walk on water. We shouldn’t assume that, because they can’t, the whole system is irretrievably rotten’… ‘Capitalism works and it alone can save us’.

As I stated before, New Labour has wrecked our nation and turned us into an ambulance chasing, politically correct, multi-cultural melting pot of mediocrity. In as much as Karl von Clausewitz 1780-1831 said that ‘War is nothing but the continuation of politics with the admixture of other means’, New Labour is simply the continuation of socialism with the admixture of other means. The objective is the same; it simply comes about in a different way. In the words of Oliver Cromwell 1599-1658 ‘You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!’

Amen to that!