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If anyone had thought that credit crunch has faded in significance, had been replaced by a deepening – and now acknowledged – global recession, but that basically things were back to some sort of known territory where we’ve been before and know how to get out of it eventually, this morning we were reminded that this was not the case.

Clearly, we are very, very far from being out of the woods, with banks continuing to be on the brink of disaster and still struggling to quantify the extent of their losses.

The new £50bn plan: The new bailout plan, announced in the UK this morning, will allow the Bank of England to buy up to £50bn of risky assets directly from any company (not just financial institutions) that agrees to enter into a voluntary insurance scheme for its expected losses on specified toxic debts. In return, banks have to pay for this insurance – typically with cash, but possibly also their shares. The scheme aims to insure companies against 90% of their losses on specified debts which resulted from the collapse of the sub-prime market and the ensuing global meltdown.

Two bailouts, two stories: This scheme, of course, exists on top of the first bailout in October 2008 where several key financial firms received £37bn as a capital injection to top up their reserves. The second UK bailout, however, has very different features to the first one. Not only the recipients of “aid” are different, but the insurance scheme “twist” is a new one. It is closer, albeit not idential, to the earlier US’s bailout model of buying up bad assets from struggling firms. Read the rest of this entry »

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The Labour government is making another attempt at welfare reforms. This week, a white paper is being published by James Purnell, the Work and Pensions Secretary, for discussion proposing a new approach. If effective, this should result in people living on benefits starting to look for work – or risk benefits being slashed, and should be implemented around 2010/ 2011.

I’ve long since felt a sense of bitter outrage that so many people in the UK get a free ride as “tax consumers” living – and some quite comfortably – at the expense of the rest of us. The system is notoriously inefficient and open to abuse. The case of a man who claimed benefits several times over, clocked up a “salary” in excess of £40K per year and only got caught because he carelessly drove to collect his “dues” in a brand new BMW springs to mind – and there are many other cases of blatant fraud.

In total, UK’s welfare bill tops £20bn. That’s pretty shocking in itself.  

What’s much worse is that many of these people bring up their children to believe that it is absolutely OK not to work as the state will provide. And these families can tend to have many kids (which in itself, I feel, is socially irresponsible) – often many more than the national average. That’s a new fast growing brood of brats, many intending to live off us in future. Great – we’ve created a system in the UK that actually encourages people and their offspring to become long-term and life-long shirkers. That surely was not the original intention of creating a welfare state in this country.

Read the rest of this entry »

Yesterday’s Queens speech was notable for its omission of the Communications Data bill, the extremely controversial Big-Brother-esque piece of legislation which received a huge amount of opposition in the UK and against which a number of blogs, including this one, have opposed.

Another public consultation on the bill will take place early next year and will aim to discuss problems the government sees in our national security, and proposed ways to tackle these problems.

Back in October, Jacqui Smith “clarified” what the Bill would and would not do:

“There are no plans for an enormous database which will contain the content of your e-mails, the texts that you send or the chats you have on the phone or online. Nor are we going to give local authorities the power to trawl through such a database in the interest of investigating lower-level criminality under the spurious cover of counter-terrorist legislation.” (quote from ComputerWeekly.com)

Read the rest of this entry »

It would have been a bombshell for many, but in good old British tradition details of this annoucement were leaked this weekend, so here we are picking this apart before Alistair Darling has made his speech due later on today.

The jist of it: Labour want to spend their way out of this unprecedented recession. And we are all seriously concerned that the numbers behind the justification of the intention to spend our way out of the recession just does not seem to add up.

Read the rest of this entry »

Today is a historic day for the US – a convincing victory of Barrack Obama, the Democratic candidate, in the race for the White House. Hail Senator Obama, the future first black president of the USA!

Even as I write this, I know it should not matter what colour the face of the winning candidate is. Maybe it will matter less going forward, now that the USA have come this far – but it seems to matter a lot today. So it’s a victory for racial equality, amongst other things. And this alone would have made it a historic day.

Politically and economically, this victory gives the US a chance for change. And it gives the rest of the world a hope that the US will show us a different face. We hope that the USA will stop interfering in other countries’ political affairs, stop being aggressive and act as a policy-maker around the globe. It does not own the world – so we would like to see it behaving like an equal to other nations.

We would like the US to take concrete environmentally-conscious steps and set an example for tackling global warming and investing in alternative energy technologies. Many have paid lip service to this matter in the past but not much has been done. We make no mistake, this is a huge challenge which needs to balance the need for ongoing economic development of the country with ways to make it much greener, fast. But now is the time to step up and really do something.

Last night, US citizens have chosen change over more of the same. It is up to Barrack Obama to lead them through to change he has been talking so eloquently about during his campaign, and to inspire the whole country to adopt the new ways.

Governments can only do so much. It is the electorate that often makes it happen. Senator Obama has scored an unprecedented victory last night which shows he has the support to make change happen. We have seen historic pictures of people queuing up to vote in this election. The Americans have come out in their millions and said that they have had enough of the status quo of the previous presidency. Don’t waste this chance, Obama!

Will Barrack Obama stay true to his ideals once he is in place? Will he change the face of the USA on the international political landscape – or sway under pressure from various lobbies and moderate his election campaign principles? Many have fallen victim to pressure in the past.

Only time will tell whether Obama will stay strong and see through his inspirational ideas. We hope he does – and that today we have seen the start of the new era for the US and the world.

A serious financial crisis is continuing to unfold in Russia.

Capital outflow: In the last few weeks, foreign investors withdrew their money out of Eastern Europe, the Russian stock market has fallen over 60%, and the government has been on a spending spree trying to prop up the collapsing markets. The very small rally Russian markets have experienced in the last 5 days are rumoured to be due purely to government’s share-buying activities.

As I wrote recently, the government committed a package of $120bn (and some sources say, $200bn) to bail out struggling large Russian banks – against the backdrop of some bank runs and bankrupcies of the smaller players.

Oil price collapse: Coupled with the above, the price of oil has recently fallen back beyond the $70 per barrel, now standing at about $67. Russia needs the oil price to be above $70 to break even and balance its national budgets (compare this to $95 for Iran and and Venezuela, and $50 for Saudi Arabia. Source – NY Times).

So, as Russia makes less and less money through its oil exports and wasting ever-increasing sums of money on propping its markets, where does this leave it?

Debt overload: Predictably, not in a very good position. Russia has accumulated a lot of foreign loans and in the next couple of months, needs to roll over $47bn of them. As there are very few investors left wishing to extend their support to struggling economies, this task will be exceedingly challenging. In total, Russia has $530bn worth of foreign debts, clocked up during the recent years of massive market expansion and over-confidence. Of these, another $150bn are falling due to be refinanced in 2009.

On track for downgrading: S&P issued a warning that it might downgrade Russian government bonds reflecting the declining credit-worthiness of the state. However presently, it maintains a credit rating of BBB+, the third lowest investment grade. If Russian bonds are downgraded further, this means they will lose their investment grade status, and any further credit to the country will cost it even more.

Moody’s downgraded the Russian financial outlook from “stable” to “negative” in the last week, citing “slowing asset growth, higher inflation, the slump in equities and funds leaving the country, all of which could result in deteriorating fundamentals for banks” as reason for its decision.

Credit default swaps, which are being taken out as means of insuring investors against (in this case) Russian government bankruptcy, are reflecting this in their pricing. CDS spreads (the difference between the buy and sell quotes), which serve as a measure of risk tolerance, are widening massively, reaching a 1,123, which is higher than spreads on Iceland’s debt before it sought a rescue from the International Monetary Fund, reports the Telegraph.

Russian government heading for bankruptcy? Thus the creditworthiness of the Russian state is in itself in question. It may be that the Russian government is heading for a default on its foreign debt, as it did fairly recently in 1998 – although the situation in 1998 and 2008 is somewhat different.

 

Copyright 2008 by CuriouslyInspired

Here is something that did not surprise me at all today.

The UK government, it appears, knew perfectly well that the Icelandic banking system was heading for a meltdown – as recently as March 08. But it did nothing to help out some of the UK savers.

Back then, the Icelandic government was seeking help for its banking system as the confidence was starting to collapse and it needed money. Mervyn King, the governor of the Bank of England, commissioned several reports to assess the state of the Icelandic banking sector, and refused to help out when the results that came back were – predictably – not very reassuring.

Failure to act: Discussions earlier on in 2008 on the possibility of turning UK operations of Landbanksi, the now-collapsed bank, into a UK subsidiary, did not reach any conclusions. This means that whilst the UK government was aware of the impending danger to Landbankski’s UK savers, it failed to negotiate a status change for this branch which would have meant savers would have been covered by the UK deposit protection scheme when the collapse inevitably happened. It failed to act to aleviate the inevitable fallout.

Liberal Democrat treasury Vince Cable is now calling for an inquiry to understand the extent of UK government’s knowledge about the forthcoming crisis.

The government has recently confirmed that it will back private investors’ money, but this leaves charities and local councils at risk of losing all their money.

The savings debacle: Now, a huge amount of charities and public sector bodies have their money locked in collapsed Icelandic banks. Here is the quick list of councils that caught out in the meltdown.

Some councils have been warned: It appears that many did have a prior warning about the impending danger. Landsbanki, Glitnir and Kaupthing bank were all downgraded in Feb – March 2008 by credit rating agencies. The confidential advice to move savings elsewhere was passed to many councils by their advisor, Sector Treasury Services.

Some acted on this advice and moved the investments; some could not, as money was locked in long term deposits. Others – and this is the shocking bit – continued ignoring financial advice and even increased deposits made. This, unfortunately, just confirms some council’s incompetence in financial management.

Read more details here.

So, tell me something I did not know? The UK government that is wilfully closing its eyes to the inevitable and refusing to act early, and UK councils that do not competently manage their money. What a shambles.

 

Copyright 2008 by CuriouslyInspired

In the few days, the UK Government has published its plans to collect more data on people’s phone, e-mail and web-browsing habits under the generic umbrella of measures to fight global terrorism.

This will be included in the innocuously sounding ”Communications Data Bill”, due to be introduced in the Queen’s Speech in November.

We do not oppose the fight against global terrorism. But we don’t want to have constant police presence everywhere in my house.

Frankly, many people are outraged by this further intrusion into our civil liberties. A growing number of people want oppose the increasing Big Brother intervention of the present government. Alongside many bloggers, I am voicing my opposition to plans for further spying on our affairs and private lives.

The general sentiments are very well expressed and illustrated in the following post by the Power to the People website and I thank the author for allowing (in fact positively encouraging) the article to be reprinted here, something I would not do normally: Link to article.

As many will be aware, Britain already has the highest amount of surveillance cameras watching over its citizens. City dwellers are typically filmed dozens of times per day – something that has not actually reduced violent crime statistics under the present government! We seem to be heading for – if not there already – a police state. And this is scary, because once a government acquires certain powers, it does not typically ever give them up. So there will unlikely be a relaxation on the current policing techniques employed. And I am not sure police can even use their newly acquired powers to get us the degree of protection they claim they will offer.

The initiative to indicate our common outrage at this most recent government measure has in fact come from a blog at shrewdmammal.com – the author is urging people to include the tagRESIST‘ in all like minded posts and has included a logo which I have included on the front of my own blog.

If you share our views, and think the government is beginning to enjoy too much intrusive power over Britain, please feel free to reprint this article in your own blog.

Thank you.

In this morning’s speech, David Cameron laid blame for the current state of the UK economy at Gordon Brown’s feet.

Labour a failure: Cameron stated that the Labour government was responsible for the “complete and utter failure” of economic policy and that it has been an “irresponsible government” presiding over a period of “irresponsible capitalism”.

The implication is that the nation is now reaping the results of this policy as we slide into a recession, our financial sectors in tatters – and that this could have been prevented.

Cease support: In the recent days, Conservatives have been seemingly supporting Labour especially in the latter’s bid to work out a bailout package. So much so that one was wondering if the Conversatives have had any of their own thoughts about the economic policy. And, whilst Cameron is now effectlively making a statement that he is ending Conversatives’ support of the current government’s economic measures, one still wonders what exactly is he going to propose that amounts to a solid economic platform that is actually different from the current course.

General noises are being made about tougher regulations, “new measures to rebalance the economy”, and changes to laws. Whilst this is all good and fine, none of these appear novel measures that have not been mentioned before by someone else.

Are Conservatives still struggling to pull it together? On the evidence I see (or shall I say, do not see) today – yes. But so is Labour, really, although at least they have some sort of action plan for now.

Silly Political games: What seems to be happening on both sides is a lot of posturing. Whilst Gordon Brown is savouring the role of the saviour of the world’s financial system, his opponent David Cameron is the homegrown oracle who had seen it all coming and can see right through the incompetencies of the present government – yeah, right. How easy is it to throw stones about, say “I told you so” and then duck for cover – as really you have nothing new to say, Mr Cameron. Come up with some really smart proposal that will tell you apart from other government policymakers, then maybe we’ll put more trust in the Conservatives.

Until then – the usual charade of ceremonial policital repartee continues. Yawn…  

 

Copyright 2008 by CuriouslyInspired

The euphoria of earlier this week, which followed an announcement of the UK bailout by Gordon Brown, has seemingly finished – as it was feared to. Shares have yet again collapsed. Asia showed probably the worst results today, with the Nikkei dropping 11% on the 16th October. As I am writing this, the FTSE has fallen below 4,000 again. And Dow will be perilously close to its 8,000 mark.

Shifting sands: Investor sentiment, similar to voter sentiment, is a funny thing. Markets are driven by it, same as elections are won on the strength of popular feeling. However stock market sentiment is also fickle and impermanent, and prone to wild swings especially in troubled times such as now. We are nowhere close to being out of the woods yet. In the weeks to come, there will be significant market volatility, and the market will trend downwards. Perhaps my fears of FTSE at 3,000 have yet to be realised.

Credit crunch biting hard: Interbank lending is still pretty frozen, although short term rates have fallen a little – with banks still not keen to do any longer term lending. Despite all government intentions and declarations, banks cannot be forced to start lending against their will if they do not have confidence in their financial partners. Somebody compared this to “asking water to flow upstream” – just is not going to happen. The impact of this has already spilt out into the real economy: businesses are finding it very hard to refinance their existing loans. This will have a negative impact on the whole economy, reducing business activity and forcing some to cease trading altogether.

Recession: What is driving the stock markets plunges at this very moment are investors realising that we are heading full steam into a global recession – and the existing bailout funds will not be enough to prevent it. A lot of government money is being pumped into the banking system – yet as long as investors think we are heading for a recession, they will keep on selling, and the money will keep on burning up and vanishing into the bottomless pit. It’s a vicious circle which under the current financial system, only restored consumer confidence can stop – and we just are not getting any positive economic news for this to happen. Read the rest of this entry »

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