Reasons for British Success at the Olympics

The British are an odd nation. They can reach get heights of great achievement while at the same time plummeting to depths of poor performance. The ability to do both things at the same time speaks to their priorities, as we can see from the Olympic Games now being held in London. Taken on any standards the Great Britain and Northern Ireland team has done very well. It is third in the medal count, it has the third number of gold medals of any nation, including nations that are much larger and much more prosperous that it. There is a simple reason for this excellent performance: money. Continue reading

A Simple Guide to the Present State of the World Economy

The thrills and spills of the Olympic Games circus have rather distracted attention from the thrills and spills of the economy. Something bad is happening out there with currencies and the world economic outlook is in decline, but no one really notices as we praise competitors who win and commiserate with those who lose. What is happening in the economy of the world right now? The problem of the economy is created by other specific problems. Continue reading

Why Banks are Unsafe.

Markets now feel that banks are much less safe. Suddenly, the credit rating agencies have decided what we knew a couple of years ago. Fifteen major banks have had their ratings downgraded so that the relatively position of each to each is more or less unchanged but putting your money in a bank is deemed to be much more risky that it was before.

There are four reasons why bank are unsafe, regardless of their ratings by credit agencies.

1. Banks which need to get support from governments can never be safe becasue governments do not have endless supplies of money to bail out those banks.

2.Banks are unsafe becasue they leverage their customer deposits too much.

3. Banks are unsafe becasue they enter into transactions involing derivatives which no one really understands, gambling hugely on them and for every winner there is a loser.

4. Banks are unsafe because they put our money where their mouth is.


Odd Things – Belief and Reality

It is odd how many people, companies, organisations and governments allow belief to prevail over reality. A problem can be staring you in the face but sometimes belief overwhelms reality and you do not recognise the problem, or, if belief allows you to recognise the problem, it fails to allow you to recognise the solution. Belief is a matter of feeling and reality is a matter of fact. Your beliefs may prevail where the facts are unknown or indistinct but if you allow belief to oeverwhel reality byou will make wrong decisions and ultimately come to a sticky end.

A good example of belief prevailing over reality is what is happening in the Eurozone. Governments, officials and policy makers are allowing their belief  that the euro is a good thing for Europe to prevail over the reality that for many parts of the Eursozone the Euro is a bad thing.

I do not think that the Euro will survive for long as the national currency of twenty seven nations, each with very different habits and expectations. To believe that the euro will survive is to allow belief to prevail over reality.Such is the nature of wishful thinking.

Forgive them their debts

Greece is in distress. It is in great difficulty, with no money, no government and very little hope. It has taken much in the past ten years, taken from nations that were willing to lend to it, and directed its economic policy to suit the demands of those pursuing a dream of European unification. It has gorged on the money it borrowed, without being able to create wealth from its debts. Continue reading

Odd things – Casino Banking

If you entrust your money to JP Morgan Chase you will be perturbed to learn that the bank managed to have lost $2 billion due to errors sloppiness and bad judgement and that more losses are on the way. It did not lose the money because of some crooked employee; it lost it in what is the casino in which banks participate, hedging wrongly – in other worlds making best without, as every good bookmaker does, laying of appropriately to minimise loss potential. Continue reading

Odd Things: Why on earth do we let the Banks do it?

Right now the banks in the United Kingdom are in business and able to trade in markets by leveraging their depositors’ funds. Their depositors are only placing such funds on deposit because the government of the United Kingdom has given a guarantee supported by the taxpayers of the United Kingdom, many of whom have deposited the funds which are being guaranteed. Without the depositors funds the banks would not be able leverage and that would prevent them dealing in markets for profit (or loss). Continue reading

When to borrow and when to lend

“Neither a borrower or a lender be” Polonius advised his son, but as wise as that advice may be, Polonius did not reckon what idiotic administrations could do and allow to make nonsense of that sage advice. There are circumstances when you can be a lender in which your borrower should never borrow, and cases where you might risk being a borrower but your counterpart should never lend to you.

I will take the second case first. These are the circumstances when your lending might well run up against difficulties which result in it being illegal to claim your money back. Things are not always as they seem. I am not talking about billions of Euros lent to Greece but ordinary matter of fact transactions that happen every day in England.

Imagine a fairly benign case. Mr Bloggs has a son, and being a young man in a hurry to surround himself with the possessions that young men enjoy he wishes to borrow from his father and his father, having an orderly mind and wanting to impress upon his son the need to keep his affairs in order, agrees to lend his son say £10,000. The son agrees to repay his father in three years time with interest (the father insisted) at 3% per annum. The three years passes and the son is due to repay the loan and the interest. Unfortunately by this time the son and father have fallen out, and the son wants to avoid repaying the loan. He takes legal advice and the solicitor explains that the loan might well be not repayable. It might be illegal.

You see, the state of English law on loans is not straightforward, mainly because so many European Union Directives have been imported into the law that expert lawyers find it hard to understand whether an arrangement like that between the father and son that I have described is actually legal. You can pore over volumes of laws and directives and still be unsure of the legality of the loan. If it is illegal the lender father cannot recover the loan from the borrower son. The father loses his money and the son has an ill merited windfall.

In that case if only the father had got a licence to lend money from the Office of Fair Trading all would have been well. But the father did not do this. He would not expect to do this (which ordinary sensible person would expect this?) and as a result if the son defends a lawsuit on the grounds that the loan was not compliant with legislation the son will succeed in giving his father a headache and may well succeed in getting off having to repay the loan. The father should not have lent and it turned out that the son did well to be a borrower.

Now for the other side of the coin. Imagine that someone needs a small loan; say £200, to tide them over until the next payday. While watching television he sees an advert for payday loans with three puppets representing elderly friendly people sitting on a sofa. That nice company will lend £200 for a few weeks. However the interest rate is not 3%, but 2412% (yes I will write it in words just to assure you that I have not mis-typed – two thousand four hundred and twelve per cent), and as such the borroer may easily find himself in a position where you cannot ever repay the interest on the loan, however many times you have repaid the capital.

The lender has, however, taken the precaution of registering with the Office of Fair Trading who has deemed the lender fit and proper notwithstanding the interest rate charged. The loan is enforceable and will have to be repaid. In this case it was economically good to be a lender and economically bad to be a borrower.

It is astonishing that any commercial nation with centuries of mercantile history from which it has been able to develop fair laws about lending and borrowing should find its citizens subject to the laws that I have described. It is more than astonishing; it is shameful.


Is the tide turning?

In the United Kingdom house prices fell last year by half of one percent but general inflation is falling. Goldman Sachs managed to lose money on its Asian operations. The US dollar is slightly weaker against many currencies. Oil is getting more expensive and there are fears that natural gas will also get more expensive. Gold rallied and then declined a little. Greece, it seems, has been saved although there is a strong possibility that the medicine being administered will harm the patient rather than cure the disease. What are we to make of these economic signals? Continue reading

Payday Loans

They call them “payday loans” because these are loans intended to be made for a few days to tide a person over from one payday to the next. They are at astonishing high rates of interest – rates which forty years ago (when inflation was higher) would have been considered so high by the courts that they would have been ruled illegal, because the rate made it very hard to repay. This often happens today but the rules have been skewed; instead of favouring equity, they favour the money that makes these unconsciousonable lending. Continue reading