Spygun

“Mandelson! You’re swimming the wrong way!!!”

Even after months of credit crunch and  weeks of banking meltdown, there are still those who do not understand the scale of the current global financial crisis.

This is the first sentence from today’s Times leader: ” The banking crisis began with a few mortgages irresponsibly mis-sold to borrowers in the United States who could not afford the repayments.”

The article has all the in-depth research of something hastily scribbled on the back of a Carlton or Reform Club menu just before deadline and just after a large balloon of Remy.

Let’s spell it out. The “few” mortgages referred-to amount to $1.2 trillion or to make it easy for our uninformed Times chum, $1,200,000,000,000. Or to make it even easier for him - a lot.  

It is  hoped that the American $700,000,000,000 bailout figure is now in some sort of context.

Secondly, it is not the fact that ” a few mortgages were irresponsibly mis-sold” that has led to the current crisis. A few mortgages have always been irresponsibly mis-sold.

The crisis has been caused by those potentially dodgy mortgages being sold and then  bundled up into something resembling funds and then shares in those funds being sold to investors, some of whom were banks and insurance companies. The banks then borrowed more money, using their purchases as collateral by referring to them as “assets”. Those assets are now liabilities.

The other misconception is how the Paulson plan is perceived in the United States. It is  a plan which was conjured-up and true to form, mis-sold to the American electorate by a Secretary to the Treasury who barely 18 months ago was Chief Executive of Goldman Sachs. He earned nearly $40 million in his final year at GS and his estimated worth is of the order of $1 billion.

The same article refers to the Irish Governments decision to provide a 100% guarantee to bank customers. It is referred to as a “bold move”. It is not a bold move - it is foolhardiness spawned by desperation. Why? Because the Irish guarantee is well in excess of all the money in the rapidly-shrinking Irish economy.

The Irish Government has taken the sort of stupid risk that has pushed the banking community into its current chaos. 

A little knowledge is truly a dangerous thing.

Liquidity - the City way

Gearing - the City way

The flush-cheeked silk-suits who used to talk loudly in London bars are quiet today.

They are awaiting the result of the Congress vote which may ratify the  U.S. $700 billion rescue package.

When (and if) the package is agreed, the politicians should take an immediate step back and the US Treasury Secretary, Henry Paulson should announce the hire of a money-man to administer the funds. He should find someone without any  vested interests or someone who cannot be accused of profiting from the distribution of the rescue package. That will not be as simple as it sounds.

Many (if not most) of the big-hitters in finance own share portfolios, so finding a financial Elliot Ness who knows what he’s doing may be difficult.

The reason that the politicians should distance themselves from the scheme is because it is very likely that the markets will not reawaken if the dealers feel that they have a politician’s boot looming over them.

Politicians have a tendency to meddle and over-analyse so there may be a danger of every single transaction being scrutinised and further costs being “baked” into the system as a result of another tier of beaurocrats being introduced.

It’ll be “Capitalism Jim - but not as we know it.”

It is generally accepted that the financial system will now be experiencing a bit of a quantum leap but unless the leap is a positive one, the markets may be stifled by administrators and legislation.

The current mess does not stem from day-to-day procedures but from year-to-year policies and lack of active supervision.

This is definitely an occasion when the monkey should be left alone. It is  the organ grinder who should have the benefit of a severe talking-to (and maybe reminders on gearing and liquidity ratios).

The Bradford & Bingley Bank has been nationalised.

B&B’s £41 billion loan book is now on  the public balance sheet and the government has guaranteed around £9 billion in other commitments related to the bank. 

Spanish bank Santander has bought the bank’s branches and savings business for £612 million. That’s about 2.7 million customers and approximately £20 billion in deposits.

Santander already owns Abbey and recently agreed to buy Alliance & Leicester - so the B&B deal will give it 1,286 branches and a 10% share of the UK retail savings market.

The Financial Services Authority (FSA) decided on Saturday morning that B&B was not strong enough to continue as a deposit-taking bank after the recent financial turmoil undermined confidence in the company. It is thought that B&B’s decision to purchase the GMAC mortgage book contributed to its demise.

B&B’s has been a feature of the British financial landscape for about 150 years and many will view this dramatic collapse with great sadness. Prior to its demutualisation, the Bradford and Bingley Building Society was regarded as one of the most prudent and conservative financial services organisations in the UK.

It will be greatly missed, both on the high street and in our collective psyche. It was the last of the great Building Societies, and in spite of becoming a bank in 2000, it retained its “solid no-nonsense” image all the way to the end.

This morning, Alistair Darling told GMTV: “My priority was to protect savers and depositors but also to ensure we got a good deal for the taxpayer. We had to stabilise the situation in order to protect the banking system as a whole, just as we have done on previous occasions.”

The Treasury said it would be “business as usual” for the firm’s savers and borrowers although for the moment, quite understandably, all lending has been suspended until further notice.

B&B has around 3,000 staff and 197 branches.

Today, the shares of RBS, HSBC, Barclays and LLoyds-TSB  are all taking a bit of a bashing . That’s because of  their anticipated contributions to the Financial Services Compensation Scheme following the B&B collapse.

Henry Paulson

When the $700 million Wall Street rescue package is unveiled, remember the saying:   A camel is a horse designed by a committee.

The last few days have shown how unpopular the US $700 million rescue package is among the American electorate.

Both the Republicans and the Democrats are very mindful of the fact that a Presidential election is looming, so the fact that Joe Average is having to bail-out the Wall Street fatcats is a potential vote loser.

Neither Party wants to be seen as the one which pushed the deal through Congress - just in case. The package is currently being window-dressed  so that it will look as if it was agreed and objected-to in equal measure by both parties.

Self-preservation and vote acquisition have triumphed.

The system is supposed to have seized up because (new mantra)“the banks have lost confidence and therefore will not lend to each other.”  So why don’t they do what we used to do in the old days and use their own money?

The reason is simple - they do not have any money. Most of the mortgage cheques that lending institutions sent  out in the last few years should have bounced.

Banks are distributors of money - no more and no less. They do not MAKE anything.

They cannot conjure-up new money because all that they can do is MOVE money from a. to b.

They do not CREATE new money. They do however, create wealth for themselves.

The U.S. ringmaster, Henry Paulson who is currently United States Secretary of the Treasury has a net worth in excess of $700 million and his income in his last full year as CEO of Goldman Sachs (2005) was nearly $40 million. No-one would ever suggest any impropriety but is an executive  who spent nearly 32 years at Goldman Sachs the best man to be proposing a rescue package?

There is now talk of curbing the excesses of the Wall Street fatcats through legislation and the whole process is being overseen by a former uber-fatcat.

There are several important questions: Has Henry Paulson retained any shares in Goldman Sachs and could we please have  sight of Mr Paulson’s investment portfolio? How much is he currently worth and how much (if anything)  does he stand to gain?

The financial establishment was driving an express train  to hell but now it wants to hand the steering  to the government  -  any government -  and it wants to do it as soon as possible.

We are the prisoner- passengers and there is no possibility  of getting off the train. We’re trapped.

The Crash of 1929 and  the Crash of 1987 both have something in common. They took place in October.

October 2008 starts next Wednesday and it looks as if  our train is about to hit the painful buffers of another Black October. Inevitably there will be what is euphemistically called a single-day  “DOWNWARD ADJUSTMENT”.

Look out for a Black Monday, Tuesday, Wednesday……………….you choose.

By now, George W. Bush and his crew are realising  that a mere  $700 billion will not be enough to save the fantasy world created by the global financial system.  But they need to appear to be doing something.

What is being done to slow mortgage defaults? What will be done to encourage the banks to lend money to each other and to consumers?  How will the housing market stabilise?

It is also painfully evident that the banking establishment has no idea of  how to attack the current problem so the “professionals” are handing the problem over to a collection of elected amateurs led by Goldman and Sachs’ ex-CEO. Priceless.

The credit contagion will soon hit every company that distributes its products on credit. Will the government(s) bail them out as well?

The sad fact is that we cannot provide a solution to a problem that no-one understands . The inaction of our bank chairmen and boards suggests that they are   paralysed by a combination  of fear and what appears to be institutional intransigence.  

There is nothing easier to manage or direct than an organisation which is  in “steady state”.  It is when a company destabilises that senior managers , directors and administrators  should be earning their money.

Instead, there will be retirements, sackings, redundancies and court cases.

After  the blood-letting, there will be a shiny new train that we can all climb aboard. 

Does anyone remember the good old financial steam-trains of thirty years ago?

Building Societies took in savings and deposits and paid a small interest rate. They would then lend that money  to mortgagors at about 4% more than they were paying  their investors. That gave them their operating margin  plus a small surplus.

Then the banks, insurance companies and stockbrokers waded into the mortgage market and made the whole system tsuper-technical and totally unintelligible. The legislators then gave the whole industry a good stir and  the rest,  as they say, is Geography.

Perhaps it had all been too simple.

The only surprise is that it took so long to unravel.

Bradford and Bingley’s shares are continuing to travel in the wrong direction and we are still not hearing any positive noises from the board.

They have an excellent management team, they are product innovators, they are responsible lenders  and the only major mistake that they have made is the purchase of the GMAC mortgage book. They signed up to purchase £12 billions-worth of mortgages. The purchase  looks increasingly like the sort of idea that materialises in the pub just before closing time.

They were to buy the GMAC mortgages in quarterly tranches but are renegotiating the deal because the GMAC mortgages are in arrears by a factor of nearly 5, compared to Bradford and Bingley’s self-sourced mortgages.

Two further factors are making things difficult. The first is the fact that they have a higher-than-average number of buy-to-let and self-certified mortgages. These mortgages are known to have a higher attrition rate but that is already reflected in the share price.

Moody’s have downgraded the BBG within the last week and that together with excessive media attention is putting additional pressure on the share price.

Nowadays, credit rating agencies such as Moody’s and Standard & Poors are  downgrading companies with almost indecent haste. They have become part of the problem and not of the solution.

The proposed redundancies at the BBG have not been announced or reported carefully enough. The initial impression given by the media is that they are to lose nearly 400 people immediately. That is not the case. There will not be a Lehman-type scenario.

We will not be seeing tearful box-clutching junior staff being interviewed on the 6 o’clock news.

The announcement that the sacking of 370 staff will produce a per-annuum saving of £15 million suggests high wages, so all-in-all, BBG is continuing to handle the whole thing very badly.

They seem to forget that much of what is happening is about PERCEPTION. 

The BBG board is probably now thinking that demutualisation was possibly not all that it was cracked up to be. Ask the shareholders.

However, the Chairman Rod Kent and Chief Executive Rod Pym need to get their fingers out of their backsides and come out fighting. They should not leave it to the FSA to flip-flop from company to company hoping for a sale. 

Has the board lapsed into “analysis paralysis”?

“B&B was an old Building society and therefore is not organised for the speed and change in the mortgage market,” is a two-month-old quote from Rod Kent.

That may be true but is not the sort of sentiment that the market enjoys - and in this business they do not forget and they do shoot the messenger.

*******************************

Gordon preparing for his speech.

A lot of amateur analysis will clog tomorrow’s newspapers, so I’ll keep it short.

Gordon Brown’s 2008 conference speech was not good.  It did have the effect of a temporary reprieve but Brown is still hoping that someone will manage to get at the jury before they deliver their final verdict. The decision will arrive sometime after the next by-election. That’s about one month away.

David Miliband looked far too smug, Starling smiled and what the hell was simpering Fiona off the telly doing there? Baroness Phillips of GMTV? John Prescott and Harriet Harman  both swayed as if they had enjoyed lunch. Harriet resembled a deputy head girl after one-too-many Crofts. Ed Miliband had obviously agreed to drive and Kinnock  had morphed into his Spitting Image puppet. Ed Balls stood as if he (or something) was about to explode and Yvette was  a pixie-puppet with one broken string.

It certainly looked as if the Pomerol ‘76 and the ‘96 Bolly had received some attention.

Some commentators have said that Brown did not say much about the economy. That was the best decision that he made. Currently, the markets are so sensitive that a wrong word or nuance could have sent the FTSE 100 due south. Congratulations to him for being prudent. (!)

So here goes:

DELIVERY 4/10. The voice is  good  and with a bit of work, he could learn proper modulation. He is a shy boy who is afraid of overdoing the metaphors, consequently he does not use them. Occasionally he sounded as if he was reading a Saga advert.

CONTENT 5/10. Mostly recycled stuff. Mentioned the eye and admit it - you were waiting for the school motto. Thankfully, he left it out. It was a Budget speech which had been topped and tailed by the stitching-in of some NHS and anti-Tory stuff.

VISION 3/10. No great leader actually uses the “V”-word. This was a senior manager’s and not a leader’s speech.

BODY LANGUAGE 2/10.He only appeared to move his head between the two stereo autocues.

FACE 3/10. He is naturally expressionless and did not let us down . There were about four examples of the  “Jack the Ripper” smile.

HUMOUR 1/10. Not a natural comedian.

Let’s end on a high note:

He is as good as Iain Duncan-Smith.

We are chewing into last week’s shares rally and the FTSE 100 is heading down to 5000 again. That always happens when there is a knee-jerk government announcement. The initial upswing caused by happy noises is then followed by a couple of days of reflection and analysis.

When the US government announced its $700 billion rescue package, the markets relaxed and rallied. Over the following weekend, everyone took time to think.

Then it was realised that the rescue package was far from a signed deal.

For instance, the U.S. Democrats want the government to take a stake in the companies that it helps.

Their proposal is that companies who effectively sell assets to Uncle Sam should give the government shares in their company.

The Democrats also require the government to come up with “a systematic approach for preventing foreclosures and ensuring long-term, sustainable home ownership…..”

That makes sense because the government is being asked to purchase sub-prime mortgages.

They are also looking for curbs on executive compensation as well as an ability for judges to modify a bankruptcy petition where a primary residence is included.

In addition, financial institutions are now coming out of shock and are confident enough to specify what they want in the new bill.

So, the current situation is that there are too many parties with vested interests for the bill to be agreed quickly. Unfortunately it will probably take some time for all the horse-trading to be concluded and if there is one thing that the stock market dislikes is uncertainty. The market likes good news and can certainly deal with bad news. No-news means some jittery trading for the next few days.  The FTSE  100 is very likely to be bouncing off the 5000 line for a few days but for as long as there is hope, it will noy make that drop below 5000.

However, if the politicians cannot agree, the drop will be so fast that we will all feel the  G-forces.

Needless to say, the U.S government wants and needs a “clean bill” to be passed quickly so that the rescue package can be put into place. Any undue delay will affect stock prices all over the world and slight “wobbles” are already taking place.

Meanwhile, there are banks and other FS companies which are holding their collective breath in the vain hope that they can keep quiet and just sneak under the wire when “the announcement” comes but there are those who cannot keep it up for too much longer.

I think that the above reinforces an immediate need for a Global Financial Services Authority so that all other economies are not “pointing” at the USA

Note to Hector:  Why don’t you ban “shorting” oil stock?

Banking : American-style

Collective noun for bankers - a Wunch?

The banking system has managed to avoid wholesale carnage - just some comparatively minor but well-earned blood-letting.

Commentators are currently busy constructing ever more grandiose metaphors to describe the last week’s events (was it only a week?) but it is now time to take a dispassionate look at the “post-blast” financial landscape.

Firstly, let’s clear up some confusion, or possibly add to it!. 

In the United States, a Billion is 1,000,000,000 (one thousand million)and everywhere else, it is 1,000,000,000,000 (one million million). Remember that our billions are different to USA billions. When our Treasury donates one billion to your local bank, it is being 1000 times more generous than the American Fed making the same donation. Or is it? Since 1974, the convention has been that a billion is always £1,000,000,000 but are we sure?

STOP PRESS: I have just received confirmation from the Bank of England that one billion is £1,000,000,000 which is 1000 million or 10. There is no longer confusion. All billions are the same.

There has been a lot of name-calling and media hysterics but here appears to be little discussion of actual numbers.   

For instance, the total amount of sub-prime mortgage-backed securities was (and still is) only about $1.2 trillion (American). That’s $1.2 billion (everywhere else) or only (!) about £0.6 billion .

Why therefore is the amount of funding being injected into the system by various governments so far in excess of that figure? Will the governments which are handing out money, carry out  retrospective audits of the banks who need support?

Of these mortgage-backed securities, only about $300 billion (American), which is $3,000,000,000 (everywhere else) or about £1,500,000,000 is held by US banks. The rest of these so-called toxic securities have been sold throughout the world to banks, pension funds and even private investors.

The question is this: Have the banks been too ready to lay the blame on sub-prime mortgages?  The figures just don’t add up - or have most of the banks been technically insolvent for some time?

For instance, many banks have been loaded up with Thirld World debt for many years. Again, they lent money at extremely high rates but these “investments” had to be written down and only worth pennies on the pound : near-worthless.

Technically, these banks must have been insolvent. Yet they were still declaring high profits and paying themselves mega bonuses.

They could argue that the way that banks have to value their assets adds to their problems. The system of valuation is called “to market” valuation. That means” How much is this asset worth if we sold it today?”.This type of valuation is meaningless if there is no market. If no-one is buying,  then  you could argue that your asset has no value.

Share prices are an exact analogy. If no-one wants to buy your shares, they continue to decrease in value until they are near-worthless.

However, even bonds which are backed by sub-prime mortgages have a value. Even if these values had been written-down by as much as say, 25%, there should not have been a problem with solvency.

Therefore, rather paradoxically, we have to blame the accountants. Even more paradoxically, it is they who run companies in times of crisis.

The accounting system in the United States started the avalanche and although the main blame does lie with the accountants, it is they who are running scared and having to value assets on a ” to market” basis as a result of the constraints placed on them by their own statutory accounting system  -  known as Fair Value Accounting.

They are bound to place a “to market” valuation on assets, instead of a true or real economic value. There IS a difference between “valuation” and “value”.

Here in the UK, Hector Sants, Chief Executive of the FSA has announced that “shorting” of financial stock has been suspended until  early 2009. Window dressing? Only a small percentage of  HBOS share were out ol loan and there is no real evidence that “shorting” has has been the cause of the current meltdown. However, at least the FSA has been seen to do something and Gordon Brown will get a Brownie Point by association.

The good thing about shorting is that weak organisations are soon found out. The fact of the matter is that HBOS share were being dumped by normal fund managers because there was no meaningful response from the HBOS board when their solvency was brought into question. They had been found out and there was nowhere to run.

Credit Rating Agencies (CRAs) such as Moody’s and Standard & Poors should also be in the dock and take part of the blame for making things even more difficult for financial institutions to raise cash. They are always in too much of a hurry to “bust” a business down so as to create a self-amplifying problem.

It works something like this:

1. The bank buys some dodgy stock or makes a bad loan.

2. The accountants (quite unnecessarily) go into down-valuation overkill mode on asset revaluation thus creating a hole in the accounts which needs to be filled with an injection of cash. 

3. The bank puts out a profits health warning.

4. The CRA reassesses the bank’s creditworthiness and downgrades it from say a B to a C.

5. No-one will lend the bank any money because of their credit rating.

Hector Sants said a year ago that financial rescues should not be in the gift of just the Bank of England and that emergency funding should be part under the control of the FSA. That is a measure that should be put into place immediately.

After last week’s bank/regulator/government (The Unholy Trinity) lash-up, serious questions should be asked about the future extent of the Bank of England’s involvement. Hector, who is the ultimate poacher-turned gamekeeper has known for some time that most banks and financial institutions have been treading that fine line between Profit and Loss or  Revenue and Misappropriation.

Regrettably, Hector lives in that twilight world in which matters have to be dealt-with by a “quiet word” in a Chairman’s of CEO’s ear - otherwise a careless word could trigger the sort of journey that out financial services industry has undertaken this last week. And it ain’t over.

This morning, many ill-informed commentators are blaming the “spivs” and crooks in the City for the near-downfall of the banking industry. IT IS NOT THEIR FAULT.

They have acted within the rules, within the law and according to the policies of their companies.

Twenty years ago, Life Assurance salesmen were blamed for the mis-selling of pensions and life assurance. THEY WERE NOT TO BLAME EITHER. They were implementing their companies’ policies and were quoting the industry’s figures. They were projecting 10% and sometimes 12% fund growths - sometimes forward for 25 years. Where did they obtain the figures? From their companies.

Nowadays, if a share dealer decides to “short” a stock, then he is perfectly entitled to do so - it is not a new device and incidentally, if you are one of the few people who is not a sudden expert on shorting, CLICK HERE.

However, “naked” dealing is much more exhilarating  - that is when you can (in common with the modern banking industry) REALLY get caught short.

“A very strange day on Hudson Street although they’re not really wanting to believe it!”

The figures below represent what is known as the “Capital Multiple” of brokerages/merchant banks  in the United States. That is to say the total capital, divided by the minimum capital requirement.

The source of these figures is the Securities and Exchange Commission and is based on the most recent financial statements.

When choosing a broker or Merchant Bank with which you wish to deal, go to an organisation which has a higher capital multiple. The CM is a good indicator of the bank’s ability to withstand losses and its ability to field other financial difficulties.

It is interesting to note that on average, the companies that are currently experiencing turbulence tend to have a low capital multiples.

Edward Jones  19.9

Bank of New York Mellon (Pershing) 15.8

T. Rowe Price 13.98

Scottrade 13.86

OptionsXpress 12.65

Raymond James 11.92

Merrill Lynch 8.62

Fidelity 7.93

Bank of America Securities 5.97

ING Direct 5.85

Schwab 5.85

Lehman Brothers 5.43

E Trade 5.00

TD Ameritrade  4.72

Citi Smith Barney  4.06

Goldman Sachs   3.90

Morgan Stanley 3.21

Below is a snapshot of prices and movements on the NYSE as at 14.45 GMT today:

Top Losers   GENWORTH FINANCIAL 8.69 1.15   PROLOGIS TRUST 37.93 4.61   MORGAN STANLEY 20.21 1.54   CONTL AIRLINES CL B 17.08 1.15   A M R CP 10.47 0.67   Northwest Airlines Corp. 9.95 0.60   US AIRWAYS GROUP INC 7.30 0.44   GOLDMAN SACHS GRP 108.04 6.46   American International Group Inc 3.24 0.09   American International Group Inc 3.31 0.09

It looks as if the market is after anyone without deep coffers, irrespective of any recent profit announcements.

After a harrowing day, Morgan Stanley’s shares finished down $6.95, or 24%, to $21.75.

Goldman Sachs Group, the largest U.S. investment bank by market value, also fell $18.51, or 14%, to $114.50.

There was a time when these two banks considered themselves as “untouchable” but the prohibitive cost of money is going to make it difficult for them to fund their businesses without some sort of outside intervention.

We can see them both running for cover and in fact, Morgan Stanley is in advanced talks with Wachovia Corp. although it is also talking to other banks.

Friday 19th September will be an interesting day for both organisations but don’t forget that the darkest hour is just before the dawn following a Treasury meeting.

By lunchtime tomorrow, all that will remain is the hazy memory of something similar to a sub-prime out-of-body experience - and they will both have managed it without flatlining.

But it will be close.

A twisted  fusion of capitalism and socialism is being forged in the white-hot heat of political panic.

No-one should  complain because we  are all being forced to run  blindfold towards  a world where profits are privatised and losses are nationalised. We cannot lose.

Competition will be a quaint throwback to the last century because both the US and UK governments have now demonstrated that if a company is big enough, it will have Federal and Treasury support. It is the smaller companies who will be allowed to go to the wall because it is only then that they can become financial fodder for their fat hungry cousins.

The new financial conglomerates now know that they cannot fail because the State will bail them out.

The lesson that has not been learned  is that the sheer size of companies is what  makes them difficult to govern. The only way to manage these fiscal behemoths is to impose rules that are so draconian that eventually, the spirit of capitalism will be totally expunged. The State will be calling all the shots.

There has been debate as to who is to blame for the current chaos. The bankers know very well what has happened but  they mutter vague generalisations, citing worthless  sub-prime bonds and a general lack of confidence.

There is no way that sub-prime (the greatest euphemism ever?) lending is to blame for the entire financial house of cards tumbling down. The real issue is that  the banks DID NOT HAVE THE MONEY that they were lending. They have behaved like a banana republic which prints more money in order to pull itself out of  the financial quicksand.

Yes, they have been using “pretend” money. Mugabe is doing it now, the Wiemar republic did it  70 years ago and  the entire banking system is still doing it.

The banking system has relied on “electronic money” for years. It was not real money and they have probably known for years that they were sprinting towards meltdown. George Soros knew.

The regulators are not to blame because 90% of their efforts are designed to control the “little man”.  The big picture eludes them . A few days ago the FSA was still issuing statements as to the solidity of HBOS - that’s in spite of the “investigation” that it carried our six months ago on the possible manipulation of HBOS shares.

If the current chaos eventually does go from “boil” to “simmer”, the Government must take the opportunity not only to take a close look at the regulatory regime but also think about a complete restructure of the financial services industry.

The FSA grew out of a need to control mis-selling in the Pensions and Life Assurance industry. That is still its main thrust.

In spite of the increasingly bureaucratic Pensions and Life industry, the bandits are still out there and always one step ahead - they can never be eradicated.

A new global authority must be formed that specifically carries out high-level audits and ensures the implementation of  proper business controls within the banking sector.

However, we do have to accept that the ratcatcher can never catch all the rats.

HBOS and Lloyds

The Republic of Mancunia’s football team (the American one , not the Arab one) appears to have a new shirt sponsor by proxy.
 
The AIG logo currently on the front of Manchester United’s shirts may soon be replaced. AIG is now 80% owned by the US Treasury which neatly completes the Americanisation of the team.
 
So what about the new logo? The Statue of Liberty? The Stars and Stripes? Uncle Sam? Or perhaps, more appropriately, a $-sign?

Will they now be known as the Manchester United States?
 
AIG  was very much involved in the once possibly toxic and now definitely lethal sub-prime mortgage market and had been drawn into substantial dealing with the now-collapsed Lehman Brothers.
 
Just to illustrate the incestuous nature of the financial services market, you may be surprised to learn that AIG owns Ocean Finance. Perhaps they can help AIG to consolidate all of their debts into one easy monthly payment. Below the belt? I don’t think so.

Most financial services institutions are nervously awaiting the  tap on the shoulder – although many will argue that death by  sadistic accounting is not fair.
 
Yesterday,  HBOS shares began their short journey down the financial toilet amid claims that they were in good shape and did not deserve the negative speculation. However, just to be on the safe side, Halifax branches were circulated with a memo asking them to monitor cash withdrawals.
 
One day later they have announced that they are in advanced talks with Lloyds-TSB with a view to a merger. Their shares are now in recovery mode but the proposed merger has all the characteristics of desperation and is the equivalent of two institutions hugging each other in a time of self-induced strife.

Who is saving who? But have you noticed how Lloyds-TSB have kept very quiet during the last couple of weeks? They must have been in discussion for some time now - but whatever happened to due diligence?
 
HBOS and Lloyds are clutching each other like Hansel and Gretel in the dark forest; comforting each other just before the Evil Witch eats them up.
 
Mind you, nowadays the Evil Witch is spoilt for choice. Many have lost their way in the forest.

Dick Fuld

Millions of words have been written on the subject of the latest corporate financial meltdown but no-one has yet explained in simple terms HOW it all happened.

Many years ago I was working in the Head Office of a small bank. One morning a little old man walked in and produced his savings book. He pushed it across to one of our cashiers and said “There’s three thousand in there. These are my savings.”

The cashier looked a bit nonplussed “Yes? Would you like to make a withdrawal?”

” No thanks,” he said, ” I’d like to see it.”

” What would you like to see?”

” I’d like to see my money - just to make sure that it’s OK”

Those were days of wide-eyed innocence and trust -  the days of “My word is my bond” and days when honest toil was rewarded with a small Manila envelope containing cash. Real folding money.

Yesterday I was reminded of that little man. I remembered that he had one bike clip and a clapped-out cap pushed into the pocket  of a grubby gabardine mac.  He had complete trust in his bank because he knew that we were looking after his savings to the utmost of our ability.

That is why I asked one of the cashiers to quickly put £3000 in a metal box and make it ready for inspection.

What reminded me? A complete antithesis. It was a photograph of Dick Fuld, the Bruiser of Wall Street and Lehman Brothers’ boss.

That old man with the bike clip of 30 years ago had been brought up to see money as something real that you could see and touch. No doubt, when Dick Fuld joined Lehmans in 1969, his view of money had been the same.

Unfortunately, Fuld is not the only unqualified bruiser who has made it to the top of a financial institution through a combination of extreme personality, bluff and what is known as “corporate entrepreneurship”. 

(Corporate entrepreneurs are only vaguely similar to proper entrepreneurs. They do take risks but with other people’s money. When they make a profit, they receive a bonus and when they make a loss…. they….er…. receive a bonus. It is believed that they invented the phrase “win-win”).

Unfortunately, their ego feeds their imagination and ultimately they self-delude into a state of what can only be described as corporo-infallibility.  Their infallibility soon invites the ugly spectre of self-interest to install itself somewhere between the bonus fairy and the pension fund.

Today, Max Hastings referred to their “hubris”. He is quite right - but their hubris is only the outward expression of their perceived infallibility. In ancient Greece, hubris was regarded as the gravest of sins because it invariably led to the most severe retribution.

The cash that they play with is found on spread sheets and within complex computer systems. It has no colour, texture or real value. You cannot see it or buy anything with it. The game can only be played by those with a system that can plug itself into their system. It is a closed shop with transactions taking place in an electronic metal box.  An XBOX with bonuses.

There will be many more financial collapses because Dick and his chums were not playing with real money.

Their perception of money is fundamentally flawed.

The billions that still pass through their grasping manicured hands is not real. 

Dick Fuld, in common with many other financial institution leaders has been managing a myth. The myth of “assets” floating on a sea of money owed.

In any one year, all of the big investment houses complete deals and churn money  to the value of well in excess of all the money in the world. So how does it work?

As an example, imagine that two banks  “give” each other a cheque for £1billion and because they are banks, they promise not to bounce each others cheques - have they created wealth? Or have they created an illusion?

Imagine, over the years,  that process being repeated thousands of times - then one of the banks collapses in spite of the fact that “on paper” it has “assets”.

Or, imagine someone walking away from  a card game which was being played for matchsticks and admitting that he does not have the money to redeem his matchsticks.  The other players then all admit that none of them has the hard cash to redeem their matchsticks.

All the banks went into the game believing that they would win. They saw the risk but imagined that the potential winnings outweighed the potential losses. Especially Dick “the Gorilla” Fuld.

Unfortunately it is now Game Over.

The following article appeared in the Daily Mirror on 11th September 2008 and is reproduced with the kind permission of its author, the delectable Polly Hudson.

Heather Mills, unable to talk about her marriage/divorce due to a gagging (not literally, unfortunately) order is writing a novel about the marriage/divorce of a campaigning model and an ageing music legend.

She’s flogging it for a million pounds. Publication is months away but I’ve managed to get my hands on her outline for the book…

“Once upon a time there was a stunningly beautiful, inspirational, pert-breasted woman called Bracken Granulates who tirelessly worked for charities but hardly ever mentioned it. She had lost an arm in an aeroplane crash but she was still a proper canny lass. “Why aye, Bracken,” one of her many pals would often say, “You are reet brave and almost too good for this world.”

Bracken moved to London to not take part in any pornographic photo shoots and definitely never be a high-class call girl. She basically lived a pure, admirable life of truth and virtue.

One day she went to an awards ceremony, held totally in her honour to commend her for all the work she did for charity (which she couldn’t even believe anyone knew about, seeing as how she kept it secret). There she met a famous rock star called Sir Maul PcKartney.

Maul had an evil daughter called Artois who tried to turn him against Bracken, but true love conquered even her dastardly vegetarian plans. Bracken fell for Maul because he cared about the world like she did (loads). She didn’t even know that he was a little bit rich.

You can imagine how silly she felt when she found out! And so she became Lady Bracken Granulates PcKartney but only because she loved him, not because he was minted. It was absolutely no exaggeration at all to say that she was the best wife ever. But mean old (and I mean, OLD) Maul began to get jealous of how much she worked for charity, even though how he even knew she worked for charity at all was a mystery to her.

He wanted her all to himself, but Bracken was devoted to her campaigning. Maul immediately became a crack and heroin addict and was really nasty to her. But she’d promised to be with him for better or worse so she bravely stuck it out. “Why aye, Bracken,” one of her even more many pals said to her, “You are a reet saint for putting up with him.”

But soon it became impossible for poor Bracken to stay. It was all Maul’s fault. So she left, taking their daughter, Dee, who couldn’t possibly be expected to live on less than ten mill a week. “I will destroy you,” screamed Sir Maul, whose mood had turned angry, like it always did when he mainlined crystal meth.

“Your name will be mud in this town by the time I’m finished, even though you are the best, kindest, most honest and selfless woman I’ve ever met. I will make you pay for doing this to me!” “Right back atcha, Maul,” thought Bracken.

Months later, she realised that her story was such an inspirational tale of triumph over adversity that it was seriously unfair of her not to let the public in on it. And so, she decided to write a book. But, as it was fiction, the lead character couldn’t be called Bracken. “Thank goodness for my thesaurus!” she thought, as she typed in the replacement name: Heather.”

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Spygun is always here to help aspiring Geordie novelists and has managed to find something which will no doubt help the multi-talented Ms Mills as she taps away :

“This time, try to hit the middle.”

OnJuly 24thSpygun wrote: “The US Securities regulators are looking at suspected manipulation of Lehman brothers Shares. In addition, Lehman brothers have booked a loss of $2.8 billion for the quarter ending June 2008.”  (That was the second quarter loss)

Lehman Brothers’ third quarter loss (announced last week)  was $3.9 billion on $5.6  billion of writedowns.

“This is an extraordinary time for our industry and one of the toughest periods in the firm’s history,”said Richard Fuld, Lehman’s Chief Executive Officer.

You said it, pal.

We also said (and continue to say) that many financial institutions are hanging in there by a combination of creative accounting and selective disclosure. Unfortunately for them, the light at the end of the tunnel is an oncoming train from financial hell.

So once again a venerable financial institution has crashed, burned and  filed for Chapter 11 bankruptcy protection. It will not be the last because all financial institutions have spent the last few years playing in the same sand-pit and their dangerous games are having to come to a end.

There will be more failures and it is rumoured that a major bank and a major insurer will be involved in upcoming collapses.

Bank of America has just announced its intention to spend $50 billion on acquiring Merrill Lynch. There will be tears.

Ken Lewis , who is Bank of America’s chairman and chief executive has been quoted as saying  “Together, our companies are more valuable because of the synergies in our businesses.”

“Synergy” is where the result is greater than the sum of the component parts. In other words, they are still assuming that 2+2=5.

Isn’t that the sort of thinking that created the current financial mess?

Synergy is a word which did not exist in the good old days before banks had no ambition for world domination and were just involved in….. well…..er……..banking.

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The weird thing is that the so-called “Credit Crunch” is being blamed for the stream of financial catastrophes. Perhaps the banking industry should learn the difference between Cause and Effect.

The current chaos has been caused by nothing less than institutional fraud on a worldwide scale.

The main game played by investment banks and investment arms of most lending institutions has been a strange one  - it does not have a name yet but it works roughly like this:

Get together with ten of your friends. Each one of you should write ten cheques for £1million each. Every cheque that you write  is payable to one of the others in the group.

Hand each one of your friends a cheque for £1million and simultaneously accept ten cheques of £1million (payable to you) from your friends.

You should all be holding ten cheques totalling £10 million each. You are all rich!

Now troop down to your bank and pay £10 million into your account. Needless to say, all of your friends should do exactly the same.

Repeat the process with a different set of friends.

Turn on the fan and wait.

When the inevitable happens, the effect will be swift and messy but such a relief!

(The global credit-market meltdown has led to more than $500 billion of write-downs and credit losses since it began a year ago)

“Joker burning money”

The Prime Minister has announced a £1 billion energy package that could help households across the UK save more than £300 a year on their energy bills.

Speaking at a Downing Street press conference, Mr Brown said the Government will legislate to channel £910 million from energy companies into energy-saving initiatives such as providing loft insulation and cavity wall insulation free of charge to elderly and low-income households and at a 50 percent discount to others.

Cash will also be pumped into a new Community Energy Saving Programme that will provide up to 90,000 homes with targeted advice on improving their energy efficiency and reducing their bills.

The Prime Minister said he did not expect energy companies to pass these costs back to consumers through future prices. Business Secretary John Hutton added that the Government “will not hesitate to intervene” should an Ofgem review suggest that consumers were getting a raw deal.

Mr Brown said the Home Energy Saving Programme would help drive “lasting change” in UK energy efficiency and consumption. Environment Secretary Hilary Benn, also at the press conference, said that each household could save £100 through loft installation and £150 through cavity wall installation in just 12 months.

Other Government plans to help people with their fuel bills include negotiating lower tariffs with energy companies for up to 600,000 homes, increasing cold weather payments from £8.50 to £25 per week in severe conditions and providing cash on top of Winter Fuel payments to the over-60s and over-80s of £50 and £100 respectively.

In common with all other Government initiatives it would be of great benefit and interest to people if they had an indication of how much of the allocated funds would actually be spent on the materials and how much on labour costs.

For instance, when the Government says that it is spending an additional £20 million on education  - that could mean any number of things. It could mean more teachers or it could mean lots of electronic blackboards. It could mean more books or it could mean a lick of paint.

Every £1000 spent on loft insulation could mean either 100 lofts insulated at £10 each or possibly one loft at £100, i.e £10 for the insulating material and £90 for labour charges by the local council.

90,000 homes are to be provided with ” targetted advice on improving their energy efficiency and reducing their bills”. Does that mean leaflets? Home visits by several more sub-strata of public servant?

Has the Government thought this one through as thoroughly as all the other initiatives?

Oh what’s this?

“Sorry, no thanks. It’s too late…… Siobhain McDonagh?  Nope. Don’t recall the name. I seem to recall a Junior Whip by that name - but that was a long time ago…..Yesterday, I think.” (Thinks) “I wonder what else is heading for the fan? ”

 ”Michael Winner and Old Dear”

The Selina Scott femino-ageist issue is still burning - the latest flaming arrow having been fired by the Patron Saint of Ego - his Esureness , Michael Winner.

Winner’s motives as ever, are suspect - probably something to do with not having been breast-fed.

QUOTE from Winner : “There’s nothing sadder than a bunch of unemployable has-beens rising up like the witches in Macbeth and moaning ITV is unfair to us because we’re old”

Winner should know all about witches - have you seen some of his girlfriends? Or perhaps he was referring to the Daily Mail’s editorial staff.

At least it will get attention-seeking Michael on the telly and a slot on Jeremy Vine’s Radio 2 show.

The whole “Selinagate” affair is being treated with a little too much levity so let’s be serious for a moment. 

Are female News presenters like peaches in a bag? Do they all exhibit the inroads of time at the same age? Do they all succumb simultaneously  to the career-dissolution fairy? 

There is something vaguely fascistic about the  media dictum:  “They shall not grow old” - on the telly anyway.

There are many old dears scribbling away and bashing their Remingtons on national newspapers: Sue Caroll, Susanne Moore, Carole Malone, Janet Street-Porter, Lauren Booth, Judy Finnegan and Vanessa Feltz to mention just eight.

These venerable old boilers even have their airbrushed photographs published and occasionally, they are wheeled-out in front of the telly cameras for the odd interview. So in spite of the smell of wee and Steradent, these old crumblies are not regarded as too disgusting for an occasional airing before a patient but gagging audience.

“Double Standard” is a mantra regularly hissed by these geriatro-lovelies.

Well, m’dears, you cannot have your gateau and eat it - even after you have picked out the odd stray facial hair.

Most media old dears scribble a lot of anti-man stuff - unless they go for the occasional toy-boy piece which is usually a bit of a piss-take anyway. Rarely do we see an article which is appreciative of men.  Their favourite subject is “women”.  Dare one use the word “sexist”?

Old men write about issues - such as politics, the law, the world. They also write about trivial stuff such as  cars, travel and football. Plus, they tend to be very appreciative of women. Very little female-negative content.

Why are so many Media “Grand Dams” either single or in frivolous “toy-boy” relationships? Are proper mature relationships not for them? Is it because they are so disdainful of men?

Perhaps it is not just the men who run the telly that don’t want them.

So that’s the sexist bit out of the way. What about the age thing?

Career-ageism is only a problem if ambition is still simmering.

It is not so long ago that this type of ageism did not exist because ambition died at about the age of 50 - as did most of the population. If you survived beyond 50 then by the age of 60, you were ready for your place in the Glue Factory queue.

Both ageism, racism and now sexism are so deeply embedded in the British psyche that they cannot be eradicated through law or legislation. They can only be killed by time because our sociological development is lagging about 1000 years behind our social development.

Sexism and ageism are both  cultural phenomena rooted very firmly in the formerly divergent roles of the sexes and ages.

These roles have only started to converge comparatively recently but what has developed over hundreds of thousands of years cannot and will not be undone by the odd court case.

A couple of years ago, Nick Ross resigned from Crimewatch amid allegations of ageism.

At least Selina Scott has the added bonus of her sex to beat people up with.

Selina Scott looks as if she is going to sue Channel 5 for femino-ageist naughtiness.

She says that she had been hired to read the news while Natasha Kaplinsky was on leave but Channel 5  went back its word and hired someone else. They hired  Isla Tranquair and Matt Barbet.

Unfortunately, they are both  younger than Ms Scott - and probaby cheaper as well. But this is not about money.

This has to be about the scourge of ageism.  Ms Scott is 57. Isla’s and Matt’s combined ages are only 59 - she is 28 and  he  is 31.