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The Fiona MacCarthy

What pleases and annoys

Instinctive, impulsive, and logical but always passionate and reflective of what I feel here and now.

Individual blogs are in most recent, first sequence and are also grouped in various "categories" which are just to the right & down a bit should you prefer to search that way. Please feel free to add a comment.

Blog restarted June 2018

Iceland repaying debt early

Money money Posted on Sun, June 24, 2012 09:42:34

Loved this story where a plucky and brave Iceland identified its problems back in 2008, refused to assume the debt of its bankers, imposed capital controls on its own vulnerable currency, had austerity too and is now recovering.

The key differences are its control over its own currency and a basket of measures to avoid becoming a basket case. Most important though is political leadership which is missing in euroland.

More from Telegraph

Bankers Bonuses; HSBC

Money money Posted on Sun, March 11, 2012 13:16:24

From 2000-2008 the share price of what is considered the most profitable bank in the world meandered quite aimlessly between £7.50 and £9 before falling and now trades at less than £6.

That does not look like a creator of wealth for shareholders.

But it is not so bad as Barclays where the bonus pool is more than 2.5 times the dividend payout. At HSBC the pool was £2.5 billion compared with approx £4 billion for dividends.

Yet we are told that they need these bonuses to be competitive. I believe that the bonus culture is failing at these banks.

Robbers in Barclays and not the vaults

Money money Posted on Sat, March 10, 2012 11:08:53

Five years ago the shares of Barclays traded actively in excess of £6 nearly hitting £7.27

Two years ago they were between £3 and £4

Yesterday they closed at £2.40. For details look at the 5 year or even 10 year chart when it was over £5

But Diamond gets a £17million package with bonus whilst 9 colleagues share £30 million. More in the Telegraph

This is the same bank that recently borrowed approx £6.7billion from the European Central Bank at 1% interest rate.

Capitalism is good but these are robber barons destroying shareholder capital for their own pockets.

Economic forecasts: a difference

Money money Posted on Sat, March 03, 2012 11:07:21

Getting tired with these forecasters who extrapolate a picture of doom or gloom based on the flakiest of statistics. Headlines boom out in garish hues and tones.

And economics is such a bloke dominated social science.

Therefore was delighted to come across this November 2011 article in the HuffingtonPost following up on an IBM press release. (I clearly work in the wrong part of IBM) I was reading the South African Mail and Guardian this morning and picked up a mention and so have traveled the globe for this snippet.

Ditch these academic number crunching nerds and embrace the power of womanhood where heel height reflects the boom and bust of economic times. Combined with the hemlines and lipstick indices these 3 key statistics show that a long period of austerity is with us.

That was a bit tongue in cheek as the hemlines lag the economy by 3 years reflecting possibly designs although as any fashionista will tell you that explains only a year. More from the Mail and Guardian.

For now we must rely on lippy and heels, still 2 from 3 as a guide to the economy is good.

Rangers & EBT

Money money Posted on Sun, February 19, 2012 10:17:31

In 1997 the UK tax guide Tolleys ran to some 5,000 pages but by 2007, had doubled in size and with smaller font size.

This reflects the growing complexity and increasing technicality of our tax law and for every new tax law, some creative tax planner will find a scheme around it. More complex; yes but at what a cost too. These tax and legal boffins dont come cheap! ach shame you say.

Rangers Football club are having some big time financial problems because they used a scheme which allowed them to pay their big name players via a Trust a lower salary and a loan for the difference. The loan was never repayable and the player could if from overseas avoid paying UK tax for ever on what was a disguised salary. Employee Benefits Trusts are well explained in this article.

What surprised me in reading this article was that the schemes were not just for the mega earners.

The 3 biggest contributors to tax planning avoidance / evasion (former is legal, latter not and surprise surprise there is a grey area too) are the use of Trusts, Tax havens and differential rates for income and capital taxes.

Abolish all 3 and the world will be a more level playing field, more equitable and less wasteful. Would probably have lower taxes too and Swiss cheese might become more famous than Swiss banks and a Jersey would be better known as an item of clothing.

Facebook $$

Money money Posted on Fri, February 03, 2012 19:56:59

Speculation on how much Facebook is worth as a business range from $50 billion to $100billion according to Wall Street Journal this week.

It made a profit of one $billion (approx) on revenues of just under $4billion of which 16% come from Zynga the makers of Farmville and Mafia Wars. Profits and revenues are up significantly on prior year.

Crazy valuation?

Attitudes to facebook are like or loathe generally with a smattering of dont care. It provides a great way of keeping in touch but never for me as a replacement for real life contact. Not the same for many though for whom its a life support system. On the other hand it has information on us that makes it Big Brother like.

Google is developing a competitor but unless there is a mass departure of 10’s of millions of facebookers due to a data security breach or IT systems failure most will stay to avoid 2 spheres of online social contact. Facebook is therefore well ahead in the race and it is for it to lose.

I think the 100billion dollar valuation silly and a more likely value of 50-60 billion will happen. That is still very pricey and assumes doubling of profit in 2 years to bring that Price/ Earning ratio to more reasonable level.

As a business it is entering the later stages of the business growth phase and why should we pay for what we have for free. Advertising will support future growth particularly as we learn to trust the company. More companies like Zynga will be good for the company but also encourage them to go independent if they get tired of paying a 30% toll to Facebook. There are big potential pitfalls for a company dependent on the most fickle of customers inclined to flock like birds. But I still like it.smiley


Money money Posted on Fri, December 30, 2011 08:44:26

And so Italy has found people to lend it some 9 billion euro of its 330 billion euro requirements for the next 12 months but with 10 year interest rates bordering on 7% which reflects a higher risk than many people’s mortgages. The fact that they can get finance for 6 month loans at about 3.5% shows that lenders expect things to be okayish in the short term and then deteriorate. Bond markets are powerful and their pricing is a clear indicator of future trends.

There are 2 other problems looming that the “person in the street” have yet to appreciate. These are a symptom of the bad lax finance practises of the past but their potential impact is more severe than current headlines.

Firstly European banks are not lending to each other like they used to because they have lost confidence in each other. As a results hundreds of billions of euro are being deposited in the ECB most nights as a short term solution. Banking system needs trust as people need oxygen,

Secondly there are reports form here in the UK that about a third or property loans are beginning to smell. (Economist) This is because the money was lent in the good times and because of accounting rules they are not written down in value as quickly as some people would prefer. A trip to the high street will show vacancies increasing but less obvious are tenants who no longer accept the automatic rent increases of the past. The loan values will have been based on generous assumptions no longer valid. More write downs to banks will scare their vulture colleagues in competing banks.

Banks may need nationalisation on a larger scale in 2012 than seen so far in which case the core commercial high street should be retained and the investment banking speculating components closed. Less glamour more boring banks are what we need as banks do not “make” money but their profits are like a tax on transactions for everybody else and they have been making abnormal profits: at least before their current bail outs.

Hole in Euro

Money money Posted on Sat, December 24, 2011 08:20:28

There is a lovely new seasonal song for the Euro by John McManus in todays Irish Times suggest singing the whole sorry saga with a glass or bottle wine to accompany

Problem not fixed after more than a year of talking or scapegoating. Problem will not be fixed until French elections out of way and banks start to chalk up losses on their portfolios of dodgy (okay okay they are simply overvalued) property loans that they have kept on Balance Sheet but OFF “Profit & Loss” for past 2 years. Expect more dodgy accounting and auditing.

Its the new “soap” opera with dodgy singing

26 – 1

Money money Posted on Sat, December 10, 2011 07:42:51

The spat between 23 of the EU with UK+Cameron and the other 3 deferring to their parliaments but likely to toe the EU line, has been all about shoveling heaps of political PR garbage done the gullets of the press into the heads of the public. (I used “heads” rather than “minds”), rather then economics.

What was agreed this week should have been on the agenda when the Euro was formed: it is nothing more than a sensible rule book for good financial planning.

The next stage will be to ensure the approval of national governments to enshrining these targets on debt into their constitutions or similar. That should be fun. The current agreement ignores how these utopian and wise targets are to be reached eg 3 years or 5 years. Its like signing up for a multi year study programme and forgetting about the effort required. This agreement is therefore naive.

More importantly this agreement ignores how growth is to be stimulated and the threat to tax transactions is silly meddling. The only people to absorb the real cost of such taxes will be the consumers in the impacted countries. Directors salaries and dividends of the banking industry will not be cut but the competitive playing field of the global banking industry will be disrupted for a while. The new taxes will be passed on via charges and higher interest rate spreads. The absence of a plan despite months of talking is silly.

Most importantly it ignores how the excessive debt and we are ignoring the unrecognised debt of government pension liabilities and PFI style financing are going to be tackled. This is stupid.

This week has been all about politics, fooling the various national electorates and ignoring the elephant in the room. The bond market is already pushing up interest rates and credit agencies are waiting like vultures eager to exercise and display their new found “we are now righteous” vigilance by downgrading a euro banking industry that is slowly being strangled of liquidity by its own collective mutual distrust (just like northern rock was but now on a far bigger scale).

Their is real pain on its way for the deluded EU elite but which will be born by the still gullible electorates. The UK was right to stay out but it should have been proactive on debt and growth rather than pandering to a single sector in this country.


Money money Posted on Sun, November 20, 2011 11:42:47

A busy week in the financial parts of the tabloids in both UK and Germany.

The UK wants to have a voice in the talks about talks about doing nothing (my view) whilst Germany is demanding an admission price for the right to participate (Angela’s view).

We in Europe have been living beyond our means for the past decade and the scariest part of all the discussions is that the unfunded national pension liabilities are not part of the “debt” figures being discussed. No private company can get away with such careless lack of responsibility, but governments can and do, issuing IOU’s years and decades into the future. And no one keeps count.

The new man in the European Central Bank (Mario Draghi) is 3 weeks into his job and has found that money promised by politicians 18 months ago has not been paid. He sounds surprised. More from the Telegraph today. He should resign if it is not paid in one month.

The euro project has delivered much good but the idea of a single currency supported by 17 fiscal and political regimes of every colour was naive. The Germans are right but proud politicians and their voters from other countries do not want to admit it. Work harder and longer is not a mantra to warm those who have grown soft.

Austerity talks are an important part of sorting the problem but as long as the minority 1% can shelter their wealth and income in a myriad of tax havens of which many are to be found in Euroland sponsored by their patrons then anger of the people will gather strength. Students outside a church are one thing but is a Euro-Spring too far away?. No: unless our politicians act with selfless courage and vision of a better future paid for by what we do and earn rather than what we borrow.

Money lenders have become too big a part of our lives like a drug pusher in the life of an addict.

Income Inequality

Money money Posted on Sun, October 16, 2011 13:22:19

In the world of sport a bigger slice of earnings goes to those at the top than what it used to. For evidence please look at English Premiership earnings in comparison with with lower divisions in the national game.

The same is true in the worlds of music, payment for movie actors and literature and the trend in recent decades has for income distribution to become more skewed in favour of a small minority at the top of their profession etc.

In the world of business there are independent firms of pay consultants who will do presentations to the remuneration committees of top 100 companies (and more if invited) on how the company must offer a remuneration in the top quartile if it wishes to outperform the rest. Not to sign up for these schemes is seen as professional suicide and so all climb on the bandwagon and next years top quartile earnings are pushed up. There is little academic support that a new CEO can changes the fortunes of a top 100 company in a short period of time but the remuneration committees are embarrassed into following the new scales and many cash bonus schemes are based on short term changes in fortune.

In good times most of the rest of us could not care less but when we start to feel poorer we get angry. Street protests this weekend capture a slow burning anger that I feel will burn brighter in the next year.

The linked article has a USA bias but I dont think the statistics would be any different here in Europe. The simplicity of the charts are convincing in showing that growing inequality is helping to make people angry.

EU Soap Opera

Money money Posted on Sun, September 18, 2011 09:40:08

And so it carries on seemingly ad infinitum. Investors speculate, Citizens object, Bankers threaten and Politicians talk words of sweet nothing.

Firstly we must learn to live within our financial means. The the so called boom of the last 12 years was based on 2 big bits of fiction. The “boom” in financial services was a fraud built upon rising asset prices artificially inflated and financial shenanigans. Honest financial reporting was muzzled by greedy investment bankers, complacent credit agencies and lazy journalists and regulators. Banks are but “shops for money” and when the become something else then its time to watch out. The 2nd bit of fiction was the housing price boom where people got wealthier by living in their homes than by working. The generation to come will be left out of the housing market but as they cannot vote (yet) the politicians don’t care. Silly prices fooled everyone and still do.

Secondly we must invest for the future in education, infrastructure and promoting an entrepreneurial spirit. UK education standards are declining in comparison with the rest of the world. Our infrastructure in tiring and improvements logjammed in bureaucracy. Decades of EU policy have failed to secure a single cross country patent law for EU. We remain a fragmented market on important issues.

Thirdly our banks must be split into boring high street and investment high risk if that is what they want to do. Allowing banks to leverage highly for the purpose of speculation such as UBS and its “rogue” trader on the back of high street assets and government guarantees is silly. Both businesses should be properly capitalised with share capital of 10% and not 4% as some banks have done. Skin in the game is a lovely expression to encourage financial responsibility.

Fourthly the worst performing countries should have a debt restructuring ie a write down and lengthening of terms along with a realistic interest charge, now and not in 3 months. They must collect the taxes that their laws say they should, but they should avoid big cuts in spending that force the economy into recession. But public sectors need to be reformed now.

Finally Central Banks should intervene not by QE but by ensuring liquidity to good banks and managing the closure of bad banks of which there are too many. Stress tests should be genuine and not false deceiving flattery. We need new banks too.

Are we addicted to QE?

Money money Posted on Sun, September 04, 2011 10:36:36

Quantitative Easing is a mechanism of injecting money into the economy by which the government buys its own debt from lender eg financial institutions allowing them to do other things with the money. Both the USA and UK have used this technique to try and ride out the storm and both economies are stuttering badly.

There is much talk of a double dip recession which is conveniently defined as 2 consecutive quarters of negative GDP. Here in the UK, the impact of public sector cut backs has not yet arrived.

The effectiveness of QE is unknown. History will tell but for now it is unclear as to whether it does any good at all.

What is clear however is that manufacturing has not benefited from a lower sterling exchange rate (in theory it should as it makes our UK prices of exported merchandise cheaper and easier to sell). UK businesses are doing okay having cut costs and are sitting on big bank balances but are clearly reluctant to expand. The global economic uncertainty is deterring future investment. Our economy here was very much dependent on financial services whose fantastic profits of the past decade was based on silly business. A period of correction is to be expected.

The big decision as reflected in this Leading Article from the Independent yesterday is whether we continue with the planned cut backs or use QE or indeed something else. We all agree on the need to avoid a recession but there is no consensus on what to do.

In my opinion our spending on social services was bloated and we were paying ourselves more than we could afford as a society. Those cuts should stay. We also had silly and indeed incompetent handling of spending in the Ministry of Defence where most big projects run over budget and delayed by years. Billions have been wasted in a big computer health project that has gone nowhere. Government love big fancy toy projects but are incapable of managing complex outcomes. These should be stopped. Investing in infrastructure would be good way of investing in the economy if we could actually get a project up and running quickly. eg widen motorways but history shows that these take years if not decades. PFI (Private Finance Initiatives) have been a way of spending money without counting the debt as debt and indeed by paying a higher interest rate than if the government borrowed directly. We have a national housing shortage but building new homes will reduce the prices of existing homes and so nothing will be done.

There is no simple cure but spending must be cut from the trivial and diverted to the essential. We should carry through with existing plans. I would if given the opportunity force through expansion plans to relieve cluttered roads, make rail transport improvements and build more homes on brown and green belt, whilst providing tax incentives for investment by business. Less regulation would help but no more QE please. It has failed.

Banking Bluster?

Money money Posted on Sun, September 04, 2011 10:02:38

A final recommendation is due this week from a commission established to look into the structure of the UK banking industry.

In its interim report it proposed a “ring fencing” of the retail operations to separate and protect them from the investment banking operations. Some suggestions of the time was that the banks should be split into separate legal and stock exchange listed businesses. But the proposal of ring fencing was seen as a compromise.

In the past 2 weeks the financial part of the UK papers has become increasingly cluttered with one sided articles that any attempt to change the UK banking industry will see its demise eg from the Telegraph today. Other watering down of the likely recommendations is that any changes will be from 2019.

The banks do face changes from Basel 3 which will require them to hold more capital and structure it in a way to prevent implosion. That is only a logical change.

I am saddened by the prospect that any recommendations as made this week will be watered down so as to leave the banking industry unreformed. I find it wrong that a financially strong, viable but boring high street presence is used to help raise capital and to reduce the cost of borrowed funds used to help finance a high risk investment banking business. And if the total business fails, then we the taxpayer must finance the total business.

On the other hand the biggest failures eg Northern Rock have nothing to do with investment banking and RBS was brought down by by paying too high a price for another business.

That argument alone is not good enough to leave the status quo unchanged as the banking industry is an international house of cards based upon a less risky high street and a riskier investment banking. Lehmans and AIG were big businesses whose failure threatened the global banking world and required action.

As a taxpayer I see no reason to underwrite an investment banking business and every reason to support a more boring retail banking business.

Non fragile China

Money money Posted on Sun, August 07, 2011 10:33:31

At the start of last week, the USA democratic process managed to push through an agreement allowing it to borrow more money. Everybody seemed relieved at this so called compromise. It was interesting at the time to note two aspects. Firstly it was the way the democratic process worked between the two chambers of legislature (Senate Congress) and the executive Presidential office. It did as it was designed over 2 centuries ago by the founding fathers. Secondly it was the references in the Press to the “Tea Party” which were forcing the crisis rather than ignoring it. They were portrayed as the trouble makers.

America (USA) is now the world’s biggest debtor and China the biggest creditor. Personally I would prefer the freedom of America but in pure financial terms the world is changing as is the power balance ie from debtor to creditor.

It was only!! 190 years ago that China was the world’s largest economy with 32% of the world’s GDP, Europe at 26% and the USA with less than 2% (Japan was 3%). Dambisa Moyo points out this interesting statistic in her book “How the West was lost”. Since 1820 the Eagle soared and China declined. Now we are seeing the Eagle dip and it will eventually decline unless policy changes.

The xinhua news agency of Beijing has published an article lambasting the carefree and even careless attitude of the USA calling for reform of attitude and action of the USA. Its the most powerful political and financial statement of the week, and given only token acknowledgement in our free press. It is a wake up call recognised by only a few in the West. It demands reform. Who else will fund the never ending borrowing binge of the USA.

What is happening in the USA is also happening throughout Europe. We must borrow and consume less today but invest more in the future or we will become poorer in the long run.

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