Monday 9 July 2012

Vince and Ed both grab the wrong end of the stick

Vince Cable, the anti-business secretary, has once more sounded the canard that the double-dip is the fault of the banks not lending.

No, Mr Cable, this is not true. The reason the banks are not lending is becuase there is very little demand for new money. Big ticket projects are being funded by placings and a very strong bond market - even high yield bonds are still getting away. SME lending is dead becuase small SME's who have a clue are not looking at the economic situation and deciding that now the time is to bet the company on a huge bank loan.

Of course, let's not forget, the Banks have some serious problems that are not helping the recovery at all. Sitting on piles of bad property loans which they can't sell becuase it will bankrupt them is having a bad effect on the many sectors, such as the construction industry. Yields are just being used to pay zombie debt rather than providing capital for new business and opportunities. This is a problem that requires bank recapitalisation, not more lending.

Meanwhile, Ed Milliband is thrashing around trying to say something to keep himself in the papers. The current one is how all the retail banks should be broken up. But this is not the real problem is it? The real problem is the securitisation market and the access that gave banks to wholesale funding. Making banks smaller does not help this. Indeed, the Mutuals proved a complete failure and the sector has shrunk massively.

The real piece of work that was needed was to increase capital requirements for Banks to stop them over-leveraging and to split the Investment Banks away from the retail banks so that they could blow themselves up without resort to the taxpayer. To a large extent this is now being done - not that improvements could not be made. As usual, crazed politicians are just throwing around populist ideas. Milliband is making an arse of himself yet again - which is good going with toxic Ed Balls as his shadow Chancellor I did not think it could get much worse.


Anonymous said...

The recession is caused by the credit boom that preceded it, which was driven by Alan Greenspan/George bush, Gordon Brown and Angela Merkel as a corrupt attempt to buy themselves through the crash long enough to keep their hands on power.

The present government is doing quite a good job of keeping UKPLC on an even keel considering the mess our major European trading partners are in.

Anonymous said...

All this posturing.

Before the last election all 3 parties promised a new, local, fair, bank.
It was to be based on the existing Post Office network, so would instantly give 11,500 new branches,{ not the 100 or so Milibrain proposes} that would equal all the other banks put together and have a presence in some of the remotest places as well as the largest cities.

New Labour had INSISTED that PO take out a £1 billion IT system. {A ludicrous amount just to pay out pensions. Even more stupid when the same government then decided to pay pensions through bank accounts instead, making the system largely redundant.}

When it came to it, the cost of setting up a new bank was going to cost around £2-3 billion pounds so it was instantly shelved.

Even though the new bank would have been directly controlled by government {not necessarily a great thing}, have had no debt, and could be community/local/people's/John Lewis model or whatever the latest buzzword was to be it was deemed to expensive. If there was ever a time to reorganise retail banking this was it. And the coalition declined, and New labour was never serious anyway.

All three parties never seriously intended to implement the post bank proposals, with some justification, as its not worked in every country that's tried it.{Postbank Ireland closed in 2010}

The difference with the UK model would be it was government, rather than private bank, owned.

As CU says ..its all about faces on the telly. The proposals for a retail solution and local lending have been ready to go for 10 years or more.
Government doesn't want to be responsible for banking, so it makes noise and not a lot else.

Just ignore the lot of them. Its all airwave filler.

Timbo614 said...

Personal anecdote on this subject:

I have a loan offer sitting on my desk, it's been there a week. It is to get me over the "financial hump" of employing a new person.

I'm certain my on-line venture needs it, I'm fairly certain that it would succeed. BUT Sales are currently dropping, it is quiet out there... It may be that the lack of the dedicated person (to keep the site fresh and stock accurate) is actually causing it. It could not be that, it could be just quiet out there, in which case the loan is a total waste as it will all be paid out in non-recoverable wages...

The rate is fairly good (5.9) It's just..., just... I keep looking at it and not signing it.

This is a classic case of lack of confidence in the economy and the general financial situation.

How many more micro-businesses like me are doing the same or not even advancing to the point of getting an offer...

Bill Quango MP said...

Just ordered extra stock a few weeks ago Timbo.
Instantly the trucks arrive the sales crash into nothing.

The joy of a decent June {ie - same as last year, nothing too exciting, but not losing,} caused me to decide to take up the special offers from the suppliers.

if the slump continues i'll be selling those 'offers' on 'offer'.

Anyone want 3, 100 page, reporter notebooks for 99p?
- NO?
How about 6 for £1.50 ?

Electro-Kevin said...

Timbo and BQ - People like you are my heroes. I hope things pick up and confidence returns.

Timbo614 said...

@BQ: [Ebay Mode] "if can you include free postage I'll take 12"

LOL :)

Timbo614 said...

@EK - hero nah, I simply don't know any other way, some of my ventures are very "Del-Boy" (without the illegality).

Being self-employed and some times I describe it as self-unemployed is all I know, just not always very good at it :(

Demetrius said...

Alas, none of them know what they are doing or why it has all gone chaotic. Now Zero Hedge says the wine bubble is over. I'll drink to that.

Sebastian Weetabix said...

We see some very worrying signs in our materials business, supplying into the electronics industry. It is a highly cyclical business anyway (it makes me hoot with laughter when I hear retailers complain about a 2% drop, we often see demand swings of 25% from one month to the next - it's a real bitch to manage the supply chain) and we expect June/July to be a bit quiet.. but this July is really bad. Orders are down 70% on the same time last month. It's only been this bad once before, during the big bust 4 years back. Not good. Happily we are sitting on a bit of cash so we can hunker down but if we don't see the customary pick up in business in Sep/Oct in readiness for Crimble we'll be in deep doo-doo. There's no fat to cut anymore after the last round.

Sebastian Weetabix said...

All of which anxiety made me forget to type in my point: who the hell wants to take on more debt at a time like this? Our bank (HSBC) is practically begging us to take on a loan(at 5.9%, not too bad), I presume because they want to push up their 'good' lending figures. I'm in no mood to help them.

CityUnslicker said...

the power of anecdotes - ther ei sno demand, the Politico posturings is just that.

Anonymous said...

My Ebay and Amazon Marketplace stores are very quiet.

However, I put ££ aside in the good years so am in a position to low-ball distressed sellers. Buy on the sound of cannon-fire!

Blue Eyes said...

There is no demand because so many of us have bought into the austerity model. I'm not spending anything.

OK I have done a couple of weekends away, etc. but that shiny laptop I really want? It can wait. Anything flat-upgradey? It can wait.

What I *really* want for Christmas is a lower mortgage rate, but only so that I can bolster my savings.

Anonymous said...

Lloyds TSB spent £4.6Bn buying back it's own debt (at a premium) on Monday. No shortage of cash, just no creditworthy willing borrowers.