Tag Archives: Finance

Banks continue to control us

Posted on by

Untouched by their reckless behaviour (and blatant lack of any real knowledge of the mystical “market forces”) the true leaders of the Western World continue to flex their muscles and show that the interests of ordinary people are, on the whole, irrelevant. They remain blind to contradiction in demanding huge public subsidies, then refusing any form of public control. They continue to assert, in the face of obvious evidence to the contrary, that “they know best” over the current financial crisis. They ignore the problem of begging money with one hand, and paying out huge bonuses to their own staff. They know they are so important that whatever they do we, the public, will continue to bow to their demands. It beggars belief how most banks haven’t been declared International Terrorist Organisations – they demand money and threaten global meltdown if we don’t comply, they have a non-democratic influence in governmental policy and are happy to crush small businesses; the only thing missing is they aren’t (on the whole) Islamic.

Anyway, enough of that rant. You could easily be excused for thinking that giving a bank your money (often paying for the privileged) would mean it stayed your money and the bank just looked after it (although they would use it to make more money for themselves). You would be excused for thinking that you should be able to get access to your money.  You would, however, be wrong.

Not content with charging customers £1.75 for cash withdrawals (except those customers well off enough to be able to get to the increasingly rare free cash machines [ATM], if they can find a working one), the banks are now unveiling measures to make it harder for you to use your cash/credit card. All in the name of security though… so that makes it ok…

A few years ago we heard how Chip and PIN was being brought in to prevent card fraud. Gone were the days in which your signature was enough to prove who you were, now all it took was a 4 digit PIN. This seemed like madness, and in fact creates the current situation where my wife can use my card without anyone noticing she is not a Mr, but the banks were adamant it would prevent fraud. They added to this the demand for every Cardholder Not Present (CNP) transaction to use the 3 digit verification number (CVV) on the back of the card (ironically where the pointless signature strip lives). It was claimed that this would reduce CNP fraud and the two measures would reduce fraud to such an extent that their costs would be negligible.

Except, it never worked out like that.

People buy things over the internet, and give out their CVV with alarming ease – every time you do an online transaction you are asked for it – so after a while it becomes impossible to use this as verification. You would like to think the people you are carrying out an online purchase from are PCI-DSS accredited, but do you check? Do you read through their audits to make sure your holy grail of card number and CVV are safe? Do you assume the credit card companies are doing that? The padlock icon is just to tell you that the data link between you and the shop is secure, it says nothing about the long term storage of your data. I have even seen companies that email out a receipt with the card number in full and the CVV code used – all in a plain text email… Far from secure.

Anyway, it seems that despite these new measures the banks are still suffering almost as much fraud as before (which begs the question…)  and have now unveiled new measures. Basically they will look at your transactions and if the bank thinks you are doing something unusual they will block your card. Its crucial to note here, that this happens if the bank thinks you are doing something odd. They will monitor your activity and then make a decision as to if your behaviour falls within their idea of what is normal. The BBC report on this is interesting:

A leading bank is introducing new technology that will mean every credit card transaction is scrutinised for fraud.
HSBC is introducing the programme, which will affect 10 million card accounts and millions of transactions.

Hmm. You have to wonder what other data the HSBC will be able to mine from this, but we will leave the big brother rant for another day.

The banking industry has warned that more legitimate transactions will be queried or cancelled as a result.

So, what they are basically saying is that because the banks are losing money, ordinary people will be inconvenienced even more than normal. Imagine the scene, you are on holiday in a foreign country (several time zones away), you go for a meal and pay with your card. Only to have your card rejected. What do you do? The banks don’t care. You have to do the running to get everything sorted and cant even claim back any costs incurred from the banks mistake. Outrageous. The standard banking advice is to tell your bank when you are going on holiday but this is crap. It rarely works. From the same BBC page:

When Sally Wiber went on holiday to Borneo, she followed industry advice and told her bank where she was going.
But her credit and debit cards were blocked when she tried to use them on her first day.
“I spent much of the first day trying to deal with my bank and getting internet access, and then had a rather frustrating phone call trying to make sure that I could use my cards for the rest of my holiday,” she said.

Wonderful eh? I can support this from personal experience. My employment has me travelling around Europe a lot. My bank know this. I have told them about my travel and they know my job. However, in France last year, despite my bank being told in writing about my travel, my card was blocked on the second day. I used it on the first day to withdraw cash and make purchases, but on the second day it was decided my activity was unusual. Apparently, as I was on a family holiday, I had been committing the heinous crime of buying presents… I had told the bank I was going on a family holiday. The first days purchases (to a greater value) were fine, but the second day triggered something. The biggest problem I faced here was being stuck, in France, with no phone and no bank account and no money. How do you resolve that?

Does the banking industry care? Again from the BBC:

But Mark Bowerman of the card issuers’ trade body APACS said it was something consumers would have to accept.

That is a “no” then. He continues:

“If we as customers expect banks to do something about this we have to expect that from time to time we’ll be in a shop and the transaction will be queried or card declined. These systems are designed to stop cards being used fraudulently, so if that’s the price we have to pay I think people should be prepared to pay that price,” he said.

Crikey, doesn’t that sound like the war on terror? It actually reads that because the banks want to put a stop to card fraud people have to pay the price. I love the glib way he says that from time to time we’ll have a transaction declined. Like it doesn’t mean anything. Like it doesn’t mean embarrassment and possible legal problems for you when it happens. Try paying for a meal, having your card declined and then explaining that’s just the price you have to pay. Please let me know how far it gets you.

The BBC continues:

Spending large amounts of money or using your card frequently can trigger the alarm at the user’s bank, and with so much fraud taking place abroad, the same goes for using a card outside the UK.

So, basically, using your card can trigger alarms. This happened to me a few weeks ago when I was buying a new suit. I used a credit card that gives me loyalty points, and as I pay it off in full each month I was well within my credit. I spent a while buying an expensive new suit in the January sales, with a shop assistant fawning over me. When it came to pay, I hand my card over (knowing I had a credit limit more than £2000 over the cost of the suit and coat) only for it to be rejected. Shame is an understatement. Queue of people behind me and a shop assistant now convinced I am a petty thief. All because I tried to spend £300 in one transaction, rather than lots of £50 transactions.

There is a solution, and one which may shoot the credit card companies in the foot, but one I am heading towards more and more. Give up with the card. Credit cards are different, as it enables you to spend money you dont have, but you can live without your bank card. This is the travel advice from ABTA on the BBC, to try and get round the problem of having your card blocked at random:

Take a range of payment methods. Take cash for immediate expenses, take two cards, preferably from different banks and take travellers’ cheques as well for extra security if it goes disastrously wrong.

Why go to all this trouble. The only reason you would take the cards is to spend your money abroad. If you take cards with cash and traveller’s cheques as “backup” you are mad. The card is a back up for the other two, but now you cant trust it. If you have a backup you cant rely on, it is worthless, so don’t take the cards. Go abroad with a bit of cash and traveller’s cheques. You don’t need anything else.

Equally, given the disastrous savings rates, you could probably live your day to day life cash only. Wouldn’t that be weird?

Just to show how effective the banks previous anti-fraud measures have been:

Card fraud is rising – up 14% in the first half of 2008 – and fraud abroad now accounts for 40% of all card crime.

Not very effective then. What is the future for these new checks? Will they learn enough to allow people to go on holiday? Will they work?

What we have seen with chip and pin – it was successful for 18 months, two years – the fraudsters have worked a way round it, so we are now looking at more sophisticated means.

So then, in 18 months we will be encumbered with a system causing us problems, making sure we cant rely on our cards (defeating the purpose of them) and it wont be stopping fraud.

Wonderful.

;-) (TM)

Posted on by

I plan to trademark the question mark (?), plus the charming upside Spanish question mark (¿) and the German ß letter. In fact, I might as well trademark any letter with an umlaut, (Ü) or a cedilla (ç) And I might as well claim the trademark ™ and copyright © symbols, while I’m at it.

I may be forced to sue the world’s dictionaries and keyboard manufacturers, if they won’t just start paying on their own accord. Don’t worry, normal people. Of course, I’ll let you use my letters for your own humble non-commercial purposes. I’m only going to claim against the thieving bastards who use my letters for gain without paying me my well-earned compensation.

A Russian businessman has trademarked emoticons. (In the UK, the media usually call rich Russian businessmen “oligarchs” for some reason, as if non-Russian billionaires don’t wield any power. The BBC calls him a businessman so I reckon he’s probably just moderately wealthy)

For instance, 😉 is now one of his.

I want to highlight that this is only directed at corporations, companies that are trying to make a profit without the permission of the trademark holder,” Mr Teterin said in comments on the Russian TV channel, NTV.
“Legal use will be possible after buying an annual licence from us,” he was quoted by the newspaper Kommersant as saying.
“It won’t cost that much – tens of thousands of dollars,” added the businessman, who is president of Superfone, a company that sells advertising on mobile phones.
But he said he does not plan on tracking down individual users of the emoticon.
He also said since other similar emoticons – 🙂 or 😉 or 🙂 – resemble the one he has trademarked, use of those symbols could also fall under his ownership. (from the BBC)

It’s not April 1. Next explanation is a publicity stunt. It’s worked then. (Although it’s hard to think why Russians would be motivated to buy mobile phone adverts on the basis that the company owner has a sharp eye for a scam.)

On reflection, trademarking expressive-punctuation is the standard 21st century business model in a reductio ad absurdum guise.

It doesn’t involve any messy production. (I guess that makes it count as eco-friendly and carbon-neutral.) It doesn’t incur any costs for materials or machinery. It doesn’t really employ any people so it cuts labour costs to the bone. (I don’t think lawyers count as people.) It certainly wouldn’t involve rewarding the creative thinkers who originally started using punctuation marks to express moods in text shorthand. It couldn’t generate any income except through trickery. It’s an entirely imaginary product, made out of screen pixels and worthless in itself.

Doesn’t this sound like most of what passes for the “commanding heights of the economy” now? It’s as if “modes of production” and “relations of production” have been rendered meaningless and irrelevant, as if whole economies can detach themselves from reality for ever. As if economic bubbles can never burst…..

😉

Icelandic terror

Posted on by

In case anyone was in the slightest doubt that anti-terrorism laws couldn’t be applied to any situation, no matter how completely unrelated to “terrorism”, the UK government has decided to freeze Iceland’s UK assets under anti-terrorism laws.

Iceland’s prime minister Geir Haarde said it was “not very pleasant” to learn that anti-terror laws were being used to deal with the company (from the BBC)

Well, the damage done to the world economy seems to have put the impact of any standard terrorist atrocities in the shade. How ironic that the economic destruction seems to have been carried out by the staunchest believers in the world’s financial systems.

The idea that thousands of UK “savers” and dozens of UK councils put their money into Icelandic banks is so baffling that it offends logic, anyway.

It must have taken a fair bit of effort to even find an Icelandic bank. Don’t tell me they just really like Bjork. I’d assume that they chose an Icelandic bank – rather than their local bank or the Post Office – because it offered a big financial inducement in the shape of unfeasibly high rates of interest? So, basically, this investment choice was a bit of a gamble, really.

Experience eventually teaches most of us that “If it seems too good to be true, it probably is.” If you were to fall for a scam email that said you’d won a Eurolottery that you’d never entered, people would think you were a fool. No one would recompense you.

As far as I can make out, under the laws (“theories”?) of capitalism, investors have to be free to take a risk. (The idea that councils might be better off investing in their local economies would be heresy under said laws.)

Fair enough. But doesn’t the whole concept of risk imply that they might lose money if they make stupid fiscally unwise investment decisions?

Oh no, the taxpayer has to make sure they don’t lose anything…..

Well, there are a few implications of this that don’t seem to have been thought through.

All this bank propping-up is supposed to restore confidence in the banking system, isn’t it? Well, what about the unfortunate savers who stuck their money in a more solid bank and got a lower return on their investment. Shouldn’t they be compensated for the extra interest they didn’t get, solely because they were more careful? Surely, rewarding gamblers doesn’t send out a message that supports prudence.

However, the current message is that if you fuck up the economy on a truly grand enough scale, no one can afford to let you lose.

I am contemplating taking my wages to a casino. If I win, fine. I’ll be a lot happier. A few businesses might be boosted by my enhanced wealth. Blimey, I might even be able to trickle down a tip to a grateful waiter. How unselfish and wealth-generating am I?

Of course, if I lose, I expect the government to cover my losses.

Where angels fear to tread..

Posted on by

So, here I am, rushing in like a fool… (and interspersing my rant with palinisms, thus inspiring complete confidence in the down-home wisdom of anything I say)

I can understand pretty well nothing about the “credit crunch.” Except that we seem to have got worse and worse at naming things. The “Great Depression” has a certain grandeur. The “credit crunch” sounds like a crappy breakfast cereal.

* hey joe*

And naming things seems to be the crucial component of this crisis. When “money” is the cause of the whole fiasco, it must be so much a matter of what people believe. Money is paper backed up by promises. If you don’t trust the promises, what value does the paper have? As far as I can see, once money is divorced from production there is nothing to back it up.

If a steelworks goes bankrupt, it has assets: plant, materials, the skills of its workforce. Someone else can buy its carcass and make steel. If a bank goes bankrupt, all it has is the ghost of bits and bytes on a computer system. You surely couldn’t treat the financial skills of its money-making experts as a saleable commodity, on the present showing.

*maverick*

Is it possible that enough people have £50,000 in savings to make it worth the UK government’s electoral while to guarantee £50,000 rather than £33,000?

How the fuck could anyone “save” £50k? The “savings” word conjures up an image of respectable austerity. Making do and mending. People buying supermarket own-brand tins of beans, rather than the costlier branded version. Darning sweaters rather than throwing them out at the first hint of a hole. Do me a favour, guv. (Affects cockney accent.)

This sort of stuff might save you £50 a year at most. So that’s a thousand years of savings then. Let’s be insanely generous in the estimate. Imagine our conceptual saver is dining on bread and dripping (I’m not sure what that is, but it sounds economical) and saving £500 a year. That still means it would take a hundred years to save £50k

I can think of a few circumstances in which a reasonably well paid person might have £50k (such as having sold their house and keeping hold of the money until they can buy another.) However, people in that situation can’t account for any notable fraction of the population.

So let’s do away with any idea that the £50k limit represents “savings” rather than bank deposits. The newspapers are full of the horrific possibility that people with more savings (maybe about 3% of the bank customer population) might take their money to another EC country, unless the government guarantees it all. In fact, all EC countries seem to be facing this horrific possibility and are randomly guaranteeing or not guaranteeing all deposits, depending on the time of day.

*you betcha*

Hmm. Isn’t that the nature of global capitalism? This free movement of money, yada, yada, that we’ve been getting told (for decades) is the solution to all social evils. The money supply must be freed from constraints. The markets bring prosperity through some miraculous trickle-down effect. Any constraints upon the money markets would destroy free trade, and so on.

So, how confused am I? Don’t tell me that was made-up stuff? Who’d have thought it?

Irony upon irony. The IMF reckons the US economy (and hence, the rest of the world’s economy) is in much worse shape even than we’ve been told.

* big shout out to class 6b*

In its latest twice-yearly Global Financial Stability Review, the Washington-based institution dramatically raised its estimate of losses to the US banking system to around $1.4 trillion (£800bn), 45% up from the $945bn it estimated in April and reaffirmed just two months ago.(from the Guardian)

So the billions that Congress has finally agreed to hand over are not going to cover more than a little section of the losses? (The spare $billions that can be instantly conjured up from the vaults but just weren’t available to prop up failing real industries or to provide free healthcare system?)

As soon as banks are in trouble, nationalising them is acceptable. Once as they start to show any profit again, they’ll be handed right back, of course.

If there aren’t a few people with wealth beyond the proverbial dreams of avarice, the rest of us are in trouble, you see.

Well, no, I don’t really see. However, I can quite see how the losses of the mega rich have trickled down, so that minimum wage-earning taxpayers get a democratic share in those losses.

We were being told, only recently, that taxing the mega rich was a “bad thing” because, then, we wouldn’t benefit from their wealth-creating magic if they weren’t free to accumulate as much wealth as they wanted. How satisfying to find that they now believe in share and share alike.

*winks girlishly*

Yes and no

Posted on by

According to the pope, quoted in the Times, the world financial system is built on sand.

Pope Benedict XVI today said that the global credit crisis shows that the world’s financial systems are “built on sand” and that only the works of God have “solid reality

Well, yes, to the first bit. The “house built on sand” story seems metaphorically appropriate. (About which I can remember little more, from the time when my religious education teacher tried to explain – to a room full of architecturally ignorant 12 year-old girls – why building on sand wasn’t a good idea.)

Granted, the world financial system is pretty much a con trick, with imaginary gains and losses that have only an accidental relationship to the production and distribution of goods. And the whole system can collapse as easily as a building with no foundations.

But, talk about a non sequitor. The world financial system is built on myths, so this other myth must be true….What? Nonsense.

He added: ”We are now seeing, in the collapse of major banks, that money vanishes, it is nothing. All these things that appear to be real are in fact secondary. Only God’s words are a solid reality”.

Let’s ignore for one minute that the Catholic Church itself isn’t exactly destitute, and assume that the Pope maintains a state of religious poverty.

I abhor the worship of money as much as I abhor the worship of gods. However, there is a big difference between greed and need. And many things that “appear to be real” about access to money are “primary”.

Access to food, housing, healthcare, water, clothing.

Try doing without these for a while. A few days is all you’ll manage without water, but you’d barely survive a few weeks without the others, either. (Although large swathes of the world’s population seem to have to pull off this trick every day.)

Try doing without the “word of god”. Hmm. Not too difficult, that one. You can probably keep going like that for, oh, I don’t know, a human lifespan, say.

Do anything when in crisis

Posted on by

In my previous post, I pretty much said everything I could ever say regarding my limited understanding of the financial crisis, so this has a slightly different spin.

The BBC today have carried an interesting quote from the illustrious George Bush:

Mr Bush said at the White House: “We are in an urgent situation and the consequences will grow worse each day if we do not act.”

Taken at face value it is quite frightening. But here in our comfortable Ivory-WhyDontYou Tower we have heard this before. Lots of times. On both sides of the Atlantic. About lots of different situations.

For those of you have been bored enough to read high pressure marketing crap, you will recognise some of this. A staple of a scam is the call to urgent action. The sales idea is that by telling you to “Buy now while stocks last” is a great way of over-riding your decision making process. I am sure most people can remember when, idly surfing, you would be confronted with a pop up window saying you were a winner and you only had 10 seconds to click before you lost you wonderful prize.

Now, unusually for Bush, this is slightly more sophisticated. It is very true that we are in an crisis situation. It may even be urgent. However, none of this supports the second half of the statement. Even more crucially, not one part of the statement supports the proposed bill.

If you accept that the situation is urgent and delay will make it worse, you are still left with having to find out what the solution is. Simply doing anything is not the answer. Oddly, this is what the English speaking politicians seem to be crying for. The idea appears to be that doing anything is better than nothing.

What madness.

Doing something useful is better than nothing. Simply acting is not. In fact, doing the wrong thing can be worse than doing nothing. Bush again:

“We’re facing a choice between action and the real prospect of economic hardship for millions of Americans,” he warned.

“Action” – don’t you just love it? Sounds so dynamic and heroic. In fact it is so masterfully-leaderlike, who cares what the action is! More importantly, who cares what nonsense it is.

The choice is not between action and economic hardship. Even with the bail out plan, economic hardship is in store for millions of Americans – just a different set of millions than the one he wants to protect.

The choice is between a knee-jerk reaction and doing anything in the hope it will work, and trying to discover what will actually work.

Anything else is selling snake oil to the American public. Do people still buy that stuff over there?

Banks Fumble, Taxpayers Punished

Posted on by

The current “banking crisis” has been pretty hard to ignore of late, but here in the WhyDontYou ivory towers, we have tried. Partly this is because both of us are in (largely) economy immune employment sectors and partly (mainly) because neither of us can really fathom the nonsense being thrown about in the news. Given that both of us are required by profession to be mathematically astute (yes, really) it could be taken to imply that the average citizen would be even more lost.

With this in mind, it is entertaining to watch the news about the crisis when it pretty much only shows scared-to-death financial experts going on about weird ways of selling things you dont have (short selling) and how important the banking risk takers are to society. They are so important that the rest of society has to protect them should their risk taking go wrong. Being ignorant of the financial wizardry, this strikes me as being totally insane, let alone unfair. This post (long, sorry) is pretty much a way for me to let off steam about something that is destroying peoples lives and, basically, really annoys me. I would welcome your comments and feedback on my take – if I am wrong, please educate me.

There are two headline examples today (in the UK at least) – The UK Government take ownership of the crap part of Bradford & Bingley, after selling the good bits to a Spanish bank; The American government fails to secure a $700bn line of funding for its banks to keep them safe. (Neither are good news items. Neither are going to reassure people that their future is safe. Do not mistake a light tone here for a lack of concern)

Some Background

UK first. Starting about 20 years ago there was a big rush for building societies to become banks – changing from being basically there for a group of people in one area (eg. Bradford, Halifax) where everyone who paid in was a member to becoming a limited company, where some of the members became shareholders. In the process, especially throughout the 1990s the drive was on for these banks to press hard and return massive profits for the shareholders (often a tiny subset of the Building Societies membership). At the time (and in principle it still does) this seemed a good idea. Most people got a bit of money (sadly for most of the members this was just a bit – around £100) and a few people got lots and lots of money. Everyone was happy.

From this, there was a drive in the finance sector to target more and more high risk trades, where often the winnings were large beyond the avarice of mortal man. City bonuses in the millions ceased to be newsworthy and sales of high end sports cars went through the roof. Being a “risk taker” became the nicest thing you could say about someone. We (the public) were dimly aware that there was a risk it could fall down on the bank (Barings) so we accepted the ostentatious lifestyle of the successful. For some reason we were convinced it was down to skill and intelligence rather than basically throwing dice and hoping for the best. These were people who worked hard predicting the markets and had a rare skill in knowing where the trades were. Or so we thought.

Hidden for most of the time were the downsides to this.

Insane wages in London made the already insane prices there spiral out of control. People began to think that paying £750,000 on a one bedroom apartment was a “good investment.” In turn, this priced even well paid people out of the city, so prices near London went up (often even faster if it was commutable and “nice”). For the last ten years it has been impossible for anyone on less than twice the average wage to even think of buying a house in the south of England, without a hugely fiddling their application – so they did. People overstated their income, understated their expenses, and took insane repayment terms hoping they’d get on the gravy train before they had to pay the capital. Lots of these people had “normal” jobs and were not aware that they were bearing the same risk that the Ferrari driving millionaires living in central London appartments had. The public never benefited from the wins so, rightly you would think, assumed it was safe from the risks.

Wrong. (More on that in a minute)

A similar story in the US (I assume, I have no idea of the background). From my visits, the gulf between rich and poor in America vastly outstrips that in the UK. I have always thought that if you were filthy rich, there is no better place to live than the US, but if you were penniless poor the UK wins. Rich people in America are really rich. I am amazed the poor survive one day to another.

In recent years, the risk loving traders have really had a few field days in the US. Massive windfalls made rich people richer. They took huge risks, which often paid off. People applauded them for having the guts to risk so much, making it hard to condemn them for their salaries and bonuses. As with the UK, most Americans had some fallout from this (house prices going up for example) and people begin to think that property is the best investment, so take some personal risks to buy a house. In turn the bank takes a bit of a risk lending to them, but often at crippling interest rates that will see the bank get its money back in spades.

Eventually, as everyone with hindsight knew it would, the whole system explodes. That is the thing with taking a risk, sometimes you get hurt.

Here is where my understanding and reality part company.

Current events

I have always thought that you took a risk, gambled something for example, sometimes it would pay off and other times it wouldn’t. Some risks are “low risk”: for example, betting that a tossed coin will land on either heads or tails rather than its side is quite a low risk bet – you are a lot more likely to win than lose. Some are “medium risks”: betting on heads in our example. Some are “high risk”: betting the coin will land on its side. They all make sense to us and we live with this sort of understanding on a day to day basis.

The world banks have paid their “High Risk takers” absolute fortunes because they take high risks. This is fair. If I bet £1000 on the coin landing on its side and I won, I would expect to win big, if I bet £1000 on the coin not landing on its side, I would expect to win a tiny amount simply because I wouldn’t expect to lose.

For most of the last two decades, the amazing thing is the risks have (on the whole won). The coin has landed on its side a lot. People have won big.

The problem is people then forgot what a risk it was. If you win something that is high risk enough times, you forget that it is high risk and assume the opposite. The merchant banks have been so successful with high risk ventures, they forgot that “high risk” meant dangerous and plowed more and more money into it. They still throw around the terms, they certainly still paid the bonuses, but everyone assumed it would never happen.

Then the coin came up tails and everyone lost. Everyone who had bet big, lost big.

Oddly, this came as a shock. The great and bold risk takers were mortified. Nothing hits a herd as fast as panic and the trading centres of the west are no different. Contagious fear spread everywhere and a generation of “risk takers” who actually had no idea about risk were the most affected. The less scrupulous traders saw a chance to strip the foundations of fragile structures and asset rich, stable organisations took a massive hit (Bye, bye HBOS). The wonders of a free market allowed short-selling and a few scares to destroy a company with solid resources – can you imagine how scared the rest must have become.

Risk?

So, in the interests of a free market, the government steps in and saves the companies. The government spends billions of the taxpayers money to rescue institutions that have, basically, gambled themselves out into the street.

This is where I am confused.

In the UK, the government has reportedly taken over a £50billion debt on behalf of Bradford and Bingley. That is effectively £1000 per person so that the demutualised, risk taking, company can survive. Although we were not aware of the risk we were taking, nor did we share in the rewards, everyone of us in the UK was involved in the gambles these people were taking.

The US has the same problem. The $700bn bail out (good idea or not) is a phenomenal sum of money. The high flier financial wizz-kids and their high risk lifestyle would cost every one of the 300 million people in the US over $2000. For someone on federal minimum wage, that is 321 hours work – 40 working days – to save the rich from becoming poor (I know it is not quite that simple). Instead, the poor get a little bit poorer. Wonderful.

The US must be the only modern democracy where funding the rich bankers is a more appealing proposition than giving healthcare to the sick. That confuses me.

To confuse me even more, the news today had lots of talking heads on both sides of the Atlantic saying how it might seem strange but it was vital that the taxpayer (poor) bail out the bankers (rich) because. Often simply because. Sometimes there were vague, dire, warnings about the economy, but most of the time it was just a simple statement. We have to do it.

Why?

I don’t doubt that letting one or two banks slip will cause even more panic which will destabilise the economies, but if the US has $700bn and the UK has £20bn going spare, then surely we can weather some rough times. When the average person on the street still has money for shops to take off them, then the economy will still work. In my mind that is where the salvation needs to be pointed.

Equally odd, is this new definition of risk.

If I gamble my house on a high risk deal and lose, I lose my house. Will the government bail me out? (Well, in the UK we have social housing but that is different) It is unlikely. For me, betting on high risk stocks is just that – high risk. I stand to gain but I also stand to lose everything.

If a bank gambles the houses of 20 million people and loses, well they really lose nothing. Poorly paid staff will get laid off but the “risk takers” are immune. The organisation is immune because as long as it cries loudly enough the government helps. For the banks, betting on a high risk is actually risk free. They will either gain a lot, or lose nothing.

Why is this acceptable? Why is this considered normal? Why are we still hearing that it is all down to the taxpayers to save these banks? Why not claw back the multimillion bonuses? Why not fine the fund managers? Why are they allowed to gamble without risk, yet still be thought of as “cool” risk takers?

Crime and Punishment

The most sickening thing about the whole deal is not just that the taxpayer has to suffer.

If, through negligence or design, I caused someone to lose out to the tune of £1000 there are laws that would punish me. If I gambled £1000 of someone else’s money without their knowledge and lost it, I would expect the police to visit me and to end up in jail.

It seems, however, if you do it with enough people then not only does the government step in to cover your debts, but you dont even get punished. In the middle of the credit crunch, UK stockbrokers were still getting massive Christmas bonuses (just not as massive… poor things).

While it often smacks of unscientific voodoo, I accept what the “finance experts” say and that the state has to prop up these failing institutions. However, why should the people who have caused this problem be allowed to walk away? If, for example, the fund managers and directors of each organisation were to be fined in proportion to their participation, the rescue plan’s tax burden would be a sweeter pill.

Alternatively, if this heralds a new era of tightly controlled financial markets, where crazy risks are punished, and these people are not simply able to start ripping the world off again in a few years then, again, it becomes a bit more acceptable.

I think the problem is, this will never happen. The hint that the US bail-out would be followed with government involvement meant that the Republicans stood against the great George Bush and turned down the bill (*). It seems the only way a rescue plan will be approved is if it carries no strings or punishments. Basically, the bankers are free to risk all our money without having to worry…. (Slightly better over here, where we are more accepting of government control and oversight).

What a wonderful world.

(*) This adds an ironic twist. I strongly think that the Republican party expect to lose the next election. McCain/Palin are their idea of a joke. They know the country and the economy is about to tank, and the war in Iraq has gone badly. If they lose the election, Obama will be handed a hospital ball of a presidency. Unless he is truly Odin’s chosen one, come the next elections people will still be smarting from the economic crisis and will be ready to turn to the Republicans once more. Taken in this light, both Bush’s plan to asset strip the country, and the parties refusal to do something that (on the surface) benefits the public makes sense.

Can you be too cynical?

Food Advice

Posted on by

Giants Ring - just here to make the post look prettyThe UK of 2008 is an interesting, if odd, place to live. Today our esteemed Prime Minister has decided the way to reduce the cost of living is to tell people to stop wasting food.

Blimey. This is the person who used to be the chancelor of the exchequer…. Scary.

It is an interesting idea that people are simultaneously eating too much food and wasting too much food but both seem like a sneaky attempt by a weasle government to pass the blame for another one of societies problems on the general public. Now, I am borderline in support of blaming the population for everything, although this time I think the PM has got it wrong. (Well, he routinely gets it wrong which is why I am devastated to think I will welcome a conservative government).

This outburst is another one of Labours attempts to demonise and punish the poor and the working class. According to the BBC:

A government study says the UK wastes 4m tonnes of food every year, adding £420 to a family’s shopping bills. (…) The food policy study also says the average UK household throws away £8 of leftovers a week, yet spends 9% of its income on food.

Now the slight disparity in the numbers aside, this is an interesting set of figures to throw your hat on. If you are a poor, low income family then £420 a year will be very significant. I refuse for one second to believe that people on the median UK income or lower are actually wasting this much money per year.

Flipping it around, if you are above the median income this becomes a trivial sum of money. For someone on £30k per year (a shell lorry driver for instance), this represents about two days wages spread over the course of a year. Not really something that is going to make them sit up and take notice. I am not a “rich” person but today I applied for a job that pays one and a half times that sum of money per day. If I get the job, worrying that a few bits and pieces I have left over will amount to under six hours work per year is the last thing on my mind.

Hillsborough AntiqueNow, the second sentence is slightly more interesting. Interesting in that it uses two different types of figures. This implies that a family on £16,000 per year is spending £1440 a year on food. Out of this £27 per week, they are “wasting” £8 so, in reality are living on £19 per week for food. I refuse to accept that for a nanosecond. I would like to see you get your “five a day” for that paltry sum. On the flipside, the £30,000 a year family spend a massive £2700 a year on food, or £52 per week. They are significantly more efficient however, as they actually manage to eat £44 of food.

Are we, as a nation, to accept that the poor family who are basically struggling to eat still manage to throw away nearly 1/3rd of their food, however the indulgent rich are protecting the economy by eating it all. In all honesty, it confuses me a touch.

A second, and possibly more important line of thought is about why people throw food away. Sometimes it is food people have cooked and no longer want and I assume some of it will be the result of people chosing to not eat certain parts of the foodstuff (I will never eat a pigs brains for example…). However, looking at the list of biggest waste sources it seems the problem is throwing away food that has gone past its sell by date.

There is the usual call for people to stop going to supermarket, stop buying their goods in bulk (then allowing it to spoil) etc. This has a seductive ring of truth around it, however it doesn’t stand up to close examination.

Take for example the two different shopping methods. I can use a supermarkets online shop to order my goods (pre-selected based on previous purchases) in about 20 minutes. Add in the delivery and this whole deal takes up about 40 minutes a week.

Compare that with going to the shops every day to buy fresh, small portioned, perishable goods. The journey alone to the nearest “corner shop” will take me 5 mins to drive (but is massively uneconomical with the fuel) or about 15 mins each way to walk. Add in 10 mins walking around the shop (and ignoring any impulse buying) and paying for my small loaf, banana and orange. All told, this would occupy around 40 minutes a day or over 3 hours a week (ignoring weekends). If I was on minimum wage, this would be the equivalent of £16 per week spent simply collecting the food. If I get the £600 a day job I want that is, in effect £225 a week…

It seems that £8 wasted is money well spent.