Sooner or later, when considering decisions about money, you will come across the Vested Interest. In fact it’s almost impossible to avoid them. A Vested Interest (VI for short) is a person, company or organisation that wants to get its views across in order to somehow influence the people who are reading, watching or listening to them. ‘VI’ may be used to decribe the entity itself or his/her/its viewpoint.
Some VIs are obvious, some less so. I have a VI in writing this article. I’m hoping that if I make it interesting enough, and the information contained within it useful enough, more people will read it and so the traffic to this site will increase and hopefully at some point we’ll be millionnaires. Actually, it would be nice if we could make enough money for a cup of tea once a week, or perhaps cover the hosting fees. So my VI is quite transparent and, I hope, harmless.
But that is rarely the case once you get into the mainstream media. As Piers Morgan and his tipster colleagues at the Daily Mirror proved a few years ago, the temptation to use a position of public influence to push your own agenda can be overwhelming. And it’s not always illegal, either, though one might argue that it should be.
For example, of all the possible investments, the property market is not regulated by the FSA. Any idiot can call themselves a ‘property expert’ and give what is basically unregulated financial advice. And many of them have. Media people are among the most likely to be amateur landlords, so it’s not particularly surprising that the television schedules have been riddled with programmes extolling the virtues of ever-increasing property prices over the last decade. Nor are newspapers immune. The Times, for example, has carried a lot of property advertising, and has columnists who seem to believe that ‘house prices only go up’ - coincidence? Maybe.
Identifying Vested Interests will help you to decide for yourself whether a particular article is truly impartial - or as impartial as it can be - or whether you should treat it as wishful-thinking fiction. The following selections reflect my personal experiences with the media outlets concerned and are opinions only. Your mileage may vary, as they say.
Continue Reading May 12th, 2008
The Financial Services Authority says it is frustrated by the government’s foot-dragging over new legal powers which would make it easier for the FSA to target market-abuse.
Speaking at a parliamentary inquiry into financial stability and transparency, the FSA Chairman, Callum McCarthy, also echoed Mervyn King’s earlier call for a clearer delineation of the responsibilities of the FSA and Bank of England. At present responsibility for the UK’s financial stability lies with no single organisation - which means that after a major screw-up like Northern Rock it’s difficult to hold anybody accountable.
Don’t expect any big changes in the near future however, we’re sure Brown and Darling are far more interested in cooking up increasingly desperate schemes to keep the housing market bubble inflated for just a little while longer, rather than taking some genuinely prudent moves to help regulate the country’s banking system.
May 6th, 2008
Dear oh dear, the government’s climb-down over its abolition of the 10p tax rate must surely be the final nail in the coffin of Gordon Brown’s reputation as a ‘safe pair of hands for the economy’. What happened Gordo? Once you were the Golden Boy who proved finally that the Labour Party could be trusted to safeguard the nation’s financial well-being, but now look at you.
“No more boom and bust!”
“I will not allow house prices to get out of control!”
How did that work out for you? Here we are today with a nation up to its neck in debt, desperately struggling to stay afloat, a banking system that needs massive taxpayer bailouts (despite rewarding itself with obscene bonuses every year), a housing market so grotesquely over inflated that the price of putting a roof over your head is a lifetime of crippling debt for even the most modest of homes, and an economy so dependent on unsustainable house price inflation that when the inevitable property market collapse comes it will spell doom for us all.
Don’t worry though Gordon, some people may paint you as an incompetent, but I just see you as a King Canute figure - you may have looked good when things were on the up, but you never really had any control and now things are looking bad it’s obvious that you have no power to stop the tide from coming in.
A quick note for your successor though - you might like to think about tighter regulation of those chaps in the city, if you’d like to avoid this sort of mess in future, instead of entertaining the foolish notion that you’re the one who’s running the economy.
April 23rd, 2008
Chancellor Alistair Darling has told mortgage lenders that they should be more lenient to homeowners* who fall behind with their repayments. The meeting was called by the chancellor this morning to let the banks know that taxpayers would expect to see benefits in return for the £50bn+ of their money which Darling has used to bail out poorly managed financial institutions which are currently suffering from serious cash-flow problems.
Assuming that the bankers didn’t just laugh in the chancellor’s face before strolling out of the meeting with their pockets stuffed full of taxpayer’s cash (which, if we’re honest, is almost certainly what they really did), and assuming the banks really do decide to go easy on people who are struggling with their mortgages, where does this leave us?
The government has shown that it’s more than willing to use taxpayer’s money to prop up failing banks, regardless of how recklessly they’ve behaved in pursuit of unsustainably high profits. If the chancellor somehow manages to convince the banks to treat mortgage defaulters with greater leniency, the government will have created an environment where not only is it ‘safe’ for banks to make risky loans, it’s also ‘safe’ for consumers to recklessly borrow more than they can afford to repay. (But only so they can buy property at artificially inflated prices).
In the short term the only people who lose out are taxpayers who can’t afford to own their own homes – their taxes are being used to prop up irresponsible banks, bale out foolish borrowers, and keep housing bubble inflated just long enough to improve the Labour party’s chances of re-election. But the whole thing is clearly unsustainable and the longer this charade continues, the more it’ll hurt when everything collapses, so in the long term the only people who lose out will be, well, everybody.
*Although “homeowner” is a bit of a misnomer - as long as the bank can reposes your home, you don’t own it.
April 22nd, 2008
I am writing to enquire whether you have any vacancies on your strategic board for someone of my talents. I realise that it is a little unorthodox to apply ‘on spec’ for such a high-ranking position within your organisation, but I believe I have the necessary skills to further increase the profits and assets of Big Bank Plc. In this letter I will attempt to demonstrate my knowledge of the challenges and opportunities in our marketplace.
1) Who are our customers?
I understand that our most lucrative customers are those with the least awareness of financial matters; indeed, the less numerate they are, the better. Rather like the dear old PM, in fact.
If they don’t know the difference between APR and AER, if they fail to read the small print in their credit contracts - not that it matters, as I’m sure I have the necessary legal skills to make such text impenetrable - and if their limited attention is grabbed by an ‘introductory’ rate, then they are exactly the kind of people we need to target.
I think that if we closely follow that other highly successful model of commerce - drug dealing - we won’t go far wrong in attracting and retaining the right customer base.
2) How do we get people to take on more debt?
Continue Reading April 14th, 2008
We’ve compiled some of our favourite quotes on the subject of finance and economics - if you know of any good lines that we’ve missed, please leave them in the comments…
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
“The financial markets generally are unpredictable. The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.” - George Soros
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.” - Warren Buffet
“Where large sums of money are concerned, it is advisable to trust nobody.” - Agatha Christie
“I believe that banking institutions are more dangerous to our liberties than standing armies.” - Thomas Jefferson
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” - George Soros
“Investors have very short memories.” - Roman Abramovich
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” - Napoleon Bonapart
“Money is worthless unless some people have it and others do not.” - Anon
“If you would know the value of money, go and try to borrow some.” - Benjamin Franklin
“The modern banking system manufactures money out of nothing. The process is, perhaps, the most, astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint, and un-mint the modern ledger-entry currency.” - Major L. L. B. Angus
“Inflation is taxation without legislation.” - Milton Friedman
“Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again… If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.” - Sir Josiah Stamp, Director, Bank of England, 1940
“Wall Street people learn nothing and forget everything.” - Benjamin Graham
“In all recorded history, there has not been one economist who has had to worry about where the next meal would come from.” - Peter Drucker
“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball. They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.” - Warren Buffet
March 29th, 2008
If you don’t understand just how badly messed up the current economic situation really is, you need to read this article from the Wall Street Journal: Ten Days That Changed Capitalism
We are living in interesting times. This is not a good thing…
March 28th, 2008
Today the Bank of England governor, Mervyn King, faced a grilling from the government’s Treasury Select Committee – a group of politicians who are responsible for scrutinising the actions of the Treasury, BoE, the FSA and various other organisations that are responsible for the UK’s financial well-being.
The Committee, understandably, wanted to know what the fudge was going on with this little ‘global economic meltdown’ problem, perhaps labouring under the illusion that Mervyn, or anybody else for that matter, actually has any real control over these things. You can read the full story over at the BBC, but in short, this is what Mervyn had to say for himself:
- The Bank will pump even more cheap loans into the money markets to help out incompetent financial institutions that are incapable of managing their own cash-flows. (Think about that for a second, these are the companies that the world trusts to competently manage their finances, and yet they struggle to manage their own cash-flow without needing constant help from the taxpayer.)
- Interest rates aren’t going down any time soon and even if they do, it won’t be by very much. (Can’t argue with him on that one, the US has already slashed rates to bargain basement levels and it’s done them a fat lot of good, other than to completely trash the value of the dollar. And its not like the banks are passing on rate cuts/rises to their customers any more either. )
- House prices will be stable for the next few years, but a slowdown in the housing market will make homes more affordable for first time buyers. (Utter bollocks. Unless house prices crash by around 50%, or salaries are magically doubled/trebled in the space of a couple of years, houses are not going to be anything like affordable for the average first time buyer.)
- The ‘real economy’ is OK, it’s just that the financial services sector is experiencing a few wobbles. (Um… isn’t the UK economy massively dependent on the financial services sector?)
- It’s a “matter of concern” that central banks’ efforts to improve inter-bank lending have been largely unsuccessful. (Is “matter of concern” a secret city-boy code for “please fetch me a new pair of pants, as I appear to have soiled the ones I’m wearing” ?)
Mervyn does a very good job of pretending to be in control of a situation which is pretty obviously far beyond the control of any one man, or even any one government. Still, maintaining the illusion of control is what these stuffed suits get paid so handsomely for, so he’s earned his salary today…
March 26th, 2008
Usually on this site I write features about various aspects of the financial system, leaving Lance to concentrate on the current affairs opinion pieces. But it’s becoming increasingly difficult to remain dispassionate.
The financial system is having a bit of a wobble at the moment, rather like that earthquake that hit the UK recently, knocking a few glasses off the shelves and knocking a few minor celebrities off the front pages, at least for a day.
What has been called a ‘credit crunch’, and ignorantly predicted to be ‘over by Christmas’ (though, like the war, nobody states which year), is actually something rather more serious: in all probability it’s a return to normality. Risk is now being priced back into investments, default spreads are widening and, in general, everybody’s paying more for their money.
Which is as it should be. The last five years or so have seen a collective delusion on the part of economists, central bankers (with some exceptions), financial journalists, house buyers and consumers.
Of course interest rates will stay low (never mind inflation). Of course house prices always go up by 10% a year when wages rise by 3% (never mind the impossibility of the maths). Of course it’s different this time (no, it never is). Of course the UK has a miracle economy based on selling financial products and ever more expensive houses to each other, and doesn’t need manufacturing (unlike the Germans, for example).
To use the vernacular for a moment, it was all bollocks.
Continue Reading March 25th, 2008
With all the fuss about the McCartneys’ divorce settlement, a lot of people might not have noticed that yesterday the Bank of England pumped another £5 billion of emergency loans into the British banking system, to bale out high street banks suffering from short term cash flow difficulties. Problem is, it wasn’t anywhere near enough - according to the Times, the banks asked for a total of £23 billion in loans.
If you were in any doubt after the Bear-Stearns collapse, this should give you a clear idea of just how much of a mess the banking system is currently in. In short, we are all screwed. Our government simply will not allow a major financial institution to fail, so when things get rocky the Bank of England will always step in to save the day with tax-payer’s money - and this Get Out of Jail Free card does nothing to encourage the bankers to take a more responsible attitude towards risk. They’re essentially free to make insanely high-stakes gambles which put the stability of the entire economy in danger, secure in the knowledge that when things go tits-up, the tax-payer will cover their losses.
March 18th, 2008
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