The great interest rate rip off part 1

interestrateripoff · February 19, 2010

Mish's Global Economic Trend Analysis: Goodbye Reflation We hardly Knew Ya; Core CPI Drops First Time Since 1982

Yesterday, inflationists were out in full force after the Producer Price Index (PPI) release.

The Producer Price Index for Finished Goods rose 1.4 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.4-percent advance in December and a 1.5-percent rise in November. In January, at the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.7 percent, and the crude goods index jumped 9.6 percent. On an unadjusted basis, prices for finished goods moved up 4.6 percent for the 12 months ended January 2010, their third consecutive 12-month increase.

History shows that attempts to predict consumer prices from jumps in producer prices is fraught with error.

Commodity prices reflect record stimulus efforts globally, led by US and China. Year over year comparisons were very easy to beat after the 2008 plunge in commodities.

Looking ahead one can say the same thing looking in the rear view mirror. Unless energy prices continue soaring, and I doubt they will, PPI comparisons will be easy to beat in reverse. Yesterday may have been the last hurrah for rising energy prices.

Regardless, consumer prices are a better tell for the deflationary environment we are in.

Core CPI Drops First Time Since 1982

Inquiring minds are reading Consumer Prices Increase Less Than Anticipated.

The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is generating little inflation.

The consumer-price index increased 0.2 percent for a fifth straight month, led by higher fuel costs, Labor Department figures showed today in Washington. Excluding energy and food, the so-called core index unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter.

Retailers such as Wal-Mart Stores Inc. have reduced prices to lure customers at a time when most employers are reluctant to hire. Restrained inflation will allow Federal Reserve policy makers to keep the benchmark interest rate close to zero to help support the recovery.

Even with higher production and material costs, U.S. companies are reluctant to pass on the expenses to consumers. Wal-Mart, the world’s largest retailer, reported fourth-quarter sales yesterday that trailed its projection after cutting grocery and electronic prices.

No Pricing Power

Regardless of how traders or China affect commodity prices, the bottom line is consumers remain unable and/or unwilling to spend. Certainly 14.8 million officially unemployed consumers are not buying much. Nor are an additional 2.5 million "marginally attached workers" nor are 8.3 million part-time workers who want a full time job.

Marginally attached workers are those who want a job but are not counted as unemployed because they did not look for a job in the last 4 weeks.

There is no reason to believe employers are about to go on a hiring spree. Indeed there is every reason to believe they won't. Thus pricing power will remain weak.

Consumer Price Index Release

With that backdrop let's investigate the official Consumer Price Index Release For January 2010.

On a seasonally adjusted basis, the January Consumer Price Index for All Urban Consumers (CPI-U)rose 0.2 percent, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.6 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was due to a rise in the energy index. An increase in the gasoline index was the main factor, and the indexes for fuel oil and natural gas rose as well, though the electricity index declined.

The index for all items less food and energy fell 0.1 percent in January. This decline was largely the result of decreases in the indexes for shelter, new vehicles, and airline fares. In contrast, the medical care index posted its largest increase since January 2008, and the index for used cars and trucks increased significantly for the sixth month in a row.

CPI-U

click on any chart in this post for sharper image

Note that last column in red, on energy prices. Don't expect that trend in energy prices to last. It won't. Year over year comparisons were easy to beat on the upside with crude at $35 and they will be easy to beat on the downside when crude reverses.

Goodbye Inflation

The above charts reflect the heroic efforts of the Fed and central bankers to reflate. In spite of the Fed's efforts and the stimulus efforts from Congress such as cash-for-clunkers and $8,000 tax credits for houses, home prices are weak, rent prices are falling, and prices of new cars are dropping.

Given that Owners Equivalent Rent is the largest component of the CPI (I think housing prices should be, not rent prices), there is going to be downward pressure on the CPI.

If the price of crude drops, and I think it will, expect to see a renewed bout of the entire CPI-U negative, this time with the core CPI in negative territory as well.

Today, the market appears to be cheering the fact that the Fed can hold off on rate hikes for much longer. The proper way to look at things is the Fed's reflation efforts have failed, interest rates are at zero with no room to cut, and hawks are increasingly vocal.

When this matters is anyone's guess, but the fact remains this is simply not a good backdrop for equity prices.

This year certainly looks like it will be interesting.

interestrateripoff · February 20, 2010

Fury over the closure of Teesside's last steel factory

Trade unions launch strike ballots as plant shuts and 1,600 workers lose their jobs

Agile, smaller enterprises are leading a revival in the industry

Excessive focus on big manufacturers is a distraction from the sector’s real innovators

Stephen Foley: It's good not to throw the book at Google

US Outlook: Is Google creating the world's biggest library, or the world's biggest bookstore?

interestrateripoff · February 20, 2010

reaking news:

Brown insists recovery, not cuts, must be the priority

PM welcomes support from economists published in the Financial Times and condemns Tories' 'dislike, bordering on hatred' of government intervention 51 comments
[*] Top economists attack Tory cut plans

More than 60 academics issue stinging rebuke to claim by George Osborne that there is a consensus among economic experts supporting his policies 399 comments
- Gallery: ... in the red corner
- In the blue corner ...
[*] Britain, Greece, Spain and Norway tell markets: growth, not cuts

The European prime ministers have warned the financial community that they will prioritise growth over deficit cuts
- EU: Greece must solve its own problems
[*] Boom in sales of tax-free CDs casts doubt on Treasury claims

VAT dodge is thought to be costing UK £110m a year and forcing hundreds of music stores to close 9 comments

[*] Barack Obama's $5bn green home plan to boost economy gets off to a slow start

Only 9,100 homes last year given green energy makeover out of 500,000 target, but government says pace of retrofits has risen 2 comments

BA wins legal victory against cabin crew

Judge rules that staff cuts were not a breach of contract, weakening union's hand as new strike looms 5 comments
RBS defiant over £1.3bn payout

The taxpayer-owned bank will announce its bonus pool next week, along with an expected heavy loss 46 comments
Corus plant mothballed as union prepares to ballot members

Workers at Corus will vote on industrial action after the steelmaker began mothballing its plant at Teesside today
Toyota boss to attend Congress hearing

Akio Toyoda has bowed to US pressure and agreed to attend a congressional hearing over the safety recall of more than 8.5m cars 6 comments
London Town pubs in administration

Pre-pack deal will see pub group jettison 44 properties from the 350-strong business, creating uncertainty for tenants living above unwanted pubs

More business news

interestrateripoff · February 20, 2010

Experts back spending cuts delay

More than 60 economists sign two open letters backing the government's decision to delay spending cuts until 2011.

Stephanomics: Men of letters

UK retail sales suffer sharp fall

Economists push for deficit cut

Credit card rates 'unjustified'

A former government advisor calls for an investigation into the profit margins of credit card companies, and says rates are too high.

Dollar rises on surprise Fed move

The dollar rises against a basket of currencies after the US Federal Reserve increases interest rates for emergency bank loans

MORE FROM BUSINESS

Toyota boss to go to Congress

Greece 'needs European support'

Shire profits higher on ADHD drug

Microsoft offers browser choice

Union calls Corus strike vote

Opel creates 700 jobs in Poland

Anglo American sees profits halve

Air India's bail-out plan agreed

Carrefour profits see sharp drop

Nestle forecasts growth in 2010

Microsoft-Yahoo tie-up approved

UK finances deteriorate further

YOUR MONEY

Estate agency probe 'disappoints'

Stamp duty rise 'hits borrowing'

Fathers 'unaware of their rights'

ECONOMY

US consumer prices see small rise

Obama creates deficit taskforce

Soros doubles investment in gold

COMPANIES

Dell hit by lower profit margins

Wal-Mart sees lower sales in US

Driving school in administration

interestrateripoff · February 20, 2010

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Tories plan biggest shake up of tax system since the War

Conservatives to scrap PAYE and instead deduct tax and national insurance as an employee's gross pay enters their bank account.

Dollar climbs as speculators bet on Fed raising rates

Currency speculators have pushed the dollar to nine-month highs against sterling and the euro.

Paulson apologises for saying British 'screwed' US over Lehman

Britain's 'dangerous' deficit is dividing business community

Britain's bulging deficit has divided the country's politicians and economists into two distinct camps. Now the business community is split too.

UK space race: in pictures

As Obama backs NASA, Britain aims to boldly grow a £40bn industry.

Church of England defends £40m New York property failure

Papandreou denies debt problem is in 'Greek DNA'

Retail sales fall adds to 'double-dip' concerns

Debt-addicted Britain cannot afford to delay cutting the deficit

A state investment bank? It might just work

Gordon Brown: Prime Minister says need to cut spending a 'myth'

Debt-addicted Britain cannot afford to delay cutting the deficit

Benign US inflation data conceal turbulence

UK retail sales tumbled in January freeze

So where did all the money go?

interestrateripoff · February 20, 2010

Northern Rock could buy RBS and Lloyds branches

The Treasury has abandoned plans to sell the "good" bank and is seeking ways to make it attractive in the long term 32 Comments

Northern Rock to drop 100% savings guarantee

National pride can be shelved for this deal

British Gas says: Now we’re cooking

The company is on course for half a billion pound profits thanks to rising customer numbers and plunging wholesale prices 7 Comments

British Gas to cut bills by 9% for 7.5m homes

British Gas fails to pass on benefit of boiler grants

Sales slump awakens spectre of recession

Volume of goods sold by retailers fell by 1.2% last month, more than double the 0.5% decline economists had expected 23 Comments

On borrowed time: shock deficit threatens UK

Paulson regrets blaming UK over Lehman

‘Irregularity’ inquiry at Charter hits shares

PricewaterhouseCoopers has delayed signing off the company’s accounts until the investigation has been completed

Tempus: Engineers focus on foreign fields

PwC is in the Big Four, but it's getting bigger

Paulson sorry he blamed UK for Lehman failure

Former US Treasury Secretary, who said "The British screwed us" says it was frustration and he is sorry that he said it

Passengers brace for BA cabin crew strike

High Court ruling leaves path open for industrial action within weeks with ballot of staff due to close on Monday

GSK faces £325m hit on asthma drug ruling

US pharmaceuticals regulator says Advair should not be prescribed for sustained periods because of potential risks

GSK changes denture adhesive in health scar

Glaxo Smith Kline set to slash 4,000 jobs

Foxtons not to appeal renewal fee ruling

London estate agent said it will not appeal a High Court decision that the renewal fees it charged landlords were unfair

Banks’ court win spurs Foxtons to fight

Buy-to-let landlords can claim millions as Foxtons loses commissions cas

Rentokil cancels payout despite soaring profits

Pest control and parcel delivery group says the outlook for 2010 is still uncertain but forecasts further growth

Chief Greek debt manager goes as pressure grows

Athens makes change amid growing demands from the European Union that it tackle the crisis in its public finances

US consumer prices in first dip for 27 years

Declining rental costs were the driving factor behind the fall as homes that could not be sold were put up for rent

Fed rate rise sparks fresh slide in sterling

Profs at war over how to save the world

Fed rate rise sparks fresh slide in sterling

The pound, already knocked by public finance data, extends its losses after surprise move by US central bank

On borrowed time: shock deficit threatens UK recovery

Sterling weakens as eurozone’s problems unsettle the markets

Anglo American shuns dividend as profits halve

Mining group fails to follow peers by resuming dividends after global downturn hits full-year profits

Return of the bond vigilantes

There are signs, after Britain’s finances went into the red in January, that the vigilantes are operating closer to home

Tempus: Give outsourcers three months before buying

Capita and Serco, the FTSE 100 outsourcing specialists, have reason to be more careful than most of their peers

interestrateripoff · February 20, 2010

Bloomberg Shifts $5 Billion Out of Friend’s Firm

By LOUISE STORY and MICHAEL BARBARO

Librado Romero/The New York Times, left; Jin Lee/Bloomberg

Michael Bloomberg, left, mayor of New York, and his friend, Steven Rattner, founder of Quadrangle Capital Partners.

The mayor is moving his fortune from Quadrangle Group 10 months after a scandal with the state pension fund.

Working Without a Standard Playbook, the Fed Plans Its Moves on Rates

By SEWELL CHAN

The Fed faces a complex set of forces as it decides how and when to reverse the aggressive steps taken to contain the financial crisis and the ensuing damage to the economy.

F.C.C. Opens an Inquiry for a Game Show on Fox

By EDWARD WYATT

The F.C.C. is questioning whether some contestants of “Our Little Genius” were fed quiz answers in advance.

Steelworkers Say Reactors Will Create Overseas Jobs

By MATTHEW L. WALD and KEITH BRADSHER

The Obama administration says building a nuclear plant in Georgia would create jobs, but steelworkers said the parts would come from foreign manufacturers.

Times Topics: Nuclear Energy

Fewer People Late Paying Mortgage

By DAVID STREITFELD

Mortgage Bankers called the fourth quarter a crucial turning point for housing. Still, the percentage of loans in foreclosure rose.

The Caucus: Obama Announces Aid for Homeowners

Banks Focus on People Who Can Pay More for Credit Cards

By ERIC DASH

Banks are focusing on a new constituency: the solvent. Banks are trying to get these people to pay higher fees for the promise of perks once subsidized by weaker borrowers.

interestrateripoff · February 21, 2010

Boom in sales of tax-free CDs casts doubt on Treasury claims | Business | guardian.co.uk

The controversial online sale of VAT-free CDs exploded at the end of last year, driving one in three purchases by British music-lovers on to the web. The surge in sales casts doubt over Treasury claims to be tackling the tax dodge, already thought to be costing the exchequer £110m a year and rising.

Websites operated by HMV, Tesco, Amazon, Play.com, Asda, WH Smith and Woolworths structure almost all their online CD and DVD transactions as personal imports from the Channel Islands. As a result they are able to offer unbeatable VAT-free prices, threatening the futures of music stores and sapping tax revenues.

Data from market research firm Kantar shows that 16.5m CDs were bought by British customers over the internet in the last three months of 2009 at an average price of £7.80. Over the same busy pre-Christmas period, 26.6m DVDs were bought online at an average price of £9.36.

In most cases, customers remain unaware of the extraordinary lengths online firms are going to to ensure the buyer avoids the 17.5% VAT charge they would pay on the same product bought from their local store. What appears a simple online purchase exploits a 27-year-old European tax directive that waives VAT charges on low-value personal imports from outside the EU. In the UK, the VAT relief applies to goods bought for £18 or less.

The Treasury starting to panic as the tax revenue dries up? Just think of the enormous losses they can claim when they put VAT up to 20%.

interestrateripoff · February 21, 2010

The New Poor - Despite Signs of Recovery, Long-Term Unemployment Rises - Series - NYTimes.com

Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.

Yet the social safety net is already showing severe strains. Roughly 2.7 million jobless people will lose their unemployment check before the end of April unless Congress approves the Obama administration’s proposal to extend the payments, according to the Labor Department.

Here in Southern California, Jean Eisen has been without work since she lost her job selling beauty salon equipment more than two years ago. In the several months she has endured with neither a paycheck nor an unemployment check, she has relied on local food banks for her groceries.

She has learned to live without the prescription medications she is supposed to take for high blood pressure and cholesterol. She has become effusively religious — an unexpected turn for this onetime standup comic with X-rated material — finding in Christianity her only form of health insurance.

“I pray for healing,” says Ms. Eisen, 57. “When you’ve got nothing, you’ve got to go with what you know.”

Warm, outgoing and prone to the positive, Ms. Eisen has worked much of her life. Now, she is one of 6.3 million Americans who have been unemployed for six months or longer, the largest number since the government began keeping track in 1948. That is more than double the toll in the next-worst period, in the early 1980s.

Men have suffered the largest numbers of job losses in this recession. But Ms. Eisen has the unfortunate distinction of being among a group — women from 45 to 64 years of age — whose long-term unemployment rate has grown rapidly.

In 1983, after a deep recession, women in that range made up only 7 percent of those who had been out of work for six months or longer, according to the Labor Department. Last year, they made up 14 percent.

Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380.

“We’re looking at the very real possibility of being homeless,” she said.

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

Does that mean that 2.7m will disappear from the unemployment numbers by April? That should help create the illusion of recovery for the markets.

I wonder how many of those facing the end of the unemployment cheques also have mortgages? Then again those that are renting face problems as well.

Looks like 2010 is going to get very interesting later in the year.

interestrateripoff · February 21, 2010

We've got to see sense on the dangers of reckless borrowing - Telegraph

Throughout this period, mainstream economic opinion has supported these unprecedented and deeply irresponsible policy actions. Media savvy City economists have led the charge, working overtime to justify the government-boosted stock prices and freshly-printed "funny money" that, for now, are covering up the mistakes of their investment bank employers.

High-profile academics have fallen into line. The entire economics profession seems to have stuck its collective head down a Keynesian worm-hole, willing to think only in a time and space where you can, after all, borrow and spend your way out of recession.

Finally, though, last weekend some genuine debate burst through. A group of leading economists published a letter, making a "compelling case" for early and significant spending cuts while highlighting the "risk of a loss of confidence in the UK's economic policy framework".

The letter didn't mention explicitly the danger of a buyers' strike for UK government debt or even a sterling collapse as the inevitable consequence of quantitative easing. This column, of course, has issued such stark warnings for months.

The signatories of last weekend's letter, though, are solid, respectable people. They include several former members of the Bank of England's monetary policy committee, a former Bank deputy governor and head of the Financial Services Authority and a one-time chief economist of the International Monetary Fund.

You don't get s****y jobs like that by really speaking your mind. Yet even such cautious, buttoned-up establishment figures now feel compelled publicly to caution that, unless we make big changes and get a firm and immediate grip, horrendous outcomes are possible. The language is coded – referring to "higher long-term interest rates and/or currency instability". But the meaning is clear. The UK is looking down the barrel of a fully-blown funding crisis, a re-run of the 1976 IMF debacle which caused inflation and mortgage rates to spike.

The willingness of last weekend's signatories to speak unpalatable truths was refreshing – if long overdue. Then came the Keynesian counter-blast, in a pair of letters published on Friday, again both signed by a list of eminent economists.

The signatories include many people I have worked with. Some are close personal friends. But this is no time to be squeamish – and in my view they're dead wrong. The arguments presented in the "Friday letters" are complacent, ill-judged and display a lack of financial acumen.

The first letter argues that "the UK's level of government debt isn't out of control" and that "net debt relative to GDP, peaking at 78pc in 2014-15, is lower than the G7 average". Our national debt is actually more than double that total, once public sector pensions and other off-balance sheet liabilities are included. What really matters, though, isn't the absolute size of the debt stock but the speed at which the UK's debt is growing and the impact of that debt increase on the government's ability to raise finance.

During the decade to 2007-08, the UK borrowed around £30bn a year. In 2008-09, we borrowed £146bn – almost five times the recent average. This year, Britain is nursing the biggest annual deficit of any major economy – almost 14pc of GDP. As a result, the Government is due to borrow around £200bn in 2009-10 – six times the pre-crisis annual norm. Annual borrowing is then set to continue at £150bn-plus for four years after that.

The steepness of the UK's recent borrowing run-up and its extension deep into the future is uniquely horrific. No other G7 nation comes close. Consider, too, that the vast majority of the gilts the UK sells are un-indexed. And despite the deflationists' dishonest PR campaign, inflation is rearing its ugly head – making such gilts much harder to sell.

In January, CPI inflation rose to 3.5pc, up from 2.9pc the month before. Yes, there are some one-off reasons for the price spike – such as the upward VAT re-rating – but there are also good reasons inflation won't abate. The Bank's forecast of a sustained fall to around 1pc by early 2011 – while convenient if you've got a massive pile of un-indexed gilts to shift – is no more credible than its projection a year ago that inflation, then 3.1pc, would fall to 1.3pc by the first quarter of 2010.

The Bank's inflation forecast assumes a lot – not least the stabilisation of commodity prices and that a weakening pound doesn't further raise import prices. I think both assumptions are wrong. As the market grows ever more concerned not only about the vast scale of the UK's debt issuance but that inflation and/or sterling depreciation will erode the value of that debt, a fully-blown gilts strike looms larger. Such an outcome would be disastrous, causing chaos as the public sector's bills went unpaid. Britain's financial reputation would be destroyed for a generation.

The signatories of the second Friday letter say such shocking realities can be ignored because to address them, taking action to avoid a gilts strike, would be to "accept as binding the view of the same financial markets whose mistakes precipitated this crisis in the first place".

Fetch my revolver. For one thing, financial markets didn't cause this crisis. What caused this crisis was fraud, pathetic political leadership and a lack of regulation. By guaranteeing bank bail-outs, weak governments warped risk incentives and stopped financial markets from working. By allowing banks to lever up their balance sheets

40-fold, we spun the market out of control. The lesson from sub-prime isn't that we should ignore financial markets, but that we need to facilitate their normal operation.

As if we can ignore them anyway. For a group of leading economists to argue, in the midst of a brewing sovereign-debt storm, that somehow the decisions of private investors in the gilts market are not "binding", is deeply disturbing. At best, they are showing about as much understanding of the real world as do teenage students who adorn their bedroom wall with posters of Che Guevara. At worst, they are advocating theft.

The signatories of the first Friday letter argue that early action to get the deficit under control would cause a "sharp shock" – but it wouldn't be nearly as sharp as the shock when "UK insolvent" headlines dominate the world's media. The Keynesians say "the weight of evidence" suggests more borrowing and spending would "make a sustainable recovery more likely". That's nonsense.

In 1976, the then prime minister, Jim Callaghan, told the Labour Party conference: "We used to think you could spend you way out of a recession and increase employment by boosting government spending. I tell you now, in all candour, that option no longer exists." Mr Callaghan was speaking from experience. When governments spend beyond their means, they cause inflation, followed by even higher unemployment. If they grab their Keynesian comfort blanket and keep spending regardless, creditors rebel and all hell breaks loose.

Reckless sovereign borrowing causes sovereign yields to spike, "crowding out" the private sector lending that drives investment and jobs. That's precisely what is now happening – not just in Britain, where lending has plummeted to a 10-year low, but across the Western world.

We shouldn't be surprised. These are the unequivocal lessons of history. We should be disappointed, though, that so many of the UK's leading intellectuals have taken the easy route and decided to ignore them.

Another good piece highlighting the risks by following the current economic policy, as Callaghan said in the 70's you can't spend and borrow your way out of a recession. Keynes advocated you saved during the boom not run up a deficit during it. If you've not saved your only option is to cut. The longer you delay by spending money you don't have you will only create an even bigger bust.

Boom time spending is unsustainable, it cannot be maintained unless of course you find another boom to fuel the spending. So far I see nothing that's going to create a new boom area to make up for the tax shortfall.

The debt expansion is over, the economy appears over leveraged, meaning it has got to deleverage.

interestrateripoff · February 21, 2010

Stephen Hester lines up £1.6m RBS bonus - Times Online

STEPHEN HESTER, chief executive of Royal Bank of Scotland, is in line to collect a bonus of up to £1.6m despite the bank posting losses of several billion pounds.

Talks over the bumper payout are expected to reach a conclusion within days and could be announced alongside the bank’s results later this week.

Although the 49-year-old has yet to make a final decision on whether to accept the pay deal, it is understood that the conditions in his contract would permit a large payout.

The deal comes amid continuing controversy over bonuses at taxpayer-backed banks. RBS, 84%-owned by the state thanks to huge injections of government funds, will confirm this week that it is to pay out £1.32 billion in bonuses to its investment bankers.

So as head of the bank he posts £12bn in losses and this performance is worth a £1.6m bonus?

He must have a really good contract because surely he would be entitled to £0 for making a loss. What incentive does this guy have to make a profit if he can lose money and get paid a £1.6m bonus. If he'd have lost even more money would he have got an even bigger one?

Is this just a thank you for him turning up at work each day?

Performance related pay for CEO's is great.

interestrateripoff · February 21, 2010

RBS and Lloyds bosses urged to decline bonuses

Lloyds and Royal Bank of Scotland, Britain's two largely state-owned banks, are expected to dole out more than £1.5bn in bonuses to staff this week, despite losing more than £10bn between them in 2009.

Agile, smaller enterprises are leading a revival in the industry

Excessive focus on big manufacturers is a distraction from the sector’s real innovators

Hamish McRae: Next year's fiscal options are limited whatever bickering economists say

Economic view

interestrateripoff · February 21, 2010

Breaking news:

RBS chief turns down bonus amid outcry over payouts

Hester's decision, which comes as RBS prepares to hand out £1.3bn in bonuses despite making a loss, puts pressure on rivals at Lloyds and HSBC to do the same
'No bank should burden the taxpayer'

Interview: Barclays president Bob Diamond is ready to campaign for banks to create their own crisis fund
Britain, Greece, Spain and Norway tell markets: growth, not cuts

Four European prime ministers warn financiers they will prioritise recovery over deficit reduction
[*] Union accuses Corus of ignoring possible buyers as steel plant is mothballed

Workers at Corus will vote on industrial action after the steelmaker began mothballing its Teesside plant

[*] Greece not looking for EU handouts with debt crisis, says Papandreou

But prime minister says if country is to avoid a bailout it needs political backing of other EU nations
- Traders gambling on euro for 'price of a coffee'

Ocado defies critics over £1bn flotation

The internet grocery is ready to go to market, even though it has yet to make a profit
Orange and T-Mobile merger finds favour

Plan to create UK's largest mobile phone company likely to be approved by European commission
Halifax share of mortgages plummets

Lloyds set to reveal that Halifax, once Britain's biggest mortgage lender, has fallen behind Abbey in wake of rescue takeover, brokers say
Tax inspectors turn up heat on the rich

Advisers have a host of ways to help high-earners escape the Revenue, but HMRC is fighting back

More business news
- London Town pubs in administration
- Toyota boss to attend Congress hearing

interestrateripoff · February 21, 2010

VT plans payout to thwart Babcock bid

The support-services company is considering a plan to make a bumper payout to shareholders to escape the clutches of its rival

Will Babcock end VT resistance?

Peter Rogers, chief executive of Babcock

T-Mobile and Orange mobile merger cleared

European Commission expected to fast-track the deal after the two companies offered concessions to ease concerns 1 Comment

Competition snag awaits Orange and T-Mobile

OFT asks for control of Orange deal inquiry

Royal Liver in rescue talks with Royal London

Merger talks come amid a sweeping investigation into mutuals by the Financial Services Authority, the City regulator

This is the dawning of the age of the mutual

Building societies attack FSA ‘fetters’

Call for 15,000 civil servants to relocate

Report by former chief of Reed Elsevier to propose exodus from the southeast to help cut Whitehall spending 36 Comments

Councils join forces to cut insurance

Thousands of jobs to be lost at councils

RBS chief turns down £1.6m bonus

Stephen Hester becomes the third chief executive of a major bank to turn down a bonus, part of a near £10m package

Mandelson ready to go nuclear

Government close to signing a £170m agreement with Sheffield Forgemasters, the firm famous for the ‘supergun’ affair

Taxman chases football stars for £100m

Top footballers such as Steven Gerrard are being investigated over 'image rights' income

Taxman scares off top sport stars

Football stars plan to dodge 50p tax rate

Red driving school is saved

A private equity specialist will announce it is buying the business and assets of LVG, which runs the student driver operation

Lansdowne driving school in administration

RED driving school files for administration

Drax may take green project out of UK

A £2bn green energy plant will be scrapped and moved abroad unless the government reverses its decision to limit subsidies

Eurozone lines up £22bn Greek aid

Plan emerges as Greece prepares to launch a multi-billion-euro bond in a move that will test its credibility in the markets

Oligarch Dmitry Mazepin set for UK listing

Russia's biggest fertiliser company, Uralchem, has hired three investment banks to lead a $600m (£388m) listing in London

Nortel Networks to face £2bn lawsuit

Britain's pension regulator has filed a claim in a Canadian court against the failed telecoms equipment maker

Government urged to stand behind pensions lifeboat

Pensions hit by Nortel collapse

Billionaire Blavatnik eyes £400m float

The businessman is preparing Acision, his mobile phone technology company, for a £400m stock market flotation in London.

Will Babcock end VT resistance?

In the case of Babcock International’s £1.25 billion lightning raid on VT Group, the protagonists find it hard to pretend enmity

The signs are Obama’s got it down to a Tea

The president may have avoided Great Depression II (this time in 3D), but so far the stimulus has done little but halt the slide

The 90s show how fast a recovery can speed up

This recession has been deeper than the last one but the policy response has been greater this time round

Angry voters will force action on runaway deficit - Times Online

interestrateripoff · February 21, 2010

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Mandelson backs state-run investment bank

The Business Secretary wants to use public funds and private capital to back small business and large-scale UK infrastructure projects.

Barnier visits City in bid to calm anger over EU regulation plans

Can Lloyds and RBS come off the critical list?

St James's Place puts pressure on Lloyds to sell stake

German parent eyes TUI bid

Europe's biggest tour operator has held secret talks with banks about an audacious multi-billion pound plan to bid for the 48pc of holiday company TUI Travel that it does not already own.

US regulators told of Toyota concerns in 2004

US safety regulators were notified in 2004 about a "trend" of accidents involving Toyota vehicles, it has emerged.

Europe gives green light to UK phone giant

The UK's largest mobile operator will be created as early as this week when the Orange/T-Mobile merger is given the go ahead by the EU

UK growth figures may be revised upwards

VT prepares £233m payout for investors

Europe's monetary union an instrument of deflation torture

George Osborne's shares plan: a silly little gimmick?

We've got to see sense on the dangers of reckless borrowing

The week ahead: bonus time - who will be the first to take theirs?

Gordon Brown: Prime Minister says need to cut spending a 'myth'

Debt-addicted Britain cannot afford to delay cutting the deficit

Dollar climbs as speculators bet on Fed raising rates

Britain's 'dangerous' deficit is dividing business community

interestrateripoff · February 21, 2010

PM staff 'called bullying helpline'

Several people working in Gordon Brown's office contacted an anti-bullying helpline, its chief executive tells the BBC.

Nick Robinson: Words backfire

Brown not a bully - Mandelson

RBS boss to waive '£1.6m bonus'

Royal Bank of Scotland chief executive Stephen Hester will not take his bonus, reportedly worth £1.6m, the BBC learns.

Peston: Hester's pressure

Billy Bragg in RBS bonus protest

Barclays profits jump to £11.6bn

Tories plan bank shares sell-off

The public could be offered discounted shares in state-owned banks under a "people's bonus" proposed by the Tories.

Greece 'not looking for bailout'

Greek PM George Papandreou insists his country is not looking for a bailout from the EU to help it cut its debt levels effectively.

MORE FROM BUSINESS

Union loses fight to halt BA cuts

IMF gives vote back to Zimbabwe

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UK retail sales suffer sharp fall

Petrol prices are 'slow to fall'

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Greece 'needs European support'

Shire profits higher on ADHD drug

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Estate agency probe 'disappoints'

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ECONOMY

US consumer prices see small rise

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Obama creates deficit taskforce

COMPANIES

Nestle forecasts growth in 2010

Microsoft-Yahoo tie-up approved

Dell hit by lower profit margins

WebFerret · February 22, 2010

Peter Schiff vs. Financial Experts in 2006 and 2007

I found this YouTube video which I think makes very interesting viewing looking back to predictions from a couple of years ago.

How many times have you heard the news outlets say something similar to "No one could have seen this economic downturn coming."

interestrateripoff · February 22, 2010

Councils take Treasury to court in £75bn battle over 'wrongful' VAT payments | Mail Online

The opening shot has been fired in a legal battle over VAT that could cost the Treasury a staggering £75 billion - equivalent to nearly ten per cent of total public spending.
After a week in which the latest figures for the public finances were even worse than expected, this latest threat to the Government's coffers is the last thing Ministers need.

Even if the final figure were to fall short of £75 billion and payment spread over many years, the damage could still be severe - every £3.4 billion lost to the Treasury is the equivalent of a penny on the basic rate of income tax.

Swansea City Council is leading the courtroom campaign aimed at clawing back billions of pounds in VAT that town halls and big companies claim was wrongly paid to the Government.

In some cases, the rebates may go back to 1973, the year VAT was introduced as a condition of membership of the European Union.

The Swansea case is the first in a large number being brought by local authorities and big firms under a 'window' introduced by Ministers from April 2008 to March 2009 during which back-claims would have to be lodged. After that, a four-year limit was imposed on claims.

So a court is going to have to decide whether to A) Bankrupt a council(s) meaning the govt would have to bail them out and thus become bankrupt in the process or B ) Bankrupt the govt by forcing it to give refunds.

Have I missed anything?

interestrateripoff · February 22, 2010

Is AIG the main CDS insurer for Greek government debt? - Credit Writedowns

Yves Smith and I received a tip at the weekend from a friend who reads the German press regularly about credit default swaps (CDS) on Greek government debt. Read Yves’ piece based on that article here. Below is mine.
Previously, I had mentioned the CDS exposure of the hapless German Landesbanks (banks owned by the individual German states or Länder – hence the term Landesbank). These same companies lost enormous amounts of money in the subprime meltdown – and apparently they have all sorts of other toxic exposure like Greek CDS still on the books.

So I find it interesting that the German daily Frankfurter Allgemeine is focussing instead on the AIG CDS connection to Greece. Here’s part of what they had to say (my translation from German original):

London investment bankers named the American insurer AIG as an additional seller of CDS. It had to be nationalised during the financial crisis, because it had sold default insurance on U.S. mortgage bonds. The burden would have led to the collapse of the once largest insurer in the world. Before the financial crisis, AIG is said to have insured a large amount of sovereign credit risk. If there is still a major insurance positions on Greece, then the American government would have a strong interest in preventing a default of the country.

Even if it just concerns market rumours with the Greek banks and AIG, the examples illustrate the weakness of the CDS market. The protection is sold by banks or insurers, which themselves have only limited capital resources. As a general rule, they also have a much lower credit rating than the countries whose default they are insuring. The insurance provided by CDS may turn out to have been a bubble.

We await further details. But, what should be clear here is that those banks and financial institutions that were caught out during the initial crisis period are probably the same ones now at risk yet again – except this time they start from a weaker capital position.

The lucky US taxpayer.

interestrateripoff · February 22, 2010

Global Crisis Leads I.M.F. Experts to Rethink Major Ideas - NYTimes.com

WASHINGTON — The International Monetary Fund has long preached the virtues of keeping inflation low and allowing money to flow freely across international boundaries. But two recent research papers by economists at the fund have questioned the soundness of that advice, arguing that slightly higher inflation and restrictions on capital flows can sometimes help buffer countries from financial turmoil.

One paper has received particular attention for suggesting that central banks should set their target inflation rate much higher — at 4 percent, rather than the 2 percent that is the most widely held standard. As aggregate demand fell across the world in 2008, central banks, including the Federal Reserve, lowered short-term interest rates to nearly zero, where they have largely remained.

While the two papers do not represent a formal shift in the fund’s positions, they suggest that the I.M.F. is re-examining some of its long-established orthodoxies as part of its response to the global economic crisis that began in 2007.

The significant drop in the volatility of output and inflation since the mid-1980s — a period known as the Great Moderation — helped lull “macroeconomists and policy makers alike in the belief that we knew how to conduct macroeconomic policy,” the fund’s chief economist, Olivier Blanchard, wrote in one of the papers. “The crisis clearly forces us to question that assessment.”

That paper examines how, in hindsight, higher rates would have helped in the current crisis.

“Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions,” Mr. Blanchard and two other authors wrote in the paper, released Feb. 12.

The other paper, released Friday, said that in the aftermath of the crisis, officials were “reconsidering the view that unfettered capital flows are a fundamentally benign phenomenon.”

“Concerns that foreign investors may be subject to herd behavior, and suffer from excessive optimism, have grown stronger; and even when flows are fundamentally sound, it is recognized that they may contribute to collateral damage, including bubbles and asset booms and busts,” the fund’s deputy director of research, Jonathan D. Ostry, wrote, along with five other authors.

Both papers contained important caveats.

Mr. Blanchard’s said that fiscal policy — like decisions to tax, spend and borrow — had been as important in responding to the crisis as monetary policy, or control of the supply of credit. It argued that governments that had relatively lower debts to begin with had more flexibility to respond to the crisis.

And it asserted that regulatory measures — like requiring higher capital and liquidity ratios, lower loan-to-value ratios for home mortgages, and increased margin requirements for stock purchases — would be more effective than higher inflation targets in curbing excessive risk-taking.

Similarly, Mr. Ostry’s report said capital controls would be effective only if the flows “are likely to be transitory” and the economy is already operating near potential, with reserves at an adequate level and an exchange rate that is not undervalued.

The report also found that “the jury is still out” on whether capital controls had worked in practice. Evidence from countries like Chile and Colombia, it said, suggests that controls have been more effective at curbing exchange-rate pressures and the risk associated with capital inflows than in reducing the net influx of money.

In separate interviews, three former I.M.F. chief economists said the recommendations were significant but raised questions about the feasibility of carrying them out in today’s situation.

Raghuram G. Rajan, of the Booth School of Business at the University of Chicago, said the I.M.F.’s suggestion for allowing higher inflation might not be well received. “With bond markets worried that governments may inflate their way out of their debt obligations, this is probably not a good time for central banks to start debating their inflation targets,” he said.

Wouldn't higher LTV actually help control inflation?

Inflation's biggest problem is that it will eventually hit the exponential problem, and the higher the rate of inflation the higher the returns needed to persuade people to invest.

Surely the logic is the inflation target should be zero? Although that in itself may create economic paradoxes.

Still more crap to argue we inflate our way out of this mess rather than admit the economic system is just one glorified ponzi scheme.

interestrateripoff · February 22, 2010

Rethinking economics: Radical thoughts on 19th Street | The Economist

EVEN in economics, the guardians of orthodoxy are not given to capricious changes of mind. So when economists at the IMF question received wisdom and the fund’s established views twice in a week, it is no small matter. Two new papers have done exactly that. The first reversal, on inflation targets, makes less sense than the second, on capital controls.

The initial firecracker came on February 12th, with an analysis of the lessons of the financial crisis for macroeconomic policy, led by Olivier Blanchard, the IMF’s chief economist. The report called for several bold innovations. The most radical of these is that central banks should raise their inflation targets—perhaps to 4% from the standard 2% or so.

The logic is seductive. Because inflation and interest rates were low when the crisis hit, central banks had little room to cut rates to cushion the economic blow. Once their policy rates were down to almost zero, the world’s big central banks had to turn to untested tools, such as quantitative easing. Politicians had to boost enfeebled monetary policy by loosening their budgets generously. Had inflation and interest rates been higher, policymakers would have had more room to cut rates. That gain, Mr Blanchard argues, might outweigh the small distortions from modestly higher inflation, especially if countries reformed their tax systems to make them inflation-neutral.

More of the economist's take at the link.

The logic isn't seductive if the central banks had stopped the asset bubble from forming in the first place they wouldn't now be having to clear up the mess they've created in first place.

interestrateripoff · February 22, 2010

Breaking news:

Lloyds boss Eric Daniels turns down £2.3m bonus

Daniels has waived the £2.3m bonus the loss-making bank considered he had earned – other directors will receive deferred bonuses paid in shares
[*] BA cabin crew vote to strike

British Airways faces lengthy walkout next month after air stewards endorsed industrial action. By Dan Milmo 33 comments
- Video: Lufthansa pilots strike
- Lufthansa strike 'threatens Germany's recovery'
[*] Sports Direct to veto Blacks fundraising

Sports Direct takes 28% stake in struggling rival and says it plans to vote against £20m fundraising plan

[*] Primark lifts Associated British Food

Strong sales at the Primark chain continue to boost profits at its owner, Associated British Foods 1 comment

[*] BMW insures pension fund against rising life expectancy

German carmaker signs £3bn deal with Deutsche Bank and reinsurers to offset risk of pensioners living longer

Toyota saved $100m over recall

Carmaker persuaded US regulators to treat issue as equipment recall rather than far costlier safety recall
Glaxo damned by US Senate committee

Two-year inquiry concludes GlaxoSmithKline tried to intimidate scientists and misrepresented medical data to rebut safety concerns over its diabetes drug
US seeks extradition of 72-year-old Briton

Retired salesman faces 55 years in Texas jail if convicted in Nigerian bribery case
BAA lost £277m on Gatwick sale

Write-down on UK's second-largest airport and fall in passenger numbers helped BAA to £822m pre-tax loss

More business news

interestrateripoff · February 22, 2010

EMI vows not to sell Abbey Road

The ailing music group EMI has vowed not to sell London's Abbey Road, the recording studio made world famous by The Beatles, following months of intense speculation that it could be offloaded.

Agile, smaller enterprises are leading a revival in the industry

Excessive focus on big manufacturers is a distraction from the sector’s real innovators

Stephen King: Look beyond the UK for a true guide to economic austerity

If you want to know what fiscal austerity now looks like, look at Iceland or Greece

interestrateripoff · February 22, 2010

BA cabin crew back strike action

British Airways passengers face the risk of fresh strikes after cabin crew backed a ballot for industrial action.

Q&A: What's BA dispute about?

Staff weary as airlines change

Lufthansa pilots suspend strike

Union: 'Sense of grievance'

Lloyds boss to waive £2.3m bonus

The chief executive of Lloyds Banking Group, Eric Daniels, has decided to waive his £2.3m bonus for 2009.

Lufthansa pilots suspend strike

A strike by pilots at Germany's national airline Lufthansa is suspended with union officials agreeing to resume negotiations

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