In July Japan’s jobless rate hit a record of 3,590,000 (5.7%) over a million more than a year ago. For the same month core consumer prices fell by 2.2% from a year earlier, the fastest pace on record.
That’s despite the recession in Japan supposedly being over.
If this is what a recovery looks like then there’s little comfort for employees let alone the unemployed.
Source: BBC.
The boss of the UK’s financial watchdog has said he backs a new tax on banks as a means to prevent excess bonus payments in the industry.
Lord Turner, chairman of the Financial Services Authority (FSA), told Prospect magazine much of the activities of the City of London were “socially useless”.
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He said such a tax would be “a nice sensible revenue source for funding global public goods”. BBC.
Now I believe this is a good idea – ideally I’d like to see the tax reward those who hold shares for longer – perhaps with those holding shares for 10-years or more being tax exempt and those holding shares for less than a year paying and additional 50%. Of course the city is more than straight share trading and I suspect bankers will find ways of circumventing the rules – which is a shame as encouraging investors to hold long term investments certainly strikes me as appealing – although I’m no expert – perhaps some can enlighten me.
Bank bosses who allow their firms to devise schemes to help customers avoid paying tax could face sanctions from the Financial Services Authority.
The City regulator is considering its position on the government’s new code of conduct on tax after Nigel Harper, banking adviser at HM Revenue & Customs, took the unusual decision of raising the matter at regulator’s annual public.
The code, which is out for consultation, is intended to be voluntary and is designed to save the taxpayer billions of pounds lost through complex but legal avoidance schemes operated by some banks. Jill Treanor, The Guardian.
Voluntary! No hope then.
Morgan Stanley is setting aside a huge sum to pay out bonuses despite posting its third consecutive quarterly loss and admitting it is disappointed with key departments.
The US bank’s latest results show it is allocating $3.9bn (£2.36bn) for paying out to staff, 72% of its net revenues. That dwarfs the percentage of revenue set aside by arch rival Goldman Sachs, where workers are on track for large bonuses after record results last week.
Morgan Stanley extinguished the tentative flames of optimism among US banks today when it posted a loss of $159m for April to June and said it was not satisfied with its performance in fixed income trading and in asset management.
News of the bank’s loss unsettled traders on Wall Street, whose view of the banking sector’s prospects was brightened last week by Goldman’s surge in profits and further upbeat news from JP Morgan, Citigroup and Bank of America. Katie Allen, The Guardian.
What did we expect? If we don’t apply the stick then they’re going to continue to eat all the carrots – financial regulation now! Although the proverbial horses have bolted with taxpayer’s money – we’ve been had again – let’s not let it happen again.
The Olympic Delivery Authority was forced to write off millions spent developing a media centre and the Olympic village after it failed to attract private investment, while performance-related payments to construction consultants have quadrupled in the past year.
Annual accounts published yesterday show that payments to CLM, a consortium of companies created to act as the ODA’s delivery partner, have almost doubled as construction has gathered pace.
The ODA paid £151.6m to CLM in the year to 31 March 2009, including £60.2m in performance-related payments. The previous year it received £16.1m in bonuses as part of an overall bill of £87.6m.
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Chairman John Armitt was paid £250,000 and claimed expenses of £11,562, while chief executive David Higgins was paid a total of £537,000 and claimed £6,723 in expenses. Director of construction Howard Shiplee was paid £362,000 and received £19,344 in expenses. Owen Gibson, The Guardian.
What on earth do these people do that justifies such a salary from the taxpayers purse?
Allied Carpets has gone into administration, as the stagnating housing market led to a fall in demand for carpets and flooring.
But 51 of its 217 stores and its insurance business have been sold immediately, saving 400 jobs, administrator BDO Stoy Hayward said. BBC.
Immediately sold to who? And was that really the best price? I smell a rat, but then that’s how businesses operate – no morals – I doubt this is any different other bankruptcy. Retail Week reports:
Allied Carpet Properties has been placed into administration, and 51 of its stores have been immediately sold to Allied Carpets Retail.
BDO Stoy Hayward has been appointed administrator today to Allied Carpet Properties. After the appointment, the 51 stores and Allied Carpets’ insurance inspection business were sold to Allied Carpets Retail. The disposal protects around 400 jobs.
It is hoped some additional stores will also be acquired by the new business over the next two weeks, subject to ongoing negotiations with existing landlords. Jennifer Creevy, Retail Week.
So Allied Carpet Properties goes bust and Allied Carpet Retail buys 51 stores, the rat gets smellier.
A few weeks ago the FT reported:
Allied Carpets, the retailer owned by retail debt specialist Hilco, is set to place the division that owns its stores into administration as part of a wider plan to restructure the business.
The move could see a large number of the 218 store portfolio used to sell its carpets closed and returned empty to landlords.
Allied has filed a notice of intention to appoint administrators to its property division, which holds the leases to its stores. BDO Stoy Hayward is expected to be appointed to oversee the administration of the division, which is making a loss of about £2m a month.
BDO confirmed the submission of the paperwork but declined to comment further until formally appointed. Hilco owns Allied Carpets through an offshore fund called Sigma Capital. It declined to comment on Thursday.
The move is part of the refinancing and restructuring of the wider Allied Carpets business, which is set to be finalised in the next week according to a person familiar with situation. The source added that he expected a “core and substantial number of stores will continue to trade”.
Landlords are worried that the move could be a precursor to the dumping of the leases of non-performing stores. MFI followed a similar strategy last year when it placed MFI properties into administration. Daniel Thomas and Anousha Sakoui, FT.
Yes one very smelly rat – as always the real losers are employees who’ve lost their jobs and those who keep their jobs will find their pensions severely eroded – the directors are sitting pretty though.
If the challenge on the left is to combat a language of cuts, lower incomes and belt tightening with an agenda that can deliver growth in living standards, stable economic growth, low unemployment and a strong social safety net – then perhaps we need to start with the radical left wing governments that achieved all four against a backdrop of significant government debt -
- you know, the ones led by Harold Macmillan and Dwight Eisenhower. Hopisen, A Blog from The Back Room.
For those who don’t know Macmillan was a Tory and Eisenhower a Republican – and I can see where Hopisen’s coming from, but then again you’d have to go back to the birth of Trade Unions to find a UK government more right-wing than the Thatcher Governments.
Perhaps really we’re hankering for return of Keynesian economics. I certainly don’t see how we can carry on with neo-liberal economics however neither do I see how we can go back to those halcyon days of growth – it’s time to realise that we’re dealing with a finite world one in which there are limits: consumption can’t continually increase.
Every time I keep coming back to the Green New Deal it seems the only sensible way out.
Whilst the rest of us suffer, the skewed corrupt and morally bankrupt system that is international banking has allowed Goldman Sachs to make profits of $3.44bn.
Goldman dedicated 49% of its revenue to paying its staff – amounting to a compensation fund of $6.65bn, or $226,000 for each of its 29,200 staff. If the bank’s bottom line prospers to the same degree for the rest of the year, employees could end up with average annual pay of more than $900,000 – an increase of nearly 150% on last year’s figure of $363,000. Andrew Clark, The Guardian.
And as Clark points out Goldman was heavily involved in the collapse of AIG and many believe Goldman owes its survival to friends it had in government.
In the case of A.I.G., the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. It nearly decimated one of the world’s most admired companies, a seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries. Gretchen Morgenson, New York Times.
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said. Gretchen Morgenson, New York Times.
As the crisis unfolded
The nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.
Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.
One of the Wall Street chief executives participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern. Gretchen Morgenson, New York Times.
What was the outcome of this and other meetings?
Decisions made during the final months of the Bush administration created an environment in which the most politically connected investment banks, Goldman Sachs and Morgan Stanley, not only flourished, but saw their competitors laid waste, with firms like Lehman in bankruptcy, and others, like Merrill Lynch and Bank of America, forced to merge in desperate hope of surviving. Thomas B. Edsall, The Huffington Post.
I won’t even mention the billions they took from the American Taxpayer, but surely it’s no surprise Goldman’s posting record profits when its competition has been wiped out.
I leave the last word to Stephen Lerner, director of the Service Employees International Union.
“They have some kind of moral and economic amnesia. After we bail them out with tens of billions in taxpayers’ funds, they go back to exactly the same practices as before.” The Guardian.
In the wake of the credit crunch we now have the Alistair Darling’s proposals on reforming financial markets – Will Hutton sums up them up.
For all the drama last autumn they have a distinct St Augustine feel about them: O Lord help me be tough on the City – but not yet. The core proposals that would require banks to operate with substantially more capital and introduce tougher policing of borrowing in the interbank market, so-called macro-prudential regulation, are not wrong. With sufficient determination they could substantially reduce the casino proclivities of British finance.
The issue that has been dodged is how much capital. Britain could have prescribed minimum capital requirements for banks; instead that will be left to international negotiations. In any case, besides the scale of the debacle and the desperate need to have a financial system that operates differently, it would only address part of the problem. We needed structural reform as well as regulatory change. The opportunity has been flunked. Will Hutton, The Guardian.
Still I never expected anything else from these self serving hypocrites.
I’m of the opinion that we shouldn’t worry too much about running up a deficit – if we do what’s happened so far will seem like a walk in the park. I know I’m liable to base my views on political belief and less on facts – then again in the world of economics what’s a fact would give a completely different argument, to the one I’m currently concerned with.
Richard Koo, chief economist of Japan’s Nomura Research Institute has a different take on the crisis to most of our politicians and political pundits.
The market fundamentalist Americans lectured the Japanese on the necessity of tackling their structural problems – overstretched banks, commitment to lifelong employment, too much government influence over the economy, etc, etc. All were wrong – and completely missed the drama that was going on before everyone’s eyes if they had the wit to see it.
Koo observed that Japanese firms in the 1990s and early 2000s had changed from profit maximisers to debt minimisers. Between 1970 and the early 1990s during the long yang (“sun” or “light”) upswing, they had steadily built up their debts to finance investment and growth; from the early 1990s on they used every spare yen to pay these off. Even as interest rates fell to zero and firms seemed to have profitable opportunities for growth, they would still pay off their debts rather than invest. Japan’s $15tn collapse in asset and share prices – equivalent to three years’ GDP – traumatised them, because it meant that their grossly devalued assets no longer matched their liabilities. To restore their balance sheets to health they had to reduce their debts. Demand from Japan’s corporate sector dropped by 20%.
Economies move in long upward and downward cycles, and in the yin (“moon”, “dark”) downswing, firms’ behaviour changes so completely that the impact of interest rates and fiscal policy changes completely as well. Monetary policy loses its traction. There is no demand for money at any interest rate, because firms in the yin phase are debt minimisers.
Japan is criticised widely for allowing its national debt to rise to 180% of GDP after year after year of high budget deficits. Koo’s reply is that, given the scale of the shock, without government deficits Japan would have experienced a 1930s-style US depression. Indeed, in The Holy Grail of Macro Economics (2008), he explains the Great Depression as a result of US companies becoming debt minimisers in the wake of a property crash and banking collapse that was not compensated by sufficiently large increases in federal spending and borrowing. Koo’s “super Keynesianism” applies in the downward yin phases of the cycle; he is much more orthodox on yang phases. Don’t worry about debt-rating agencies marking down high-spending governments’ debts, he says; investors will buy public debt in yin phases – just as they will Britain’s or the US’s. Will Hutton, The Guardian.
As Hutton writes “this is the yin leg of the cycle. It needs yin responses. Tough talk about deficit reduction must wait until calmer times“.