Member Since: 4th Nov 2004
2nd Apr 2020
You are suggesting a malevolence for which there is no real evidence. The policy appears to be "give the banks some sure-fire profits so that they don't have to call in their loans". Like it or not, that is for the good of all of us at this juncture.
My concern is not the bung to the banks, it's the re-creation of a guarantee scheme which will damage small companies.
2nd Apr 2020
To be fair, any scheme that says "government guarantee" on the tin is going to deliver that.
2nd Apr 2020
Richard Murphy is wrong that the banks have no incentive to play under an 80% guarantee.
Banks lend by matching risks with margins. A loan offered at 5% over cost of funds is normally considered to have a margin of 5%. But if the government guarantees 80%, the margin on the customer risk is now 25%. This looks pretty good on any loan book. I would expect the banks to load up their loan books with as much of this as they can get.
However, it will all end in tears.
Many years ago (2003) I took on an SFLGS loan from Bank of Scotland. It 75% government guaranteed. You only qualified for the scheme if you were not able to provide a personal guarantee; and as this was money for expansion I was not prepared to put my house on the line.
Now, six months later a big contract failed to close and I went to the bank for an overdraft to tide me over. My (long-standing) bank manager told me that my account had been moved to Edinburgh (head office) along with all the other SFLGS account holders. Why ? Because the bank was making such good margins on this scheme (see above) that they needed centralised control to make sure foolish branch managers didn't put the scheme in jeopardy. So I told Edinburgh it was an emergency and, yes, I was now prepared to put up my house as security. Edinburgh turned me down on the grounds that if I provided security for my overdraft it would go against the statement in my original SFLGS application that security was not available; and that might make it look as if there was an irregularity in one of their SFLGS accounts.
Readers of this site will know perfectly well that when offered a choice between helping a good customer and preserving a gold-plated copper-bottomed government-risk income stream any clearing bank will go for the latter like a shot.
In my view the SFLGS scheme was unnecessarily generous to the lenders with the result that they were happy to bankrupt customers in order to preserve the scheme. Sadly, the present scheme looks to be every bit as bad.
9th Sep 2015
Soviet Russia - and Cuba
Richard Murphy is right to say that confiscation of *all* the fruits of enterprise does not stop *all* activity. But if he doesn't believe that economic activity in Soviet Russia was badly affected by national ownership of the means of production, he should take a holiday in Cuba. Confiscation of practically all of the fruits of enterprise in Cuba has transformed one of the most productive of Latin American countries into the one with the lowest GNP per capita. It has created untold misery and social disruption. But the Laffer curve is about money: the key issue is that less confiscation in Cuba (lower taxes) would unarguably generate more revenue. Even if you treat Laffer as dealing with marginal impact rather than average impact, it is still self evident that there are levels of tax at which lower rates would generate more revenue.
5th Aug 2013
employers NI - a tax on employing workers based in Britain thereby encouraging firms to have their people based/employed in other countries and ship their goods to the UK or even provide their services from elsewhere (IT, call centres etc).
I can at least agree with you wholeheartedly on this one. Employers' NI is unjustified and distortionary. I guess it was brought in after the war to encourage capital formation. I can see no reason why it remains a good idea.
5th Aug 2013
chEEK and mikewhit
Sorry, I was referring to mikewhit's comment that "Some globals do not appear to use their profits for reinvestment"; I felt that that was probably untrue.
I would, however, make a general comment on the other posts that switching to a tax on locus of sales will not go down well when the public see how many large companies are exporting - and avoiding tax by doing so ! The long term solution is lower and simpler taxes and [ducks] fewer accountants.
5th Aug 2013
Cash mountains and reinvestment
I think this is a naive view of the (sophisticated) tax planning carried out by US firms. My understanding is that US firms borrow against the cash mountains so that they can make funds available in the US for investment without incurring tax. So the money is still being used sensibly... just not by Uncle Sam.
28th Jul 2012
Belief isn't an issue here
Without looking carefully at the figures, I think you're going to find that the dates on which there was the widest divergence were the dates when there was no interbank trading going on at all, because *all* the banks were worried about each other's liquidity. I don't have any stats about when that situation pertained but it was certainly discussed in the press at the time. With no interbank trading to compare against, all discussion of the "right" rate for LIBOR becomes, technically, "academic".
That's not to be confused, of course, with attempted manipulation by individual traders (or possibly groups of traders) which we are to understand happened in 2005. There is *no* defence against that, of course. But, equally, as we have discussed above, it's not at all clear that any of the attempted manipulation in 2005 necessarily had any impact on actual fixings.
24th Jul 2012
Lies, Damned Lies and LIBOR
I have taken the submission figures for the first 5 months of 2005 for USD 6m LIBOR. I could have taken more but I wanted a period which would demonstrate the opportunities for cheating (if any) at a time without abnormal market stress. Here are the figures:
16 banks (i.e. 16 submissions per fixing)
For each submission I have calculated the absolute variance from that day's fixing. Variances were:
Number of submissions between 5-10 b.p. 1
Number of submissions between 3-5 b.p. 2
Number of submissions between 2-3 b.p. 14
Number of submissions between 1-2 b.p. 173
Number of submissions between 0-1 b.p. 527
Obviously this is a very brief and superficial analysis. For the period in question, indiajack is justified in saying that one basis point is a reasonable variance for a bank trying to push the rate, and the actual benefit from doing so is vanishingly small if indeed it has any impact. Of course, you can look at the actual submissions to see if, on any particular day, any outliers actually did have any impact. I would be surprised if, for the data I have analysed here, there is any evidence at all of outliers having an impact on the fix.
In any event, based on these figures, we're back to sub-one basis point impacts and a resultant cost to the poor swap victim which won't have been enough to be worth retaining a lawyer.
24th Jul 2012
Not at all. Think of it as "immunisation". Yes, the payments could go both ways, but for a UK corporate who swapped floating rate bank debt into fixed, he had the certainty that he craved. Not at all necessarily a bad deal.