Sunday, 29 July 2012

Terry Smith susses Farage

Terry Smith gave a brilliant interview on banks and the Euro problems printed in today's Sunday Telegraph Business. He has 40 years experience of City banks and bankers so is better qualified than any of the so called expert economists to opine on these matters. He is a man of clear views and no waffle. I first came across him as the leading City banking analyst for Phillips and Drew in the days when banks made profits although in his book, Accounting for Growth, published 20 years ago he pointed out these 'bank profits' were not quit what they seemed. For telling this unpalatable truth he was sacked by UBS, stands for  You've been sacked, who had taken over P&D. He is now chief exec of Tullet Prebon one of the two biggest money brokers in the City.

Here are a few samples of his punchy style.

On Vince Cable, Business Secretary, 'Should we not have someone who knows something about business in that job'. When the interviewer replied Cable had worked as an economist for Shell smith replied, " What's that  got to do with business? Every organisation I've worked for has fired their economists in the end"
Hear, hear! I heard that story from a couple of City banks whose ex-employees are still feted by the media as economic experts.

On Libor, "The idea that you allow a load of banks to set rates by telling you what number they think it should be, you're going to have a problem" He then goes on to support what I did over10 years ago in the BoE, use traded rates! Makes me feel very good.

On John Vickers and his report etc,  'There is a grave desire to talk gobbledegook and somehow think this will solve the problem'. This of course a pithy and accurate description of  the EU response to every crisis it has ever faced.

On calls for the UK to integrate further with the EU he describes such politicians as having entered a further stage of madness. I could not agree more.

It seems he did once think of joining UKIP but after a dinner with N Farage he thought better of it. No flies on Tel and no wish to be tied into UKIP fruit cakes. Better to be independent.

Thursday, 26 July 2012

Eurozone break up would benefit the UK

As always the truth for the UK is the exact opposite of what the paid EU placemen like Cameron and Osborne opine. A break up of the Eurozone will be along the fault line between Germany and its satellites and the Latin group led by France. The latter would keep the Euro which would devalue and the former would go with the new Deutsche Mark which would appreciate.

The benefits for the UK would be huge. German manufacturing has boomed on the back of an undervalued Euro currency. They have been the big winners and the Latins the big losers. The new DM will in particular appreciate against sterling and provide a massive Mercs would become much more expensive in the UK enabling our domestic manufacturers to gain market share. So its win win for the UK.

The biggest gainers in the Latin group would again be their car makers but other manufactures would gain but the biigest Latin winner would be their tourist industry which is huge in France.

So why should the Germans let this happen? Politics! The alternative would be huge transfer payments from the hard working Germans to the idle feckless Latins. That is an impossible political sell and anyway most Germans want their DM bank run by the BU and not some dodgy Italian.

Why can't our ruling class politicians act for once in British interests? Easy, they all have an eye on the EU gravy train. Step forward Commissioner Clegover!

Tuesday, 24 July 2012

The Bond market will fracture the EU

I forget which US politician identified the bond market as the greatest force on God's earth but the EU political elite are now feeling the truth of this statement and the power of the bond market.

Even AEP in the DT has now come round to my way of thinking that the only way to save the Euro is for Germany and its satellites to leave the single currency to the Latin group of nations including France. This Euro lite currency will devalue, its interest rates will rise and the countries in it will be able to pay off their huge debts eventually in devalued Euro lite.

The smaller Fourth Reich's currency, lets call it the DM, will appreciate, German exports will decrease, German imports increase and the whole world economy will rebalance and start to grow again making everyone better off.

What's stopping us doing this which would help every single EU citizen to a better standard of living? Nothing but the political pride and amour propre of the ruling Euro elite whose whole raison d'etre is bound up in a single EU wide currency. Its impossible but in the true EU spirit these people believe if the say it often enough and loud enough it makes it true. Complete rubbish but remember you are dealing with a whole regiment of Cleggs with a few more brains than Cleg over who if rumours are to be believed will be our next EU commissioner following the footsteps of such intellectual powerhouses as Kinnockio.

The departing IMF economist Peter Doyle spoke the truth when he  said the hear of the Eurozone debt crisis were clear well in advance but the IMF was so EU biased in termas of its policies and senior appointments - that means Mme Lagarde. And who supported her for the job? Wee George Osborne Dave's own little oompa lumpa.

Sunday, 22 July 2012

Spanish pain, Eurocrats gain

Spanish 10 year bond rates are now at 7.3%. Its a big country with a big economy and will need a huge bail out from the Dr Frau. She must be getting a bit fatigued by now. What are the Eurocrats doing? Demanding a 2.8% budget increase which will cost us in the UK another £350 million. The Eurocrats get the cream and the people take the pain.

Following the latest US shooting atrocity there has been the usual demand for gun controls on the people of the US whilst our mass murderers, our political class Blair, Cameron, Ashdown etc continue their policies of mass slaughter in Afghanistan, Iraq etc. Anywhere they don't have votes to unseat the political elite.

The US have assassinated 5 of their presidents. Not nice but if people are being randomly killed I think the political class should take their fair share. This is what is going on now in Syria and may produce a better life for the indigenous population. As for us in the UK its been a long time since Spencer Percival but undoubtedly the assassination of Airey Neave in the Palace of Westminster car park for MPs and Lords did produce a rapid change in the UK Irish policy.

Do not rule out assassinations of members of the EU political elite. Their personal comfort and safety is one thing all politicians 
pay attention to.

Friday, 13 July 2012

Wood, trees, Nelson and the Bank of England

The piece in today's DT entitled, "Libor's ripples cross the Atlantic" gives me a sense of deja vu. The gist of the story is that the NY Fed in 2008 had contact with Barclays over how Libor rates were being set, raised their concerns in 2008 with the London regulators and even went as far as suggesting reforms of the Libor process to these regulators. It is further alleged that on 28th April 2008, Timothy Geithner the US Treasury, had a meeting in his diary called "Fixing Libor".

As I noted previously even in my days in the BoE which ended in late 2003 I had concerns about easy it would be to manipulate Libor. That Geithner in Washington was worried about this in 2008 but Paul Tucker, then BoE Markets Director, London appears to have been unaware until the recent Barclays scandal broke is deeply worrying particularly as Tucker chaired the Sterling Money Markets Group where this matter may also have surfaced.

It all reminds me a bit of the Barings' fiasco where Leason's activities and Barings' horrendous loss positions were well known to those working on the Singapore futures exchange but not to the Barings board or the Bank of England. Poor old Eddie George had only just arrived the chalet for his ski holiday when the phone rang and John Major appointee, DG Pennant Rea, later more famed for bonking than banking, was telling Eddie they had a problem and could he please come back pronto.

That little banking failure only cost £2bn plus the end of Barings. The Libor scandal with its possible links to the collapse of Bear Sterns and Lehmans could cost one hundred times that. That is why the BoE were not unhappy to give up Bank regulation which nobody notices until things go wrong and stick to nice safe monetary policy where academic reputations can be made. Reputations can only be trashed and lost in regulation.

What has happened is as old as the hills. People don't want to hear bad news especially in good times and tend like Nelson to ignore it. Nelson was lucky but does Paul Tucker have the Nelson touch?

His fate is in the hands of wee George Osborne. Perhaps PT's old bag man, Matthew Hancock, new Tory MP and friend of GO will put in a good word for his old BoE boss. Mind you, post Trafalgar, poor Emma got shafted by the British political establishment in more senses than one.

Thursday, 12 July 2012

The shape of things to come

I watched Comrade Nuttall on Tuesday's Daily Politics debating the EU referendum which I think will come sooner rather than later. I am no fan of Nuttall but the way he was set up is how the referendum campaign will be handled by the BBC.

There were three pro EU contributors. Norman Lamont, George Eustice for the Tories and the the coalition plus Lord Monk for Labour and the TUC. They did most of the talking. Nuttall found it very difficult to get a word in and ended up with less than15% of the talk time. In these adverse circumstances Nuttall did OK imo but this is how the 'referendum debate' will be set up, the same way it was rigged in 1975. Euro realists will be outnumbered and out talked by the Europhiles and the debate will of course be chaired by a Europhile.

I am not hopeful and feel the tactics of David Davies demanding a departmental cost benefit EU audit may be more productive. I remember mooting an Common Market cost benefit analysis in a meeting in 1972 only to see it dismissed by the FCO as 'unnecessary '. To this day there never has been any cost benefit analysis of our membership of the EU.

My more recent past is coming back to haunt me with the appearance of my old boss Tucker squirming before the Treasury Select Committee. When I was preparing MPC material I never used Libor rates. I felt they were too easily manipulated. I used and popularised the use of Overnight Index Swaps in the BoE to generate interest rate expectations. These swaps were market traded rates from the very biggest banks and measured in billions not millions. It was nice to see Tucker acknowledge this was still the method of choice.

Saturday, 7 July 2012

Time for another summit to save the Euro

As per usual the latest EU save the Euro plan is falling apart. Spanish 10 year bond rates rose to 7% and Italians to 6% on fears the true Finns and the master race could torpedo the latest whizzo plan in Brussels next week. The Finish finance nminister is quoted as saying the Finns would not keep the Euro at any cost ie cost to them.

The Greeks cannot collect their taxes needed to meet their bail out conditions because it has had to sack its tax collectors! You could not make it up.

As per usual the Brits Libor cock up provides an easy target and welcome distraction for Signor Draghi at the ECB. We would have done better than that he opines and in my view he is probably right.  The old boy, right sort of chap public school culture is costing this  country dear just as it did throughout our history.

Monday, 2 July 2012

Libor scandal just got worse

The story that Bob Diamond allegedly got a nod and a wink from my old BoE boss Paul Tucker to carry on with Barclays Libor practice is very damaging as it drags the BoE into the mire. The Barclays phone calls may well all be recorded. Bad news for PT. Barclays chairman has fallen on his sword but not Diamond. Tucker has always wanted to be next BoE Governor but this cannot enhance his prospects in that direction.

That the FSA is now saying many banks were at this game does not surprise me at all. I described on Friday why I never trusted  Libor rates so did not use them. Many people however had to use Libor or Libor based instruments not just in London but worldwide. Its a self inflicted disaster! It also takes the pressure off the Eurozone in London but not of course in Europe.

Reuters reports, " ESM bond buying in secondary markets would require unanimity and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said a report to a parliamentary committee.
The report gave no explanation for the apparent volte-face but EU diplomats noted that a Finnish proposal that Spain and Italy should issued covered bonds, backed by state assets or future revenues, to avoid Helsinki having to demand collateral for any bailout loans, failed to find agreement last week.
However Prime Minister Jyrki Katainen's spokesman said the ESM stance had nothing to do with others blocking Finland's proposal. Helsinki simply did not consider secondary market purchases an effective way to counter the crisis, he told Reuters"
So the latest Eurozone rescue is starting to unravel just like all the previous rescues. Surely sooner or later UKIP will capitalise on these serial failures.