Saturday, November 08, 2008

Coffee and sandwiches

Gone are the days when the trade unions went into 10 or 11 Downing Street and had beer and sandwiches. In the 21st Century it's coffee and sandwiches and the union bosses have been replaced by bankers.

What is worse is that these bankers and their banks are now, quite clearly, being controlled by the Government. The Bank of England reduces it base rate by 1.5% and, as many will know, some of the banks refuses to pass the rate cut on to their customers.

There is absolutely nothing wrong with that at a time when liquidity in the banking sector is weak, inter-bank lending is not healthy, and the banks have massive liabilities that they would like to reduce.

However, now they have been leaned on by the Chancellor with blackmail threats of reducing their guarantees and no more help until they pass on the BoE cut to customers. Now please, someone tell me, how is that the supposed "arms length" approach and not an attack on the "commercial autonomy" of a bank which the Government said it would not do?

Now some might say that because the taxpayer has a stake in these banks it is within it's rights to demand change in rates etc. However, given the financial state of some of these institutions, cutting rates means cutting the return of monies they have already lent, or the money they are about to lend.

The obvious endgame for the banks therefore is to make it even harder to lend to new customer and up their requirements on the drastically cut rates. Obviously the Chancellor's approach is based on the belief that cheaper rates means more people will be able to afford to take out mortgages and will stimulate activity.

However, the banks initially refused to cut their rates, and did the whole withdrawal of mortgage and reintroduction the next day not to fill their pockets but to keep themselves stable and ensure that their business didn't go the way it had been going for the last few years.

Then along comes an interfering politician who essentially orders them to change their policy and reduce rates after there was "outcry" reflected in every paper across the political spectrum that painted the banks initial decisions as all about "fat cats".

According to the Times it is understood that the Chancellor "told the banks that they had mishandled their reaction" to the rate cut. Wrong. It is the Chancellor, egged on by the media, that has misunderstood their reaction to the rate cut, and this has now led to them being forced into reducing their rates at a time when many of them would rather not.

I'll eat my hat if the success rate of mortgage applications does not now stay static as the banks raise the bar for lending to people at the lower rate. Lower rates in a stable market will work, lower rates in a market where every bank is edgy and concerned they may be on the brink of collapse will just make them ever more cautious.

Meanwhile, according to the Daily Mail, "[t]he move will be cheered by more than a million homeowners whose monthly bills will drop by around £135 on an average £150,000 loan". Err hang on a second, lets look at this claim, for a start, anyone already on a so-called tracker would have benefited anyway.

The banks were not refusing to pass on the rate cut to those who already had a mortgage with them that tracked the BoE base rate. Anyone on fixed mortgage would not benefit either (which is what I am on until 2011 and it's way above the base rate but I made that choice two years ago because I had a feeling instability was on it's way).

It is only those who are on variable rates 10% of all mortgages that this has an impact on and frankly, if you have a variable rate then what exactly do you expect? You signed a mortgage agreement that put you at the will and whim of the bank not the Government.

Some might say that I'm being harsh and unfair, but it's worth pointing out that my repayments aren't moving at all and are significantly higher than they ought to be if I was on a tracker mortgage. I;m not complaining though, and quite rightly so, I took out a fixed rate for five years, that was my decision. Likewise if you have a variable rate mortgage that's your own fault.

Likewise, if you're on a tracker mortgage with a so-called "collar clause" which means if the bBoE base rate goes below a certain level you won't see the cut passed on in your repayments, then tough, you signed a contract. Live with it.

If Government wants and must "get involved" then perhaps, instead of interfering with banks commercial decisions, how about cutting tax. The same was true in petrol prices, the Government could slash the price of petrol if it really wanted to help. Instead of borrowing, cut income tax and people will have more of their own money in the first place.

14 comments:

crackers said...

First principle of understanding Brown is that his every utterance and action has at its core 'what votes are in it for me'.

Leaning on the banks is a populist action that will undermine the very thing he seeks to achieve with the banks' bailout - strengthening their balance sheet. It is fuckwittery extraordinaire to demand that they pass on the rate cut.

But then Brown is the most corrupt and evil politician to occupy high office. He has as Chancellr and PM wrecked this country and our children and grandchilren will utter his name with contempt whilst the foolish and feckless of today look to him for guidance and protection. FFS do they not know how we got here.

Anonymous said...

Another thing. I don't know but I suspect that most of those on variable rates (typically people with offset mortgages) have higher incomes than most people on fixed rates. So just who did Darling think he was helping?

dalesman said...

Ironic that low interest rates were in part to blame for what has happened, here we go again.

Barnacle Bill said...

It was his folly as Chancellor, blinded by the desire to bath in the same waters as these "Gods of the Square Mile, that led our glorious unelected Leader (OGUL) to pursue the policies than have landed us in this mess.
OGUL only views things from the point of short term personal political gain, not from the long term interests of the country as a whole.
Forcing banks to pass the cut in interest rates on is probably the next most stupid thing he has done since his attack on our pension funds.
Cushioned by his own gold plated pension and perks, he can afford to play politics with our futures.

Anonymous said...

Sky news report that the head of Tesco had a quiet word with Merv King about dropping the interest rate. Might raise a few eyebrows.

Sam Duncan said...

"the belief that cheaper rates means more people will be able to afford to take out mortgages and will stimulate activity."

...which is what got us into this mess in the first place. It's obvious that the banks have learned their lesson (or got the scare of their lives) and are attempting to follow more traditionally sound banking principles, while Brown seems desperate to create another credit bubble as quickly as possible.

He may well be corrupt and evil, but I've been saying for years, all through the "greatest chancellor ever" nonsense, above all he's bloody stupid. Personally I wouldn't trust him with my small change to buy a pint of milk, let alone control of the government's budget and taxation. He hasn't a clue, and this has proved it once and for all.

Sadly, he seems to have convinced everyone that it wasn't his fault. How the most micro-managing government in decades has managed to place the blame onto "deregulation" is a thing of infinite wonder. You have to hand it to them, really.

i hate labour said...

Crackers post is excellent. I am at a loss to understand that the contempt held by the Public fails to register with the MSM. One protest we can all make is to stop buying newspapers!

Anonymous said...

"Chancellor tells banks to slash mortgage rates to reflect Bank of England rate cut" also equates to "Chancellor tells banks to slash savers' rates to reflect Bank of England rate cut".

You cannot "force" the banks to drop their mortgage rates without also prompting them to cut their savings rates. So some people (some mortgage borrowers - mostly those who didn't have the foresight to take the precaution of getting a fixed rate mortgage) get richer, while other people (mostly older people living off their savings and pensions) get poorer.

Why are radio and newspaper correspondents so economically illiterate as to take the number 10 spin on issues like this? They never seem to ask the "cui bono" question, either in relation to the underlying economics of the issue, or the politics.

In this case it's clear Brown is trying to spin the idea he is "solving" the financial crisis when all he is doing is buying some cheap populist headlines at the expense of some of the poorer, less vocal members of society. Hopefully, he will eventually be rumbled. A bit like he was over the 10p tax cut, in fact.

Dave said...

Off topic but I thought you ought to read this
http://www.theregister.co.uk/2008/11/07/preventative_policing/

It seems you can be arrested for refusing to submit to a stop and search

Anonymous said...

There does not seem to be any great media comment about how Brown is lending the banks money at 12% (preference shares) and then complains when they won't reduce rates from 6 or 7%

DiscoveredJoys said...

I've said before even the current financial crisis that Gordon Brown cannot afford to reduce taxes - the books were already too far out of balance.

Unlike previous Labour PMs Gordon Brown is in the thrall of the public sector workers, rather than unions generally. He has increased the public sector numbers considerably, and if he had to cut tax he would have to cut public sector jobs. I'm sure he has some ready reckoner somewhere which shows him that cutting each public sector workers job will probably cost him 4 or 5 votes - those of the families directly concerned and those who believe in big statism.

He has to go.

trevorsden said...

Sam Duncan -

I do agree with you I think Brown is stupid. On the other hand he is crafty and has a low animal cunning which i not the same thing.

The other point that I have been banging on about for years is that the man really does think we are all as thick as two short planks and can be manipulated accordingly.

Brown has been pushing his light touch regulation for years. He spouted his 'post neo-classical endogenous growth theory' as a way of making money out of nothing. He is as much to blame as anybody for the current mess.

Jeffy said...

You've lost me with that last sentence. 'Instead of borrowing, cut tax' - ? - do you mean cut spending? If you cut borrowing AND cut tax you reduce two income streams. Nothing would please me more, but presumably there would have to be a concomitant reduction in spending.

Henry Crun said...

The Labour Party are pissing the banking sector off at their own peril.

Just wait until Mr Jack Harman goes cap in hand to his local branch to refinance the Labour Party loans. I suspect he will be given short shrift and shown the door.