2009 January » Tax Research UK

It’s time to nationalise

Jan 212009

Shares in Lloyds lost half their value before ending 31% lower at 44.8p. Lloyds’ stock market value is just £6bn – barely half the sum put in by the taxpayer.

RBS, soon to be almost 70% state-owned after a £20bn cash injection, has a stockmarket value of less than £4bn. In 2007 it was worth £78bn.

Barclays was also hit hard, touching 69p before ending 17% down at 72.9p, to be worth £6bn – little more than the £5.3bn of profits it expects for 2008 and down from £58bn 18 months ago.

For £16 billion 75% of UK banking can be brought under government control, stripped of its toxicity and repackaged.

We need to do that.

The yield would be enormous in seigniorage alone – reclaiming the right of the government to make our money.

Let’s do it. Nationalise now.

Unconventional unconventional in this case is just wrong

Economics 4 Responses »

Jan 212009

The FT has reported:

The Bank of England will start to buy corporate bonds in large quantities within weeks, Mervyn King, its governor, said on Tuesday night as he explained the next steps to be taken to limit the severity of the recession.

Borrowing from Donald Rumsfeld, the former US defence secretary, he said such purchases would be “unconventional unconventional measures” designed to increase liquidity and trading and reduce the spread of corporate bond yields over government bonds.

These differed from “conventional unconventional” policy, in which the Bank created money to buy assets with the aim of increasing the stock of money in the economy and the availability of credit while also raising spending. Although the Bank’s monetary policy committee was not ready to use this weapon yet, he said, if inflation was likely to remain too low the MPC “might wish to adopt these unconventional measures as an instrument of monetary policy”.

Sorry – in this case this is just wrong.

I’m all in favour of reducing the long term interest rate. We need to do that.

But we also need to see that the crisis we have is not just a financial issue. We also have an energy crisis, a climate change crisis, a baby boom generation who want pensions and who miserably failed to deliver an infrastructure in fine fettle to the succeeding generations that will justify paying them for their past efforts, and more besides.

In the circumstances buying up corporate bonds really is a case of throwing good money after bad. Why inject money into the economy buying assets that people think of little worth when we could instead be piling money into real things.

As someone said yesterday:

We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise healthcare’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.

That’s what this cash should be used for: real jobs for real people. By all means do quantitative easing. But do it with government bonds. It’s government cash that is going to get this economy going, get our businesses going with the demand which only government can create right now, and which will deliver what people need right now.

When will the Bank of England and Treasury learn?

Do they read this in Cayman?

Cayman, Tax Havens 1 Response »

Jan 212009

Cayman NetNews is on the ball, as usual, this morning. Reacting to the US GAO report on major US compnaies using tax haven subsidiaries it says:

Needless to say, some US politicians have pounced on the GAO report as further justification for proposed legislation aimed at offshore financial centres.

According to Reuters, two Democratic senators said they would introduce legislation to stop US companies from using offshore havens that deprive the Treasury Department of an estimated $100 billion annually in lost tax revenues.

Equally predictably, the banks involved will attempt to justify their offshore operations.

Which group is likely to prevail? It is hard to tell at this point but two of the largest recipients of government assistance – one on each side of the Atlantic – the Royal Bank of Scotland (RBS) and Citigroup – have operations of some kind in the Cayman Islands. RBS has a banking licence in its own name and also operates here as RBS Coutts. Similarly, Citigroup is also licensed in the Cayman Islands as Cititrust.

On the premise that forewarned is forearmed, it would behove both public and private sector leaders to immediately take urgent steps to identify the possible exposure of our financial services industry to a mass pullout by foreign banks now controlled by their respective governments and the economic and social implications such an event will have on the Cayman Islands.

Who says things aren’t changing?

Obama

Economics 2 Responses »

Jan 212009

What can be said that hasn’t been?

I watched the speech last night whilst at the New Economics Foundation. There was enough there to keep lot of us happy.

As importantly, I was able to say to my sons (aged 7 and 6) this morning that for the first time in their lives there is a President of the USA who gives me hope for their future.

Of course he won’t deliver everything we, and he, hopes for.

But hope helps. And we didn’t have it. Now we have. That’ll do for today.

Past a million

Blogging 1 Response »

Jan 212009

Looking at my site stats last evening I realised that even using the most cautious measure of reads these have now passed one million since this blog started in June 2006.

These only reached 600,000 last May, after 23 months. So that’s 400,000 in eight months since then.

And if I believed total hits on the site that figure since May would exceed one million by itself – but I think that includes a lot of spam so I ignore that data and opt for what I think more reliable measures.

Either way – as someone who, as you may have noticed, likes to write, it’s gratifying to know that some of this stuff is read.

For the curious, the most popular themes have been:

1) Liechtenstein

2) Tescos

3) PWC – and especially their Total Tax Contribution

4) Bono

5) Northern Rock

None are very recent – which shows another characteristic of the site that is now very apparent – which is the significant daily readership of older stories. Almost 500 entries have been read in the last two days.

When someone asks if blogging is worthwhile – my answer is yes. And this is the evidence.

Remember it was Gordon who scrapped the Operating and Financial Review

Accounting Comments Off

Jan 202009

I was musing this morning on what disclosure by companies might have helped foretell of the current financial crisis. And I recalled the Operating and Financial Review. This is what it says of its requirements on the Companies House web site:

S.I. 2005/1011- The Companies Act (Operating and Financial Review and Directors’ Report etc) Regulations 2005

The regulations introduce a new requirement in the Companies Act 1985 for directors of quoted companies to prepare an operating and financial review (OFR) for financial years which begin on or after 1 st April 2005.

The OFR must provide a balanced and comprehensive analysis consistent with the size and complexity of the business of:

- The business’s development and performance during the financial year;
- The company’s (or group’s) position at the end of the year;
- The main trends and factors underlying the development, performance and position of the company (or group) and which are likely to affect it in the future.

The regulations also:

- Expand the existing requirement for companies to include a fair view of their business in their directors’ report;
- Establish a requirement for auditors to express an opinion on the consistency of the OFR and directors’ report with the accounts; and
- Establish a criminal and administrative enforcement regime for both the OFR and the directors’ report.

Now, wouldn’t that have helped? I think so.

But let’s be clear about what happened on 28 November 2006:

Gordon Brown is to scrap the operating and financial review (OFR) in a bid to cut down on red tape.

The chancellor is set to tell the CBI conference today that the government is to abandon the document in a surprise move. The OFR, although opposed by the Conservatives during the election campaign, had been thought likely to shine a light onto aspects of companies hitherto undisclosed, including fuller explanations of oil reserves, for example.

Nigel Sleigh-Johnson, head of financial reporting at the ICAEW, said: ‘I hadn’t detected a huge amount of opposition from business.’

Sleigh-Johnson was right: business was entirely reconciled to this after six years of consultation. They had realised that a risk assessment was part of what they had to supply.

But Gordon Brown did some gesture politics and we lost it.

And it took Friends of the Earth to object. All credit to them, because they got this right.

We needed a risk assessment. We did not get it. And there is just one man to blame. He’s now the Prime Minister. That’s where the buck stops for the fact we may not have had the information we need to assess the risks UK companies were taking. I’m not expecting to hear any apologies soon.

My del.icio.us bookmarks for January 19th through January 20th

Delicious Comments Off

Jan 202009

These are my links for January 19th through January 20th:

Tax evasion `VIP unit' will chase celebrities and City fat cats – Telegraph – Celebrities and business tycoons will be targeted by a new team set up to identify tax evasion by the super-rich.
About time too
FT.com / Companies / UK companies – Irish banks plunge on talk of nationalisation – Ireland really has little left to offer now
FT.com / Companies – Chrysler and Fiat in joint venture talks – Now there's a definition of a failure in the making
FT.com / UK – Brown accuses RBS of ‘irresponsible risks’ – Well he got that one right
FT.com / MARKETS / Currencies – Spain loses triple A rating – And this was the banking miracle until recently
Santander is not a miracle

It built its business in Latin America. Think about it
Citigroup's about-turn | A house built on Sandy | The Economist – Amazing that Citi is effectively bust
But true

Why not mutualise RBS?

Banking 3 Responses »

Jan 202009

The FT has reported:

Despite lifting its shareholding in RBS to 70 per cent yesterday, the government is desperate to avoid nationalising another bank and saddling the Treasury with RBS’s £2,000bn ($2,900bn) balance sheet and political responsibility for the bank’s lending policy.

“We have a clear view that British banks are best managed and owned commercially and not by the government,” Alistair Darling, chancellor of the exchequer, told the House of Commons.

Which is ludicrous. The market has failed. Now it is time for alternatives.

Has he ever thought about mutualising RBS? One account holder one vote? Why not? Let’s create accountability – this is one way to do it.

Mutualisation had an extraordinary history of success until the madness of the 1990s destroyed so many of our mutual organisations. Why not go back to it?

Unless we break the Big 4 we’ll never get out of this

Accounting 3 Responses »

Jan 202009

As Francine McKenna has said recently:

Why are we pretending that a Big 4 firm is independent and objective when continuing to audit an institution that failed under their watch, one that may be dragging them into litigation, one in which they have failed in their duties to protect the shareholders? And the only experts the government seems to be able to find to clean up the mess that happened on the Big 4′s watch are the Big 4?

She’s right. As is Prem Sikka, who has said this for years.

And yet look what Accountancy Age reports:

Amyas Morse, a former global managing partner at PricewaterhouseCoopers, has been appointed Comptroller and Auditor General at the National Audit Office

I’m sure he’s an OK guy. But is it really true that the Big 4 are the answer to everything.

My answer is that they quite emphatically are not.

They designed the accounting and auditing systems that got us into our current mess with the quite deliberate intent of facilitating financial market expansion at cost to society at large and with intent to limit their own liability and responsibility for the consequences. Sorry, but that disqualifies them form influence right now in my opinion.

If we are going to get out of this mess we have to rethink just what we want. And there’s no sign we’re doing that as yet. That’s what worries me most of all.