From this morning’s FT:
We would also not be surprised to see the Icelandic krona lose its function as a medium of payment
The neo-liberal model will kill the Icelandic economy. It won’t be the least to suffer that fate.
So why has Gordon Brown appointed neo-liberals as his economic advisers?
These are my links for October 6th:
Help!
John McDonnell is not a popular man in Westminster. He’s the leader of labour’s awkward squad: the Campaign Group. But I admit I like John, and have been happy to work with him. This is the programme he’s put out in response to the credit crisis:
1) Nationalise the banks and establish democratic control over banking decisions, ensuring democratic representation on boards, ending the bonus binges, controlling executive pay and share holder rewards;
2) Cut interest rates significantly and immediately, restoring democratic control over key economic decision making by not only widening the remit of the Bank of England beyond ensuring price stability to advising on the wider economic health of the country but also reverting the bank’s role to being one voice amongst many others to be taken into account;
3) Secure people a home by converting repossessions to social rentals so that people have a ‘right to stay’ in their homes and embarking on a massive council house-building programme;
4) Enhance security in employment by ensuring people have a say over the future of the companies by strengthening rights and representation at work;
5) Bring fuel bills under control with price controls on the consumer price of gas and electricity, so that people are not being forced to choose between heating and eating this winter, with the threat of nationalisation if needed.
It’s hard to argue: it’s what we need. So long as we deal with offshore too. But I’ve told him that.
Fortis has collapsed. Some are suggesting this could have been because of debt not consolidated in its accounts.
The follwoing companies were not consolidated in its last accounts:
Abic Holding, Acens Technologie, Albankerb Investments, Alchinofin B.V., Antilope Invest, ASLK-CGER Services
ESV, AstenJohnson (Holland) B.V., Autor Publicidad Esterior S.L., Avinguda Holding S.A., BPC Developpement,
Basement Holding B.V., Battery Technologies, Bigblue Investments S.à.r.l., Bohemia Corporation, Brampton
Corporation, Carinthia Corporation N.V., Ceedsa Holdings S.L., Cherras Investments S.à.r.l, Cixi Investments
S.à.r.l., Colfridis Invest, Coppefis, CP (New Zealand) Trustees Ltd, Decom Services Ltd, Directiepensioenfonds
Hesse B.V., Discontokantoor van Turnhout, Dis Globus Malta Ltd., El Paso LNP Holding BV, Embon Investments
S.A.R.L., Emerald Shipping B.V., Eurl Gourville Immobilier, Euroheart Investments S.à.r.l., Fagus, FB Sector
Finance LP, Fidass I B.V., Fidass II B.V., Fortis Agency Limited, Fortis Asia Limited, Fortis Bank Escritorio de
Representacao Ltda, Fortis China Limited, Fortis Far East Limited, Fortis Foreign Fund Services AG, Fortis
Futures Limited, Fortis Greater China Limited, Fortis Group Ltd, Fortis Insurance Limited, Fortis International
Limited, Fortis L Capital, Fortis Limited, Fortis Management Limited, Fortis Private Equity Arkimedes N.V., Fortis
Services Limited, Fortis Services Monétiques, FP Consult (Guernsey), Generale Branch Nominees Ltd., Geneve
Credit & Leasing SA, GeschäftsführungsGmbH der Generale Bank, Grandall International Holding Ltd, Gúzman,
Gymna Uniphy B.V., Gymna Uniphy N.V., Hedonaï Estetica Integral S.L., Heijboma B.V., Holding Vreedenlust
Fund II, I.D.B.P., Imag SPV, Innovative Medical Solutions BV, Innovative Medical Solutions Holding B.V.,
Jetowner Investments S.à.r.l., Jmex BV, Kathmandu Holding BV, Konzeptual Holding S.A., Mine.be, Mitsou
Fashion S.à.r.l., Nathan Beheer B.V., Newton Green Air Investments I, Newton Green Air Investments II, Nicolas
Investments Corporation, Nimox Invest B.V., Novy N.V., OB Invest, Oboist Holding B.V., Packing Invest, Par 3,
Paradize Investments S.A., Parisienne d’Acquisition Fonçière, Penne International, Pensioenfonds J.G.H.M. van
Lier B.V., Queensland Corporation N.V., Relf Beleggingen, Rothesay, Savina International Inc, SCI Norlum,
Sybetra S.A., Tentaclo Nets Holding II BV, Tondola Holding BV, Tripan International B.V., Uniphy Elektromedizin
Beteilgungs GmbH, Uniphy Eltektromedizin Gmbh & Co KG, Veldpoort Beheer BV, Velleman International, VIAZaventem
N.V., Von Essen GmbH, Von Essen KG - Handelsgesellschaft, Wa Pei Nominees Ltd, Wassenburg
Beheer B.V., Wendilo Investments S.A.R.L.
They say:
In global the impact of not consolidating subsidiaries of minor importance is not material in the annual accounts of
Fortis Bank.
I don’t believe them.
There were €159 billion of off balance sheet items at the end of their financial year 2007 (note 47 to the accounts). That’s what is being bailing out.
I hope KPMG and PWC as joint auditors carry the can for this. They deserve to.
The BBC has reported that:
Share trading in six of Iceland’s biggest financial firms has been halted temporarily, the country’s stock exchange has said. The includes the country’s three biggest three banks, Kaupthing, Landsbanki and Glitnir. Iceland’s government said it was drafting a plan to deal with the country’s financial crisis. Banks now dwarf the rest of the economy, leaving Iceland heavily exposed to the global credit squeeze.
The country’s largest banks have now agreed to sell off some of their foreign assets and bring them home, to help bolster the banking sector. This money will be brought back into Iceland, in an effort to shore up the economy and prevent the currency, the krona, from sliding any further. Last week, it lost a fifth of its value against the dollar. The government is now trying to persuade the trade union pension funds to repatriate some of their funds too. But in return, the unions want Iceland to apply for EU membership - a move it has resisted for decades.
Analysts have warned the troubled banking sector may be too big for Iceland to be able to save.
The sting is in the tail. The Icelandic economy is going to fail, as is its currency.
This will be the first country brought to its knees by the credit crisis. It won’t be the last. We need to work out two things: the first is how to bail out tax havens, and on what terms. The second is how to bail out other countries.
Iceland is firmly in the first category. But this crisis is far too big to think it will stay in places as small as it is. The action has to begin now.
I mentioned earlier today that we need a new breed of non-exec directors of banks to make re-regulation and re-capitalisation work. The likes of Prem Sikka, Frank Field and Will Hutton, I suggested. The awkward squad who are not afraid to ask difficult questions.
Then I noted an article on the Guardian blog by ACCA president Richard Aitken-Davies. He says:
something has gone seriously wrong with corporate governance. This catastrophic failure highlights the need for ethics and professionalism to be at the heart of business. And in order to change business culture, this ethos needs to be extended to schools and other business professions.
Some of us have been saying that for some time. Welcome to the club. He goes on:
The roles of the chairman and chief executive are ultimately ones of accountability - to shareholders, to customers, to staff and, whether they like it or not, to government, the taxpayer and society at large. But our increasingly well-defined principles of corporate governance have not prevented this crisis. We therefore need to open our thinking to alternative models and, in particular, to the role and effectiveness of independent non-executive directors.
At last: welcome recognition from a UK professional institute that there is an obligation to pay tax. And that companies do not owe their sole responsibility to shareholders (who they cannot identify). He does not end there though; he adds:
And perhaps we accountants haven’t said no enough, either. The world of finance has made billions. Those privileged to lead this sector need to explain what is happening and why. They need to be part of the solution, because regulators can’t be cleverer than entrepreneurs on the front line. However, where entrepreneurs prove to be negligent or irresponsible, it’s right that they should find themselves in court.
I agree with the last sentiment. I agree that these business people (they are not entrepreneurs: they did not risk their own money so they cannot be classified as such) will need to make their knowledge available on regulation. But most of all, they have to be held to account. Those best able to do that are those who saw these issues long before the ACCA did. Remember, it was not long ago they resigned me from one of their committees for asking my own awkward questions about quite shocking comments made by their head of tax, Chas Roy-Chowdhury. The ACCA has a lot to do as yet to get its own house in order, I’d suggest. But this is a welcome start.
These are my links for October 6th:
These are my links for October 6th:
The Observer has reported:
Ministers have admitted that thousands more post offices will crash out of business - in addition to the 2,500 that have already closed - if a contract for handling state pensions and benefits is not given to the Royal Mail.
A long-awaited decision on who wins the tender to run the successor to the Post Office card account, used by millions of pensioners and benefit recipients, is due to be taken within weeks by James Purnell, the Work and Pensions Secretary.
Banks are failing all around us.
The private sector is falling apart.
And the government is thinking of privatising pension payments.
Are they completely mad?
The FT has reported:
Iceland’s prime minister and central bankers were holding emergency talks with pension funds and banks on Sunday as the country looked overseas for funding to shore up its crisis-ridden financial system.
It was last August that the tax-cheats lobby called the Center for Freedom and Prosperity issued a press release about the virtues of Iceland’s low-tax, flat-tax economic model. The authors gushed:
The reforms in Iceland have yielded big dividends. Iceland is a rich and successful nation. Lower tax rates and supply-side policies have boosted growth, increased efficiency, and made the country more competitive. The three biggest reforms are the low corporate tax rate, the low-rate flat tax on capital income, and the intermediate-rate flat tax on labor income. The authors find considerable evidence that the first two reforms have been very successful. Indeed, they also find it is quite likely that the lower rates have generated significant Laffer Curve effects - meaning the government collects more revenue at a lower tax rate.
Three things are now very clear: first, you can’t build an economy on the basis of supply side economics. Second, lax regulation kills an economy. Third, those who promoted these ideas are part of economic history.
It’s a pity they will; have imposed so much pain on the world (and the people of Iceland will regret the day they were abused on this way for a long time to come) but I think it’s safe to say that the sort of madness we’ve seen in Iceland, matched to some degree by the madness we’ve seen in Ireland will not happen again for a long time.
