This seems reasonable enough to me

The Treasury Select Committee has questioned a decision by the UK audit watchdog to clear KPMG over its work with HBOS just before its rescue, with chairman Nicky Morgan demanding a full explanation as to why the auditor has been allowed to get off scot-free.

So, why?

KPMG audited HBOS’s accounts in 2007 under the assumption that market conditions would not worsen and the bank could fund itself, the FRC wrote in its conclusion. However just over six months after the accounts were published Lehman Brothers filed for bankruptcy, causing turmoil in global financial markets, and HBOS was taken over by Lloyds.

“The extreme funding conditions which arose in October 2008 were not anticipated,” the watchdog said, adding that market conditions when the accounts were published in February 2008 did not make the auditor’s assessment of HBOS seem unreasonable.

As the Senior Lecturer keeps insisting, financial markets cannot deal with uncertainty. An audit isn’t really the place to predict implosion of the interbank market, is it? Not that the Senior Lecturer will go onto say that of course…..

Most, most, amusing

When the boss of Wall Street’s biggest bank calls a bubble, the world inevitably sits up and listens, albeit with a sense of historically weighted irony: of course an investment bank boss would spot disaster after his industry presided over the last one. Jamie Dimon, the chief executive of JP Morgan, said last week that the ascendancy of the virtual currency bitcoin – which has risen in price from just over $2 in 2011 to more than $4,000 at points this year – reminded him of tulip fever in 17th-century Holland. “It is worse than tulip bulbs,” he said. “It could be at $20,000 before this happens, but it will eventually blow up. I am just shocked that anyone can’t see it for what it is.”

For the usual Guardian critique of bankers is that they wouldn’t know a bubble until it had popped in their face, isn’t it?

Oh dear, oh dear

So, I’ve been asked to have a look at a little paper:

In fact and practice, seigniorage is distributed unfairly and opaquely because most
money is created by commercial banks. Money in circulation (money stock) consists of
notes issued by central banks and deposits created by commercial banks. The quantity of
the latter far exceeds the former in all major countries. Therefore, a portion of seigniorage
is given to commercial banks as a hidden subsidy (Huber and Robertson, 2000).

Well, no.

The idea here is that we want to finance a universal income, and obviously, seigniorage, the profit from creating money, is a good place to get the finance. Sure, why not?

It’s just that the banks aren’t getting seigniorage by creating credit, only the central bank is from creating money. They’re not the same thing at all.

This is easy to test. Where is that seigniorage that the banks are receiving? If it’s anything like proportional to central bank profits from money making then it’s hundred of billions a year in an economy like the UK. As the Positive Money guys say in fact. But the banks don’t get hundreds of billions – that’s an order of magnitude larger than their profits for example.

So, the banks aren’t getting such seigniorage, so we cannot appropriate it by changing the system.

What? He Didn’t. He Did? Ahahahaha

The German stock exchange operator Deutsche Börse has agreed to pay 10.5 million euros, or about $12.5 million, in fines to resolve an investigation by German authorities into possible insider trading before its talks to merge with the London Stock Exchange Group became public.

The proposed deal between the two exchange operators was announced last year, and would have created by far the largest operator of stock markets in Europe, combining bourses in Britain, Germany and Italy as well as several of the region’s largest clearinghouses. The proposal fell apart this year.

The public prosecutor’s office in Frankfurt has been examining share purchases by Carsten Kengeter, the Deutsche Börse chief executive, in December 2015.

Well, everyone’s insisting he didn’t but they’re to pay the fine anyway.

So, let us just consider this as an allegation. The CEO of a stock exchange is alleged to have insider traded over the merger of his own stock exchange. Can we get much more recursive than that?

This is fun

To be sure, Trump has eviscerated the Environmental Protection Agency (which has helped coal mining), softened financial oversight (great for bank stocks), and has shown little interest in anti-trust enforcement (a welcome development for tech monopolies such as Amazon and Google).

Why does less financial oversight boost banks? I thought the whole point about such oversight was so that the bureaucrats should make sure the banks don’t go bust? But if less oversight boosts the stocks then the markets clearly disagree, no?

Vince on statistics

Around 32,000 borrowers still own less than a quarter of their house, and 2,532 are more than three months behind on their payments, owing £407.5million. Liberal Democrat leader Sir Vince Cable said last night: ‘The run on Northern Rock marked the start of the biggest economic disaster in our lifetimes.

‘It’s an example about the potential catastrophe if the industry isn’t properly regulated in the interests of financial stability. Enormous numbers of people have been ruined as a result of reckless lending for which they ultimately paid a heavy price.’
The Newcastle-based lender’s collapse was followed by the failure of Lehman Brothers in the US, and the taxpayer-backed rescues of Lloyds and NatWest owner Royal Bank of Scotland. The Rock was widely seen as the nation’s most reckless lender, doling out around £7billion of ultra-risky debt in 2005 alone, much of it to first-time buyers.

Some Northern Rock mortgages have gone into default, yes. Some mortgages from all sorts of lenders have gone into default.

The question we’re interested in is whether the rate at NR is higher than at other places. Which is, of course, the one number we’re not given here.

Sounds about right

A man who was given nearly £1.6m by his father after he won £101m in the Euromillions has had his claim for more cash thrown out by a judge.

Michael Dawes, 32, took his father, Dave, and stepmother Angie to court after they stopped giving him more money. He claimed the couple had promised to ensure he and his partner, James Beedle, 34, would never have to worry about money again.

£1.6 million is a lifetime’s worth of money, no? It’s median income for the likely 60 year lifespan of a 30 year old.

Another way to put it, that’s a house and a holiday home bought outright and the pension fully paid up. Yes, life gets pretty easy once those are all paid for:

Michael Dawes was given £1m by his father and stepmother soon after their win, but the judge said nearly all of it had been spent within a month.

About £550,000 was spent on a house in Portsmouth, where Michael lived, but he also gave nearly £250,000 to friends and his partner’s family, and quit a well-paid IT job.

Aha. Living well without having to work? That’s a very, very, much more expensive proposition, isn’t it?

At one point, the pair were spending up to £30,000 a month, including £1,000 a week on groceries.

Blimey. You’d need a capital sum of more like £10 million to buy that lifestyle. Perhaps more actually, 5% return (bit high but dividends from an index fund maybe?) then tax to leave £360,000 a year left over? More than £10 million maybe.

I therefore dismiss the claim.

About right.

The Guardian gets worried because it doesn’t understand

Well, this is finance:

A huge increase in the amounts borrowed by already indebted households in Britain and the US to buy new vehicles is fuelling fears that “sub-prime cars” could ignite the next financial crash.

British households borrowed a record £31.6bn in 2016 to buy cars, up 12% on the year before, said the Finance and Leasing Association on Friday. Nine out of 10 private car buyers are now using personal contract plans (known as PCPs), which have boomed since interest rates fell to historic lows.

Terrors, terrors.

Some of the car-leasing loans in the US and the UK have been packaged into asset-backed securities, to be sold on to investors such as pension funds. This was an asset class that played a ruinous role in the credit crunch, except this time the collateral for these assets is cars, not houses. The ratings giants, Standard & Poor’s and Moody’s, have given most of these batches of loans a triple-A safety rating.

The 2008 problem was that those bonds were *not* sold on to end investors like pension funds. Instead they sat around on bank balance sheets, often leveraged up 25 to 30 times the capital base supporting them. That was the problem – value impairment mean the banks had to dump them before their entire capital base was exhausted setting off a spiral of downward valuations.

If these bonds are with unleveraged final investors then this will not and cannot happen. Thus there’s no problem. If values fall then pensions fall a tiny bit in value. Shrug.

OK, this is possible

Christian Noyer, the former governor of the Bank of France, has been on a City charm offensive, trying to convince financial institutions to set up over the Channel, arguing that the French capital would be more attractive than post-Brexit Britain.

No, not that bit, this bit:

Mr Noyer’s presentation concedes France is not as attractive as the UK for tax, but focuses on its relative merits compared with Belgium and Germany.

That’s possible of course, but claiming that a place is only 193 rd on the list of WTO nations is not really all that persuasive really.

Whoo Boy, aren’t we surprised?

Exiled Gambian ruler Yahya Jammeh stole millions of dollars in his final weeks in power, plundering the state coffers and shipping out luxury vehicles by cargo plane, a special adviser for the new president said on Sunday.

Note that looting the central bank is said to have brought him as much as $9 million. Not a lot to loot in a poor country…..

Not but, because

The pound has enjoyed its strongest week against the dollar in seven years, but stock markets suffered a sharp fall amid growing concerns over a possible Donald Trump presidency.

FTSE and sterling are inversely linked at present. 75% of FTSE 100 revenue is not in sterling. Thus the value of those profits rises as sterling falls, falls as sterling rises.

Sure, there’re millions of other things which affect all prices, of course, but these past couple of months at least there’s been a pretty direct linkage between these two.

As I keep saying and almost no one else seems to be.

No, not really

UK gilt yields have doubled since the vote, forcing the Treasury to pay more to finance its debts.

The Observer doesn’t quite get this, does it?

Rising yields means that new debt issued will carry a higher coupon. Makes absolutely no difference whatsoever to debt already issued.

Yes, obviously there could be liquidity mismatches

Turmoil in bond markets and a spike in the number of investors wanting to withdraw money “raises questions” about the suitability of popular bond funds, leading analysts have suggested.

Bond funds – where savers’ cash is pooled and then invested in loans issued by governments and companies – are among the most popular holdings in savers’ Isas and pensions.

But analysts Manuel Arrive and Alastair Sewell of Fitch, the ratings agency, this week questioned whether these funds could withstand a rush to the exit by investors alarmed by a fall in bond prices.

They have suggested restricting withdrawals to weekly intervals and requiring more advanced notice as potential countermeasures.

They argue that while these funds allow withdrawals to be made on a daily basis, their managers may struggle to sell holdings quickly enough to be able to pay out. The technical term for this is a “liquidity mis-match”.

Mr Arrive said current markets raised doubts “about the suitability of open-end, daily traded funds for less liquid or illiquid assets”.

Well, err, quite. In fact, who thinks open ended funds in illiquid securities is a good idea in the first place?

So here’s a question

Had a quick google and can’t immediately see anything.

Anyone have a link to something about the size of the financial sector in various countries? Particularly interested in wholesale. So, not retail banking, insurance etc, but the wholesale markets.

We know numbers like there’s more people working in The City than there are populace of Frankfurt. But I’d just love to see a proper enumeration of how its distributed.

Just Amaaazing!

Paedophile footballer Adam Johnson is still earning £5,000-a-week despite being locked up for sexually abusing a teenage fan.
Former Sunderland star Johnson was jailed for six years for engaging in sexual activity with a besotted 15-year-old.
The 28-year-old’s trial at Bradford Crown Court heard that he had kissed and sexually touched the girl in his Range Rover, in a secluded spot in County Durham.
The winger, who was capped 12 times for England, used to earn £60,000-a-week while under contract with Sunderland.
The Black Cats sacked him after he plead guilty to the child sex offences, but it has emerged that Johnson will not be strapped for cash when he is released from prison.
The Daily Star reports that thanks to shrewd property investments and high interest funds before he was convicted, the Premier League star is set to take home around £250,000-a-year without kicking a ball.

Astonishing, that someone should invest their own money.

Jeebus

Wells Fargo has fired 5,300 people after government regulators discovered that employees of the US bank had created millions of phony bank and credit card accounts to boost their sales figures.

They were opening the new accounts and getting the cards so as to get the bonuses for opening new accounts and issuing cards…..

That’s, err, pretty widespread. Senior management really, really should have known if something that large was going on.

I dunno, I think not even

Sir Philip Green is trying to end the threat of legal action against him over the sale of BHS by writing a cheque for more than £300 million that would help to plug a hole in the company’s pension fund.

The problem with these sorts of stories is that you never know who is doing the briefing.

Is this Green saying that everyone should shut up, he’ll sort it out? Or is it someone putting pressure on Green to up his offer?

And what if, when interest rates rise again? And large parts of that funding deficit disappear. Does he get his settlement back again?

Well, yes, seems logical

Pensioners could lose nearly a third of their retirement pot under Government plans to save companies being crippled by growing pension costs, analysis for the Daily Telegraph has found.

The entire aim would be to reduce the amount that must be paid in. This is going to lower the amount that can be paid out.

This is the point and purpose here – how to screw pensioners.

Alternatively, you just can’t trust that Curajus State, can you?