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Ghastly, ignorant, tosspottery

Rather the point of having an economics editor is that they know something about economics. The Observer fails here by employing Phillip Inman.

So why, when pay growth is low everywhere except the finance industry and businesses affected by Brexit-related staff shortages, are the rest of the population being told their salary increases are so high that borrowing costs must rise?

Not only do higher mortgage costs hit millions of homebuyers, but the effects also bleed into rents, because so many landlords have bought properties with huge loans.

Higher mortgage costs do not increase rents – they reduce landlord profits instead. For the landlords are already charging every last penny they can – they’re bastard capitalists, right?

But the bigger and deeper error. Inman is moaning about City pay. And linking it to interest rates. Which is tosh, rubbish and bollocks. Higher sterling interest rates do indeed make more money for the lending books of the domestic banks. Which is, in fact, near completely toss all to do with The City. That’s retail banking, not wholesale. And yes, it is more money, rising interest rates decompress the gap between lending and deposit rates, banks will make more as rates rise.

But that retail banking, Lloyds, NatWest, then to lesser extents Barclays and HSBC – on their sterling retail lending books. Which is a trival portion of The City. The City being the wholesale financial markets for half the world. What some spiv gets paid for trading Japanese equities out of Canary Wharf has entirely fuck all to do with sterling interest rates. Equally so the partners at Magic Circle law firms and on through what The City actually does.

The City is those wholesale markets, profits in which are near entirely unaffected by sterling interest rates. So what’s the fucker talking about?

Well, what Inman is actually talking about is his ignorance. Unless he does in fact know but still makes the same complaint which is worse of course.

15 thoughts on “Ghastly, ignorant, tosspottery”

  1. “Greedy City bankers”in the page head & photo of bottles of champaign on ice. All that’s missing is the man in the top hat with a big cigar. Anything below that’s fiction. You’re confusing the Guardian with a paper that “perseveres after the truth & challenges the powerful”

  2. Not only do higher mortgage costs hit millions of homebuyers

    Do they?

    Huh. Higher mortgage costs hit homeowners, sure. Got a mortgage, owe so much, interest rates go up, payments go up (if you’re on a tracker).

    But homebuyers?
    Making the assumption that the market is reasonably responsive, then higher interest rates will mean prices have to come down to compensate, which is good news for homebuyers.

    And those falling prices are worse news for homeowners who don’t have a lot of equity – is that negative equity I see on the horizon for quite a few people?

  3. Harry Haddock's Ghost

    These brexit related staff shortages are an odd one, aren’t they? In that they seem to be affecting Spain, Holland, the USA etc etc

  4. High City salaries are one of the ways money from the Square Mile gets out into the UK economy. Ans the rents of buildings and the things the companies buy and the people they employ to support operations. The vast sums traded have no special reason to leak out into the local economy. If it is good that the trade is carried on here rather than elsewhere that’s why.

  5. The central banker response to every problem: lower interest rates.
    Doesn’t work, next crisis is worse.
    You’d hope that the would try something else, but they won’t.
    Real positive interest rates are good – necessary in my view. Hiring this Inman person seems the kind of malinvestment low interest rates encourage.

  6. Usually it’s diet right-wingers who think that home rentals are priced on a cost-plus basis. Happy to be reminded the dummies are everywhere.

  7. From Linkedin:

    Inman attended Liverpool John Moores University (current rank 80 out of 130 Unis) and studied Social Studies and Politics. So he’s as much of an economist as Richard Murphy and Paul Mason and about as thick as they come. As he’s not effnic, which would explain his total unsuitability for the role, I think the Observer needs to check its diversity and white privilege policies,

    He’s a 3rd degree connection to me. I don’t know if I should be happy at the remoteness, or annoyed that he has any connection at all with me.

  8. Say I have a £100k tracker mortgage with about half the duration to go, inflation rises 10%, my wages rise 0%, and interest rates rise 1%.

    The monthly mortgage payment goes up by about £30 roughly.
    The real value of the remaining debt diminishes by £5000 due to inflation. So the real value of the debt as felt personally is going down by 5000/12 = 400/month.
    Interest rates haven’t risen nearly enough to make homeowners worse off. They need to go up roughly another 12% to be worse off. What am I missing when people say we’re worse off. A bit illiquid, but still doing better out of the deal.
    It’s the lack of pay rise to handle all the parts of the inflation basket that’s the problem, not the interest rate hike.

  9. Dennis, Pointing Out The Obvious

    Rather the point of having an economics editor is that they know something about economics.

    Someone like Paul Krugman?

    Journalism is beyond redemption. Publishers don’t know anything but partisanship, and neither do editors. To them the point of having an economics editor is having someone who will present their personal prejudices to the readership, nothing more.

  10. OT:
    Dog catches monkeypox after sharing owners’ bed
    Italian Greyhound belonging to a gay Parisian couple is the first reported case of a domesticated dog or cat catching the virus.

    The non-exclusive couple, aged 44 and 27-years-old, developed sore lesions in their anal region as well as over the rest of their body a week after having sex with other men.

    Twelve days after the men went to the Pitié-Salpêtrière Hospital in Paris with their symptoms, their otherwise healthy four-year-old male Italian greyhound developed lesions too, with pustules on the stomach and a “thin anal ulceration”.

    They were bumming the dog weren’t they?

  11. Can you give me more Interest on Reserves now?

    Doesn’t the City use LIBOR in almost all contracts? And is LIBOR, along with repo, going up with central bank rates, thus increasing City lenders’ revenue, paid for by lots of foreigners?

  12. Has the UK seen sustained falls in nominal house prices at any time in the last seventy years, except under John Major? Given what happened to him, it will probably be a another seventy years before policians of any party voluntarily try it again.

    We just have to hope for such falls despite their efforts.

  13. Are leveraged buy-outs still a thing? Presumably they all got cancelled as soon as interest rates rose, which would impact City profitability.

  14. When people think they can’t get the highest price they had ratcheted up in their heads for their house, they take it off the market unless it is a forced sale. The housing market slows down, turnover of houses drops off a cliff. (It’s a metaphor, there isn’t a real cliff.) Actual realised prices just stop rising except for forced sales and special cases.

  15. Higher landlord costs can drive up rents. If you start with a variety of rented properties, and then impose costs such that the cheaper ones become loss-making, then their landlords will be forced to sell, leaving only the more expensive ones available to rent. Even though there is no property on which the rent has gone up, the average rent does go up.

    Furthermore, the limit on what a landlord can charge may be a side-effect of what other landlords are charging for similar properties. This is the same reason why nobody could charge £1.60/litre for petrol when it was available nearby for £1.40/litre. If a cost goes up for all suppliers, the selling price simply has to go up regardless.

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