Morts Musings

I saw this article the other day, and although it’s a few weeks old, and made me think back to all the news articles, which were about this time last year, claiming that there would be a shortage of hire vehicles during the summer season due to the rental companies not being able to afford new vehicles for their fleets.

So, with the news that one of the UK’s largest van hire firms is set to renew 20,000 vans, a third of its fleet, in the expectation that the economy has/will pick up to an extent where the expense is justified, one has to feel that, assuming the money men at Northgate have done their jobs right, this has to be a good sign for the wider economy. Afterall, 20,000 vans are not going to come cheap and, even if the vehicles which are being replaced are so clapped out that they can’t be rented anymore, the implication has to be that the firm thinks it will need a capacity significantly greater than the 40,000 vans which it would have left.

A lot of Northgate’s business traditionally comes from businesses in construction and manufacturing, as opposed to private customers, so the firm’s commitment to renew their fleet strongly suggests that they have confidence in these sectors to flourish over the next twelve months, and if that’s the case then that would certainly be a good sign for the wider economy; particularly when one considers that the construction industry was one of the areas hit hardest by the recession, and the resulting crash in house prices.

Only time will tell whether or not it’s an astute move which will leave them well placed to profit from any recovery we see this year, but they’re by no means the only company to demonstrate optimism over the economy’s near future, and quite often the economy seems to function as much according to expectations as because of any real monetary factors, so, although my tendancy is to be wary, overall I’m thinking that the signs for recovery are looking hopeful.

Even embittered old news junkies like myself need a break from time to time, and over the holiday period I took a couple of weeks off without watching any news, &, I have to say, I feel so much better, not to mention less jaded by the world, for having done so. Still, with the new decade well and truly underway I figured I should, once again, start taking a cynical and curmudgeonly look at what’s going on in the world around me…

One of the things which I’m very glad hasn’t come to pass, was the descent into another global financial crisis, which, for a brief time, it looked like Dubai World’s financial problems might have sparked.

In the end it took a $10bn bail out from Abu Dhabi to save the troubled company, and in return the company showed it’s gratitude by naming it’s latest project, the Burj Tower, after Abu Dhabi’s ruler Sheikh Khalifa bin Zayed bin Sultan al-Nahyan. The Burj Khalifa, as it’s now known, opened earlier this week, and is now officially the world’s tallest building, beating the previous holder of the title, the Taipei 101, by about 300 metres.

As part of the publicity surrounding the tower’s opening two intrepid base jumpers were granted permission to leap from it’s top in a death defying record attempt. I guess it was only going to be a matter of time before someone made such an attempt, with or without permission, so maybe the owners were just trying to harness the inevitable publicity which such a stunt is bound to generate. However, before would be daredevils start booking their flights to Dubai it’s worth pointing out that the event was strictly a one off, and neither the owners, nor the Dubai authorities are likely to take kindly to further, unauthorised, jumps.

While I’m not about to go into an in-depth analysis of this week’s pre budget report, there are a few of the Chancellors announcements which I feel the need to comment (& maybe even rant) about.

If you’re interested a summary of the the Report’s main points can be found here.

The much speculated upon moves to curb the bonus culture of banks is probably one of the biggest events of this PBR, but in the end were Darlings moves about encouraging the bankers to live in the real world, which most of us mere mortals inhabit, or was it more of a move to placate the public?
There wasn’t a windfall tax on the banks themselves, but bankers’ bonuses over £25k are to be subject to a one off tax of 50%. Yeah, sock it to them Darling!

Actually for all that it sounds good, not to mention fair, when one considers how much of tax payers’ money has been used to aid the banks over the past year or so, the bankers don’t seem to be taking it with good grace. There’s been the predictable wailing and whinging, and threats of taking their business abroad, from some in the industry. I do understand that, to an extent, we have to be careful not to drive the banks overseas; it’s undeniable that the sector does contribute substantially to the UK economy, but at the same time it’s clearly neither sustainable, nor acceptable, to have a system where the bankers run around making risky investments and creaming the profits ’til it all goes wrong, at which point that make contrite noises and go cap in hand to the tax payer.
That can’t be allowed to happen again, and frankly any bank which hasn’t the good grace, to recognise that being based in the UK is to their overall advantage, and engage in a little give and take, is welcome to run off to some unregulated banana republic; Let’s see how willing such countries are to support the banks when it all goes wrong again! Good riddance to bad rubbish!

Even those who are staying are desperately looking for loopholes to try and avoid the bonus tax; apparently the “Investment banking boutiques” are trying to argue that they’re not technically banks, even though some of their bankers are amongst the best rewarded, in terms of bonuses. Well guess what guys, somantics aside, you are exactly the guys that helped kick off the financial crisis, & who the public are pee’d off with! You can argue technicalities all you want, but you’re distinctly “banker flavoured” and you’re precisiely the people that this tax is designed to hit, live with it!
I hope the treasury takes the same attitude. Although full guidelines on the tax are still being ironed out, it at least appears that the treasury’s intent is to prevent the exploitation of such loopholes; lets hope thats how it pans out!

Other tax measures in the PBR include a 0.5% rise in NI, and the basic rate of VAT returning to 17.5%, although on the positive side there is to be a 2% drop in Bingo duty, so it’s not all take, take, take!
Actually, in fairness, there are also to be changes to the NI system so that those earning less than £20k won’t end up paying more due to the announced hike. I do like this move, a lot, it’s almost as if the Labour party have remembered that they’re meant to be the party that doesn’t screw the poor.

There was also some encouraging green measures in the PBR too. There’s to be a “scrappage” scheme for outdated household boilers, as well as £200m of govt money set aside to assist home owners with improving energy efficiency. There are also incentives for green vehicles too, electric company cars are to get a 5 year exemption from road tax, while electric vans are to receive a 100% first year capital allowance. A piece of news which will no doubt make Sainburys, who have recently announced an increase in the size of their fleet of electric delivery vans, very happy; “Every little helps,” as one of their competitors might say.
Any regular reader will know that I’m a fan of the concept of electric vans and cars, so it’s good to see the govt taking steps to encourage their use, even if, so far, those measures only apply to businesses.

Obviously that’s by no means all that the PBR contained, but it’s tone overall seemed to be one of trying to juggle the need for austerity alongside doing enough “headline” stuff to make people happy. Indeed, opposition have already called it a “pre election report”, rather than a “pre budget report, a label which is undoubtedly politically motivated in itself, but which also, probably, isn’t too far from the truth.

The news from Dubai World, last Wedsnesday, that they were seeking to delay the repayments on £36bn worth of loans, has raised anxieties both in the Middle East’s financial markets and around the world. Many investors had assumed that, because the investment company was run by the Dubai Govt, any debts which Dubai World accrued would be secured. However todays announcement by the Dubai Finance Minister made the position, that the Dubai Govt wouldn’t be guaranteeing these debts, absolutely clear.

To try and stem the fears of a new global financial crisis becoming a reality, the UAE’s central bank has announced the implementation of a fund to provide extra liquidity to both UAE based banks, & foreign banks which operate in the country; a move which appears to have calmed the fears of the financial markets somewhat, at least based on the performance of the Asian markets today.

Closer to home Dubai’s financial woes are cause for concern for a number of UK banks, including HSBC, RBS, Barclays & Lloyds, who viewed the Emirate as a safe financial bet & invested heavily; RBS is the biggest underwriter of Dubai Worlds’ loans, so nervous times in Gogarburn no doubt. Whether they’ll be covered by the UAE Central Bank’s bail out fund, and if so, to what extent, is unclear at the moment, but these must be worrying times for a few big wigs in the British financial sector. (Unless, of course, they’re expecting that they’ll just get bailed out by the British tax payer, again.)

Flight from Dubai?

Still, in the longer term, the decision by the Dubai Govt not to back Dubai World’s debts may come back to haunt them. Although they insist that the company has always been a seperate entity, many investors assumed that, because it’s state run, it would be bailed out by Govt if there were any problems. Many investors may feel that they’ve been mislead, and, if so, it could make it significantly more difficult for Dubai to attract investors in future; at the very least future investors will want to know exactly what terms they’re lending on.

Well, the above was written yesterday, but it seems the story has moved on overnight, so no need to cancel your flights to Dubai just yet!
Dubai world is now in talks with its creditors and is seeking to restructure just £26bn of its total (£59bn) liabilities. Although that still sounds like a huge sum to the average person, apparently the move has greatly calmed fears in the banking world. I guess it sends signals that the company isn’t on the verge of collapse, and with the economic system being so reliant on the confidence, it might be enough to prevent Dubai Worlds’ problems spreading & precipitating another dip in the world’s, still recovering, financial markets.

Have just read Robert Peston’s column over at the BBC site, and thought it was such a good, simple, explanation of the what went wrong with the banking system over the last decade that it was worth highlighting for any readers who might be interested in these kinds of things (& really everybody should be concerned about this issue, because unless there are significant changes in the way that the banks are regulated we’re probably going to see a similar “boom and bust” happen all over again in a couple of decades!)


As Peston explains, the miraculous growth which the banks saw, over the last decade or so, was very much the result of smoke and mirrors, and rash gambles, rather than because our bankers are financial geniuses with a previously unknown level of insight into the ways the markets work. In short, their stroke of genius was simply to lend more than the banks could afford to based on their levels of real assets, a strategy that worked fine, up until the point that the bubble burst.


To my mind, coming up with, and following, this irresponsible business strategy in no way merited the high wages, and ludicrous bonuses, the bankers paid themselves. We could have just grabbed a few gambling addicts, put them in charge of our financial institutions, and would probably have ended up with the same net result in the end, and for much lower wages in the mean time.
Anyway Robert Peston says it all a lot better, and with more clarity than I can manage, so go read his piece here: Why bankers aren’t worth it