Quantitative easing allowed the wealthy to get out of cash and into assets, writes Martin London; the provisionally passed Ceta deal is TTIP by the back door, says John Airs. Plus letters by David Dodd and Paul Nicolson
The debt crisis Larry Elliott predicts (Borrowed time: Threadneedle Street is right to fear a bubble, 19 September), is the result of our failure to resolve the financial crisis of 2008. The credit crunch demonstrated that western economies were living beyond their means and that there was too much money and too much debt in the system. The required solution was for creditors to give up a considerable portion of their wealth, and return living space to debtors. Significant austerity was unavoidable.
Governments chose quantitative easing instead, which allowed the wealthy to get out of cash and into assets, retaining or regaining any loss caused by the crash. The rest of us had to bear the brunt of austerity: cuts in benefits, the erosion of full-time jobs, the rise of the gig economy and increases in rents. Additional debt, funded by the liquidity of quantitative easing, enabled millions temporarily to retain a semblance of normal living: but the unequal distribution of wealth has not gone away.
The fintech revolution continues apace, and while many startups are hoping that newer and better tech will help them take business away from traditional banks, today a company has received a large round of funding to help those incumbent institutions better compete.
10x Future Technologies is a startup that has built a ground-up platform that incorporates machine learning, cloud services… Read More
There are plenty of issues for investors to watch closely this week, from interest rate decisions to Hurricane Maria as it heads towards the British Virgin Islands.
Matt Simpson, senior market analyst at Faraday Research, explains:
With President Trump expected to talk tough on North Korea and Iran during his first U.N. speech today, investors will be keeping a close eye on any repercussions further out.
That we also have two Central Bank meetings [in America and Japan] and the all-important Brexit speech from Theresa May to come this week, means economic data is likely to be less pressing for investors.
Britain’s accountancy watchdog has ended its probe into KPMG over its auditing of HBOS, the bank which failed during the financial crisis almost a decade ago.
In early 2008 HBOS concluded that its financial statements for the year ended 31 December 2007 should be prepared on a “going concern” basis. HBOSdid not expect market conditions to worsen and judged that it would be able to fund itself. The auditor considered and accepted this conclusion. HBOS published its audited financial statements in February 2008 on that basis.
The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time.
The pound is rallying this morning, after Bank of England governor Mark Carney dropped another hint that interest rates will rise soon.
Sterling is up 0.3% against both the euro at €1.199, and the dollar at $1.354.
US stock markets also continued where they left off on Friday posting new record highs as investors geared up for tomorrows Federal Reserve rate meeting and press conference, with the US central bank expected to embark on the first baby steps on the paring down of its balance sheet.
Despite recent poor US economic data there still seems to be a belief amongst some in the markets that we could see one more rate hike this year, something that may well be borne out by tomorrow’s rate dot plot projections. Whether the projections survive their exposure to the real world of the hurricane clear up of Harvey and Irma is another matter, not to mention the prospect of further hurricanes with the latest in the form of Maria as it moves towards Puerto Rico.
The virtual currency’s success reflects the continuing lack of trust in traditional banking following the credit crunch
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.”
Dimon’s comments are an open invitation for derision from those who, rightly, point out that although JP Morgan may be top of the Wall Street heap, that heap is far from being the moral high ground. Under Dimon’s leadership, it has agreed a $13bn settlement with US regulators over selling dodgy mortgage securities – the instruments behind the credit crunch – and its run-ins with watchdogs include a $264m fine last year for hiring the children of Chinese officials in order to win lucrative business in return.
Though it might be deserved, the chance of campaigners securing reparation through suasion is extremely low
One sympathises, of course, with the former shareholders in Northern Rock who are still campaigning for compensation a decade after the bank’s nationalisation. They are not faceless City institutions. Many are small shareholders who had invested substantial sums, presumably in the belief the Rock was a solid north-east institution run by a competent board, and lost the lot.
The problem with the compensation idea, however, is that it doesn’t stand up. Yes, it is probably true that the Rock was not insolvent, just suffering an extreme liquidity crisis. After all, the Treasury is set to make a clear profit from the run-off of the mortgage book. But those profits are not evidence of unfair confiscation. Taxpayers assumed a risk the Rock was unable to bear because it had been running a risky and reckless funding model that couldn’t withstand the crisis. For a bank, lack of liquidity can be a life-threatening event.
Fixing our financial system will be the key not only to stable growth, but also to stable politics
It’s an amazing fact that a decade on from the financial crisis, Americans are still arguing about how to reform our financial system. Even as the Trump administration argues for a roll-back of the hard-won Dodd-Frank banking regulation, it’s worth noting that disenchantment with Wall Street is, paradoxically, one of the things that brought the president to office.
Since 2008, the markets have soared, but Main Street has suffered. That disconnect was expertly exploited by the president, who, despite his many lies, had the advantage of being a political “outsider” who told some important truths about the economy that resonated with voters.
Bank of England’s stress tests are not gruelling enough, says report to mark 10 years since run on Northern Rock
The UK’s high street banks are an accident waiting to happen and could struggle in another financial crisis, according to a report published on Wednesday to mark the 10th anniversary of the run on Northern Rock.
The report criticises the annual health checks – stress tests – that have been conducted by the Bank of England since the crisis and concludes that the methodology used by Threadneedle Street is flawed and the tests not gruelling enough.