Wednesday, October 30, 2013

The secret plans for London - Why the financial crisis has in reality been a financial revolution

The financial crisis through which we have all suffered (by 'we' I mean the ordinary man and woman), will turn out to have been less of a crisis and more of a revolution.

Ironically, if you have been in a well-paying job, in banking, consulting, IT, head hunting, recruitment, or any of the adjunct functions which serve the City and the financial sector; or you have been in the professional classes, the law, auditing and accounting; or the tame and timid regulatory agencies, the financial crisis has not really caused much damage to you in the longer term.

Oh sure, you may not have drawn down quite such high bonuses as you were used to enjoying, but you have still been able to continue to live very comfortably. Interest rates have been the lowest they have been in any living memory, and they have remained at neo-negative rates for a long period of time. You have been enabled to trade up in your property purchases, borrowing significant sums of money, leveraged on your existing properties, and in so doing, you have enabled the property market to resist the ordinary impact of the crisis.

To a very large number of people however, the 'squeezed middle', those who are coming to the end of their immediate working lives, but who are still supporting elderly parents, as well as children who cannot find jobs; those who are still able to work and at the top of their skills ladder in terms of knowledge and experience, but who are deemed 'too old' to be employed by an ageist jobs market because they are over 55; those who have been made redundant at the wrong age and thus forcibly retired and who have been living on income from insufficient pensions, and who have watched while the government has squeezed the life out of community spending in the name of 'austerity'; those who work in teaching, nursing, policing, the fire service or any of the other vital municipal service provisions on which our communities rely so heavily, there is no end to the damage that the impact of the financial crisis is causing.

The important distinction here is that the very sector whose criminogenic behaviour caused the financial crisis in the first place, the shady banksters with their shoddy banking practices and their concomitant criminal banking activities; the legal services which were used to protect their interests when the criminal banks were confronted by angry clients who demanded redress; the complicit accountants who signed off on every-increasingly dubious audits, and who conspired to make the books balance and the figures look good; and the complicit regulators who looked the other way and became apologists for the wrong-doing of their sector, all these services continue to prosper and thrive.

We have observed the actions of a Parliamentary Commission on Banking Standards which has sat in judgement on the actions of those who wrought so much damage to the body financial, but what has really happened as a result of their deliberations?

Frankly, very little!

The real outcome of the financial crisis has been to cement in post those whose activities and actions did so much to damage the interests of a very large sector of the British people, and has, by so doing, enabled the whole rotten edifice to remain unreformed.

Take, as an example, the HBOS affair.

Back in April this year, the Parliamentary Commission on Banking Standards published its Fourth Report - ‘An accident waiting to happen’: The failure of HBOS.

Commenting on the publication of its Fourth Report, the Chairman of the Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said:

"The HBOS story is one of catastrophic failures of management, governance and regulatory oversight.

The sums would never have added up: the Commission has estimated that, taken together, the losses incurred by the Corporate, International and Treasury divisions would have led to insolvency, regardless of funding and liquidity problems, had HBOS not been bailed out by both Lloyds and the taxpayer.

The Commission concluded that primary responsibility for these failures should lie with the former Chairman of HBOS, Lord Stevenson, and its former Chief Executives, Sir James Crosby and Andy Hornby.

Only Peter Cummings has faced regulatory sanction for HBOS’ failures. The Commission was surprised by this.

The Commission stated openly that It was unsatisfactory that the FSA appears to have taken no steps to establish whether the former leaders of HBOS are fit and proper persons to hold the Approved Persons status elsewhere in the UK financial sector. The Commission has therefore asked the regulator to consider whether these individuals should be barred from undertaking any future role in the sector.

For the future, far more needs to be done. Those responsible for bank failures should be held more directly accountable for their actions and face sanction accordingly. The Commission will return to this issue in its Final Report.

The regulators also have a lot of explaining to do when it comes to their role earlier in the HBOS debacle. From 2004 up until the latter part of 2007, the FSA was ‘not so much the dog that didn’t bark as the dog barking up the wrong tree’.

The FSA responded favourably to a Treasury Committee request for a comprehensive report, similar to that prepared on RBS, not just into the failure of HBOS but also into the FSA’s own conduct. The Treasury Committee has appointed specialist advisers whose job will be to ensure that this work is done thoroughly..."

So, taken in the round, this means that a major bank collapsed because those with the responsibility to ensure that they should have done their job properly, failed to exercise their responsibilities properly, with the result that others had to be appointed to oversee their actions.

And the outcome has been to sweep the whole fucking mess under the carpet in a traditional British way of reconciling these scandals.Essentially, it has been decided that those responsible for the biggest banking crash in living memory, to say nothing of the resultant scams, frauds and other examples of financial skulduggery will not face any kind of scrutiny by regulators or government. The revolving door at the top will go round and former regulators will become bankers, accountants will become regulators, the most egregious will be allowed to slink away with their pensions and their pay-off's, while you and I will be ritually and righteously screwed!

Why?

Because I am slowly beginning to realise it is becoming clearer that the aftermath of the financial crash and its attendant outcomes was not just an accident waiting to happen. It was carefully thought-through by a group of powerful elites who realised that they could use the implications of the mess left behind by Gordon Brown and Ed Balls.

They could begin to dismantle the benefit culture ethos which had undeniably been allowed to spread like a virus under Brown. Brown believed that the City was bringing in the money because he wanted to believe the bullshit the City told him. He, in turn, extolled their actions in after-dinner speeches at the Mansion House, while spending public money like a man with no arms, until even he was forced to realise there was nothing left in the pot, as Liam Byrne so eloquently reminded his successor in post!

By driving out the poor, the indigent and the work-shy and relocating them to other useless towns and cities in the Midlands and the North, they would free-up a workforce in London who would be willing to work for limited or minimum wages and zero-hours contracts, made up very much of European immigrants driven to the UK by the awful financial conditions at home, ready and willing to service the new post-crisis economy planned for the new London.

In addition, their ambitions have begun a root and branch restructuring of London and the South East, turning the whole sector into an elite commercial and financial 'business' centre, coupled with a highly desirable residential venue of choice for the fantastically wealthy, who will want to use all the banking and financial services offered by the 'new City elites', provided by a new breed of 'ask no questions' lawyers and accountants, and protected by Boris Johnson's incessant promotion of the constantly parroted demand for foreign capital, of whatever nature and provenance, to find its home in London.

The London of the future is intended to become the leading global financial centre, which will become an offshore-haven in its own right for those with money (and there are plenty of them in other countries) to invest.

I have just returned from a business trip, which I shared with an architectural engineer. He was telling me of the vast number of new high-rise residential buildings (over 60 at the last count) that are being constructed in the centre of London. He talked about the number which, once completed, will stand completely empty, having been already purchased 'off plan' by wealthy foreign investors in China, Malaysia, the Middle East and India, who own them but will never live in them. They will stand permanently empty and idle, their windows bare, like huge stationary ghost-structures, a monument to greed and funny-money.

Should you be tempted to believe that I am exaggerating, I am going to quote extensively from an amazing article written by Michael Goldfarb, a writer whose most recent book is;

 '...Emancipation: How Liberating Europe's Jews From the Ghetto Led to Revolution and Renaissance...'

I hope he will forgive me for re-quoting from his piece here, but it is a superb illustration of what I have been trying to say.

Talking about the new property boom being driven by foreign investors, he says;

"...This is what happens when property in your city becomes a global reserve currency. For that is what property in London has become, first and foremost. The property market is no longer about people making a long-term investment in owning their shelter, but a place for the world's richest people to park their money at an annualised rate of return of around 10%. It has made my adopted hometown a no-go area for increasing numbers of the middle class.

According to Britain's Office for National Statistics, London house prices rose by 9.7% between July 2012 and July 2013. In the surrounding suburbs they rose by a mere 2.6%. The gap between London prices and those of the rest of the country is now at a historic high and there is only one way to explain it.

London houses and apartments are a form of money.

The reasons are simple to understand. In 2011, at the height of the eurozone crisis, citizens of the two countries at the epicentre of the cataclysm – Greece and Italy – bought £400m of London bricks and mortar. The Italian and Greek rich, fearing the single currency would collapse, got their money out of euros and parked it some place where government was relatively stable and the tax regime was gentle – very, very gentle. Considering that tax evasion in Italy and Greece was a significant contributory factor to their debt problems, it just seems grotesquely cynical to encourage this kind of behaviour.

But that's what Britain in general, and London in particular, does. The city is essentially a tax haven with great theatre, free museums and formidable dining. If you can demonstrate that you have a residence in another country, you are taxed only on your British earnings.

And the savings on property taxes are phenomenal. The property taxes on New York mayor Michael R. Bloomberg's $20m London home come to £2,143.30 a year. That's $3,430. Clearly, the mayor bought in at the right time. The Google executive chairman, Eric Schmidt, is reported to be house-hunting here – he's looking in the £30m (about $48m) price range. Yet he will pay a similar amount in property tax as Bloomberg does.

There are other facets of London real estate as a medium of exchange. British gross domestic product has yet to return to pre-crash levels, but the financial services industry has roared back. Banks are paying out big bonuses again, and anyone looking for a safe investment is getting into London property.

From the top of Parliament Hill, on Hampstead Heath, look eastward. Out around the Olympic Park and beyond you see clumps of high-rise apartment buildings sprouting like toadstools in a meadow after heavy rain. These aren't being built to meet the calamitous shortage of affordable family housing in the city; they are studio and one- or two-bedroom apartments.

The developments are financed by "off plan" buying. Bonus babies look at the blueprints and put their money down with no intention of living in what they've bought – just collecting decades of rent. And it's not just those who work in London's financial district, the City, who buy in. Hot money from China, Singapore, India and other countries with fast-growing economies and short traditions of good governance is pouring into London.

When I say property is money I mean it. An astonishing £83bn of properties were purchased in 2012 with no financing – all cash purchases. That's around $133bn.

The ripple effect of this frankly demented situation is felt all over town. The foreign rich and the City rich (there is some overlap) have made most of the centre of London unaffordable to any but their own kind.

The overall economy of Britain certainly doesn't justify these prices. Bank lending for businesses is flat, but mortgage lending? It's as if the whole British economy is based on housing speculation in the capital.

David Cameron's government seems to think that is the case. Cameron may be pursuing austerity policies elsewhere in the economy, doing virtually nothing to help subsidise employment or industry, but his government has just started a "help to buy" scheme. The government will guarantee up to 15% of the purchase price of a house up to £600,000 ($960,000), if you have a 5% down payment.

Now it is beginning to feel that the next phase of London's history will be one of transience, with no allegiance to the city. I wonder whether those just parking their money here by buying real estate will ever be able to provide the communal sensibility to help the city survive the inevitable shocks it will experience in years to come.

How this story will end doesn't bear thinking about. It seems a very reasonable bet, though, that those who use London property as just another form of money aren't thinking about it at all..."


10 comments:

Big Bill said...

We are a sovereign nation with, as things stand now, both a central bank and a treasury which can create money. There can never be, therefore, nothing left in the pot, as suggested above. The trick is to get new money into the economy without cheapening its value, and the way to do that is to use it to create proportionate wealth, which which it can then be said to be backed. We can create as much as we need then, so long as we use it to create wealth and don't fritter it frivolously away.
This is not rocket science and it's not unknown either, it's just rarely considered.

AbogadoNZ said...

I like your conclusion about the creation of a new currency - London residential bricks and mortar. The great thing is a bubble has been created (how else can you describe London property inflation compared with ordinary inflation) and will burst. When it does it won't harm the UK community at all as prices will crash. Meanwhile let's hope those who are charged with looking after anti-money laundering are doing their job. The solicitors' trust account has become the medium of choice for those spending their ill-gotten and turning a blind eye (wilful blindness) is endemic in the professions.

Demetrius said...

Linked to this yesterday, Wednesday, to make a point. Historically, it would not be the first time that the London economy has gone ape in this kind of way. Unluckily it never turned out well then either.

Nick Drew said...

Interesting

if you haven't already checked Demetrius' link, you might like to check out my C@W post on sharia finance in London

still not sure that I should worry about any of this: there have always been areas in London that were out of the range of mere mortals - now there are more

but there's a lot more than just trickle-down to be had for the rest of us (& I'm not a City type, BTW)

jason peters said...

each one of the abvoe are right in their own sense

rental properties london ontario

jason peters said...

Waiting for some useful blogs....


apartment rentals london ontario

Blogger said...

If you are searching for the ultimate bitcoin exchanger, then you should use Coinbase.

Blogger said...

Did you know you can shorten your urls with Shortest and make money from every click on your short links.

Blogger said...

On Take Free Bitcoin you may get faucet bitcoins. 8 to 22 satoshis per 5 minutes.

Rachel said...

Thanks for your insights. I heard about this topic before. Let's just hope for the best for the future of London economy. https://www.ticfinance.co.uk