economic situation is dire

[leviramsey]

There was a fascinating interview with Ray Dalio, a hedge fund manager who was sounding the alarm about excessive leverage in the system back in 2007, in this past weekend's Barron's. I was debating posting it, but I'll excerpt it:

Why are you hesitant to use either the words "depression" or "deflation"?

Because the have connotations that confuse the fact that it's a process that people should understand....

Basically what happens is that all economies go through a long-term debt cycle -- a self-reinforcing dynamic, in which people finance their spending by borrowing and debts rise relative to incomes. More accurately, debt service payments rise relative to incomes. At the peak of the cycle, assets are bought on leverage at high-enough prices that the cash flows they produce [for a house, this cash-flow produced is the rent that otherwise would be paid -- LR] can't service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. At that point, either the debt has to be reduced or restructured or the income has to increase.

This happens in Latin America regularly. Emerging economies have a very short period to this cycle; more established economies take much longer to work through the cycle. The cycle itself is an essential process in maintaining a healthy economy.

There will be a gigantic debt restructuring, either by a process like bankruptcy, where debts get settled at fractions of face value, or through raising incomes by printing a lot of money. It's not complicated. When you have a pervasive debt crisis and a lot of foreign debt denominated in your currency, it is preferable to print money and devalue.

2008 was the year of price declines. 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets sold. It will be painful.

Where do things stand in the process of restructuring?

What the Fed and Treasury have done is to take an existing debt and say that they will own it or lend against it. But they haven't said that they'll take a principal haircut on the debt and cut the monthly payments. There has been very little restructuring to date.

The Fed has done a very good job of driving down interest rates across the spectrum. But that hasn't actually increased credit activity because the debtors are still not able to properly service the debt. Only when the debts are written down will we get to the point where there can be credit growth.

If you think that restructuring the banks, e.g. via capital injections, is going to get lending going again, without restructuring the other pieces of the system -- the mortgages, the corporate debt, the commercial real estate debt -- you are wrong, because the banks need financially sound entities to lend to, and there won't be many of those until there are restructurings.

[snowychap]

HBOS risk concerns 'first raised by Financial Services Authority as early as 2002'

In a statement released late on Wednesday, the City watchdog said it had concerns that "considerably predated" those raised by Paul Moore, a former head of regulatory risk at the bank, who claims he was sacked for voicing his fears.

The allegation led to Sir James Crosby, the former chief executive of HBOS, stepping down as FSA deputy chairman earlier on Wednesday. He denied wrongdoing but said he wanted to protect colleagues at the regulator from unwarranted criticism.

In its statement, the regulator said it first raised its concerns independently in 2002 after a full risk assessment.

The bank subsequently made changes, including upgrading the position of senior risk manager post to board level, the regulator said. Mr Moore was sacked and replaced in 2004.

After another full risk assessment in December 2004, the FSA found that despite improvements having been made, HBOS needed to further strengthen its risk protections.

Mr Moore subsequently made allegations over the risk management culture at HBOS and whether his successor was qualified to do the job.

The FSA said it had taken both of Mr Moore's allegations seriously but that it backed the findings of an inquiry carried out in early 2005 by the accountants KPMG, which said the allegations were unfounded.

The KPMG report cites criticism of Mr Moore by unidentified HBOS executives, who were interviewed for the inquiry. They told the investigators that while Mr Moore was "recognised as strong", his ability to work with colleagues was doubted.

His behaviour in one meeting was described by one of those interviewed as "ranging from prickly to ranting to extraordinary to outrageous".

In its statement, the FSA added that it was still raising concerns over risk at HBOS in June 2006, when it wrote to the bank to state that the "growth strategy of the group posed risks to the whole group and that these risks needed to be managed and mitigated".

Mr Moore has said that the "independence" of the report by KPMG, which has several business links to the bank, should be questioned and that it would "not stand up to independent scrutiny".

KPMG itself appeared to play down suggestions the report should be taken as a comprehensive endorsement of HBOS's activities. In a statement, it said: "This piece of work had a narrow focus on regulatory compliance risk at HBOS - and did not examine the bank’s overall sales or investment strategy or any other aspects of the bank’s operations."

In the meantime, under questioning by the liaison committee, this was what the PM had to say:

HBOS's difficulties were caused "because of its failed business model", not the reasons put forward by Moore, Brown said.

...

Brown insisted that Moore's allegations had been "taken seriously and investigated properly".

And on the subject of Mr Crosby:

Referring to Crosby's appointment, the prime minister added: "I, as minister, take responsibility [for the decision to appoint Crosby] ... Independent assessors looked into it and said he was an outstanding individual with strong intellect."

[snowychap]

Also, we're going to be getting a fleet of new 'super-express' choo choos but there seems to be a bit of confusion over who is leading the successful consortium.

The Grauniad:

'Super express' trains contract gives boost to British jobs

Over 22,500 UK jobs have been created or safeguarded with the award of £7.5bn contract to replace the country's ageing express trains and the approval of a massive regeneration project on the site of the former MG Rover car factory at Longbridge.

British-led consortium Agility Trains - which includes train maker Hitachi, services group John Laing and Barclays - will build and maintain a fleet of new "super express" trains for the Great Western and east coast main lines. The Department for Transport said the contract will safeguard and create over 12,500 jobs.

...more on link

The Times:

Japan-led consortium wins £7.5bn contract to replace UK Inter City trains

A Japanese company has won one of Britain's biggest orders for new trains, replacing the ageing but iconic Inter City 125s on two of the country's busiest rail routes.

The £7.5 billion contract has been awarded to Agility Trains, a consortium whose key member is Hitachi, the Japanese manufacturer of bullet trains.

It has been made preferred bidder to build and maintain a fleet of new intercity "super express” trains for the Great Western and East Coast main lines.

The new trains will replace existing high-speed trains, which are 30 years old, and will offer more seats, more reliable services and reduced journey times, Geoff Hoon, the Transport Secretary, said.

Mr Hoon claimed that 12,500 jobs would be "created or safeguarded" in Britain. It is unclear, however, what type of jobs they will be.

It is believed that most of the high-value design and development work will be done at Hitachi factories in Japan, with only the final assembly done in Britain, creating mainly blue-collar jobs.

Bombardier, Britain's only train manufacturer, was part of the losing bidder, Express Rail Alliance.

...more on link

[ianrobo1]

no surprise Snowy, one is a left wing paper, one is a right wing paper

different agenda's

probably neither right

[snowychap]

one is a left wing paper, one is a right wing paper

Whilst the comment about each having a different agenda is mostly true, what I have quoted is, I think, a bit of a stretch, Ian.

[leviramsey]

Probably will be Japanese designs (and profits going back to Japan), but the trains will be built in the UK.

[ianrobo1]

I suppose no one can doubt that the Japanese though build the best trains

and weren;t the virgin pendolino's built in Italy ?

[tonyh29]

more delusion today from the deluded fool

We must be doing something right, he said, because other countries around the world are copying our actions.

you would think after his "we saved the world "gaff he would have learnt his lesson

[Gringo]

more delusion today from the deluded fool

We must be doing something right, he said, because other countries around the world are copying our actions.

But it's true - leaders all over the world are copying gordo (by blaming the usa/banks/aliens for the problems)

[ianrobo1]

thing is Gringo, all countries regardless of colour are doing the same basic plan

there appears to be no alternative to this except for the ultimate free market of just let it settle and see what happens

try and find me a difference, most are supporting the banks whilst trying fiscal stimulus whether a VAT cup or a tax cut or other

[tonyh29]

whether a VAT cut

apart from Kazakhstan what other countires have done a VAT cut ? most seem to be talking about increasing VAT , indeed some already have

[Awol]

whether a VAT cut

apart from Kazakhstan what other countires have done a VAT cut ? most seem to be talking about increasing VAT , indeed some already have

Out of interest Tony are the other countries making cuts in VAT groaning under the same massive tax burden we are? If not they've probably got a lot more wiggle room than us.

[ianrobo1]

the us are in far worse situation - tax cuts

believe Spain have

don;t you ever read what I say

most countries have took both the fiscal measures and propping up the banks

[snowychap]

thing is Gringo, all countries regardless of colour are doing the same basic plan

Blind leading the blind? :winkold:

[ianrobo1]

possibly snowy because Ias I keep saying I have yet to see a viable alternative plan being suggested

[snowychap]

Writing off all of the other suggestions made in and/or linked in this thread, then?

BTW, I think there's a shed load more to come on the banks. I saw Andrew McKinley's speech today in the Commons about the Lloyds fine in the US and he also said that other banks are being investigated along the same lines.

[ianrobo1]

yep snowy and apparently AIG now being investigated

heard Cable today and he said the whole banking system should be privatise for two years, sort out the regulations and then floated again

can't say I disagree at all but the borrowings that Tony, Richard and The tories hate would go through the roof if that happened

[snowychap]

I keep saying I have yet to see a viable alternative plan being suggested

heard Cable today and he said the whole banking system should be privatise for two years, sort out the regulations and then floated again

I am assuming you mean nationalised :winkold: but how can you post both of these one after the other?

[snowychap]

And just drifting back to energy (utilities) prices for a mo, E.On cuts electricity bills by 9% but doesn't cut gas at all.

This follows on from evidence given to a select committee, yesterday:

Energy prices 'will be cut soon'

Executives from major energy firms yet to cut prices in 2009 have said they are "optimistic" that gas and electricity bills will fall soon.

But senior figures from EDF Energy, E.On and Scottish Power did not tell MPs when such moves would be made, and Npower was non-committal on cuts.

British Gas and Scottish and Southern Energy (SSE) have already trimmed bills for some of their customers.

However, further cuts may not be forthcoming, one executive warned.

Wholesale energy prices for summer 2010 are about 10% higher than they are now, SSE's chief executive Ian Marchant told the Energy and Climate Change Committee.

"I'm concerned that if the wholesale price increases, we might see an increase," he said.

"I would have expected us to see another round of decreases [in energy bills] later this year or early next year, but objective analysis suggests that this might not happen."

Consumer groups said the news was a "big blow" to customers already struggling with bills.

'Low profits'

Soaring wholesale energy prices have pushed bills to record levels.

But energy bosses told the Energy and Climate Change Committee that while wholesale prices were 75% higher than February 2007, energy bills had risen by 30% that time.

Nick Horler, chief executive of Scottish Power, said the pricing of energy was a "positive story" and that his firm and others were helping UK customers.

While some European customers faced bills based on the wholesale price of recent months, Scottish Power used its "size and strength" to buy energy in advance to "protect our customers from a volatile market", he said.

Scottish and Southern Energy has said that from the end of next month, its average prices for electricity customers will fall by 9% and average gas bills will be trimmed by 4% - the first price cut since March 2007.

SSE's Mr Marchant told MPs he had "no idea" why many of his rivals were yet to cut prices.

"It's the two British-listed companies who have made cuts this year. I don't know whether this is significant but it's an interesting question," he said.

"Part of me hopes that they do not reduce prices because I can win customers - but that's not the right thing for the UK, so I hope they get off their backsides and do something."

British Gas is to cut gas bills by 10% from 19 February - which it said would cut the average "dual fuel" customer's bill by £66.

Chief executive Phil Bentley insisted that there was no huge profiteering by his company, saying that after tax, the firm made a profit of about £2 for every £100 of a domestic bill.

'Very optimistic'

Scottish Power's Mr Horler said he was "very well aware that two of our largest competitors have set dates from which decreases will take place".

"We don't want to lose customers and therefore we are looking to move soon," he added.

And commercial director of EDF Energy, Martin Lawrence, said is firm was "actively looking at prices" and expected price moves "soon".

E.On commercial director Jim MacDonald said he was "very optimistic" about prices being reduced.

However, Npower company secretary Guy Johnson was less clear about the prospect of similar cuts in standard pricing.

Mr Johnson stressed his company had invested heavily in energy efficiency and introduced lower prices for more vulnerable customers.

"We've seen coming through in 2008, maybe not in headline prices but in the way that I'm describing," he said.

Fuel poverty

The suggestion that falls in energy bills would be limited was a "big blow to consumers", said Mark Todd, director at Energyhelpline.

He estimated that five-and-a-half million people in the UK were in fuel poverty - spending 10% or more of income on heating - a level he forecast could "escalate".

"Since the New Year, calls to our help line have doubled, with customers concerned about their costs," Mr Todd said.

"Furthermore, the number of callers who are now resorting to wearing extra jumpers to stay warm has trebled. Many callers are also noting that they have turned off their heating in parts of their house to be able to pay the bills."

That news is a bit of a blow already to one of the premises of the BoE's inflation report. Then again, Big Merv said that forecasts were pretty pointless, anyway.

[The_Rev]

I suppose no one can doubt that the Japanese though build the best trains

and weren;t the virgin pendolino's built in Italy ?

Try Birmingham.

They were built about 10 minutes from Villa Park, in Washwood Heath.

Allstom "own" them though, and they are French. I think.