credit crunch

Colin Breed to subvert the banking system!

Jock — Sun, 30 Nov 2008 06:26:25 +0000

At last, someone with a bit more radical idea about the sort of thing that needs to come out of this banking crisis. Colin Breed, Lib Dem MP for Cornwall, and a former banker himself, is calling for a radical shift to more local banking.

I still think my idea is better and more radical, and have fired off an email to try and make contact with Colin. read more »

We, the leaders of the Group of Twenty...

Jock — Sat, 15 Nov 2008 22:13:59 +0000

...a society made up almost entirely of mendacious megalomaniacal psychopaths, do declare that the causes of the current economic crisis are basically nothing to do with us:

3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.

God it makes me sick. Lying miserable tossers. Understand this well. Maintaining low interest rates, in order to get more people borrowing more to put into a land price bubble which would enable others to borrow to spend our way out of a mini-recession at the beginning of the century was DELIBERATE PUBLIC POLICY. Deliberate public policy the effects of which were to make the poorest and weakest in society attempt to take on unacceptable levels of debt and risk just to prevent themselves from being ripped off even more in the future.

Not only that, but they knew at the time it would lead to problems later (Eddie George said: "My legacy to the MPC, if you like, has been 'sort that out',"). They simply hoped their successors could get us out of those problems. I think we should take their prescriptions for recovery with all the salt in the world's oceans. read more »

Say hello to the "Community Finance Partnership"

Jock — Wed, 22 Oct 2008 23:52:25 +0000

A week or so ago Mike Killingworth challenged us on Liberal Conspiracy to show what "Lovable Banking" might look like in response to the daily emerging news that we've been shafted regularly by the banking system since, oh, at least 1695. Some of you will know that I have long taken an interest in things like local currencies and mutual finance and perhaps also that I've been looking into the use of the Limited Liability Partnership structure as a way of building multi-stakeholder less toxic alternatives to purist shareholder capitalism.

Well a couple of weeks ago I was contacted out of the blue by a chap, Frank Churchill, also in Oxfordshire, who has been looking at similar structures. In his case originally I think as a less toxic alternative to developing world microcredit systems (did you know that the effective interest rate including all charges and so on on Grameen or Kiva micro loans can get as high as 80%!) and as a way of monetizing voluntary work - mainly involving carers. We've both been steadily battling along on our own on this, trying to understand the structures and build solutions to common issues around them - in my case, mostly things like affordable housing and supporting local businesses.

And so we've got together and are, hopefully, on the verge of setting up a "think and do tank" (to coin a strap line from another - less popular amongst liberal economics followers - organization, the New Economics Foundation; but don't let that put you off - some of the issues are the same but we believe the responses are more mutual and liberals than theirs) in the form of a "Community Finance Partnership".

The Limited Liability Partnership structure was created, ironically perhaps, to get the professional firms such as accountants and lawyers out of being personally liable for the debts of their partnerships - the vast accountancy partnerships in particular were worried about the sort of "Enron scenario" of being held liable for multi-million pound lawsuits and were threatening to move their registered offices away from the UK if we didn't give them limited liability. But inadvertently they have created a beautifully simple mechanism for bringing all the parties to an enterprise - the providers of capital, landlords, customers, workers and suppliers and so on - in, if they wish, to share in the risks and the rewards of pooling their contributions to the success of that business as partners.

A partnership agreement can involve different classes of partner receiving different shares of the profits depending on the worth of their input to it - just as a co-operative structure does. Companies may be partners, or even other LLPs as well as individuals. And the partnership itself is tax transparent so each partner is responsible for accounting for the profit or loss in their own tax affairs. Some of you will be aware that I think limited liability in general is a Bad Thing that takes the personal responsibility away from business owners, but in this case it matters very little since every connection with the business could become a partner and share that responsibility explicitly.

The Community Finance Partnership can we believe fulfill a great number of roles, offering a portfolio of products for consumers and a steady return based on those to investors - the aim is to produce an index-linked rate of return in the form of a "rent payment" for the use of the capital partners' (investors) funds. "Customer partner" products might include interest free mortgages - called Property Investment Partnerships, personal loans such as with Credit Unions and business finance "repaid" through a portion of the successful businesses' turnover.

One "flagship" product we are hoping to develop is the idea of a local complementary currency, probably in the form of a Nectar-like loyalty card system that businesses with a base in the geographical area can buy into and which would be able to monetize currently unpaid work like volunteer carers whose value to the local community and especially health services is enormous. The possibilities are almost limitless. For example another idea would be to finance the equivalent of PFI schemes - for example if Oxfordshire County Council wants to rebuild some schools, but with local investors sharing in the reward. And such a structure could be used to provide the mutual finance system for universities I mentioned earlier today.

Think a cross between a loyalty card system, a credit union (more on the US or Irish style than the British), a mutual building society but with the ability to lend to business and not just on homes, and possibly a friendly society offering local mutual insurance and pension products. It's early days yet, and we're still working up what each product would look like in financial terms and the sort of prospectus we'd be able to offer investors, but I'm very excited about it! We think the time is ripe for a return to more human scale financial institutions that people can become a part of on a local more human scale. read more »

monetary reform, mutualism

Ministerial mendacity

Jock — Wed, 22 Oct 2008 23:50:46 +0000

I don't normally get to see the Daily Politics, but I'm on a week off at the moment and saw today's after PMQs. There was Yvette Cooper being grilled by Brillo who was asking whether Britons' status as the most personally indebted population in the G7 was anything to do with our current travails.

She kept avoiding the point, as usual, insisting that it was an American thing from which we had got infected. For your benefit, Yvette, you lying cow, here's what Eddie George said just eighteen months ago:

"In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

I hardly expect tomorrow's papers to cover the news of Mrs Balls's resignation - but she is deliberately misleading the public and that would be the honourable course. I understand that you can only really begin to tackle a problem if you admit to it in the first place. Eddie George did; it's time this government did too. Disgusting, lying bunch of shit-crocks.

Just what did she study at Balliol, Harvard and the LSE? Does she really believe we will just think she is stupid or mistaken? What the fuck have the people of Pontefract done to deserve her? read more »

The 61 TRILLION dollar question

Jock — Sat, 18 Oct 2008 22:18:56 +0000

Did I see correctly the other night in a news report that there are approximately $61,000,000,000,000 of these "Credit Default Swap" instruments out there?

At the end of September the market capitalization of every listed company on the planet amounted to just two thirds of that, and in total, including all state and corporate bonds and other loan instruments the total of financial instruments in issue comes to less than the $61 trillion in swaps out there.

Isn't that bonkers? Doesn't that suggest that every loan, equity issued company or bond issue is completely, fully insured and then some? How does that work then? It seems that there's been a bit of mutual self-gratification going on in these heady dealing rooms. If our money is going to help unwind such ridiculous positions it's frankly outrageous.

When are we going to see the City of London police entering offices in Canary Wharf and carting off senior traders then instead of Brown and Blair fawning over the wreckage trying to rescue something from this deep pile of crap whilst hoping we won't notice that this year's Christmas bonuses are being taken out of our money? read more »

Neither a borrower nor a lender be...

Jock — Fri, 10 Oct 2008 07:53:06 +0000

We've seen much over recent weeks about how awful the City has been. How banks have made rash dodgy loans. Short sellers, overpaid executives and whatever else...

But I'll let you into a little secret: for every loan there is both a lender, perhaps a dodgy spiv with too high a bonus to be sure, but just as importantly there has also to be a borrower.

We have seen a little po-faced political bemoaning of the culture of consumer debt, but this unsecured credit - spending money - does not appear to be the primary debt that has caused this collapse. With few exceptions, when the banks talk about the sub-prime loans lying like a half-dead half-back at the base of a maul, they are talking about mortgages. Are not these borrowers to be condemned in equal proportion? Did the bankers force them to borrow? Are not they just as greedy, in their own way, as the bankers making themselves rich on those borrowers' seeming insatiable demands for more money? Maybe these are the real "sub-prime loons" that are really responsible for bringing our economies near to systemic collapse?

Of course it would be electoral suicide to lay so much blame on the ordinary "Joe Sixpack, the hockey mom". And indeed it would be quite wrong to do so. For most of those mortgage borrowers, perhaps especially what has become known, horribly disparagingly, as the "sub-prime" borrowers, were being completely rational. Rational, that is, in an utterly irrational system. And the results of that rational behaviour are now serving to highlight just how irrational the system is.

Indeed, it is so utterly irrational a system that those borrowers we might want instinctively accuse of being the least rational - those whose chances of paying off the large loans were the smallest - are in fact the most rational. Because in that mad upward spiral of house prices, those still left renting would be the worst hit. The urgency of getting out of renting and fixing your future housing costs at today's rates is all the more pressing.

Because here's the second little secret for tonight: we all rent.

This may seem counter-intuitive in a world where 70% of folk "own" their home and most of the rest want to. If you are, or can recall when you were, on the point of making the transition from renting to buying the first time, this will be easier to understand. One of the factors in your decision to stop renting and to buy instead will have been whether the mortgage payments, as compared with your current rent payments, are reasonable value, over the length of time you expect to be needing to use that property.

Of course there are many other factors as well. Some in favour of ownership, such as being able to improve, redecorate or even trash the property, and having the prospect of capital growth. Some in favour of renting, such as not being responsible for all the maintenance, or not being stuck with a mill stone if you can't sell it when you need to move. And of course the supreme benefits: a. you don't need to charge yourself rent - after all you are paying for it anyway and b. if you get to the end of your payments okay, you get it rent free for as long as you like and still get to sell the rights to it hopefully at a tidy profit.

But as tradable assets, our properties are valued on the basis of the yield it could achieve to an investment buyer now, and their view of how that is going to change over the time they expect to hold the investment. And when we buy a home, what we are actually buying is the right to collect the rent on that property for several years ahead at a "fixed" price today that we think will benefit us. Few owner occupier buyers will probably think about it that clinically. They might instead look at local comparisons to assess what they ought to be willing to pay. But so long as there is a rental market, and since there are some disbenefits to ownership as noted above it is likely that there will always remain a rental market, the money-value to the market is going to be based on its current and future rental potential and the overall yield over the time an investor would expect to hold that property investment.

So, what rising house prices indicate is that investors believe that there are going to be higher returns in terms of future rent potential. And if you are still a tenant, higher returns to the landlord mean higher costs to you. So if it is economic to freeze the rent payments at or near today's levels for the foreseeable future, you definitely want to do so. This becomes a bubble because the effect of future expectations compounds itself. Throw in relatively cheap loans and people can afford more in the present to secure those expected future gains.

Okay, now having, I hope, got you thinking in terms of "rent" I want to get you thinking about the different components of this "rent".

Take two identical, some might call them identikit, homes. Two same model "Barratt boxes". Only one is in Kensington & Chelsea, the other in Blaenau Gwent. I choose them because they are the highest and the lowest respectively local authorities by "land value" in England and Wales. Three bedroom, 100 sq m and with a rebuild cost of £1500 per sq m. On the face of it, they ought to cost about the same to buy, somewhere around £150,000, but of course they don't, do they.

If you managed to find the same little plot in K&C as in Blaenau on which to place your "Barratt box" you'd probably find that in Blaenau it would cost next to nothing - probably a couple of thousand pound per plot, for the trouble of clearing it! But in K&C it would cost several million and probably wouldn't be worth your while putting that Barratt box on it! In fact, in the recent purchase of Chelsea Barracks by the Candy brothers, which was reported as £959m for 12.8 acres, your average tenth of an acre plot would set you back a cool £7.3 million.

In fact, the Chelsea Barracks site is a good one to look at, since it will not involve criticizing the "poor widow" for not developing her prime land, but the government! What did the government, the Ministry of Defence do to make that barracks land so valuable? It certainly wasn't its former use as a barracks! It's not because it was a barracks that makes it an in demand site. But because of all the economic and social activity that goes on around the site. In fact, once upon a time, as a barracks, no doubt the site would have attracted the usual motley collection of military hangers on - whore-houses, bars and so on - it may even have depressed local land values initially, but certainly for the past few decades holding it out of its more productive use has meant other local prices have been pushed higher than they would be if all that land had been used productively.

In fact, the proportion of the "rent" due to the value of the building, the same sort of building as in Blaenau, is a tiny fraction of the overall rent. The rest is due to the location. The popularity of a location which is made up of dozens of factors, but centres around the fact that there are hundreds, thousands, of people who could beneficially make use of that location to be nearer work, social and other opportunities created by the surrounding community.

Now, here's the easy part to remember. What Land Value Taxers want to see, from David Ricardo, Adam Smith, J S Mill, Henry George to Lloyd-George, Churchill, Asquith and many others to the present day, is that the portion of the rent a property yields due to its location, and not the building on it, should be collected by the community and redistributed amongst the community instead of privatised by the highest bidder (or in some cases still the person with the most brutal land grabbing ancestor!), shored up by cheap bank loans. It is rent due to its monopoly as a good location that many people could make use of rather than any effort of the landowner.

In an LVT based tax system, when you "buy" your home, you'd be buying the right to collect the rent for the building alone. This is something you as an owner can affect, through your diligence or negligence in maintaining it or in building something of higher density on the same site. In the language that a typical home buyer will understand better, we want you to pay the £150,000 for the Barratt box to Barratt or the previous occupier, but you pay the remainder, the rent caused by its location, in annually assessed chunks, to the state instead of paying taxes on the earnings from your economically productive labour.

You can already, I hope, see the advantages. This bubble we have lived through over the past decade, the angst of people priced out of the market stressing about if they ever will get out of renting, the ballooning of borrowing that now threatens the very system that created it, will be things of the past. For as long as you can justify paying the location rent given the benefits that particular location gives you nobody can shift you. If that rent rises it is a sign that more and more people are being excluded from land that they might make more productive use of than you. Why should you be able to exclude them for as long as you like and then also reap a massive profit from having cost so many others much money "avoiding" your plot?

Instead of that home in Kensington & Chelsea costing you £7.35 million up front, it'll cost you £150,000 or so up front, which you can borrow to pay for if you need to, and a hefty annual location rent bill instead of both the remaining £7.2 m mortgage it would have cost you to buy the location up front and your income and other taxes on productive labour. Your disposable income is likely to be maybe 30% higher just for losing those income taxes. You can save in a wider range of productive assets for your future than just the monopolistic endeavour of owning a popular, or up and coming location. You may even choose to save so you can continue to pay the location rent when you stop earning for whatever reason - though most would probably find it just as good to save for an income in retirement and to downsize or move so that someone else can have the benefit of the local school you no longer use, the local rail station you no longer commute from and whatever other factors have made your location a popular one and for the proximity of which you would continue to pay even after you have stopped using them.

In the lingo, this is called creating "free land". Returning it to common ownership and paying as you go to occupy the bit that most suits you at any particular time of your life.

Even apart from the source of government revenue this would provide (though some of us would prefer to see the rent collected and simply doled out to all citizens in that community as a community dividend, a basic universal non-withdrawable income in place of most cash benefits) it fundamentally shifts the burden away from working and producing and onto inefficient use of scarce resources.

It is essential in an environmentally responsible regime, because it makes the choice of whether to live close and not pollute by commuting or to live far and spend a fortune in travel costs, more available to more people.

And it is essential in a liberal regime, as it gives people a choice in the "taxes" they pay - the tax savvy will soon work out that if they can spot an up and coming area that still meets their needs early they will pay less tax and watch the services there get better as others catch on, until it reaches some kind of equilibrium again. And it stop people making monopoly profits out of excluding others from what we all need access to - a location to base ourselves at.

This would be so much more than just a "tax switch" though - it would so fundamentally change the fairness, equit, economic justice for millions of people who, knowingly or not, are trapped in a system that takes money from them to line the pockets of landowners, the ranks of whom are getting ever more distant for many people all the time. read more »

Which day will be our October 24th

Jock — Mon, 06 Oct 2008 17:52:29 +0000

It is generally accepted I think that the Wall Street Crash and the subsequent depression started with a major sell-off on the New York Stock Exchange on Thursday 24th October, 1929 - the so called "Black Thursday". The day of the worst one day fall on the New York Stock Exchange was the following Monday, "Black Monday", October 28th 1929, when it lost 13% of its opening value.

If all this does prove to be the start of a period of economic turbulance that will live in memories as long as the Wall Street Crash, I wonder which day will be identified as the start of it all. It seems to have been continuously bad news for weeks. Today, Russia's stock exchange index lost virtually 20%, having suspended trading twice. But what about the day the US bailed out AIG? Or when Hank Paulson got down on his knees to beg Nanci Pelosi to sign up to the $700bn bailout? Certainly that day I thought for the first time George Bush actually looked chillingly, almost menacingly sincere, much moreso than at any time during the Iraq conflict. The nationalisation of Fannie Mae and Freddie Mac perhaps? Or the failure of Lehmans? Or maybe just the day Peter Mandelson returned to the government! read more »

Mutual Ownership and the house price downturn

Jock — Sat, 27 Sep 2008 13:08:41 +0000

This is something I've been meaning to write for months, but was particularly prompted to do so by a program on BBC last week about surviving the house price downturn. One guy had built himself a property portfolio worth about £8m (about £5m of which was debt) from a standing start renting a single room in a three bedroom house share five years ago.

He stated, correctly of course, that any numptie can make a killing while everything's rising, but it takes skill to do so in the uncertainty we are now in. His current ploy is to drop leaflets on people in areas where negative equity may be about to bite offering stretched home owners the chance to sell out quickly to him, at a deep discount, but continue renting the same home and with a guaranteed option to buy back again at a pre-agreed premium when things look better.

This sort of thing has long gone on, particularly in the "right to buy" market - albeit with some differences - unscrupulous bucket shop lenders go round offering to lend those who would not get a mortgage enough to buy their council home who then have trouble with their mortgage payments, they offer them a "rent-back" deal which is only just less than the mortgage payments so what they were paying £70 a week for as a council house in which they had no equity was now costing them double that still with no equity.

Anyway - many of you will know that I "run" a group called Oxfordshire Community Land Trusts , which is a mechanism for delivering more affordable housing for the "intermediate market" - those stuck above the income levels that would justify the deep subsidy of social rented housing but below a level that they can afford to get on the ownership ladder. Basically it works by the CLT owning the land and not crystalizing out the gain in land value on every transaction. People pay what they are judged to be able to afford rather than related to the home they need - I would pay nearly full market rates for a one bed flat whilst a family on half my income would get their three bed needs met on half my payments. But I would get twice as much equity as they do. Effectively we are all subsidizing each other through the Mutual Home Ownership Society that takes on the long term debt for the development and which all the residents join.

And earlier in the year we were asked whether this was still an attractive option in a falling market. Obviously it changes the landscape somewhat. Now perhaps more of a problem is that people who could afford to buy outright are unable to get mortgages through no fault of their own. Indeed this could be a boon to the CLT market, because we could find ourselves with more better off residents who would therefore be able to subsidize even lower income houses (it all works on averaging out the total payments you see).

But also by tweaking the model, from a development model to an acquisition model, I believe we could help out those over-stretched households currently prey to the man I mentioned above and with a long term benefit to the success of future CLT projects. In this scenario, the CLT would buy up houses and convert them into mutual ownership. The occupant instead of having to rent from the profiteering speculator landlord would get to keep whatever equity their current circumstances allow them to commit to with the CLT effectively holding the balance. As circumstances change, the household could buy back extra equity (without themselves actually having to borrow anything - Mutual Home Ownership looks more like rent from the occupants' perspective).

What we need to make this happen is access to funds - not necessarily large funds - just a revolving facility that allows us to step in quickly when a household is in distress and lenders start to take action against them - we get them the money to pay off all or most of their distressed borrowing and then the Mutual Home Ownership Society borrows against its commercial facility to take on the house itself with the household's new calculated affordable commitment.

Who has such funds? Well, local authorities have a duty nowadays to try to prevent homelessness, not just deal with it after the fact. Such a scheme has got to be a more efficient use of public money than say, Vince Cable's idea of getting councils to reward previous speculative build by buying direct from builders and converting them to social rented housing (I don't think it's a bad idea - just that mine is better!). Even existing lenders might find it more attractive to convert the loan to a MHOS than to repossess. In the longer run the CLT ends up with more freehold land that would eventually, when the housing on it has reached its planned end of life be theirs to redevelop in the interests of the local community at that time and in the meantime the distressed owners get to keep their existing home, albeit with lower equity levels and lower debt levels.

Dare I even suggest that this might be a better way to spend $700bn than rewarding the bankers who helped cause the problem in the first place? Julia Goldsworthy , get in touch if you want to know more! read more »

Short selling

Jock — Sun, 21 Sep 2008 21:48:24 +0000

There's been much talk, most of it at least tacitly approving, of the restrictions or bans imposed in the past few days on so called "short selling" company shares. Most of you probably don't know that my first career, straight out of school., was as a trader on the stock exchange, followed by stints in several stock-broker firms mostly in private client advice and fund management, before I got into IT - which was as a result of my city experience. That's all a bit apropos of nothing really. After all, you'd be right in thinking that if I had been successful in this first career I might now be funding a think tank or something. But it gives a little background to my knowledge of this issue.

Short sellers, per se, are not the problem here it seems to me. Indeed the stock exchange relies on players prepared to go short - that's what market makers are effectively obliged to be prepared to do when they make a price.

Short selling is also an important way of the market getting the information it needs to make accurate value assessments. Longer term shareholders may have more emotional reasons than pure profit to resist pressure. Even perhaps just inertia. Sometimes even tax considerations. Short selling is also a way in which holders of stock can increase their returns on the stock by renting it to the short sellers. Little risk to them.

In my day, you could short sell, effectively, for fourteen working days. The London Stock Exchange used to work on a fortnightly settlement cycle. So for example a deal you do tomorrow, if tomorrow was a new cycle, would not need to be settled until the Monday in the middle of the next fortnightly cycle. If you went short tomorrow, you could, potentially, buy back for cash settlement (a special, premium service for urgent trades that was settled the next trading day) as late as the Thursday night before settlement day - so giving you fourteen trading days to see the stock fall and buy it back.

Nowadays everything is more or less "cash settlement" with positions settled the next working day - hence the self limiting requirement to borrow stock to deliver on short positions.

No, there's nothing wrong with short selling. Once you realize that the secondary market is stocks and shares is a big gambling den in any case, how can you outlaw one type of gambler and not another.

The real problem, it seems to me, with the run on HBOS shares for example, blamed on "short sellers", is the idea that some market players, hedge funds were cited, were "hunting in packs". Now, it is conceivable that even if there's nothing wrong with the fundamental financial health of a company, such a "pack" could be strong enough to provoke a run on a stock simply by weight of numbers. This, however, would be market manipulation. It would be legal, ethical, and even just plain sensible, to suspend trading in a particular share, or even in the whole market, if there was such illegal manipulation going on, or suspected. If a suspension was unwarranted, there should still be the equivalent of a "stewards inquiry" to determine if there was manipulation, a cartel operating, and if so how to punish them.

If the fundamentals were bad for HBOS, and actually I suspect that they were worse than the financial watchdogs have been saying - otherwise opening their books would have been enough to disprove the rumours - then the short sellers simply administered the coup de grace a bit more humanely perhaps than dragging it out for weeks more uncertainty.

I very much suspect that some hedge funds and private equity fund managers do aggressively hunt in packs occasionally. The fact that the secondary market is a gambling den makes it likely. That needs investigating. Market procedures for suspending trading in a market in which the true value of a company has become impossible to assess immediately need looking at. But having a go at the short sellers, who could, after all, just be the people maintaining liquidity in a particular market, is simply creating a scape-goat. The authorities should be ashamed. read more »

Fannie, Freddie, Africa and Europe in context

Jock — Fri, 18 Jul 2008 16:29:26 +0000

It has been estimated that Fannie Mae and Freddie Mac between them underwrite debt of some $5,000,000,000,000 and that US losses from the current credit crunch could amount to $1,600,000,000,000.

The entire external debt obligations of the world's 40 odd Highly Indebted Poor Countries (HIPCs) is some $300,000,000,000 - that's about 6% of Fannie and Freddie's problems. So any bailout of the US mortgage system is going to amount almost certainly to more money than would write off all that, mainly African, debt (were that the best way to proceed, which I believe it is, with conditions).

By contrast the EU has today decided to support the idea of giving the surplus it has made on the Common Agricultural Policy as a result of rising food crop prices (so it has been subsidising less) to "African farmers". That's about €1,000,000,000 - or one three-thousandth of Fannie and Freddie's problems and two hundredths of Africa's problems.

But where did they get that money from, how did it arise? Robbing those very African farmers by denying them access to our markets and subsidising dumping on theirs. Tariffs are pure evil, aren't they?

So, whenever anyone says to you that it's difficult to find the finance for debt relief in the poorest countries, you'll now know that is total bollocks. Just think of the scale of the US mortgage debt and what such sums could do for the 600 million or so poorest on the planet. read more »

debt money