Forever Blowing Debt Bubbles... When Will The Latest Burst?

I found myself watching The Big Short again on Saturday, and made a note to catch up on the current state of various debt bubbles that have cropped up in the news during the past few years. The signs are not good, given we're yet to recover from the ill-effects of the last financial crisis. Check 'em out...

UK consumer debt hit new heights in July 2018, and hit a new peak in January 2019, while household savings are at historically low levels. I wonder if there's an event about to hit UK consumers that we should be concerned about...?

Meanwhile, concerns about 'leveraged' corporate loans began circulating in 2018, and a fresh warning came from the OECD yesterday. Not only have companies with lower than investment grade credit ratings been borrowing a lot of 'cheap' money at low interest rates, but about 80% of such loans are also on terms that leave lenders much less protected than usual ('covenant-lite'). So if these less-than-investment-worthy corporate borrowers default, the proportion of loans recovered will be much lower than normal.

Again, is there an event looming that might add to financial stress for corporate Britain...?

Of course these leveraged loans are securitised or packaged into asset-backed securities ("ABS") known in this market as "collateralised loan obligations" or "CLOs") to enable investors to speculate in bonds based on the performance of these loans. I saw analysis last year that suggested recovery rates about 15% lower than lenders would typically expect. Here's a more detailed discussion on that from April 2018 - a picture which will no doubt have worsened since then...

Here’s another problem area: more Americans than ever are 90 days late in paying their auto loans, a trend now in its third year.

Of course, auto loans are also securitised into ABS so investors can speculate on the performance of the underlying loans. The issuance of bonds based on auto loans hit a post-financial crisis peak in 2017 and kept going. Here’s what was said about the ABS market for auto loans a year ago - well before 90 day delinquency hit record highs.

Fasten your seat belts...

FinTech: BIS Shakes The Banking Snow Globe - Anything Could Happen, Nobody Blamed

At least 17 years too late, the Bank for International Settlements (the central bank for central banks) has become very concerned about the impact of technology on the finance world. So concerned, in fact, that it has... produced a report for comment by the end of October.  Cue another vast exercise in global regulatory group-think...

The scenario is already amusing, but the report is laugh-out-loud material. It argues persuasively for every possible outcome, like some management consulting report on e-commerce from the early days of the Internet. Some banks will survive, others won't, for at least 10 significant reasons. Choose your bank, take your pick. Though in reality every bank is probably subject to all 10 in some way or other. 

Recommended actions are lofty and bland. They do not herald a departure from "same business, same risks, same rules" mantra that got the banking industry (and the broader regulated finance sector) into the current mess, nor any realisation that "fintech" doesn't represent the "same business" in the first place. In fact, we heard all the same stuff from central bankers back in April.

Never mind the obvious overall conclusion that the sector as a whole is doomed to wither for being glacially slow to adapt, brittle, hidebound and herd-like. Even central banks and BIS itself are clearly at risk. Maybe that's why some of them (and securities regulators) have now resorted to banning "initial coin offerings" of digital currencies without even being able to coherently explain why. The lack of self-awareness is hilarious. 

Anything could happen, but rest assured none of the this lot will be blamed.

Britain's Emigrants Queue For Ex-EU Handouts

As the final echo of the Vote Leave battle bus dies away amongst the villages and byways of England's south west, a strange chant rises in its place. Jacob Rees-Mogg MP, Conservative Party spokesperson for South West England, pauses in his piece-to-camera for a German film crew investigating Roman tin mines, listens, then shakes his head. "Never mind," he says to the director. But as the crew ready themselves for a re-take, a battered green Land Rover draws up and a familiar local official emerges. 

"Not now, Arnold."

But the man steps forward, flat cap held nervously in front. A faint breeze brings with it the hum of "We want our grants!" and catches the man's exposed comb-over so that it stands up like a horse-hair plume on a Roman soldier's helmet.

"Beggin' your pardon, sir."

The Germans begin filming.

"Not now, I say."

"It's about the three fifty million, sir."

"Yes, yes," Rees-Mogg snaps, trying to focus on the camera. "Boris has it in hand."

"That's what we're worried about, sir."

Rees-Mogg waves him away. "It's a figure of speech, man. Can't you see I'm working?"

"Not all of us are lucky enough to have jobs, sir."

"Look, we have years to worry about that, but a week to complete this film about the region's economic heyday before the funding from Brussels runs out. We can discuss it later." 

"That's not what the gentleman from the Commission used to say - "

"Go away! Please!"

"- he were very responsive."

Rees-Mogg heaves a sigh and says to the German. "Sorry, we can edit all this out."

"The Cornish are restless, sir," Arnold persists. 

Rees-Mogg sighs again, "It was ever thus," he says, partly for the German director's benefit. "Look," he says, turning to Arnold, "Explain to them that it was written in letters three feet high and thirty feet long that all the money would be spent on the National Health Service. So if they want their share, they should jolly well get sick."

"I could tell 'em that, sir. But I don't think they'll be very pleased."

"Well, then they can call Boris."

"Yes, sir."

"Now go away."

"Yes, sir."

"Forever."

Little Britain Votes To Leave

In the worst act of vandalism since the Visigoths sacked Rome in 410, the UK has been ripped out of the European Union by regional voters, led by a trio of politicians that caricaturists could only dream of who perpetrated a campaign that "descended into dishonesty on an industrial scale". 

Yet the Brexit map of the UK shows that those who voted for Britain to leave the EU are not only among those who were the net beneficiaries of EU funding, but are also utterly dependent on the areas that voted to remain to negotiate the terms of Brexit and to plug the regional funding gap that the EU money filled: the 'Leave' campaign demanded that Britain's contribution to the EU be diverted into the black hole that is the NHS budget and that is exactly where it will disappear.

All the facts and projections labelled as 'doom and gloom' now loom as reality. 

This Is Not The Time To Let Bank Management Off The Hook

The CEO of UBS yesterday joined other wolves in sheeps clothing big bank leaders in calling for freedom to make 'honest mistakes' (last year it was the crew at HSBC!). 

This is just a confidence trick. After all, the word "mistake" covers many different types of sin and bank culture doesn't seem to distinguish between honest and dishonest ones, as Andrew Hill of the FT has pointed out. He also cites a memo from JP Morgan's CEO as warning against descending into "a culture of back-stabbing and blame" - but from what I understand that's exactly the culture that already prevails, at least amongst rival managing directors. Emails disclosed in numerous scandals reveal that these are dog-eat-dog environments, full of perverse incentives, where everything from taking the credit for other people's efforts to fiddling records to incurring the odd regulatory fine are just speed bumps along the road to fees, profits and this year's bonus.

Ignorance of exactly what is going on at operational level is another aspect of this confidence trick. Recently, the CEO of government-owned RBS told John Snow of Channel 4 News that he "didn't know" whether there were other major scandals waiting to break. I guess it's a tricky question to answer, but it does highlight the conclusion from the Parliamentary Commission on Banking Standards that these banking groups appear to be beyond management control, enabling those at the top tend to avoid culpability. Remember, too, that many of the recent scandals, like currency market rigging, arose well after the start of the financial crisis. So nothing has really changed since the aptly nick-named 'noughties' (lest we forget Bobby "Dazzler" Diamond's immortal words in 2011!).

And to suggest that regulation might mean big banking groups will tend to take less risk in doing things that customers care about, like lending to small businesses or paying higher returns on savings, is poppycock. They aren't bothering to do this anyway. They just want the freedom to make more money for management, and possibly shareholders. They are simply not customer-led businesses.

For all these reasons, the bank CEOs should continue to be roundly ignored.

The Old Fake Collection Letter Scam

I've read with fascination the UK banks' attempts to justify their decades-old fake collection letter scam. The RBS letter is here. The HSBC letter is here. The Santander letter is here and the Barclays letter is here. Lloyds also admitted to using the same trick. Despite the attempted justifications, all the major banks have stopped the practice. But how much will it cost them, and what other scandalous conduct is lurking in their processes?

News of the banks' scam followed uproar over the admission by Wonga that it had used a similar practice four years ago (probably borrowed from the banks). Even the Student Loan Company had been in on the act. Wonga had confessed the issue to the Office of Fair Trading, and agreed to pay customers £50 each in compensation, presumably to avoid problems with its consumer credit licence during the transfer of consumer credit licensing responsibility to the more aggressive Financial Conduct Authority.

Basically, the banks and others played on the idea that debtors are more likely to pay up when a creditor hires someone else to recover their money. The letters from the CEOs of Barclays and Lloyds stated that their debtors tended to ignore chasing letters on bank letterhead (the banks seemed oblivious to the idea that everybody dreads a letter from the bank - especially ISA customers).

Of course, the banks were reluctant to actually pay anyone else to chase their debts. So, instead of hiring independent collections agencies and law firms, the banks simply created their own firms and called them something different to create the appearance that a genuinely independent third party had become asked to chase the debt. Whether they also charged the same recovery fees as independent firms remains the subject of investigation by the FCA.

The major banks also pretended to the authorities that they weren't responsible for collecting their own debts. When the Office of Fair Trading consulted with the industry on new debt collection guidance in 2002, the banks didn't respond under their own brand names, as creditors. The list of respondents in the Annex to the consultation response only included the banks' pet collection agencies and law firms.

But as the OFT's Debt Collection guidance made clear (in section 1.9), it's the creditor who is expected to "abide by the spirit as well as the letter" of the guidance, not just its collections agencies, and ignoring the guidance could affect the creditor's licence to lend in the first place. The guidance goes on to state:

"2.1 It is unfair to communicate, in whatever form, with consumers in an unclear, inaccurate or misleading manner.
2.3 Those contacting debtors must not be deceitful by misrepresenting their authority and/or the correct legal position.
2.5 Putting pressure on debtors or third parties is considered to be oppressive.
2.7 Dealings with debtors are not to be deceitful and/or unfair." 

The OFT's 2003 guidance was updated in 2011 and has since been enshrined in the FCA's new consumer credit rules. Hence, like Wonga, the banks have becone increasingly anxious to clean up their act.

The narrow question is whether the banks will need to compensate customers affected and, if so, how much. 

The bigger question is how many more examples of banks' systematic disregard for customers are lurking in their processes?

Why Bankers Make Poor Managers

If UK banks ran our restaurants, we'd all be spending a lot more time in our smallest rooms.

In the latest example, the Financial Conduct Authority found that only 2 of the 164 RBS and NatWest mortgage sales reviewed actually met the required sales standard. Even the banks’ own tests confirmed the problem that borrowers were at grave risk of being sold the wrong type of mortgage. Yet it took the banks nearly a year to stop fiddling and begin taking proper steps to resolve the issues. Worst of all, this took place in 2011 and 2012 - long after the events of 2008 had alerted everyone to just how poorly these banks were managed generally; and after numerous specific failings had been detected in their retail operatons. The same banks had just been fined for failing to screen customers and handle complaints appropriately - and had even failed to enable customers to pay bills or access money. 

Of course, RBS and NatWest are not alone, and the banks' problems are not confined to their retail operations. Most of the major banks are embroiled in scandals arising from lack of operational controls of one kind or another.

Over at heavily-embattled HSBC, the Chairman and Chief Executive have been whingeing about the 'cost of compliance', as if it's a dead weight they're forced to bolt-on to the side of their sales process, rather than a set of largely common-sense business rules that should be embedded in their operations. 

They don't seem to realise what a sad indictment it is on the level of management skill in the financial services industry that successive regulators since 1986 have felt obliged to spell-out in minute detail how to operate a financial services business at every level and in every scenario. As a result, no human could possibly lift a printed version of the FCA's 'Handbook'. 

The same charge can be made for failings in longer term strategy. The government had to force the banks to invest in faster payment processing capabilities, for example, and it took an extensive series of court battles before banks were finally shamed into 'voluntarily' reducing overdraft charges. The most recent indictment on the levels of skill, enthusiasm, initiative, vision and energy at the top of the UK's banks is that the government will have to regulate to make them refer rejected business funding applications to alternative lenders. 

That's right, UK bank executives aren't even up to negotiating simple lead-referral arrangements.

Which begs the question: what do UK bank executives actually do all day?

Why, they fight regulation, of course, and all the operational rigour it seeks to impose.

HSBC Still Doesn't Get It

You would not expect a conglomerate under heavy regulatory fire to use its latest results announcement to campaign against regulation. But that's HSBC for you.

Yesterday, the CEO complained that the group now spends $800m a year on 'compliance and risk programme', an increase of $200m, with more to come next year. In other words, even after years of scandals and massive fines, HSBC remains under-invested in compliance and risk controls.

Even more alarmingly, the Chairman says that such resources would otherwise be spent on customer-facing staff, who he says are becoming too risk-averse. But that's exactly what regulators, customers and taxpayers are afraid of - the biggest banking group in Europe spending an extra $200m a year selling toxic crap without adequate controls over an aggressive salesforce. 

Bizarrely, HSBC's Chairman is also pushing for the ring-fencing of the retail bank to be deferred at the very same time as a major Portuguese bank goes under.

Not a great attitude to regulation from the leadership of a bank that has 3 years to go under the deferred prosecution agreement it signed with US authorities for money laundering and sanction breaches - ending HSBC's involvement in $100bn worth of businesses. That's in addition to claims for market rigging, mis-selling PPI and interest rate swaps, not to mention it's starring role in the 'Magic of Madoff'. 

I can't imagine that Res Publica's Virtuous Banking report went down terribly well at HSBC HQ.

At any rate, with revenues already down 9% and pre-tax profits down 12%, in the year to June, you can expect a lot more bad news from these bozos. 

Short Selling Hygiene

Good to see the short sellers doing the regulators' work for them again - not that the authorities like it. 

Last week, Spain's stock market regulator called on the SEC and the FCA to provide information about short seller Gotham City at the same time as its dodgy target, Gowex, was declaring GC's fraud allegations to be "categorically false". But yesterday, Gowex's founder admitted to falsifying accounts for past four years.

It defies belief that short sellers should be able to find such golden opportunities amongst listed companies. 

Just goes to show that auditors still need to understand the nature of scepticism. And that regulators could benefit from hiring some traders of their own.

The Hideous Cost Of Banking 'Standards'

I'm a great fan of trade bodies that introduce necessary self-regulation and create an efficient bridge between industry and officials. But news that UK banks will add to their enormous lobbying efforts by spending an extra £7-10m on a new "Banking Standards Review Board" definitely strikes me as overkill. 

I mean, what's the British Bankers' Association for, if not to ensure decent industry standards? Does the need for a new 'standards' board mean that the BBA has failed? If so, shouldn't it be dismantled? What about the Lending Standards Board? It's role is "to monitor and enforce the Lending Code and to ensure subscribers provide a fair deal to their personal and micro-enterprise borrowing customers." Surely it failed in that aim long ago?  Or is it that such bodies are really just lobbying outfits that merely pay lip service to effective self-regulation? In 2011 alone, The Bureau of Investigative Journalism found that the City spent £92m on lobbying regulators and politicians, which it described as an "economic war of attrition." Even the Confederation of British Industry has been captured by the banks.

Lord knows how much it really costs to run these lobbying outfits and face savers. But you can bet that customers and/or taxpayers end up paying for them in the end - not to mention the 2000 extra staff that the Financial Ombudsman Service has had to hire since 2012 to deal with the million complaints about payment protection insurance, or the endless Parliamentary time, or the £20bn in PPI compensation that the banks must fund. In fact, the London School of Economics found that poor conduct among the world's top 10 banks, including 5 UK outfits, had cost nearly £150bn by the end of 2012, and there have been vast fines and compensation payments since. 

Isn't it time for the banks to stop talking their way through everyone's money and just get on with the job of supplying decent financial services?

Bischoff's Understated Record Speaks For Itself

The departure of Lloyds Banking Group chairman, Sir Win Bischoff, provides another reminder that nothing much has changed in UK banking. 

The so-called 'City grandee' has spent the past five years as chairman of a banking group that's been fined at least £40m so far, and owes customers £10bn in compensation for mis-sold PPI. The fines have included £28m for mis-selling individual savings accounts and income protection insurance products between 2010 and 2012. Yet Win still talks of banking with his 'stomach' (as did the Lehman's gang) and trots out the languid understatement that "all of us have to be very much more mindful of whether the product or service we provide actually meets the needs of the customer." 

Win doesn't need to say that he hates all this new-fangled regulation - we get that from the career stats - but he reminds us anyway, in typically understated fashion: "I still hark back to the days when I would have tea with the governor of the Bank of England and he wouldn't be sitting there with the rule book. He would say '"Win... is this the right way of going about it or should you be in this kind of business'." 

History doesn't record how often the governor actually said this to Win, or what Win said or did in response (if anything). But it's pretty clear that tea consumed in this manner was spectacularly harmful for the UK economy. Unless, of course, you count steadily declining bank competition, mortgage endowment mis-selling, consistent underinvestment in payment systems and a century of under-funding small businesses as wondrous achievements... (and, you know, I think Win just might!).

Anyhow, Win will have plenty of opportunities for cosy chats over a nice cup of tea in future, as he's off to head up the Financial Reporting Council, the accountancy 'watchdog'. They'll relish his capacity for understatement over there, too. You see the FRC has been having a little difficulty in defining the nature of scepticism in the audit context...  biscuit?

2013: Levelling The Financial Playing Field

Six years of financial crisis have finally produced some of the legal changes that will expose the cosy world of regulated financial services to innovation and competition. But there is plenty more to do.

During 2013 we've seen consumer credit move to the FCA, the regulation of peer-to-peer lending, and the FCA's proposed rules for how the 'crowd' can lend and invest. And this week the Banking Reform Act implemented the recommendations of the Independent Commission on Banking and key recommendations of the Parliamentary Commission on Banking Standards.

Some may see these changes as a magnificent display in closing the stable door. But I prefer to see it as an opening of the floodgates. 

After all, the European Commission is consulting on its own approach to regulating online financial marketplaces; and the US states are competing with the Securities Exchange Commission on the regulation of crowd-investing.

So 2014 will see a lot of focus on enabling the growth of alternative financial services, at the same time as the banks become even more preoccupied with solving their own problems at their customers expense.

That bodes well for a market that grew 91% in 2013.

But, like I said, there's still a lot of work to do.

 

Help To Bubble

I just don't get it. The UK is awash with debt it can't shift, yet the UK government thinks it's a great idea to ensure that people get £130bn of mortgages they can't otherwise afford. 

A Treasury spokesperson is quoted in today's FT as saying that "there are rules ensuring that people can pay the mortgage that they have taken on." But if they couldn't have got the mortgage in the first place, how is that so?

It would be fair enough if someone were able to point to specific, unreasonably restrictive bank lending practices and get them changed. Yet neither the Treasury nor the Bank of England has been able to bring the banks to heel, so putting the taxpayer on the hook for 15% of a bunch of new high loan-to-value mortgages seems a little careless to say the least.

But maybe it's too late. Maybe we're just seeing the inevitable consequence of the fact that the UK state is already standing behind £491bn of UK mortgage debt, or 42%. The state simply has to be back even more. The US introduced this nonsense as a 'temporary measure' 70 years ago and, as Gillian Tett recently pointed out, is now behind 90% of the US mortgage market. How's that working out for them? You be the judge.

Welcome to Bubbleland.

Image from LuxLifeMiami.

We Need Let The Crowd into Financial Services

What a difference a year makes. At an industry event yesterday none other than Nicola Horlick, a well-known fund manager, confirmed her faith in crowdfunding as way of people putting money directly into the lifeblood of the economy, at a time when bank finance for small businesses is limited. Her own film finance vehicle raised £150,000 by issuing shares within weeks of an initial discussion with Seedrs CEO, Jeff Lynn, about how the crowd might help. A year ago, she wouldn't have given it a moment's thought. 

Of course, Nicola was referring to equity crowd-investing, which is the latest type of crowdfunding to burst into life. People have been donating to each other's projects via online marketplaces for nearly a decade and lending to each other online since 2005. Even the UK government is lending along side savers on peer-to-peer lending platforms. 

But these 'direct finance' marketplaces are no longer simply challenging a dozy bunch of retail banks. The addition of crowd-investing in shares and bonds is a direct assault on the sophisticated world of venture capital, private equity and boutique investment banking. 

Silicon Roundabout has launched a rocket attack on Mayfair.

This trend has raised a few bushy eyebrows down at Canary Wharf, where the paint is still wet on the signage at the hastily re-named Financial Services Conduct Authority. Not everyone at the FCA is excited by the prospect of just anyone being able to put a tenner into a business run by Nicola Horlick. In fact, the 'hawks' down there seem to believe that ordinary folk should content themselves with a low interest savings account, a lottery ticket and a flutter on the nags between visits to the nearest pub. If you can't afford to lose a grand, say the hawks, then you've hit the economic buffers. The banks can enjoy the use of your savings for free, while the government enjoys the betting taxes and the excise on your beer and cigarettes.

And we wonder why the poor get poorer.

You might also wonder, as I did yesterday, how 'the government' might explain to the same person who is banned from buying a share in the local bakery why he is still be free to blow £10 on a drug-fuelled quadruped at a racetrack, or donate it to a band that might go triple platinum and never have to share a penny of the upside with those who backed them.

But that's where you're reminded that the government never puts itself in the citizen's shoes; and there's really no such thing as 'the government' anyway. Just individual civil servants at separate desks in separate buildings, each looking at his or her own policy patch and waiting to be told what to do. Collaboration is not a creature common to Whitehall. In that world, no one at, say, the Treasury snatches up the phone to share a bold new vision for driving economic growth from the bottom-up with the folks over at Culture Media and Sport, or Business Innovation and Skills or Communities and Local Government. 

Or do they...?

At least those in Parliament, bless them, did collaborate in response to the ongoing financial shambles. Julia Groves of the UK Crowd Funding Association quoted some choice words on alternative finance from the report of the Parliamentary Commission on Banking Standards, and I've set out the full quote below (as I have previously). Julia also put it very nicely in her own words: "Wealth is not a skillset." We need to let the crowd into financial services, and we need to keep the 'crowd' in crowdfunding. Let's hope this time the following message permeates all the way to the remaining hawks at Canary Wharf.

"57. Peer-to-peer and crowdfunding platforms have the potential to improve the UK retail banking market as both a source of competition to mainstream banks as well as an alternative to them. Furthermore, it could bring important consumer benefits by increasing the range of asset classes to which consumers have access. This access should not be restricted to high net worth individuals but, subject to consumer protections, should be available to all. The emergence of such firms could increase competition and choice for lenders, borrowers, consumers and investors. (Paragraph 350)

58. Alternative providers such as peer-to-peer lenders are soon to come under FCA regulation, as could crowdfunding platforms. The industry has asked for such regulation and believes that it will increase confidence and trust in their products and services. The FCA has little expertise in this area and the FSA's track record towards unorthodox business models was a cause for concern. Regulation of alternative providers must be appropriate and proportionate and must not create regulatory barriers to entry or growth. The industry recognises that regulation can be of benefit to it, arguing for consumer protection based on transparency. This is a lower threshold than many other parts of the industry and should be accompanied by a clear statement of the risks to consumers and their responsibilities. (Paragraph 356)

59. The Commission recommends that the Treasury examine the tax arrangements and incentives in place for peer-to-peer lenders and crowdfunding firms compared with their competitors. A level playing field between mainstream banks and investment firms and alternative providers is required. (Paragraph 359)."

Either Gillian Tett's On Fire...

Ominous bursts of smoke have been rising from Gillian Tett recently. 

On September 12, the lady who gave us Fool's Gold pointed out that six key aspects of the financial system in 2008 are far worse now. 

The banks are bigger. Shadow banking is bigger. Investor faith hinges on central banking 'wisdom' and liquidity, while the top 5% of bankers are soaking up 40% of that support in bonuses. No one has been jailed for their role in the sub-prime fiasco. And the US government agencies now account for 90% of the mortgage market...

Today's smoke is rising over the Federal Reserve's decision to keep buying smack bonds at the rate of $85bn a month. It appears to have concluded that the West simply can't handle the withdrawal symptoms. Meanwhile, the UK regulatory elite has finally started to ring the bell over the fact that only 10-15% of the money our banks create actually goes to productive firms, while the rest is stoking financial asset bubbles... And, oh look, the real estate agency, Foxtons, has soared on its return to the stock market.

Either Gillian Tett's on fire, or something else sure as Hell is.

Image from JetSetRnv8r.

There Is Not A Great Retail Bank In The UK

Ross McEwan's appointment as CEO of RBS roundly endorsed his remark that he has been "quite surprised by how bad this industry is. There is not a great retail bank in the UK." 

This from a banker who's reported to have twice failed an accounting module, been passed over for top dog at Commonwealth Bank of Australia and to be "more comfortable with people than figures." 

It's hardly an insightful comment, given the enormous publicity surrounding the damning testimony to the Parliamentary Banking Standards Commission, but McEwan is the first senior banker to have the self-awareness to actually admit the appalling state of the industry. As such, the remark even topped today's editorial in the FT. I mean, there's only so much the pink propaganda machine can ignore.

Amidst all this, the Information Commissioner's Office finally revealed the miserable little saga of Bank of Scotland's "chronic and repeated" disclosure of sensitive customer information. Apparently it sent faxes from many different machines to wrong numbers from 2009 to 2012, despite alerts and complaints from mistaken recipients, and notification that the ICO had begun to investigate. The fine: a mere £75,000. Another speeding ticket on the road to oblivion.

Add this to the revelations of UK banks' gross misconduct and poor controls over the past few years, and you have to doubt the wisdom of handing shares in these businesses to the general public. 

Unless, of course, you want taxpayers to experience the banks' terminal decline firsthand. A sort of 'scandal to end all scandals'.  That would be nice.

Less From the Pulpit, More From the Pew

The Church of England's terrible muddle over pay day lending shows that it's out of touch with the details in the payday lending market. Just as we've seen in other markets, pontificating from the top down is no substitute from working on problems from the customer's standpoint. So, a little less output from the pulpit's point of view and more from the pew's would be no bad thing.

As mentioned previously, the challenge for borrowers who need or want to borrow short term is finding a combination of speed, convenience and affordability. In March, the OFT's own research revealed that 90% of online customers found the it "quick and convenient" to get a short term loan and 81% said such loans make it easier to manage when money is tight. Customers expressed their satisfaction in terms of decision speed (36%), convenience (35%) and customer service 27%). The majority of payday customers (72%) only borrow for a month. So, the critical issues seem to be how to ensure the other 28% are better able to understand the risks of rolling over short term loans, and how to avoid it; as well as cutting the overall costs for those who use short term financing. 

The root causes of these problems do not lie in the cost of payday loans. Short term borrowers are often working amongst the contractual fine print of late fees, cancellation notices and so on. Allocating money to debts 'just in time' is a high risk occupation. One slip can make life hell in a non-financial sense - maybe the kids won't have school shoes, there will be no heating or the landlord will finally lose patience. Credit cards, debit cards and cheques are useless from this sort of timing perspective, because they don't tell you how much you have left to spend at the time you use them. There can also be an accounting lag between when you pay and when the transaction lands on your account, so you can find yourself 'surprised' by a payment you thought had been accounted for days or even weeks previously. And the amount of interest and other charges is only known when it appears on a monthly statement. We hear a lot of noise about APRs, but not so much about the timing problems or the scale of fees payable when you get on the wrong side of bank products - these are far more relevant to short term borrowers, and why many remain 'unbanked' by choice.

In these circumstances, rather than playing money-lender, it would be better if the Church could foster the development of an application or other means of presenting to a borrower the most affordable short term finance option, based on the analysis of the borrower's own transaction data from existing creditors (including cancellation rights and late fees), and the costs of different finance products (including charges for missing a payment). This really only requires a commitment on the part of all the typical creditors and financial services providers to make their product and pricing data available in machine-readable format, which the government has been pushing them to do as part of the voluntary 'Midata' programme. That data can then be analysed and the results made available either online or physically, via mobile phone, computer or print-out. 

No doubt the Devil is in the detail underlying such a service. But surely the Church isn't bothered by that?

A Feast Of Anger And Blame

You have to wonder whether the UK's banking crisis will ever end. After months of wrangling, the regulators have finally decided which UK banks are still short of about £26bn in capital (for now). But yesterday's Parliamentary Banking Standards Commission report points to an endless list of more serious problems that won't be solved by simply leeching yet more billions out of the economy.

The members of the BSC must be highly commended for taking on the long overdue job of trying to bring Britain's banks to heel. Volume 2 of the epic report is an invaluable account of their painful journey, made poignant by the fact that, until quite recently, the members of the Commission actually believed in our rotten financial system. The scale of their disillusionment is almost beyond comprehension. What perhaps started as an investigation into fairly specific allegations of corporate malfeasance resulted in one proud British institution turning on another out of a sense of betrayal. 

So, apart from its entertaining descent into the gory details of British banking, the BSC report represents yet another hammer blow to our faith in society's institutions - this time delivered by one of the ringleaders, namely Parliament itself.

Yet the question remains as to just how far along the 'change curve' we have really travelled. Despite the BSC's list of recommendations, we seem to be merely inching our way through anger and blame, rather than understanding and accepting that the world has truly changed and we need to move on.

While the Commission has voiced great support for alternative finance models and eliminating perverse tax incentives, and the Treasury and FCA have made some proposals to improve the regulatory landscape, the rhetoric from the government continues to put banks at the heart of Britain's economic future, rather than a more open, diverse and innovative financial system.

How much more economic mayhem it will take for society to genuinely 'move on' is anyone's guess.

PAC Fiddles While Public Money Burns

This week saw the publication of two reports that highlight the woeful set of priorities that govern the activities of the Public Accounts Committee and the media bandwagon that follows it. 

The first was the repeat of PAC's outrage over Google's international tax affairs. It seems we really are expected to believe that (1) these MPs are unaware of the rules governing where a company is 'permanently established' under OECD/UN Conventions and other tax treaties; (2) that the amount of additional tax that Google might have otherwise paid on about £3bn a year of revenue during 2006-2011 would have saved the UK economy; and (3) the UK does not benefit from the application of these rules to its own firms in other jurisdictions.

The second report came in the form of the lastest Bumper Book of Government Waste (itself hardly 'new'), which highlights yet again the £120bn that the public sector burnt last year for absolutely no benefit whatsoever.

With priorities like these, we should add PAC's own budget to the bonfire.

Political Lipstick On a Pig

Source: Guardian/Observer

The spin doctors are feverishly applying lipstick to RBS, so it can be 're-privatised' in time for the next election. No matter that the bank is still short of capital after five long years of public ownership, that the Exchequer is sitting on a £19bn loss and that the bank continues to lend less and less to the productive economy while soaking up the subsidies.

Renowned for 'group-think', the IMF also seems to have seized on the election as an opportunity to get the politicians to 'clarify the plan' for continued state ownership. Duly emboldened, the Chancellor has dismissed calls by other departments and members of the Banking Standards Commission for the bank to be broken up as not being achievable within the electoral time frame.

Of course the election won't wave a magic wand over RBS's inability to operate without massive public subsidy, or its failure to align with the interests of its customers. It will always have cheap ISA money to fall back on, and it's obvious by now that no one will force it to lend more to small businesses. It even recently announced heavy overdraft charges, on top of its many previous expressions of contempt for those it is supposed to serve.

Instead, the government sees the 're-privatisation' as a sweet opportunity to enhance its electoral standing, sexing-up its plans to 'give away' some RBS shares as a sign of its commitment to 'protecting' or 'maximising value' for taxpayers. It's as if laying the blame for the astronomical cost of the bailout at Labour's door somehow resets the counter to zero...

Promising RBS shares to every taxpayer is of course a standard political ploy, designed to prey on middle class greed (the rich couldn't care less, and the paper will be slim comfort to those on lower incomes). On this occasion, however, the proximity of the election might also lead some to describe it, rather aptly, as 'porkbarrelling'.

But the very reason the government wants to foist RBS shares on you is the very reason you shouldn't want them. Free of its chains, this porcine monster will be eager to get its snout back amongst the big, speculative assets as quickly as possible, and your shareholding will be taken as a personal vote in its favour. Some might even naively cheer the beast on, dreaming that their stake in the mystical 'upside' from its activities will somehow compensate them for getting fleeced on the bailout in the first place, and all the disasters that have followed.

Meanwhile the rest of us will wait forlornly - along with the inert, beleaguered customers - until the government finally pours another bucket of publicly funded swill into the banking trough.