Of "Credit Easing" and P2P Finance

Source: Bank of England

The governments proposal to intervene directly in the corporate and small business funding markets shows how grave it is that lending to UK businesses is shrinking.

But it seems crazy for the taxpayer to prop up zombie banks - subsidising tax-free savings rates that allow banks an average margin of 11% - and then to use more public money to shunt aside nascent private competitors. Surely, the result will be a never-ending spiral of financial dependency on the public purse. 

As NESTA recently reported, there are more innovative ways to finance small business. But the current regulatory framework - ironically designed to protect us from the banks - makes it unduly painful in terms of time and money to start true competitors. Which is why the P2P Finance Association was formed to help inform the move to a new regulatory framework and pave the way for new entrants. Without any of the vast subsidies the banks receive, these new platforms will lend more than £100 million this year to individuals and small businesses - and they already account for over 2% of the UK personal loan market.

So why doesn't the government foster the growth and development of alternative means of finance, rather than use public money to put them at risk?

For instance, why not extend the ISA tax-free cash subsidy to lending via peer-to-peer platforms?

GreedTV

I believe that mainstream popular culture is a pretty good bellweather for the national state of mind. That's not to say there's necessarily a causative impact (apart from fads), merely reflective.

Last year, I was struck by Hollywood's happy ending to Money Never Sleeps, which celebrated the fraudulent success of one Gordon Gecko. Later, I wondered whether there is anything else we regard as socially more important than the accumulation of wealth?

This year, having already witnessed that greed and stupidity are winning, I've been struck again by greed-inducing TV programmes like The Million Pound Drop and Red or Black.

Maybe people need 'hope', but surely this sort of cheap route to fortune is merely setting us up for frustration.

What sort of film and TV would reflect a culture that has adjusted to our new economic reality?

In Brussels It's Always 3 Years Ago

Yesterday's speech from the European Commission President perfectly underscores Brussels' feeble grip on reality. 

Now is not the time, amidst multiple sovereign insolvencies - "a burning building with no exit" - to be debating (yet again) the need for a 'Tobin Tax' that might take effect in 2014. 

Now is not the time to be recommending legislation that might one day deliver greater centralised control. Nor is it timely - or wise, given the confessed lack of central control - to assert that solutions cannot be achieved by negotiations between governments. 

Surely, the EC President's role in such troubled times, if he ever really had one, was to do all he could with the structure he'd been given. Which would have included locking governments in a room until they did what was necessary.

Alas, that opportunity slipped by in 2008, if not before. "Europe" is an ex-parrot.

Even the news that German MPs have backed moves to bolster the Zerozone rescue fund is beside the point, as Satyajit Das explains in an excellent article today. The Zerozone central banking system simply does not have the capital to leverage itself, CDO-style, to the point at which the rescue mechanisms need to stretch:

"A 20 per cent first loss position may be too low. Unlike typical diversified CDO portfolios, the highly concentrated nature of the underlying investments (distressed sovereign debt and equity in distressed banks exposed to the very same sovereigns) and the high default correlation (reflecting the interrelated nature of the exposures) means potential losses could be much higher. Actual losses in sovereign debt restructuring are also variable and could be as high as 75 per cent of the face value of bonds."

We must get our heads around the fact that Europe's building will inevitably burn down.

So where will you be in 2014, Mr Barroso?

Images from Crisisboom and The Nation.

Labour Rolls Out The Porkbarrel. Again.

Forget "Fulfilling the promise of Britain" the most boring, leaden, ominous tag-line ever conceived.

Forget the dweeb whom the unions allowed to be "leader".

Dig a little into its shallow grave and you realise the Labour Party is still offering you... More!

Gordon Brown's former henchman, Ed Balls, says he "deeply regrets" that their last round of porkbarreling transformed Britain's economy into a complete shambles. Nevertheless, he insists he has some new "tough fiscal rules" for the future (remember Gordon's "Golden Rule"?) - indeed, Balls says he has a five point plan to give you More: 

1. More greed - if we aren't greedy for punishment we won't hire more civil servants, who won't become union members, who won't vote Labour.

2. More civil servants - because they tend to join unions and vote for the party most likely to grow the public sector.

3. More union members - because they control the vote at Labour's annual conference, the leadership and the party's finances.

4. More money - Balls says he would borrow more to pay for public sector growth.

5. More spending - to complete the vicious virtuous circle.

And here's where that takes you:

Okay, So How About A Mutual Europe?

Putting harsh economic reality aside for a minute, those who've always suspected that the Euro was a political Trojan horse for full fiscal European union must be highly amused by the current rhetoric.

The self-congratulatory political engineers of the European Union, like Jacques Delors, are lambasting their successors for ruining the grand plan. In their minds, monetary union and the Euro should have naturally led to complete union by now. That having failed, suddenly an enormous shared debt is suggested as the new political vehicle for the single market vision:

"To avoid falling, the choice looks straightforward to me: either member states accept the robust economic partnership I always demanded, or they transfer more powers to the Union."

Delors said Merkel and Sarkozy were playing games by arguing for "a minimum amount of cooperation designed to limit any transfer of sovereignty" to Brussels.

Taken on that basis, the ideas for eurozone reform they put forward on Wednesday after a head-to-head in Paris "won't amount to a hill of beans...

[Delors] instead called for a part-mutualisation of eurozone member states' debts, "up to 60 percent of GDP," saying the pooling of guarantees on that basis would "put out the fire" on money markets." 

Or, as Hunter S. Thompson once put it: 

"when the going gets tough, the weird turn pro."

"Fear and Loathing at the Super Bowl" 
(Rolling Stone #155, Feb. 28, 1974)

All very reminiscent of the following scene: