Don't Just Move Your Money: Spread It, Recycle It.

Great to see the MoveYourMoney campaign up and running - certainly a step up from the calls for futile mass withdrawals in 2010. But there are two significant gaps in the message.

Firstly: why should we move our money?

We don't need to 'save'. That's not really an activitiy in itself. And it's only one side of a much bigger story. Where do our deposits go?

As a society, our financial challenge is to get surplus cash from those who have it to creditworthy people and businesses who need it. Quickly and cheaply. At the rate that's right for both parties.

Our financial institutions don't enable this right now. They pay very little to interest to savers. They keep too much of the interest that borrowers pay. They use this 'margin' to cover losses from their own poor investments. 

So we've had to invent direct finance services that cut the cost of connecting savers and borrowers - meaning higher returns on savings and cheaper borrowing costs. As each borrower repays, you can re-lend your money to others. Think of it as financial recycling. The banks still play a role - the operators of these new services recycle the money through segregated business bank accounts - but they don't get to use your money the same way as if you opened your own personal savings account.

But this brings us to the second gap in the MoveYourMoney campaign. We shouldn't move our money to just one place. We need to put our eggs in lots of baskets -  we need to diversify more. There are many other baskets for your eggs than those listed.

Yet we are incentivised by government not to diversify. Most of us only get basic tax breaks (e.g. ISAs) for putting our small amounts of savings in the bank or building society (or in regulated stocks and shares).  This not only discourages us from using more efficient services, but also protects banks and building societies (and managed investment funds) from competition. Worse, it encourages us to put all our eggs in a few baskets, so our holdings of surplus funds are not diversified. We're told this is 'safe' to do because at least some of our money is protected by the Financial Services Compensation Scheme. But such insurance does not ultimately make these baskets 'safe' for all of us as a society. It makes these baskets expensive - because as consumers we all pay for the compensation scheme in the end. And we pay again as taxpayers when the highly concentrated risks in the financial system bring it grinding to a halt.

MoveYourMoney may not yet explain the need to get your money quickly and cheaply to creditworthy people and businesses who need funding. Nor adequately explain the need to diversify. But the government is now aware that the regulations and incentives are wrong. And organisations like MoveYourMoney should be helping us to keep the pressure on government so that these problems are actually addressed.

Further, Faster, Narrower, More Targeted

Raising the personal tax allowance is a great idea. Too many low income earners are paying tax at the same time as receiving benefits - needlessly pouring tax money into the leaky Treasury bucket. But as ever, how to fund the tax break is the £64bn question.

This change brings the opporuntity to begin trimming many public spending programmes to make them more narrowly targeted. As a result, taxpayers will begin to trust the government to cut taxes rather than merely cut public spending.

Currently, there are many cases where the link between the burden of a tax and how the money is spent is unnecessarily indirect. This is no accident. As explained previously by Kristian Niemietz, the proponents of 'tax and spend' deliberately design policy and related spending programmes to favour a proportion of undeserving recipients without appearing to tax them directly. These are usually called 'universal' or 'comprehensive' programmes. This political strategy not only preys on greed amongst the 'sharp-elbowed' middle class, so that they'll welcome the policy behind the spending; but it also preys on their fear that abandoning the policy and cutting spending will not translate into lower middle class taxes. 

On that basis, the government only ever spends more, and either borrows or raises taxes to do so - a vicious circle we need to break.

Eurocratic Mathematics

Click here for the full-screen version

So, they've bailed out Greece again. This time investors took shorter 'haircuts' and the European Central Bank will pass its profits on Greek bonds (yeah, right) to national central banks so that it "may be allocated by Member States to further improving the sustainability of Greece’s public debt." If all goes really well (uhuh), this €130 bn 'lifeline' should mean that Greece will still owe the world 120% of its GDP in 8 years time.

To ensure Greece takes the requisite fiscal pain, it is to be permanently monitored  - the sovereign equivalent of house arrest. But the Greeks won't mind the ankle bracelet, as they've had one before. Five years after the 1893 default:

"foreign pressure led Greece to accept the creation of the International Committee for Greek Debt Management. This committee monitored the country's economic policy as well as the tax collection and management systems of Greece."

In fact, Greece has been in default for about half the time since achieving independence from the Ottomans. It's the country's part-time job. And I'm sure the latest reprieve won't rid Greece of its feeble system of political patronage, either. History is doomed to repeat.

So of course the numbers are all rubbish. This is Eurocratic mathematics, the bunting on the facade of a single Europe.

I'm sure we'll all get used to it - unless, of course, they cut Greece loose...

Image from Demonocracy, hat-tip, ZeroHedge.

Gasp! UK Bank Enables Mobile Money Transfers!

The comments under the Guardian's piece on Barclay's mobile money transfer app tell you everything you need to know about the pace of innovation amongst UK retail banks ;-)

Image from JISC infoNET.

Government Is Right To Sublet Its Empty Offices

I was concerned to see Private Eye denouncing government plans to return empty government office space to the market, via sublets if necessary (Eye 1307, HP Sauce). That suggests a view that the government should simply keep paying the rent on its empty office space, creating a false property market, rather than reducing its rental exposure and using the savings to, say, reduce public borrowing.

The Eye says landlords are yet to agree to sublets, and quotes a letting consultant as warning that "throwing even cheaper subsidised office space into the market will only serve to make life even more difficult for existing landlords struggling to find tenants." Others apparently complain that "this latest wheeze will also threaten the viability of existing business incubator schemes, such as the Leeds Met University-backed QU2...". 

Poor old landlords! It's almost as if they're in the property business.

Like any other tenant, if the government did not try to sub-lease empty rental property, it would be missing the chance to mitigate its loss on the rental and distorting the property market. A free market should see rental prices for empty space falling to the point that someone takes the empty space.

I get the point that the government shouldn't subsidise private business tenants. So the rental on the sublets should cetainly be at commercial rates. But if that commercial sublet rental is lower than the headline rent due to poor market conditions, you can't really call the difference a subsidy to the sub-lessee. It's a loss (but not as big a loss as there would be if the government didn't bother to sublet at all). 

Furthermore, if subletting vacant space undercuts a university incubator scheme that is funded with public money, then the benefit of subletting is not only that it covers some of the Treasury's rental exposure, but also that it saves public money that would otherwise have been spent by the university. In turn, the university should get rid of its empty space. But even if the university scheme were privately funded, it should have to compete with cheaper commercial rents on sublets across town. That's a feature of a free market.

Of course landlords - and lettings agents - are going to be upset by the idea of sub-lets at lower rentals. But that's a feature of a falling rental market. Why wouldn't they try to resist such negotiations? So long as they're being paid the rent by one tenant, they may as well leave the building empty and try to rent other vacant space. That doesn't mean the government has to play along, and ultimately the landlords know that empty rented space amounts to false demand. Whether they persist in keeping the building empty in the hope that the market recovers by the end of the lease term is up to them. Again, it's a free market.

But the wider reality is that if landlords don't either accept lower rents or allow tenants to cover their rental obligations on empty space, then private tenants will be losing money and have to charge customers more - or face going out of business. For public sector tenants it would mean paying landlords instead of repaying government debt.

I know what I'd prefer. Let the landlords take the pain - it's their business.