Germans play the economics game right

German Chancellor Angela Merkel has been  pushing for bondholders to take some of the hit the next time a bank sheepishly puts its hand up and admits it's got no money. Sounds fair enough to me. Why should it be the poor old taxpayer who has to cough up every time a bailout is needed?

Ireland's pain, Euro's shame

Ireland's Celtic Tiger is dead, a stake through its heart.

Even when the ugly truth has been exposed, people still can't admit to what has gone wrong. The Euro wasn't right for Ireland (or, by extension, for the UK). How much more proof does anyone need? The cause of the Irish crisis was, in essence, that Irish banks went on an orgy of irresponsible lending to fuel an unsustainable housing bubble. Sound familiar? Oh yes....

But here's the thing - the Euro. You can't get away from it. Well, Ireland can't anyway. And that's the problem now.

BBC1 Panorama: Are you paying too much tax?

Today's Panorama was about the mess the HMRC have made of people's taxes. The BBC's investigation focussed on 'ordinary' people's stories - most of them receiving demands way above what they should. They also mentioned that the wealthiest taxpayers find it easier to get round the system, and that staff cuts and poor leadership is to blame.

Landlords and Self-employed: How to keep your tax down

So it looks like George Osborne will be hammering just about everyone wiht tax rises - not just the CGT (capital gains tax) payers. If you are a landlord (like me) or self-employed (like I might be), follow my guide to minimise your taxes.

General Election and personal finance - which party is best?

With the British general election looming I have been researching the 3 main parties' policies on personal finance. During the course of this research I have had a reply from one Victoria Crawford, who works at the office of Mark Hoban, Conservative spokesman for financial services. I also contacted the office of Vince Cable, the Liberal Democrats shadow chancellor, but despite repeated promises received no reply. So for the Lib Dems I have had to rely on the research I have done myself.

I have deliberately avoided comment on areas of macro-economic policy, ie tax and spending policy. To do so would have made the article unwieldy and lacking in focus. There is already an enormous amount of material out there on the taxation policies of the 3 main parties.So I have ommitted income tax, VAT, National Insurance, capital gains tax, inheritance tax etc. I've also left out pensions.

There is not so much commentary on areas of personal finance - such as consumer rights with regards to utilities, credit cards. What policies there are tend to be swallowed up in broader announcements.

On each area of personal finance I have given the parties a score out of 10. Just to make it more fun :)

The declining pound ain't so bad

There has been lots of naysaying, hysteria and near panic over the fall in value of the pound. But I think it's time to chill out.

Firstly, one advantage of staying out of the Euro is that our currency is free to float against other currencies - like the Euro. The Greeks and the Irish can't do that, so they're a little stuck. They can't devalue their currencies.

The Great Financial Crisis

The following is a copy of a short essay I was required to write recently as part of a job application I made to a Business-to-Business media company as a trainee journalist.

The essay was required to be 500 words long and the only stated requirement was to "discuss the response of the British Government and regulatory authorities to the financial crisis". A pretty broad topic, and not many words to do it in. Here it is.

In late 2007 Northern Rock found itself struggling to raise money on capital markets. Defaults on sub-prime mortgages in the US had triggered a banking ‘credit crunch’ and banks which had specialised in mortgages found themselves unable to raise funds on capital markets. The government searched in vain for a private buyer before finally nationalised Northern Rock in February 2008. As credit tightened and liquidity decreased the Government moved to a Keynesian policy of active intervention to free up credit, consisting primarily of capital injection and asset guarantees.

The Government at first encouraged buy-outs, such as Lloyds TSB’s takeover of HBOS. The Bank of England, although its remit was supposedly limited to inflation targets, created a Special Liquidity Scheme to swap banks’ risky mortgage assets for billions of pounds of government debt. As banks refused to lend and share prices plummeted, private buyers stayed away and the Government was forced to nationalise banks such as Bradford and Bingley, taking on their debt. This process snowballed by October 2008 into the offer of unlimited guarantees to all British banks. The objective was to restore confidence, encourage lending and forestall a recession. Despite this the UK entered recession anyway.

In September 2007 the FSA imposed a belated ban on short-selling to relieve downward share price pressure. It also announced it would guarantee savings of up to £50,000 to try and reassure small savers. To boost lending the Bank of England made a succession of interest rate cuts until they reached the lowest rates ever seen in the UK. As the economy deteriorated the UK Government injected billions of pounds of taxpayers’ cash to bail out major banks in exchange for equity stakes. Confidence and lending had fallen so low that it was felt that only the most direct form of state intervention and control could restart lending. The Government had to hope, rather than guarantee, that taxpayers would eventually get their money back.

A second bank bail-out was launched in January this year, taking the total to almost £400 billion. The government also tried to tackle the problem by cutting VAT to encourage consumer spending; but (as German politicians pointed out) when weighed against the public’s instinct to save and continuing high street sales, the small VAT reduction had little effect. The government also unveiled plans to guarantee up to £20 billion of loans to firms.

The response of the Government and regulatory authorities has been incremental, reactive and often too little too late. The Chancellor’s recent reforms to vet the pay deals of bank executives, force banks to hold more capital and stop lending ‘overstretch’ by banks have not fundamentally altered the ‘tripartite’ regulatory structure between the Treasury, FSA and Bank of England. Nevertheless, the government has avoided a total banking collapse and this should be praised. The real cost, however, aside from huge debts, has been a collapse in the public’s trust.

498 words

Road Hogs - the auto bailout

The US car giants - GM, Ford and Chrysler - have won themselves a taxpayer-funded multi-billion dollar bailout to prevent their destruction. $17.4 billion, in fact. This picture should put a smile on your face for Xmas. Or maybe not once you think about it.

Let's look at this logically. Car manufacturers are up merde creek because people aren't buying their cars. Why is this? Well, firstly it's because, as the poster explains, American (and British) cars are rather crap, and the public knows it. In the UK you see French, German and Japanese cars everywhere. Not Fords. The European and Japanese models are better value, more reliable and (frankly) look better. Secondly because times are tough and people want to balance their books and save right now, not splash out on a new motor.

So the US car industry has failed, and has only itself to blame. (The management that is, not the general labour force.) If the bailout goes ahead the message will be that no matter how ossified your business strategy, how incompetent your leadership and how poor your sales, you will never, ever, go to the wall. You are immortal. And when times are tough the government will take money from more efficient, more successful businesses, and ordinary families, and use it to bail you out.

Of course this money can come from only 3 sources: higher taxes, higher borrowing or printing more notes. Any of these options will ultimately cost jobs in other, more efficient, sectors. There's no escaping that, however you try to cut it. So on balance it's probably better to let the industry die. Harsh, indeed. Which is why the US and UK governments probably won't do it.

Now lots of people's jobs are tied up in the car industry. And no-one wants to lose their job, so I feel a lot of sympathy for those whose livelihoods are at risk. It's not their fault. But it is the fault of the management. Why didn't they adapt and produce cars the public want? They could have saved themselves. But then of course they are a powerful lobby. So if the US and UK governments are going to bail out the car industry, they should insist on big changes. Fire the management. Demand changes to contracts with unions and suppliers and take preferred shares to at least have a chance of re-couping some of the money. Whenever there is a bailout, governments have to make it plan that there's no such thing as a free lunch.

How to learn for free on the internet

An article on personal finance I wrote for the website http://www.moneymagpie.com/, explaining how learn for free using the internet:

"How about boosting your earning potential by learning a new skill - for free? Use Moneymagpie's guide and find courses that will cost you absolutely nothing.
There are many online courses available - but most will charge you. However, there are colleges, universities and voluntary organisations out there that are prepared to share knowledge and skills over the internet without demanding a fee...."

Read the full article here:
http://www.moneymagpie.com/article/boost-your-job-prospects-for-free

Beat the Credit Crunch - get super-cheap flights

My article on how to travel to Asia cheaply by being a courier, from the website http://www.moneymagpie.com/

"If you're prepared to be a courier for the airline industry you can snap up some super-cheap bargains on long-haul flights.
A courier flight is when you accompany a vetted package on a flight, allowing you to buy heavily-discounted flights to certain long-haul destinations...."

Read the full article here:
http://www.moneymagpie.com/article/get-50-off-flights-be-a-courier/53