Buggered if I understand it

[peterbirks]

So, the Bank of England decides to extend Quantitative Easing by another £50bn, against almost unanimous advice. Then again, perhaps this should not be a surprise, because it does have a track record of being a few months behind the curve. It's final raising of interest rates was seen as a hike too far. This is probably a boost too far.

Not that it bothers me (se previous post on this matter a couple of days ago). Its impact will be to keep interest rates lower for longer, but the eventual kick to inflation will be that much harder. On the plus side, sterling dropped a couple of cents fairly quickly, although it's a long way still from the $1.45 to $1.55 range that I have pencilled in as the level where I go back to taking out dollars as spending money rather than pounds.

Apart from fuelling future inflation, the increase in QE also boosts the stockmarket (once again, see post a couple of days ago for the reasoning) and the banks' operating profits.

That's fairly boring, so I think we should have a more interesting system.

The £50bn should be handed out in 100,000 chunks of £500,000 to UK families at random, with the sole condition that they have to spend the money, in the UK, within a week. Houses don't count. And they could make a television series out of it, with Dale Winton, Robert Peston and Cheryl Cole as commentators. Hell, that would make it almost self-funding.

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Comments

In the long run, we're all buggered

[real-aardvark.livejournal.com]

Pah! Fifty billion more in gilt-edged toilet paper. Small beer, these days.

I'm actually more interested in the Lloyds Bank results (or perhaps we should get used to calling them LoTrustHoBoS). There's a lot of gibbering amongst Those Who Understand concerning the £25 billion capped loss on certain "assets" before the government steps in. As usual, the signal-to-noise ratio makes it worthless, and it mostly concentrates on the huge headline numbers involved (although one or two more perceptive commentators have mentioned the strikingly large impairment involved).

I'm not an accountant, so my question is this: what's to prevent a huge piece of financial engineering here, such that Lloyds can manipulate their accounts/guidance/tax liabilities/whatever by playing around with the figures? I'm damn sure the SFO wouldn't notice. I'm pretty damn sure that it's not in the government's interest to do anything if they did. There's a lot of room for arbitrage possibilities when you're sitting on top of a £25 billion vertical cliff.

Re: In the long run, we're all buggered

[peterbirks.livejournal.com]

Haven't had time to read the Lloyds figures I fear (you might have notice not a few insurance numbers appearing, which have kept me busy). Impairments are always interesting, of course. Insurers are chalking up $1.5bn here and there and no-one even takes a blind bit of notice (one reinsurer had a $3.6bn impairment for H1 and it was just a shoulder-shrug number).

I suspect that the capped loss on the assets to which you refer would be measured in some kind of externally audited way. With the market edging back into sanity (i.e., there are trades in place so that you can measure a price), it's a bit harder to pluck a figure out of thin air when it comes to impairments.

HOWEVER, I suspect that most of these relate either to commercial loans made by HBoS or commercial equity stakes that HBoS took on when it made the loans. As such, these are harder to value straightforwardly, but also harder to mark down to zero without good solid evidence that the stake is worthless (i.e., it's easier to overvalue these loans than it is to undervalue them).

PJ

Re: In the long run, we're all buggered

[real-aardvark.livejournal.com]

Well, I'm employing my usual scatter-gun approach. I think what bothers me is that: there is an assumption that there is an external audit process in place (and even I don't think the Treasury is quite stupid enough not to have that as a precondition); there is an assumption that this external audit process is mandated by UK plc and not by Lloyds (I'm not so sure); and there is an assumption that the financial press has taken all this into account and that it's all transparent and well-understood.

Given the track record of City commentators, regulators, and analysts over the last three or more years, I question these assumptions.

I did, however, massively enjoy the MPC's rationale for extending QE:

"Ultimately, what matters is the degree to which the cash injection boosts the growth of money and spending by households and businesses and so helps to ensure that inflation is close to target".

Well, if your mandate is to hold "inflation" to 2% and to ignore anything else, you might as well joke about it...

Re: In the long run, we're all buggered

[real-aardvark.livejournal.com]

And then again, of course, there's the assumption that the external auditor in question isn't Arthur Andersen.

This is a pretty fair assumption. Then again, according to the guys handing out seven-figure bonuses to bankers, there's only so much talent going around.

Wonder what happened to the Talent at Arthur Andersen?

[jellymillion.livejournal.com]

There appears to be an actress type lady who would be my choice for presenter of such a show. Then we could have "Brewster's Half-Millions".

I'll get me cost.

[peterbirks.livejournal.com]

I have grave doubts about Jordana being a genuine name, even if she was born in Panama City. But I suppose that the Brewster just might be genuine. Is apparently 29 years old. Isn't that past it these days if you want to be an "airhead babe judge"?

PJ

[(Anonymous)]

Jordana not a real name?

I thought you had been to Catalunya.

Admittedly, she isn't called Shaz, Trace or Lewishella which are the only bird names you are aware of in your overly parochial mind.

[andy-ward-uk.livejournal.com]

Hell, a million chunks of $50K. Economy saved !

[(Anonymous)]

I've heard worse ideas. Having looked through the "outcomes" for the first two years of Aston Pride (a multi-million pound regen scheme), I came to the conclusion that handing each household in the area 12k would have almost certainly resulted in more regeneration.

The Bowen of that ilk

[real-aardvark.livejournal.com]

Well, that's sort of a Grameen bank thing, isn't it? 12k per female head of the household would go a long way. 12k per male head is a slightly different proposition. Frankly, I'd rather stuff all the money into Handsworth and Cape Hill; somewhere with a little more hope and pride.

The only thing that Aston Pride could credibly do, if it wants to live up to its name, is to knock down the Aston Expressway and butcher half of Spaghetti Junction. The place isn't a neighbourhood any more; it's just a random collection of blitzed estates.

Still, at least they didn't shovel the poor bastards out en masse to Castle Vale, like they would have done in the Sixties. Or (shudder) Telford.

[(Anonymous)]

Don't forget Redd Itch as a decanting spot.

Your comment on who the money should go to is fairly wise, although in some cases it would just be handed over to the men. I'm sure also that some of it would be peed up the wall, but that's true of a lot of the money that has been given to JobCentre Minus and its mates.

Handsworth and Cape Hill have been in on SRB5 and SRB6 and have probably had a bit more money than Aston per capita over the years. Of course, all of them will get something out of the Urban Housing Pathfinder - although that may not be for the better.

The Bowen of that Ilk