More on the Secret HBOS Loan

 

Alistair Darling has today been defending the Bank of England’s “lender of last resort” loan to HBOS last October and November.

He has, rightly, said that this type of loan is a key duty of the Bank of England. He also pointed out that HBOS provided collateral for the loan, and that the loan has since been repaid in full. He also defended the decision to keep the loan secret, saying, “The Bank’s assessment at that time was that it was vital that their emergency liquidity assistance operations remained confidential.”

When similar “lender of last resort” support to Northern Rock had been leaked, it had caused a run on the bank, and its collapse. So Mr Darling’s arguments that the loan had to be made, and that it had to be kept secret, are persuasive.

The government are on less solid ground, however, on the issue of the Lloyds takeover of HBOS. Lloyds shareholders, remember, were voting on the takeover at a time when those loans had been taken out by HBOS. However, they were not told about the loans. The existence of them was very clearly material to the takeover.

We have been told that the circular to Lloyds shareholders referred to the bank’s reliance on Bank of England liquidity facilities. This is completely untrue. In fact, the circular specifically stated:

“Save for the £4 billion net cash proceeds raised by HBOS in its rights issue in July 2008 and as disclosed in the sections headed ‘Group Overview’, ‘Divisional Review’ and ‘Outlook’ in Part XIII (‘‘HBOS Interim Management Statement 3 November 2008’’) of this document, which sets out the current trading, trends and prospects of the HBOS Group, there has been no significant change in the financial or trading position of the HBOS Group since 30 June 2008.”

The government have claimed that the Lloyds directors knew about the loans. If that is true, it implies serious allegations about the conduct of those directors. For they continued to back the takeover, and kept the loans secret from their shareholders.

If the government are not telling the truth, and the Lloyds directors did not know of the loans, then the spotlight would move to the HBOS directors. They clearly did know about the loans, and in that case did not disclose those material facts when opening their books to Lloyds.

I am not a lawyer. However, it is clear that either the HBOS directors or the Lloyds directors, or both, were in clear infringement of takeover rules at the very least. The government itself, I presume, was not in breach of those rules since it had no duty of disclosure to the Lloyds shareholders.

I believe the Bank of England were right to provide those loans. I believe the Bank and the government were right to keep them secret. But they, and more especially the directors of HBOS and/or Lloyds, were dead wrong to allow the takeover to proceed.

The takeover could have been very simply stopped by the government. There was no need for them to disclose the loans; they could simply have said that the situation at both HBOS and RBS was so serious that an immediate capital injection by the government was required. Then Lloyds could have simply walked away.

Of course the most serious concern of the authorities was to prevent a meltdown of the financial system. But they could have done that without stuffing the Lloyds shareholders.

The authorities have been very keen to prosecute mortgage and insurance brokers for “miss-selling” endowment policies and pensions.

And all the while they were themselves guilty of miss-selling an entire bank.

The Secret HBOS Loan – Will the Lloyds Shareholders Win Damages?

 

It has emerged that in October and November 2008 the Bank of England, as lender of last resort, made loans of £61.6 billion available to Royal Bank of Scotland and HBOS, to prevent their collapse. Of that, £25.4 billion went to HBOS.

The media are concentrating on the implications for how close the system was to collapse at that time. Clearly, to act as lender of last resort is absolutely legitimate and one of the Bank of England’s key roles. Given the state these banks were in, it was entirely appropriate for the Bank of England to provide those loans. It was also probably entirely appropriate to keep the loans secret, to prevent a run on the banks that might have been catastrophic.

What came after was entirely less appropriate, however.

At that time, Lloyds TSB was in advanced talks to buy HBOS. There have been suggestions that the Treasury, the Financial Services Authority, and even the Prime Minister himself encouraged Lloyds TSB to take on HBOS.

The Lloyds TSB shareholders voted on the takeover by HBOS on 19th November, and they approved the takeover.

It was clear even then that HBOS was in serious trouble, and this was a rescue bid by Lloyds TSB. However, those “lender of last resort” loans by the Bank of England were at that time secret. Crucially, they were not disclosed to the Lloyds shareholders as they approved the deal.

It is therefore clear that material facts were withheld from the Lloyds shareholders. Indeed, the circular issued to shareholders of Lloyds TSB, produced on 3rd November, says:

“Save for the £4 billion net cash proceeds raised by HBOS in its rights issue in July 2008 and as disclosed in the sections headed ‘Group Overview’, ‘Divisional Review’ and ‘Outlook’ in Part XIII (‘‘HBOS Interim Management Statement 3 November 2008’’) of this document, which sets out the current trading, trends and prospects of the HBOS Group, there has been no significant change in the financial or trading position of the HBOS Group since 30 June 2008, the date to which HBOS’s last published interim financial information (which is set out in Part IX (‘‘Historical financial information relating to HBOS plc’’) of this document) was prepared.”

We do not know, of course, whether the Lloyds directors knew of these loans. If they did, then they misled their shareholders.

If the Lloyds directors were not told about the loans, then a signficant part of the HBOS accounts was being hidden from the potential purchasers – in which case, it was the government that was misleading the Lloyds shareholders.

If the Lloyds shareholders had known about these loans, it might have made a difference to their decision to back the deal.

The media are saying that those shareholders might feel aggrieved at being misled in this way. The BBC, for example, say that “shareholders might be unhappy at not being told earlier”.

Let’s be clear. It is much more significant than that. It is now evident that Lloyds has been hobbled by the takeover of HBOS. Therefore, shareholders have lost money as a result of the deal. If those Lloyds shareholders were misled about such a major part of the deal, then they have clear grounds to sue. This could get interesting.

When Satisfactory Means Not Good Enough

 

Ofsted’s annual report has produced what amounts to a pretty devastating critique of our State education system.

The report says that there is “much that is mediocre or worse”. It highlights a lack of progress in improving literacy and numeracy. It admits that “too many young people leave school without adequate basic skills and this can have a limiting effect on their whole lives”.

It says that “too much teaching is just satisfactory and fails to inspire, challenge and extend children, young people and adult learners”.

The report finds that almost a third (31 per cent) of schools were found to be not good enough – by which it means given a rating of ‘’satisfactory” or ”inadequate”.

And this really brings to the fore another issue highlighted by this report. Yes, “satisfactory” actually means “not good enough”.

Over the years Ofsted have inspected thousands of schools, and provided a rating of “outstanding”, “good”, “satisfactory” or “inadequate” for each one. It has been clear to most parents for a long time that schools that are merely “satisfactory” were actually not reaching the standard that you would want for your children’s schools.

So why did Ofsted use the word “satisfactory” to describe those schools?

The Longman dictionary defines satisfactory thus: “Something that is satisfactory seems good enough for you, or good enough for a particular situation or purpose”. So in the real world, “satisfactory” means “good enough”. And now Ofsted are admitting that in their inspection reports, “satisfactory” is actually not good enough.

Ofsted was a huge step forward when it was created by the last Conservative government. Under its first leader, Chris Woodhead, it started the process of opening up the performance of our schools to scrutiny, and started to challenge schools to improve instead of drifting.

Over the years, though, it has become clear that Ofsted’s own expectations of schools are “insufficiently challenging”. Presumably that reflects a lack of ambition in the teaching profession as a whole. Indeed, the head teacher of a local school in the town we lived in until recently, told the local paper that “we know that students are well served here and the inspection team agreed”, in response to Ofsted having once again rated her school “satisfactory”.

I generally have every respect for teachers. Teaching is itself a stressful and demanding activity – and today’s schools all too often have to cope with children who come from broken and unhappy homes. Most teachers are inspired, when they go into the profession, by an ideal of helping children achieve their potential. But that inspiration is sorely tested by the reality they find in our schools.

Cleaning up this mess will take lots of time, lots of commitment and lots of hard work, by teachers, by government, by parents – and of course by the children themselves.

A start can only be made once the whole teaching establishment starts to accept that the standards it has been demanding of itself are much too low.

Today’s Ofsted report is a welcome step in that direction.

Happy Birthday, Cutty Sark

 

Today, November 22nd, it is 140 years since the Cutty Sark was launched.

The Cutty Sark was a clipper. Clippers were fast sailing ships, with square sails and multiple masts. They could not carry a particularly large cargo, but specialised in moving freight quickly, especially in transporting tea from China to Britain.

The Cutty Sark was launched in 1869 in Dambarton, Scotland. Initially, she ran the tea trade, but as steamships began to take that role over, she switched to transporting wool from Australia. She was the fastest ship on that route, posting a best time of only 72 days.

She then passed through a succession of owners, eventually being used as a training ship from 1922. She was displayed in 1951 in the Festival of Britain, and then was moved in 1954 to a dry dock in Greenwich. Since then, more than 16 million people have paid her a visit.

To walk inside the Cutty Sark is an amazing experience. As a child, I remember being taken to see her by my grandfather. I can still remember the smell of the wood, and the creaking of the planks. Her external appearance is graceful in the extreme, and it doesn’t take much imagination to think of her skipping through the waves at nearly 30 miles an hour.

Tragically, she was badly damaged by fire in 2007. It turned out however that only a small proportion of the original timbers had been destroyed by the fire, and restoration has been possible, at a cost of £35 million. She is due to re-open to visitors, having been extensively restored, in Spring 2011.

I can’t wait.

Abolishing Cheques Would be Premature

 

The Telegraph reports that the banks are to vote next month on a plan to scrap cheques from 2018.

Around 3.2 million cheques are apparently still written every day in Britain, although this number is falling. The Telegraph talks about utility customers needing to set up direct debits or standing orders, and quotes a claim from the Consumers’ Association that cheques are vital for elderly and disabled people.

They point out, however, that some big retailers, including Marks and Spencer and Sainsbury’s, have stopped accepting cheques.

These aren’t the real issues, though.

I don’t write many cheques. Direct debits and standing orders often fit the bill nicely, and otherwise cards or even electronic payments are fine. But sometimes, there really isn’t a sensible alternative to a cheque. When it comes to paying Scout subscriptions, or paying for a school trip, for example, nothing else is really viable. It’s those payments that are a bit too big to send in cash, but are being made to institutions that are not big enough to be set up to accept cards, or where you won’t be present to make a card payment.

How are you supposed to pay for a school trip that costs, say, £30? Send your kid to school with an envelope containing three crisp new ten-pound notes? Far from ideal. I guess the banks would argue that the school needs to get itself set up to take cards. So then, I need to send a form with my card details written on it. Not very secure – but I guess that banks have never really taken card fraud seriously.

The banks argue that processing a cheque costs them £1. If the poor dears can’t afford that, then let them charge a £1 fee for processing a cheque. But stopping the cheque system altogether really is a bad idea, until they come up with a better way to make those payments for which, at the moment, a cheque is needed.

How Long is Normal?

 

It is reported today from America (where else?) that a new treatment is being trialled for premature ejaculation.

The reports indicate that “an estimated one third of US men aged 18 to 59 are affected by premature ejaculation”.

I wonder in what sense something that “affects” one third of the population could be considered an abnormality or dysfunction? If it affects that many, then it’s normal.

What’s more, you can already buy condoms laced with anaesthetic. Or so I’m told.

Guys, you may relax now.

BBC Executives’ Pay is a Programme Quality Issue

 

Mark Thompson, the BBC Director General (total pay package last year: £834,000 or four times the Prime Minister’s salary) has, according to the Daily Telegraph, vetoed a review of executive pay, because viewers care more about other matters.

Apparently the BBC’s private research shows that executives’ pay is way down viewers’ lists of concerns. The top concerns are repeats and quality of content.

So why can’t the BBC show fewer repeats and improve the quality? Surely not because they don’t have enough money to spend on programmes?

If Mr Thompson were paid the same salary as the Prime Minister, it would release £600k to spend on programming. If all his top 100 executives’ pay were cut to “only” £100,000 each (they currently get twice as much), that would release £10 million for programming. Enough to boost the CBBC programme budget, for example, by 28%, or enough to boost the BBC2 programme budget by more than 2%.

Unemployed Youngsters – Economic or Social Problem?

The Department for Children, Schools and Families has revealed that more than ten percent of 16-18 year-olds are now not in education, training or employment. There are more than a million 18-24 year-olds in the same position.

The response of the politicians is predictable.

For the Conservatives, David Willetts called the figures “a damning indictment of the Government’s failure to help young people”.

For the Liberal Democrats, David Laws said that “instead of giving them the skills, training and education they need, the Government has failed young people and risks creating a lost generation”.

For the government, Iain Wright said, “We are giving all 16 and 17-year-olds the opportunity to stay in education or training so they can gain the skills they need to succeed,” and, “We recognise that we need to carry on helping young people through this tough economic climate.”

Many of those young people are, I’m sure, in this unfortunate situation through no fault of their own. Many really do want a job, or really would like to be in training, but can’t find their way into it.

But is it really impossible to find a job – for all of them? Is it really impossible to find training? I guess probably so for some of those kids, especially if they have left the failing State education system without a proper basic education.

For many of those young people, though, I suspect the real problem is more about motivation. Most of them still live at home. They receive State benefits each week, supposedly to live on – but have no outgoings because of their parents’ support. They spend their lives playing video games, listening to music and getting drunk.

Of course, that is socially corrosive, and after a few months getting used to that life, it becomes rather hard for those young people to get out of those habits and start doing something useful.

The politicians’ answer to that problem often revolves around “making work pay”. That really misses the point. If you are 18 or 19 years old, with no proper education, and little reluctance to scrounge off “the Social”, that life of ease looks pretty attractive.

They are paid benefits – that are fully available for alcohol, games and fun, because they have no financial commitments. Of course, if they had a job they might have three times as much money available. But so what? They have all the money they need for their entertainment, somewhere safe and warm to live, and enough to eat. To those youngsters, it doesn’t matter whether being at work would pay more. They aren’t really interested.

Ultimately, then, the issue is about the attitudes that we teach our young people. Parents should teach their children that it is morally wrong for an adult to live off other people’s work, and that living off State benefits (or even Mum and Dad) is doing just that.

And schools should be teaching our young people that they don’t deserve respect unless they are willing to make a contribution to society. At the moment, our schools seem to believe that the problem is “lack of self-esteem” and that they need to teach our kids just how important their opinions and rights are.

This is therefore a social problem rather than an economic one. We can all make a start on resolving it.

Parents of stay-at-home young adults who are on benefits should insist they pay most of those benefits to their parents for their keep. If they want the games and the fun, they need to go out and earn the money.

And teachers can start by teaching youngsters that self-respect is about providing for yourself and your family by your own hard work.

Work should pay in self-respect as well as money.

Time for Labour MPs to Stand Up for Our Parliament

 

UK government borrowing last month was £4 billion higher than expected. (And let’s be clear, even the expected value was awful.)

Compared with October last year, tax receipts were down 9%, and spending was up 10%.

Meanwhile, the Queen’s Speech yesterday proposed a “Fiscal Responsibility Act” that would provide a “firm and binding statutory basis” for the government’s promise to halve the deficit within four years.

Around half the deficit is cyclical, i.e. will melt away like snow in summer once the economy recovers. So if the government does nothing at all, the deficit will be halved. The problem is the other half of the deficit, the structural half, the stubborn half that will remain when the recession is over, to the tune of £100 billion. The half that is on its own around 7% of GDP – roughly the same as the figure when the last Labour government had to get help from the IMF.

But the true cynicism of this proposal goes even further than that.

Gordon Brown, notoriously, has already debauched the budget speech, turning it into an annual party political broadcast. Under previous governments of both parties, the budget speech would be full of figures and real detail of the Chancellor’s proposals.

Remember that phrase that used to come up time and again in those speeches from previous Chancellors: “This measure will cost £xxx this financial year and £yyy in a full financial year”? In Gordon Brown’s budget speeches as Chancellor, we heard none of that detail. The speech became a political opportunity to bash the opposition, and all the detail was buried in the so-called “red book”, the details of the spending and taxing for the coming year, published after the speech.

Now, it appears, Mr Brown wants to debauch the very process of passing Acts of Parliament itself. An Act of Parliament is the way we make laws in this country. It is not, or should not be, simply a way for the government to announce its intentions or promises.

The government began this process of demeaning the heart of British democracy with their passage of the Human Rights Act, since that Act placed a duty on the courts to assess other Acts of Parliament against the Human Rights Act yardstick.

But this “Fiscal Responsibility Act” takes Labour’s utter contempt for Parliament to another level. The new “Act” will not really be law. It will simply be a party political broadcast, dressed up in the appearance of a law, complete with the Queen’s signature.

If the government wants to reduce spending, it just has to do so. It doesn’t need an Act of Parliament to do so. And what if the government breaks this new law, and doesn’t cut the deficit? Will the Chancellor go to prison? Will the Prime Minister pay a fine? Or will it be a civil offence, allowing me to sue the government for damages? Obviously none of these. It is pure grandstanding, and as such, a clear abuse of parliamentary process.

As far as Mr Brown is concerned, it seems, the country is governed by him and his Ministers. Parliament is just an opportunity for political point scoring. Guy Fawkes tried to blow up Parliament with gunpowder. Mr Brown is being more subtle, but if he is allowed to carry on, the institution will be destroyed as surely as if he had rolled in the barrels and lit the fuse.

Clearly Conservatives in Parliament will battle against this outrageous abuse of the parliamentary process. The only question is whether backbench Labour MPs are content to supinely accept this, or whether they will have the guts for once to stand up and defend our democracy.

The Large Hadron Collider – Gordon’s Secret Weapon

 

The Large Hadron Collider is almost ready to be restarted. The media have reported that the purpose of this machine is nuclear research. However, in reality the Collider is in fact the government’s new answer to money shortages. When operational, it will be the largest printing press in the world, capable of generating banknotes at an unprecedented 7 tera-election-volts.

The machine was originally started last autumn, but an electoral failure caused a tonne of liquid snake-oil to be dumped into its delicate mechanisms. That caused the temperature of the Prime Minister’s feet to drop precipitously, and the machine was stopped for repairs.

When the Collider is started, a beam of crisp new banknotes will be sent streaming around the 17 mile long machine, initially at just 100 billion election-volts. This beam will be used to calibrate the LHC, before the beam is upped to full power next May. The banknotes will then be sent crashing into a stream of quangos moving in the opposite direction. This will create a shower of new votes, which will be collected in the voting booths attached to the machine.

The collisions, it is hoped, will recreate conditions immediately after the Big Boom. The search will be on for the elusive Higgs Blairon, the so-called “God particle”, which is believed to be the key to winning elections.

There have been suggestions from some that the Collider could cause a financial black hole to appear, which could suck in the entire British economy and cause the end of the country. Mervyn “Inkjet” King, the Chief Scientist in charge of the project, laughs off such claims. “They’ve been reading too many economics text-books,” he says. “Even if such a black hole were created, it would quickly collapse under the weight of its own economic contradictions and be absorbed into the Euro-zone.”

The Prime Minister has today praised the team in charge of the new printing press. “These are the most exciting developments in our money-creation strategy,” he said. “I am able to announce today a new programme, to begin next year, that will ensure everyone gets as much money as they need, without ever working for it. This will be entirely funded by the Collider. These proposals are in stark contrast to the savage cuts being proposed by the Conservatives.”

A Tory Treasury spokesman denied these claims, however, saying that the Tories had no intention of simply dismantling the Collider. “We have never argued against the LHC. We just want to run it at a lower power level.”