Yes ... you can

There is a moment when you have to laugh or take a cricket bat to their collective heads. The early publication of MPs expenses has shown what many people suspected - that the political class is bankrupt. Not in the economic sense, that's the taxpayers' problem, but in the moral sense. No one broke the rules, but nobody did what was right.

I wasn't going to bother putting anything up about this, it was just too depressing. But then having seen politicians go from evasion, through denial and on to abject apology mode, I found my blood begining to boil. There was Hazel Blears waving a cheque for over £13,000 about promising to pay to the Inland Revenue the equivalnet capital gains tax that she would have had to pay as a mere mortal. Suddenly all is supposed to be ok, we were wrong, we were caught, we'll pay the fine. But it's not that easy for the rest of us saddled with personal debt and trapped in a severely depressed economy. We cannot just write a cheque to make everything all right. Yes ... you can Hazel. Most of the country cannot.

Finbarr

The closing window of opportunity

One of the reasons that I was drawn to blogging at this time and in this place was that I continue to be concerned that once the worst of the credit crisis has passed it will be back to business as usual in the financial system. Those inside the bubble of the system telling themselves that they were not to blame, that markets always work and even if they are not ideologically committed to these positions that they can make money again in the same ways. 

Depressingly, Krugman's opinion piece today in the NYT is pretty much pointing in this direction. Discussing these worries he quotes a presentation by H. Rodgin Cohen (leading banker, considered for deputy treasury secretary) where he is reported to have said "I am far from convinced that there was something inherently wrong with the system." I have to agree with Krugman that these are the most worrying words. If the serious insiders are blind to what has occurred and seem to be ready to return to the way we were then there is little to no hope for real reform.

It seems as if the window of opportunity has become something of a sliver. 

Finbarr 

Don't believe the hype

It's an old problem but one that is very dangerous in times like these. You see it in headlines all the time ... "World to end" and the story clarifies that it will happen sometime in the next 10 billion years. Don't let the facts get in the way of a good headline ...

An example of this from the BBC this morning reporting on the release of an NIESR report the headline reads

UK recession worst since 1930s

At this point I'm already crying into my breakfast, but solace is at hand. Actually reading the article reveals that the NIESR report is predicting that the economy will shrink by 4.3% this year, which would be greater than the contraction in the 1930s. The really important word there is PREDICTING. Yes, that great science that missed the largest credit crisis, the imminent collapse of the banking system, is predicting a sharp contraction and the BBC reports this as if it has already happened.

At times like these the last thing we need is useless reporting of traditional economic analysis. Let's all get a little smarter please.

F

Good news for Rhodri

A friend (originally from Wales, now in New York) told me off for starting a blog about the bad times, calling me a scaremongerer. Yikes! Wouldn't want to be one of those ...

But seriously, I'm not here to complain or to pour darkness all over the page. I'm honestly trying to collect pieces as they come up about the crash and the hoped for recovery. If things look good I'll be positive, if it is all going to hell in a handbasket I'll probably be a little dark. 

But just for Rhodri, here is the first piece of good news from the US housing market that's been around for a while. The NYT has a piece on the housing market in Sacramento talking about how the volume of sales has increased significantly and that prices have started to stabilise (or is that stabilize?). 

"Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing."

As the piece goes on to say, volumes usually pick up before prices, but if the backlog of unsold properties is coming down along with the time to sale we could be hitting a bottom of sorts.

Was that happy enough for you Rhod?

F

House prices and the joy of owning

Just to make the whole collapse of the global economy and nosedive in house prices in the UK a little bit more personal, I decided to buy a flat right at the peak of the market. I watched carefully over years, trying to decide when exactly we'd reach the top of the hill and to ensure the maximum pain dived into the market in Q3 2007. If only I'd let the rest of the world know, they'd have been able to time the crash off my completing on my house purchase.

Now, having restructured the mortgage, rented the apartment and moved into a larger place due to the arrival of a little one, it is not a good idea to be looking at average house price falls across the UK. The latest Nationwide house price index report has the annual fall for April 08 to April 09 as 15%. Joy. Looking further in provides some sobering context. The long term trend increase in house prices over the past 20 years (according to their index) is 2.9% and with the recent falls we're about to be back on the trend line for the average house price in the UK. That doesn't mean the falls will halt, we'll probably go below the trend line before climbing back up and over. The return to boom and bust, or at least the existence of some form of economic cycle, no matter how hard Brown and others hoped they had banished such things. 

Locally, there is a lot of talk that house prices did not fall all that far and that they are starting to head back up. Not sure that we can support that with the data currently about, but it will be interesting to see how prices are in July/August time as the selling season slows. Maybe then we'll have a better idea, and I'll know just how far into the valley that we have gone here in leafy Cambridge. 

F

Treasury Committe report on the banking crisis

The UK's Treasury Select Committee just released its report on the banking crisis based on 17 evidence sessions and 800 pages of written evidence. For those of us who like this kind of thing it is a fascinating read.

Some highlights, as I don't have time now to do a whole piece ...

"The origins of the banking crisis were many and varied, including ... a misplaced faith in financial innovation."

"We deplore the behaviour of a number of those banks who have received so much public money and behaved in such an insensitive manner particularly to established customers."

Of the nine banks that were in the FTSE 100 in April 2007, five are wholly or partially in public ownership. The individual bank stories are outlined and make for sobering reading, for example RBS would have made a profit in 2008 but for the take over of ABN Amro, according to Sir Philip Hampton. RBS' losses were £24.1 billion in 2008.

More on this later but thought it worthwhile to point towards the report as it happened ...

F