I’ve a lot going on currently, hence the infrequent blogging. The list of activities includes helping a relative move house and three different jobs on the go at once, including a contract to write a short book on a financial topic; terms agreed but contract not signed yet. I have to deliver the outline plan by later in the month. All of this is good, even exciting, but just at the moment it feels as if there’s a lot swinging round my head.
On a wider perspective, I’ll leave developments in Pakistan and General Petraeus’s report on the surge to a later date and concentrate for now on the turmoil in the financial markets. Apologies if this seems ‘old hat’ but my parallel universe has got behind. I’ve been fascinated by the uncertainty and, eventually, disturbed by what we’re hearing. A fortnight ago there seemed to be some hope that with the central banks stepping in to ease liquidity problems, the markets, unlike Humpty Dumpty, would be put back together again. Now it’s beginning to look as if the courage or will-power needed to re-establish normal levels of confidence is lacking (at least in London and New York). The commercial banks and private equity and hedge funds seem to be waiting for the monetary authorities to act but now (according to the Daily Telegraph on Thursday – 5th) experts are beginning to question whether the central banks can lead off a reduction in interest rates to reduce liquidity problems. If this is the case, it would amount to a strike by depositors or cash rich corporations who might refuse to lend without higher rates.
In an ideal world – well in an ideal world you wouldn’t have problems like this that needed solving – but if you can imagine a world of real problems with ideal solutions, might it look something like this? The bankers would realise that the solutions needed to be simple and direct; none of the Heath Robinson triggers and levers that seem to be the conventional wisdom in solving economic problems. It would be recognised that the US mortgage lenders and their customers have interests in common, namely for people to be allowed to stay in their homes even if they can’t afford them. Home owners don’t want to lose the roofs over their heads and no one wants lots of re-possessed houses going back on the property market. So the answer would be massive subsidies t help people with their payments or help them rent their homes if never have a chance of paying off the mortgage. This would be like what President Bush is envisaging only much bigger. That way the mortgage banks’ income stream would be maintained and they would be able to pay their obligations (although it sometimes sounds as if they don’t know who they owe the money to), to raise more funds and lend to people who want new mortgages. Presumably, the holders of the collateralised debt obligations (CDOs) would begin to be reassured that they would get their money back.
Would this be simpler than working out the tangle of CDOs?
The media seemed to have begun to array themselves against those who have been speculating in CDOs. The calls for the banks to own up to what they’ve been doing seem louder and more insistent. But the banks seem to want cheap credit directed primarily to themselves. This isn’t because the cheap credit will trickle down to the poor sub-prime mortgagees but so as to stave off a financial crisis. This seems like calling for more sand to bury the snake you’ve just seen in the sand pit.
A few years ago I remember being impressed that in the US the size of people’s mortgages is in the public domain. For a small fee, you could look someone up on a database like LexisNexis and find out how much their mortgage was and the property it was attached to. I think this kind of poking around has been made more difficult in the States (in the EU it’s illegal) but the point I’m making is that with all that data available it should be possible for the banks to work out what they owe to whom. It looks as if it’s not a case of ‘can’t’ but of ‘won’t’ because the banks don’t think they are going to like what they find. But the banks need to be told to sort it.
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On the personal front I did manage to get in a walk last week – Lurgashall and Lodsworth Common – on what felt like the hottest day of the year. It was good to get out. I saw a deer and a stoat (walking towards me by the side of the road).
Today we had out hedge cut so I can see how badly diseased it is – not too much; a really cold winter would probably sort it out but that doesn’t seem very likely.
I've also seen a rat in the garden; I think he/she (probably 'they' - oh dear) lives underneath the garden shed and lives off the discarded grapefruit skins and ground coffee that go on the compost.
So, no more bread for the birds.
