Saturday, January 19, 2008

It's the system, wise guys.

JUST out of curiosity, I watched a late night studio discussion featuring Home Secretary Jacqui Smith, some forgettable nonentity from the Liberal Democrat Party, and a Tory woman who looked like she might have stormed out of the Young Cons dance after Nigel left her a wallflower while he courted and danced with that floozy Ffiona all night. She was in High Dudgeon, or that was the constituency for which she had been selected.

I suppose you know you're getting old when the Young Tories start to look a bit young. I've never been drunk enough to find them attractive.

Anyway, someone - it might have been the man from the Mirror - remarked wryly on the setback for New Labour thinking if they have to nationalise Northern Rock, which had to be explained to chair Richard Dimbleby. The Tory blamed the government for not riding to the company's rescue before the queues grew outside the banks(what did happen to tough 'enterprise culture' and doing without Nanny State?) The Lib Dem made up for accusations that his party had been all over the place about the bank by throwing in a gratuitous remark about trade union funds when the topic was Peter Hain's failure to register big donations.

As though open and above board contributions from organisations representing and accountable to many thousands of working people were no different from sums discreetly paid under the counter by mystery individuals with questionable interests or motives. It's good to be reminded occasionally of why our unions broke with the Liberals in the first place, even if the party they founded has wound up as bad as those it was meant to replace.

What never crept in to disturb the conventional party games was any acknowledgement that Northern Rock's failure, though it had its own causes in management's ambitions to play out of their league (which presumably the shareholders did not mind so long as they thought profits were coming in), was part of something much bigger.

Two items of news on Wednesday might have suggested this.

Taylor Wimpey, the UK's leading homebuilder, said its order book at the end of 2007 was down 19% on 2006. The group, which was formed in July from the merger of George Wimpey and Taylor Woodrow, also pointed to an "exceptionally" challenging environment in the US, which accounts for about 25% of its overall sales.

The group said market conditions in the UK were "subdued" in the second half of 2007, but it focused on margin improvements rather than volume growth, enabling it to reach its target of an operating margin of more than 14% in 2007. Home sales fell nearly 6%.

Pete Redfern, chief executive, said Taylor Wimpey expected the spring selling season to be more subdued than it was last year. "How quickly that starts to recover will depend on cuts in interest rates and the behaviour of the mortgage banks." He added that consumer confidence depended on the general economy and how people saw their personal financial situations.

The company's ability to maintain its margins in the UK in 2008 is dependent on improved buyer confidence, but Redfern insisted two other factors were in the company's control.

The number of its outlets has risen 12% to 500, which he said increased the company's ability to sell houses. The group also still has the bulk of its merger savings to come through.

The company said market conditions in the US remained exceptionally challenging through the second half of 2007, with weak consumer confidence continuing to have an adverse effect on visitor, reservation and cancellation rates.

Canada performed well, but overall unit sales in the North American division fell 24% and the average selling price dropped 19% last year.

The group said: "We are not expecting market conditions in the US to improve during 2008. Our strategy remains to focus on recovering cash from existing sites, reducing the cost base and focusing on achieving a steady sales rate."

The Spanish housing market, where it has a small presence, was also expected to remain weak this year. Redfern stopped short of saying the group might pull out of the country: "I don't think we're going to make any short-term change. Long term, who knows?"

The housing shortage in Britain, the cost of housing, the pressure for more land, and the burden of debt born by home buyers are too well-known, but whatever the theory of "supply and demand" says,this sector may spearhead rather than prevent recession.
Britain's biggest mortgage lenders, Alliance& Leicester and Britannia building society, have doubled the minimum deposit demanded from first-time buyers in the latest sign that banks are anticipating a downturn in house prices.

The same day brought this news:

$18bn write-off at Citigroup prompts slide in markets

* Guardian Unlimited, Wednesday January 16 2008
* Andrew Clark in New York and Larry Elliott

Shares in London saw their worst one-day fall yesterday since the height of the credit crunch last August after the world's biggest bank, Citigroup, fanned recession fears by announcing the biggest loss in its 196-year history. Amid speculation that the US Federal Reserve might announce an emergency cut in interest rates to help Wall Street and revive the economy, ...

JP Morgan, the bank that has found a high-paid job for Tony Blair, has also been having to take steps to try and stay out of trouble, and then it was Merrill Lynch, which has been desperately raising cash from Far East investors.

The US administration's efforts to avert recession only seem to have made matters worse as investors get the jitters.

Leading shares came within a whisker of breaking their three-day losing streak yesterday, helped by a smattering of speculative takeover talk. The announcement just before London closed of President Bush's proposed $140bn (£70bn) package to support the flagging US economy immediately sent shares on both sides of the Atlantic into reverse. Bush's opponents cast doubt on whether the president's proposals would be enough to stave off recession.

So having been nearly 130 points higher, the FTSE 100 closed down 0.7 points at 5901.7.

Financial firms with UK property funds were among the leading fallers, following Scottish Equitable's decision to prevent investors from withdrawing their funds for a year. Protestations from other companies that they had no immediate plans to follow suit were to no avail. So Standard Life lost 14.25p to 211.75p, well below its 230p flotation price, while Prudential fell 37p to 596.5p, and Schroders 60p to £10.19.

John Duffield's New Star Asset Management - which said it had more than 20% cash reserves to meet any withdrawal demands from investors - slumped 45.75p to 101.25p as it also issued a profit warning and cut its dividend.

Banks were again under pressure as both JP Morgan and Panmure Gordon issued downbeat notes in the wake of the latest write-offs from Merrill Lynch and other major investment banks.

Panmure pointed to the possibility of another round of provisions from UK banks, while JP Morgan cut its price targets across the board by 4% (HSBC) to 23% (Alliance & Leicester). It said: "We argue that UK banks do not offer enough of a discount to the sector."

Barclays fell 16p to 450p, Royal Bank of Scotland 12.75p to 373.25p, and Alliance & Leicester 4p to 727p. HSBC bucked the trend, edging up 1p to 760.5p.

I know our politicians are afraid of talking about recession in case they are accused of talking it up - as though the big guys on the markets are really waiting to hear what some MP has to say. But it's more than that.

They figured if they got enough people saddled with mortgages just to have a decent roof over their head, and kept talking about house prices, that meant people were buying into capitalism. They also persuaded a lot of people down the career ladder that this was the only possible system, that governments knew how to handle it, or better still, would not need to anymore. I don't expect them now to come up with answers. I'm not even that clever myself. But we can all see when it is going wrong. Imagine if one our leaders was to say "it's the system", instead of pretending everything is fine and just needs the right the right smart ass politician who is trading jibes right now.



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