Showing posts from April, 2012

This made me angry

In the Telegraph yesterday, Colin Hines wrote a blog defending his "progressive protectionism" idea from what he called the "extreme Right", by which he means Tim Worstall. Well, Tim has some strange ideas, but I wouldn't call him "extreme right". But that's not what made me angry.  Colin describes his idea of "protective protectionism" thus  " protectionism rejects the incessant mantras of more open markets and the need to be internationally competitive. Acceptance of these edicts as inevitable invariably results in politicians being forced to drive down tax rates, constrain social and environmental improvements and preside over the eradication of countless local jobs and small business opportunities.... protectionism would not involve a return to the oxymoronic protectionism of the 30s. Then the goal was often for each protected industry or country to increase its economic strength by limit

It doesn't work like that - TARGET2 edition

Today, Liam Halligan in the Sunday Telegraph wrote an excellent article castigating the Eurozone leadership for running cap in hand to emerging markets for help when they haven't reformed their banking system or resolved the structural problems with the single currency. Halligan's articles are always well worth reading and this one is no exception. But there is something wrong. About three quarters of the way down the article he says this: "Obscure data shows that under so-called Target 2 operations, the ECB’s intra-eurozone payments system, the Bundesbank is owed a mighty €620bn by other member states. This stealth bail-out dwarfs German’s covert contributions to previous eurozone rescues, which themselves provoked bitter public criticism." The TARGET2 system has been the subject of much debate recently. There have been repeated claims, of which Halligan's is just the latest, that the Bundesbank's deficit in TARGET2 represents a "stealth bail

Circular easing

The Government has a new scheme. It's called Credit Easing and it's designed to improve the availability and lower the price of bank loans to small and medium-size businesses (SMEs). There has been continual moaning from the SME sector about lack of finance. "Banks aren't lending", they moan. When the banks respond that SME's aren't borrowing, SME representatives bewail the cost of bank loans. Far too high, especially for risky enterprises. Well, when I was doing corporate finance we regarded it as normal for banks to charge higher interest and fees on loans to higher-risk enterprises. And the SME sector generally is high-risk. They have few "hard" assets that can be used as collateral, and securing the loan by means of a charge over the company's assets is only as good as the value of those assets, which in the case of insolvency may be not very much. At a time when banks are supposed to be de-risking their own balance sheets and returni

The charity tax grab

In the last few days, there has been a growing furore over the Government's plans to cap the amount of money an individual can give to charity free of tax. The amount of misinformation and misunderstanding around this is extraordinary and there have been some very silly comments from both supporters and opponents of the proposal. I am no expert on tax, so for those who want to know how tax relief on charitable giving works, here is an excellent explanation by Andrew Brooks of SB Consulting. But let's be clear about what the Government's proposal is NOT. Despite what is promoted and widely believed, it is NOT an additional tax on the rich. It is a tax on charities, particularly those that receive large single donations. Universities and the arts are particularly dependent on this form of philanthropic support, and there is a lot of concern from people in these sectors that funding will diminish as donations are taxed and government will not plug the gap.  Let me expl

Corporate finance and daft ideas

On 16th March, an Independent Taskforce instigated by the Department for Business, Innovation and Skills produced a report into non-bank lending. The BIS press release regarding this report can be found here and the entire report (pdf) can be downloaded from this link . The purpose of the Taskforce and its summary findings are as follows: The Taskforce, chaired by Tim Breedon, CEO of Legal & General plc, was commissioned by the Government to examine a range of alternative and sustainable finance sources, particularly for small and medium-sized enterprises (SMEs). Bank lending is by far the largest source of external finance currently used by businesses, but the Taskforce believes there is significant potential to develop both the demand and supply of non-bank lending to match the financial landscape of countries like the US.   The main recommendations from the Taskforce’s report to Business Secretary Vince Cable are: Increase awareness of alternative financing by creating a sin