Coppola Comment

The Co-Op Group is proud of its "ethical" values. From its website : our ethical values Openness  –  nobody’s perfect, and we won’t hide it when we’re not Honesty  –  we are honest about what we do and the way we do it Social responsibility  –  we encourage people to take responsibility for their own community, and work together to improve it Caring for others  –  we regularly fund charities and local community groups from the profits of our businesses.   But the Co-Op has a problem. It owns a dud bank . The Co-Op Bank acquired a load of toxic debt in its acquisition of the Britannia building society. The Co-Op Group deliberately concealed the true state of its bank's finances from customers and investors for over 2 years after that takeover. Even when it was forced to disclose in 2012, it attempted to distract attention by focusing on operating profit instead of total losses. It is hard to see this as consistent with the Co-Op G...

On BBC Radio 4 on Saturday 24th August, Simon Rose from  Save Our Savers  said this: "You can actually see the real price of money in other places. Now they’ve decided that it should just be 0.5%, but if you look at the peer-to-peer market for instance, which matches off people who want to borrow against people who want to lend money, well there the rate’s sort of 5% roughly. That is people coming together saying “I’m going to lend some money, what will you pay me”, or “I need to borrow money, how much does it cost”. That is free market capitalism operating, not the sort of crony capitalism with the sort of Stalinist control of the price of money that we get from the Bank of England.   People never seem to challenge the idea that the Bank of England should set the price of money, but I find it very bizarre that they do, particularly when we’re seeing the cost of their decisions."  (" How You Pay For The City ", starting at 4min 20sec. I've transcribed it be...

Yichuan Wang has a lovely post in which he uses apples to explain how goods markets work in a money economy. It is of course a deliberate over-simplification of a general equilibrium, and I am perhaps being a trifle unfair to Yichuan in picking it to bits. But I couldn't resist. Yichuan defines a recession as a "general glut of goods that aren't consumed", and goes on to suggest that this is because some people have apples but choose not to eat them. Indeed they do. Apples don't fall from the sky as Yichuan suggests, they grow on trees. Trees produce lots of fruit all at once, creating a glut, then none for the rest of the year, creating a shortage. So the market for apples is seasonal (for the purposes of this post I'm going to pretend that there is no international shipment of fruit to smooth out seasonal variation). Furthermore, in some years apple trees produce more fruit than usual, and in other years they produce less, largely due to weather condi...

" It is time that people took responsibility for managing their own money, and stopped expecting banks to do it for them." My new post at  Pieria  talks about the nature of the relationship between banks and depositors: "I recently  wrote a post  with Euronomist in which we suggested that depositors should be explicitly charged for deposit insurance, rather than insurance being implictly provided by the state or covered by a levy on financial institutions. "This did not go down too well in some quarters. There were a  number of comments  along the lines of "why should I pay for the risks that banks take?" and "banks should look after their customers' money". Underlying these remarks was a fundamentally wrong understanding of the nature of the relationship between modern banks and their depositors. And this wrong understanding is the main source of anger towards banks for putting depositors' money at risk, and anger towards banks ...

Since the 2008 financial crisis, business investment has fallen considerably. This chart from ONS shows how gross fixed capital formation collapsed in 2007-8 and has remained flat ever since: The associated commentary from ONS notes that the main falls have been in "dwellings", and in plant & machinery: The revised data suggest that GFCF fell sharply following the onset of the economic downturn, as businesses revised priorities in the face of a reduction in domestic and international demand, and as conditions in credit markets tightened. The downturn in the housing market also had a substantial impact on investment in Dwellings, which fell from £15.8bn in Q1 2008 before the economic downturn, to just £10.9bn in Q3 2009. Investment in Plant & Machinery also fell, while investment in Other Buildings & Structures and Intangible Fixed Assets remained relatively static during this period.  Basically, businesses just don't seem to be inves...

Joint post with  Euronomist . Recent developments in the Eurozone, specifically Cyprus where the first EU-dictated bail-in of bank depositors took place, brought to light an important issue which had been hiding in the shadows: the flawed nature of current deposit insurance schemes. Some advocate abolition of deposit insurance because it distorts incentives for banks and savers. But others believe that it is necessary to avert panic every time a bank nears its inevitable death. Yet although the two ends of the spectrum appear to disagree on the specifics of their proposals they both agree that the deposit insurance scheme needs to change if we want the future of both the financial sector and the wider economy be brighter than the present. In this article we present and develop a scheme which will address the need of depositors for safety without creating distorted incentives, while simultaneously helping to ensure the viability and stability of the banking sector in time o...

Apparently there is life in the UK housing market. According to ONS , UK house prices increased by 3.1% in the 12 months to June 2013, up from a 2.9% increase in the 12 months to May 2013. Predictably, vested interests like estate agents, surveyors and developers are crowing. The director of the Royal Institute of Chartered Surveyors, Peter Bolton King, claims the housing market is "on the road to recovery". I wish I could be so positive. But this "recovery" is not quite what it seems. Here's a lovely chart from the ONS report: No, you aren't seeing things. That is indeed an 8.1% increase in house prices in London. Even the rest of the South East doesn't run it close - though more on the South East's supposed recovery shortly. So what on earth is going on in London? This might have something to do with it: The Mayor of London's property report  (from which this graph is taken) says tha...

My latest article at Pieria discusses the UK 's trade performance in relation to Germany's. "The UK's trade performance is dismal. The UK imports too much, doesn't export enough and runs a massive trade deficit. We are told we should all tighten our belts, buy British and work harder for less pay so that the UK can become an export-led economy with a lovely trade surplus, just like Germany. After all, that's the way to economic success, isn't it?" Read on .......

Yesterday, Mark Carney, the new Governor of the Bank of England, announced that there would be no rise in the Bank of England's base rate until unemployment (currently about 8%) is below 7%. At its current rate of fall, this wouldn't be expected until the back end of 2016. So if there is no improvement in the UK economy, UK interest rates are expected to remain very low for the next three years. Predictably, there was a storm of outrage from savers and their representatives. This tweet is typical: What Mark Carney said today is "Savers, I will continue to STEAL your money, as Mervyn King did", for the chancellor. #newsnight — liarpoliticians (@liarpoliticians) August 7, 2013 The idea that very low interest rates is "stealing" from savers is based on savers' expectations that: their capital will be protected from inflation. UK CPI is indeed running above the interest rates on most forms of savings, so savers are losing money as the purchasing pow...

The ONS has some good news about UK industrial production . Here are the summary points from its statement: Production output rose by 0.6% between Q1 2013 and Q2 2013. Manufacturing rose by 0.7% over the same period. By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013. Looking at the broader picture, production output was 1.2% higher in June 2013 compared with June 2012, reflecting a 2.0% rise in manufacturing; 7.8% rise in water supply, sewerage & waste management; 4.4% fall in mining & quarrying; and 3.3% fall in electricity, gas steam & air conditioning. Production rose by 1.1% between May 2013 and June 2013. Manufacturing rose by 1.9% with reported rises in all of its sectors. The highest contributor to the rise was the manufacturing of transport equipment, which rose by 5.3% and contributed 0.7 percentage points to the rise in manufacturing. The preliminar...