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The FIRE goes out

Countries like the UK have come to be known as FIRE economies, because they consist largely of companies involved in Finance, Insurance and Real Estate. These markets were seen as far more sexy and productive than boring old manufacturing or farming. Which, according to a certain viewpoint, is true: there’s a limit to how much stuff people really need, so once your manufacturing and food distribution processes are suitably efficient it seems wasteful to pour more resources – and people – into making and growing stuff when you can make far more money working out how to flog what you and other countries make at higher prices to more people. However, if your manufacturing and agricultural base shrinks too far, you end up being dependent on imports for the necessities in life. This is a problem. To put it simply, you can probably do without home contents insurance but...

posted on: Sep 18, 2008 | author: Alex

Rulebook torn up for Lloyds TSB/HBOS merger...

You all know the story by now – following the collapse of Lehman Brothers, HBOS (the UK’s biggest mortgage lender) took a hammering on the stock market, with its share value falling to below £1 from around £3.50 (compared to close to £10 this time last year) largely as a result of short selling by hedge funds. In order to save the bank from collapse, which would have undoubtedly massive repercussions for the UK economy, a deal was rushed through to allow Lloyds TSB to take over HBOS. This is a Big Deal, because it effectively changes the face of the retail banking (i.e. the banks which most of us little people deal with) industry in the UK,...

posted on: Sep 18, 2008 | author: Lance

Reality reasserts itself after Fannie & Freddie stunt...

To the surprise of nobody with more than a couple of economics brain cells to rub together, the bail-out / conservatorship / nationalisation by any other name of the US GSEs Fannie Mae and Freddie Mac offered only a temporary reprieve to the markets. Temporary, in this instance, meaning less than 48 hours. The initial misplaced euphoria from unthinking investors (and I’m deliberately excluding those canny enough to ride the index spike up and short it back down again) quickly gave way to the realisation that this act – though probably unavoidable in the grand scheme of the current crisis – does not represent the beginnings of a return to a stable world financial system. On the contrary: it highlights the mess we’re in. Think about it. The two entities that between them guarantee the mortgages of 50% of the US housing market are now effectively being supported and funded by US tax-payers....

posted on: Sep 10, 2008 | author: Alex

Are interest rates really relevant any more?...

Once a month without fail the British press gets its knickers all in a twist over what the Bank of England’s decision on interest rates will be and what it will mean for us all. But is this monthly tweaking of rates by quarter of a percent in either direction really that important any more? The newly impoverished middle classes might be hoping for a rate cut to bring down their mortgage repayments, but the rates banks and building societies charge their customers have been almost completely divorced from the Bank of England base rate over the past year. Regardless of what the BoE does, the moneylenders will set rates at whatever levels they need to keep their...

posted on: Sep 3, 2008 | author: Lance

Darling tells us what we already know: the economy is in big trouble...

“Economy at 60-year low, says Darling. And it will get worse.” So says The Guardian which also quotes the Chancellor as commenting, “People are pissed off with us.” Quite. The penny at last seems to have dropped, with Alistair Darling stating that the economic times faced by Britain and the rest of the world “are arguably the worst they’ve been in 60 years … And I think it’s going to be more profound and long-lasting than people thought.” Based on our independent assessment of the UK economy, we’d agree. In fact we’ve been predicting this perfect storm for some time. Yet again we come back to the simple question: Why, if a couple of hacks on this site and a handful of others around...

posted on: Aug 29, 2008 | author: Alex

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