Your secret £67,300 second mortgage

GS London

F*** me.

Charles

Convergence test, anyone? We must be getting very close to fiscal parity with our [indebted] EU neighbours.

mac

Lest we forget - Labour's boast in their 2005 election manifesto:

"Britain has some of the strongest capital markets in the world. We are determined they – and our financial services industry – should
prosper. We will ensure that companies have the right framework of corporate governance and relationships with the institutions that invest our pension funds and savings in them."
and:
"Our economic record has finally laid to rest the view that Labour could not be trusted with the economy."

Peter Gompertz

Frightening! so if George Bush is economically illiterate, and Bill Clinton ( where the whole world sub prime mess started ) is neanderthally economically illiterate where does that put Broon? primeval ooze economiclly illiterate?

Polly and Alice's mum

This is truly horrifying, and should be broadcast widely.
If it were known, what chances of ANYONE voting Labour ever again?

Hereford

This is all well and good, but where is the message? This stuff needs to be pushed out from the blogsphere into the MSM with uncompromising force and energy.

Glenlivet guy

Brilliant post Fraser.Lets get this message into the electorate before we win (hopefully) the next election, So DC and GO dont get the blame for the awful mess that Brown and Blair have created.But it was ever thus, Labour always screw up the economy...but this time they will have surpassed themselves.Whilst Chancellor Darling is saying the taxpayer wont suffer from Bradford and Bingley demise, however, all pension funds will as they take the hit in the fall in Bank shares caused by the levy for a failed Bank.Failed because of Brown's complete cock up with Bank of England and FSA regulation.

Corsair

What's that per actual net taxpayer?

Ian C

Fraser,

Can you dig out figures to compare with 1979 - the last Labour 'experience' we were put through. I'd bet it was very similar relative to average income.

greg

Scary - althought totally economically illiterate to call it a mortgage. Its far more equivalent to every family in the UK owning £67,000 of shares

Why is it like that? Cause thats exactly what it is! Every family in the country now owns more than £60,000 of shares. Thats a shareholding democracy!

Now we can talk about whether we should hold them or sell them off.

One thing that amazes me about all this is how economically illiterate the right has become - just look at the comments on this blog, let alone the original blog.

greg

Worth making the distinction between nationalisation and the bailout as well.

The bailout is to buy up BAD DEBT - its a one-off write off, more like a mortgage if you want to use that terminology.

The nationalisation is a purchase. The value of the assets in question might be disputable - but they are definitley worth something.

greg

Last point from me - the comment by hereford makes me smile.

There is a reason this stuff isnt getting traction in the MSM media mate - its total nonesense.

There is a valid debate to be had about whether govt has a role in ensuring confidence doesnt drain from the banking sector or not (i think they definitley do) but this article is economic tosh and any a-level student would see through it.

Alfred T Mahan

Conservative MPs need to repeat this figure every single time they're interviewed. Then maybe the message will slowly get across what damage Labour have done.

Alfred T Mahan

Greg 10.52. How on earth can you say that debt, pension liabilities, and PFI liabilities are shares? You're the illiterate one.

Rob C

What's the odds on this topping £100k per household by 2010?
We need this shower out of office now!

dalesman

And if they thought that the B & B bail-out would calm the market they were wrong. It's dropping like a stone this morning.

SimonR

Greg,

Quick, please tell me how I can cash in my shares!

I want to buy a Ferrari

dalesman

GREG: When can I sell my shares then?

Hereford

Hey greg: Please don't make it your last point. Please give me the benefit of more of your smug patronising education for my poor dumb brain.

It feels so good to know that you are there to look down benevolently on me and to reidirect my poor uneducated thinking with your masterful grasp of all you survey.

Lord Elvis's Rapid Rebuttal Unit

Greg, thanks for the advice. Perhaps you could also enlighten us as to how we go about sellling those shares as I really would like to leave the country.

Chuck Unsworth

@ Greg

So where are my share certificates then? Have you got them by any chance?

And whose money is it, that this cretinous bunch of incompetent Ministers are pissing up against the wall? Yours by any chance?

As to 'confidence' - I have no confidence at all in NuLab Economics. They have completely stuffed the economy and we're all going to be paying for this for at least a decade.

'Global problem'? I don't think so. More like blind arrogance and incredible stupidity.

James J

With regard to Public Sector pensions, who believes these will be honoured from say 2025?Demographics point to relying on a small number of tax payers, many of whom will be immigrants with little in common with these pensioners and few having pensions of their own paying high rates of tax to support relatively wealthy people.
Very unlikely scenario. No doubt the Low Tax Stop the Pensions Party will get a considerable vote.

CS

Yes, I think all these teachers and firemen and police and nurses should have the grace not to expect pensions.

Nicholas

Having just watched, with increasing despair, the BBC's Daily Politics, I have grave doubts that this message will ever get communicated to the GBP. One might have thought the programme was actually being run by New Labour's propaganda kompanie HQ - it might as well have been.

The BBC just do not get it. Instead of holding the government to account they bolster it, give ministers and government spokesmen an easy ride and readily trumpet, without challenge, government propaganda. Instead of making the GBP aware of the extent of New Labour government debt each and every taxpayer has become liable for they are on message for Marx. Instead of wondering why a bankrupt New Labour government is still trumpeting spending plans (ID cards, etc.) they just parrot the announcements.

Then what do they do? They hold HM Opposition to account with some of the most aggressive, New Labour perspective positioned interviews I have ever seen. It really is quite sickening to watch to realise just how much a world of complete lies and spin the politics of our country have descended to.

Disgusting - even for the BBC.

Tiberius

Thanks for that, Fraser - I'll show that tabulation to my wife when she asks where we're going in holiday next summer.

Polly and Alice's mum: don't you believe it. There are plenty of die-hard Labour voters just dying to heighten their masochistic pain, aided and abetted by the reflexive Cameroon haters on here.

Mark H

Greg, 'The value of the assets in question might be disputable - but they are definitley worth something'? Would sincerely appreciate your insight as to why, given the Boards of Lloyds, RBS, HSBC, Santander passed up this golden opportunity in take on high LTV mortgages on buy-to-let properties granted to self-cert borrowers, our Glorious Leader and the Edinburgh Solicitor deemed it appropriate. Perhaps the 'value' you speak of will distributed to bondholders and other creditors, leaving my 'shares' worthless?

Mark H

Greg, 'The value of the assets in question might be disputable - but they are definitley worth something'? Would sincerely appreciate your insight as to why, given the Boards of Lloyds, RBS, HSBC, Santander passed up this golden opportunity in take on high LTV mortgages on buy-to-let properties granted to self-cert borrowers, our Glorious Leader and the Edinburgh Solicitor deemed it appropriate. Perhaps the 'value' you speak of will distributed to bondholders and other creditors, leaving my 'shares' worthless?

Alex

Thanks for that Fraser - I was in a good mood this morning until I read that.

HJ

You have to consider "Greg"s comments in the light of the government's assertion that all of its spending has been 'investment' in the last decade. The government has persuaded the naive that spending and investment are one and the same thing.

For Greg's benefit, investment is something on which you hope and expect to get a return. Spending is consumption.

CS - Nobody has any problem with nurses and policemen getting pensions. What we have a problem with is the cost of their pensions (many times that of the typical taxpayer who has to fund them) and the fact that no provision has been made to pay for them.

greg

wow - that is quite a response.

Im not trying to rain on anyones parades, just pointing out that an a-level economics student would spot that nationalising a business like a bank is very different to taking out a mortgage and (if we need a comparison) much more like coprporately buying shares in the company.

As for those asking for their share, well when they are sold on (as B&B looks like happening very soon) the exchequer gets the money back.

Im going to give this article to my economics class and see what they come back with.

JimBob

Greg - Thats probably the most asinine set of comments I've heard since John Prescott took PMQS.

Back in the real world, the debt will continue to increase as we move into recession. I hope the Tories will have the guts to reform public sector pensions to sort it out.

Man_on Richmond_Bridge

Greg - your a total moron
- sorry that's actually insult to morons.

If as you say we have 60k in "shares":
1) What is the name of the company?
2) Where are the "share certificates" with my name on them?
3) Where is the market that I can sell these "Shares"?
4) If these are actually "Shares" when can I expect to receive a dividend cheque as a return on my shares?
5) Who pays this dividend?
6) And finally if these shares are an investment I must have a liability on my balance sheet to offset the purchase of this asset as I sure didn't spend any cash to fund my original purchase.

Man_on Richmond_Bridge

Greg

One final point I forgot to mention:
The average income in the UK is approx 25k gross. Assuming that taxes take away 30% that leaves 17.5k net

So taking the 67k from our glorious incompetient leader leaves us burdened with that means everyone will need to work for more than 3.8 years (67/17.5) to clear the debt.

Is it Rule Britannia has the lyric
"Britons never, never, never shall be slaves"

Well you are now....................

greg

Mark - ill direct you to Robert Preston.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/city_pays_for_bradford_bingley.html

What is really amazing is how a non-politically aligned economics teacher like me is getting totally pilloried for pointing out very weak thinking on economics, on the spectator website of all places.

You couldnt make it up.

I guess this is what ten years out of government does to the quality of thinking on issues like these.

James J

CS
It is not about them having the Grace so much as the foresight not to rely on them. I think the teachers have a part financed scheme.
There will soon be no automatic retirement on to a State pension, other than for those certified as unable to work ,so resentment towards Indexed linked final salary schemes for the public sector—let alone early retirement with ‘Added years’ -will grow.

greg

Alfred T Mahan - I wanted to address your question about PFI. PFI is the bit that is BEST described as a mortgage. Not really in a negative way, but genuinley a mortgage.

With PFI we already have the buildings (new schools and hospitals) and quite sensibly in my view we are paying them off over 25 years. This is very much like a second mortgage, and very unlike the banks listed (or pension debt for that matter).

But its emminently sensible to spread capital costs over a longer period of time - indeed that is why most of us do it with out homes.

Is it debt? Well there is a debete about how it should be treated internationally at the moment, but at the very least its debt secured against new assets we are able to make use of(which is quite a bit better than the rest of govt debt)

Marian C

Its an absolute disgrace, this needs to be clearly spelt out to the public. This will not just affect our children but our grandchildren also.

I also agree with Nicholas' sentiments re: the BBC, they should be ashamed of themselves for their behaviour towards the truth and to the Conservative Party; they make me want to puke.

Man_on_Richmond_Bridge

Greg @ 4.27pm
And where do the banks get the money from. Yep that's right from you and me in the form of higher bank charges or higher loan costs.

BTW I've never trusted a supposed Professional who can't spell Financial properly - see financial from his blog below

"The reason taxpayers are protected is that on Saturday the board of the Finanacial Services Authority ruled that B&B was unable to pass the test of being a viable bank, and therefore a claim was triggered on the insurance scheme for bank depositors, the Financial Services Compensation Scheme."

True Bred Pomponian

And the big one is Public Sector Pension Liabilities. Osborne's first move as Chancellor has got to be cutting Public Sector pensions in half.

Ian C

Greg

You have some valid points in this but I would make two general ones to counter what you are saying.

1) It is in fact more like taking out a mortgage to buy some shares and loanstock - where the yield on the investment is not known on the date of investment and so the cost of the mortgage has to be financed out of other sources of income. Furthermore, the costs struck in the deals on the PFI 'investments' could and should have been made at a better price.

2) The vast majority of this has been hidden from view by the perpetrator and was not in the 'prospectus' at election times.

In short, the country has been taken for a ride - but in a slightly different way from the manner described in the article, granted. Not all citizens, of right or left persuasions, can be expected to appreciate the nuances of economics as those with some background in the subject. But most are capable of getting a sense, after a while, that they are dealing with someone who is either dishonest or incompetent. Or both. Technically you have a point, substantially you don't.

Most people know when they are being screwed - especialy when it is not voluntary as it hurts!

Nick Kaplan

Greg; I hope you won’t be going on Dragon’s Den anytime soon with the idea that the Dragons can by £67,000 worth of shares in your company whose product is debt (What would be the business model for such a company?), I have a feeling you wouldn’t be signing any contracts.

What exactly made you think that national debt (which is essentially money that has been p*ssed up the wall by irresponsible socialists) the equivalent of shares? Does your comparison also mean that the UKs deeply worrying private debt is also a non-issue because people aren’t really in debt they just own shares? (Shares in what exactly?)

And then I read that you’re an economics teacher, how on earth did you pull that off?? Considering that you seem to be economically illiterate perhaps you are a good salesman after all, maybe you could con the dragons...

ken lawlor

It's funny that the poster calling himself Greg referred to all the debt we're now saddled with as "shares" because that's precisely what Will Hutton did earlier on Channel 4 news.

Is "Greg" Will Hutton?

I think he is!

Mark H

Greg, while its right to note that the FSCS has been used, a minimal number banks/funds with actual exposure to B&B will be affected: HMT this afternoon very generously guaranteed the vast majority of bondholders and other creditors. Thus, while the financial sector does have some exposure to poential losses on sale of assets, those banks affected will not largely be those with any economic exposure to B&B. Rather, they will be those that are part of a deposit insurance scheme. The moral hazard continues with the devil in the detail, not the headline.

I also couldn't help noticing your comments about PFI. There is no discussion about whether this is, or is not, debt since it is treated as off-balance sheet debt by the accounting profession. There are plans afoot to change the rules for accounting for off-balance sheet debt (be they banks, enron-like corporates or the UK Government), potentially adding tens of billions of pounds to UK Plc's liabilities. The attached link provides a simple explanation:-

http://www.publicfinance.co.uk/search_details.cfm?News_id=31025&keysearch=End%20of%20the%20line

Nicholas

Greg, "a non-politically aligned economics teacher" - yeah, pull the other one. The last two words kind of give it away. You are doing the classic Lefty trick of inventing a new word to describe something so it boosts the image of the national socialist junta occupying this country. Doublespeak.

Crippling debt becomes "shares" and everything in the socialist garden is rosy again. Shiny new schools with all the facilities while the curriculum is dumbed down and politicised, the teachers are stifled with targets and the kids are brainwashed. Hospitals full of expensive managers, nurses who can't clean, won't clean and patients who die of MSRA and all the other filthy bugs - oh, yes and more stifling targets that actually mean sweet FA. A politicised police force burdened with, wait for it, more targets, that cannot police the streets because it is too busy rooting out thought crime or dealing with its own embarassments.

And what does this integrity bereft and bankrupt junta do? Well, of course saddle the country with yet more debt and more liabilities to spend, spend, spend on dodgy projects we don't even want - like ID cards - but there are dozens more.

And when confronted with their own lying, mendacious profligacy, what do they do? Well, they just lie and spin some more with chumps like you lapping it up or helping to spread the doublespoken word like the BBC. "Shares"? Come off it. New Labour just stinks.

Chuck Unsworth

Greg

A self-confessed 'economics teacher'.

Don't that say it all?

'greg' is a blatant trojan donkey

greg: stop trolling.

the public didn't want to buy rubbish BTL mortgage debt from Bradford and Bingley, so no, it's not like owning shares (a product which a person may choose to purchase, if I recall correctly). No consent was given. We don't recall choosing to buy Northern rock 'stock' either...hmmm. Now please go and tell your fairy stories somewhere else.

PS 'hope you're not teaching anyone I know economics.

:-/

annoyed

pfi is a form of deferred hire purchase which has been used to obtain facilities which end up being owned by the pfi developer not the public. It may not be a beneficial or financially wise way to fund public projects. The true cost is often far higher than outright purchase of facilities. The government is likely to want to conceal the true cost to the public of such schemes.

annoyed

greg - I don't think you learned much at 'economics' teacher school. Perhaps you should go back, and do a little remedial work.

HJ

Greg - sure, the government (i.e. we) can expect some return from its 'shares' in Northern Rock and B & B, for example (it's just not an investment anyone would choose - that's why a private buyer couldn't be found).

However, the point is that most of the debt doesn't have any corresponding assets from which a return could be expected, i.e. public sector pensions. Public sector pensions are a liability with no corresponding asset (with the exception of local government pensions, they have no invested assets).

How did you get a job as an economics teacher?

greg

Brilliant thread by the way! I just want to make 3 points in my rather belated defence.

(1) It wasnt me that started the analogies. I was just saying that nationalising a bank is more like everyone becoming a shareholder than everyone getting a new mortgage - which it definitley is, as reasonable posters have recognised!

(2) I am not will hutton :)

(3) I have a lot of sympathy with Ian C. I dont disagree with many of the points being made about management of the economy, but I was just trying to get to grips with the original argument about nationalisations being like a mortgage - which is economically illiterate (sorry!)

HJ

Greg - the point is that you said that it's equivalent to owning more than £67,000 worth of shares.

Let me remind you that the majority of the £67,000 is pure liabilities with no corresponding asset, simply because the majority is public pensions liabilities.

If you add up those liabilities against which you could say there is a corresponding asset of some form (NR, B&B, PFI), it accounts for less than £10k.