Tag Archives: finance

2009

Hello and welcome…

It would be remiss of me not to do what everyone else in the world is doing over the course of this week so here goes…

A lot of people must be looking back at 2009 and thinking, like I am, where the hell did that go. This year seems to have flown by much quicker than usual. Or is it the fact that I’m getting old? Does time pass quicker the older you get? If I think back to my childhood the years seemed to go on forever, weeks and months melding into each other like one long hot summer. Anyway, that’s enough of the Stand by Me crap. On with what I was going to say.

It’s good to see that the capitalists of this world still think the sun shines out of their arses despite the complete and abject failure of their way of doing things.

Oooo, ooo, Mr. Obama… Mr. Obama… I’ve got a good idea!! Me, me! Look I know that in the last couple of years that things haven’t been going quite right. In fact, technically speaking, when you crunch the numbers, they’ve been going quite wrong by quite a lot – mainly because I’ve been trying to make ridiculous amounts of money by effectively gambling on things I didn’t really understand but pretended I did.. Anyway, what I’m trying to say is that if you give me MORE money, and when I say give I mean lend, if you lend me more money I can do some more guessing and gambling and I can make it all better. And once it’s all better, then I can pay you back. Good ay?

6 months later….

Oh, yeah, hi Mr. Obama… look I know that we made some number of billions profit this year despite having to ask you for some readies to tide us over but we really can’t afford to pay you back just yet. But I am good for it, I really am. It’s just that we need that money to do a bit more guessing and gambling. See, we’ve made $60 billion in the last six months, but if you let us keep going with the loan, if we can keep doing what we are doing – and remember we are the experts in the field, we know what we are doing – if we can keep going then that $60 billion could turn into $63 billion or maybe even $65 billion. That would be like an extra $5 billion that you didn’t have before man. Where did it come from? Well… um… I don’t really know. I just checked the balance at the end of the day and it had gone up a bit. No, it’s not like actual money you can hold in your hand, like a $2 note or anything. No no, this is an on-line bank balance. Well, yes, I suppose it could go back down just like it’s been going up, but I doubt that very much. After all, we play the markets like this all the time so we have experience and know how that allow us to be extremely confident in ourselves and what we are doing. No, I don’t have any qualifications other than a diploma I got from a technical college in Halifax. No, that diploma isn’t in finance – it’s in something called book labelling… it’s like book-keeping but instead of accounting for the ebb and flow of cash through the books, I’m am qualified for making sure all the books are correctly named. How did I get into the finance industry? I knew a guy in college who told me I was quite good on computers and adding up and he suggested I become a day trader. The rest is history.

Of course, that’s not to say that ALL of those people still involved in the financial institution that nearly bought the world to its knees (but thanks to some quick cash from those people who actually pay taxes, they can continue on their merry way) have no idea what they are doing. Indeed, I’m sure that most people who take huge daily risks with money that doesn’t belong to them in situations they can barely understand, know completely what they are doing.

I am being incredibly sarcastic here. I doubt whether anyone on Wall Street really fully understands anything about the institution they’ve created. All they really care about is making money – and lots of it. And before you go all funny and start suggesting I’m a communist, or, God forbid, ‘against us’, think of it this way… where does the money come from? If I’ve clicked my mouse to complete a trade, then later that day I sell making money, the only thing changing is a number on a computer screen. Where is the cold, hard cash – the tangible thing that I can hold in my hand that shows I’ve actually done something useful.

If I go out to a market and buy a carrot for 9 cents and later that day sell it for 10 cents, I’ve made a penny. I also have a 10 cent piece in my hand that I can show people and say – look at me, I’m worth 10 cents. Yesterday I was worth only 9.

The thing that really sticks in my mind from this year is the amount of profit these US companies made in the months following their bailout by Obama. For example, AIG made $1.82 billion in the second quarter of 09. This after getting nearly $200 billion in loans. I suppose, technically speaking, these loans have to be paid back by AIG, but all they’re doing is shuffling things around and selling them off to do this. They’re not really changing the root cause of all the financial market malarkey that has occurred in the last couple of years (oh, and in the late 90s, and in the late 80s, and in the 1970s, and so on and so on and so on).

People are driven by wanting to make as much money as they possibly can with little regard to whose money it is that’s actually helping them do this. When human nature is involved, you can’t have a totally unregulated situation in the marketplace, no matter how many times they tell you to let the market provide. Look what it provided last year (oh, and in the late 90s, and in the late 80s, and in the 1970s, and so on and so on and so on) – complete meltdown because those in charge of the money-go-round all got off at the same time. Dicks.

Oh well… I’m sure they’ll do better next time (I’m picking it to be around 2018).

Happy new year!!

Boon x

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The Dirty Poor and Their Evil Ways

This week the government – led by the benevolent National Party of New Zealand and their little shoulder parrot the ACT Party – sponsored the delivery of a report on how the country can bridge the ever-increasing wage/salary gap with Australia.

Having read the above you must be thinking, “How very benevolent indeed. Imagine thinking of the worker in this scenario.”

The point I have to make at this juncture is – Bollocks.

To understand by point let us why the report exists in the first place… About a year ago in little old New Zealand there was an election. This election was won by the National Party after they created coalition agreements with ACT and the Maori Party. Traditionally National are a right / centre right party – this means they are like the Republicans in the US – except for the extreme nonsensical gibberish about Money, Jesus and 9/11.

In terms of coalition partners, ACT are slightly more right of National and therefore obvious drinking partners. ACT stands for the Association of Consumers and Taxpayers. Ironically enough, the leaders of this party probably don’t pay any tax thanks to creative accounting. I’m not implying they are breaking the law, I’m implying that they are creative with their accounting. Things like trust funds for family homes, cars and putting things in the wife’s name. This creativity means a reduction in taxation imposed upon them by the Inland Revenue people. As part of their coalition deal with National, ACT demanded a review of things led by Dr. Don Brash, a former head of the National Party himself and a notable proponent of the low tax, low spend government that ACT so lovingly puts forward.

New Zealand has had a long history of low productivity compared to Australia. Over the years our wage gap has remained for years and this sees many New Zealanders eyeing up the sandy Ozzy shores to make a new live. And being just 3 hours away on the plane it’s very easy to return to see the family now and again. In recent years escaping the financial talons of a student loan has also been a great motivator.

Having done some backgrounding of the issue we can now move on to Dr. Brash’s report recommendations. If you can remember back to the 80s when hair was big and shoulder pads even bigger, many policies adopted by governments around the world were very much focused on cutting government spending in a variety of ways including rationalisation of health, education and welfare spending, selling off of state assets to the private sector and lowering personal income tax while lifting the level of consumption tax. Dr. Brash’s report brings us back to those heady days. He called for, among other things, cuts in government spending, cuts in income tax, lifting consumption tax, selling of assets, and cuts to the minimum wage – the argument being that the private sector is able to offer far more efficiencies to the taxpayer than the government-run organisations, and over time these changes will increase productivity and close the wage gap between New Zealand and Australia.

Again, I make my point – Bollocks.

I’m not an economist or a statistician. I don’t pretend to know everything there is to know about GDP or tax law. I am not a world leader in the sale of assets. I am, however, a wage/salary earner. If you want to increase my productivity, if you want to make me more efficient than I have ever been, then you reward me for my efforts. This seems, on the face of it, a very, very, extremely, very simple solution.

The minimum hourly wage in Australia is $A14.31 ($NZ18.32), whereas here in New Zealand it is a mere $12.50 – and Brash says this should be cut. I must be an idiot because I would have thought that if you cut the minimum wage and I can earn 50% more for doing the same job in Australia, then I’m going to move there… aren’t I???

Cutting health and education spending is not going to work either. Having a sicker, stupider workforce is unlikely to lift production or wages. I admit that this is flippancy at its extreme, but there is some foundation there. Brash and his report buddies are asking for more private sector involvement in the provisioning of health and education. The idea is that competition will cut government spending levels. This is good I suppose… but the private sector is not the great liberator of spending Brash thinks it is, and they don’t always run things better than the government. Just look at the state of ridiculousness at the end of last year where companies like AIG, Lehmann Bros and so on couldn’t do their jobs properly because they didn’t know how the system they operated in worked.

Who’s to say the same collapse wouldn’t happen if the education or health system were privatised? Once you get money involved in things then maximising profit and returning dividends to shareholders becomes the motivation, not delivering a public service and ultimately those services, and the consumers of those services, suffer.

Brash and his rich little cronies should get their wallets out of their arses and try and live on $12.5o an hour with 6 kids to feed. He never will though and therefore he will never really understand what it’s like in the real world. It’s all numbers to them. Numbers can be made smaller. Unfortunately, and this is the case for all economic arguments, people aren’t numbers.

So again I say: Bollocks. You can’t build a bridge between two things if you begin by cutting away at the coastline on one side.

Brash, you’re a dick, and you always will be (this is slightly inflammatory so I must qualify the word ‘dick’ by adding the word ‘alleged’ to it. So, Brash you are an alleged dick, you nerd).

Until next time. Word.

Boon x

The Budget

Greetings and hello again from New Zealand!!

As a quick aside for all the international readers before I even start, if you’re wondering where “Old Zealand” is click here. The discoverer of our country, Dutchy Abel Tasman decided on a moniker that was dear to his heart.

So I’ve been dribbling the football of thought around my brain stadium for days now wondering what I might speak about. Generally I like to dip my toes into the pool of international political intrigue. However this time I thought I would keep things a little closer to home here in little old NZ.

This week the brand new National government delivered their very first budget since winning over the hearts of the middle ground of undecideds in the general election late last year. They effectively won on a promise of tax cuts, thinking more money in our pockets will somehow make us feel better. Just to let you all know, in the first round of tax cuts on April Fool’s Day earlier this year I got less than $10 a week. Most of the money went to those people richer than I (just a humble teacher of children).

Anyhoo, since National made all their wonderful promises of money back in our pockets, thousands of people have lost their jobs as companies – led by their idiot boards – who borrowed to expand, fell into receivership as income streams dried up. As these people have stopped paying taxes, the income streams of the government have also dried up. This means the next couple of rounds of tax cuts have been ‘put on hold indefinitely’ which, in layman’s speak means (perhaps I’m barking up the wrong tree here) cancelled forever.

So, one major bribe is gone, how are National going to win our hearts back? By offering a $1300 to any homeowner to insulate their house. You might be thinking that this seems like a very novel and forward thinking idea, and it is. However they have to proved this offer without means testing. I think it’s mainly because most landlords in New Zealand are cheap, and most notably the largest landlord of them all, leading the way for everybody, is the government through the wonderfully resourced Housing New Zealand. Landlords, led by the state, refusing to spend money insulating houses against the cold of NZ winters means lots of sick tenants – last week I was one of them.

Our cold, damp, uninsulated house has begun to sprout the annual black mould around windows and other unventilated areas. For 10 months of the year this place rocks. We have two deck areas, one out the back, one out the front. Both of these get loads of sun. Unfortunately, the lack of insulation in our house means that it is currently colder inside our house than outside. If we had insulation in our roof and floor then we might still be cosy from yesterday afternoon’s sun.

The other thing that was notable in the budget was the scrapping of pay talks between the government and support workers in New Zealand schools. In it’s infinite wisdom the government has decided that all those untrained teachers – and that’s what they are, people who teach our young in a variety of different settings, but are yet to have the degree that allows everyone to call them teachers – are not worthy of a pay rise this time. Once again, the poor old recession is getting the blame – what did it ever do??

So support staff, who teach reading recovery, numeracy programmes, English language support for new immigrants, and other such wonderfully supporting educatory dalliances, lose out. Not only are they not going to get a pay rise, they aren’t even getting the chance to negotiate one with the government. I guarantee a strike would normally be on the cards but these people are paid so piss-poorly that many don’t even belong to the union, so are unlikely to take industrial action. The lack of pay will also mean many can’t afford to make their political point heard.

If you think that teachers are the only educators in our schools, then you are very much mistaken. If we had no support staff then we wouldn’t have any teachers. Nobody would stay in the job with the amount of work required.

I’ll be glad when this damn recession is over sometime in the middle of 2015 if you believe the National government. Maybe then we’ll be able to get back to our old ways of spending money that we don’t have on things we don’t need.

Until next time, word.

Boon x

Money Makes the World Go Round and Stop Completely As it Turns Out

Greetings and good afternoon, morning and/or evening depending on which time zone your are reading these words….

My recent wordings have been focused on the unbelievably lame decision making of various regulatory authorities (particularly US-led Retardlican power base) and the unfettered use of the unregulated environment by those people in charge of various pension funds around the world.

This time I want to talk about debt.

According to a website called Investopedia® (whose words I have no reason to mistrust due to the fact that they have the byline “a Forbes digital company” within their logo and one of those little ‘r’s inside a circle next to it) talk about the Total Debt Service Ratio. You can stop yawning now because I’m not going to bore you with screes of useless economic formulae coupled with hours of unnecessary bleating on and on and on about jobs, housing and government intervention in the market place. It should only take 10 mins. If you want to work out your TDS, then click on the link and there is a lovely little formula to put numbers in to.

Good old Investopedia – they know the score. And why shouldn’t they? They are powered by those highly skilled people who can make lists of billionaires with a simple click on the ‘sort’ button on their excel spreadsheet…

The TDS ratio means that there is an acceptance by the money nerds of an acceptable level of debt for a household. The same goes for companies. Economists, whose grasp on the realities of living in this world is akin to Obama’s grasp on the efforts put in by competing special Olympians, say that every company or household can run up a certain level of debt.

The arguments for a company or household existing with ‘servicable’ debt cows in any economic climate have been delivered to the financial abattoir. If your company/household has levels of debt that are too high and the market has am extremely quick ‘correction’ (this is a wonderful word dreamed up by the nerds. It sounds much better than ‘crash’), you may be unable to service your loan(s). We have seen this in the United States from owners of houses bought with  a ‘sub-prime’ mortgage through to that wonderful company GM whose decision to make cars nobody wants to buy might turn out to haunt them at some point in the future.

I guarantee you this. If there was no such thing as an acceptable level of debt, then this current financial crisis would have been a ‘blip’ (another wonderful piece of phrasing – this is actually a short term crash). Long term debt is the issue here. People and companies do need overdrafts – particularly companies. Sometimes we don’t pay our bills on time and there is a need for ‘bridging’ cash to tide people over. Long term debt is completely unnecessary though.

I can here the collective grunts and moans of those financial money spreaders right now. You can’t say that Boon, they will be saying, debt is needed for growth. If a company can’t borrow vast sums of money it can’t grow, and thusly Boon you may have just talked thousands of people out of their jobs. Live with that you communist.

Well, certainly, I can live with that. I live with that because the current model where a company can run up hundreds of millions of dollars of debt so it can purchase competitors or move manufacturing to China or wherever, does actually put MILLIONS of people out of work. Millions of people have lost their jobs around the world in the last year as a direct result of companies having a very high Debt/Equity Ratio and collapsing.

And the economists are moaning again. But Boon! You don’t understand! Those companies were bad. They didn’t run themselves effectively. They made poor business decisions and paid the price. I suppose that’s true to an extent, but when the decision to borrow against assets to expand your company is the accepted norm, you’re going to do it – particularly when you see competitors around you doing the same thing. OK then Boon, where’s your solution? What can you offer the world of economics that Keynes, Smith, Hume, and Friedman haven’t already.

Well, here’s my solution. No long-term debt. Companies and households should not get themselves into any form of debt at all – except maybe for the odd short term carry over debt like an overdraft or, for individuals, a credit card that they pay off the full amount on each month.

If you can’t afford to buy something because you don’t have the available cash, you shouldn’t get it. Ultimately, if you buy something with debt you don’t own it. Somebody else does.

This would be a revolutionary way of thinking. But Boon… economies would never be able to grow. Things would move too slowly. Well, who said they had to move quickly? If you want something, you should save up for it. Surely it’s simple logic. If you borrow the money to buy something you will always pay far more than the original ticket price – be that thing and house or 73% of GM (and isn’t that inflationary??) It would take us years to do that Boon. Yes, you’re right, it would. But then if the world were to collapse overnight (as it did last October – technically it took about a year I suppose…), then you wouldn’t be lumbered with a debt for something that wasn’t worth anything (like GM, AIG, Citigroup, Zimbabwe etc, etc, etc).

So, save up for things and buy them for cash. Who knows, you might even get a discount. After all, who uses cash these days. Money is just numbers on a computer somewhere. Does it even exist??? I have no idea.

Until next time, happy saving.

Boon x

What’s Happened!??!

Can anybody tell me what the hell has happened to capitalism?

Over the course of the 20th century, our market-led capitalist leaders made billions, trillions and maybe even gazillions, selling stuff to we, the consumer, without a second thought from either party. They supplied a good/service, we paid for said good/service. Money changed hands, profits were made, dividends were returned to shareholders every quarter. It was a simple formula. The consumer demanded things, and the suppliers supplied. The model was tinkered with from time to time (For example, if the quarterly dividend started to fall, then corporate leaders would out-source particular parts of their workings, such as call centres, customer service, manufacturing, design and development, cleaning, maintenance, and so on, to third world labour factories run and manned (or kidded?) by children, and, as a result of their excellent decision making, leaders would receive bonuses rivalled only by the cost of purchasing several new Airbus A380s, even if their decisions ended up losing companies millions, billions or even gazillions) but ultimately the capitalist model held firm.

The model held firm because it was a good model. Capitalism central, or the United States of America (corporate, not regular types like Joe the Plumber), led the charge. What corporate America said went for the rest of the world. When they demanded low, low, low taxes at bargain basement prices, the rest of the world followed. Why pay tax, they said. Tax is for people who use government services such as health-care, education and social welfare. We don’t use those things, they said. We shouldn’t pay for them. And how right they were. Never in my time as a teacher have I seen a corporate leader enter a school, hospital or food-bank, or indeed express any views about any of those things, or the people involved. If they are not going to use the service, why should they pay?? That is an absolutely fair question, that needs to be answered with a ‘no they shouldn’t’. And so they didn’t. People didn’t expect corporations to pay tax, because they didn’t use services. Individuals paid the tax instead. We are the ones who get sick, or start off stupid, or lose our jobs to when corporates outsource to our subcontinental friends. We should be the ones to pay.

Then in the 80s, our brilliant market leaders began the utterance that would define them as pure capitalists. “Let the market provide!” Oh yes. The collective monetary climax of a million Thatcherites rings as true today as it did back in ’81. Their argument, quite rightly too, was if the market would provide in all areas of our lives. It’s simple idea talked about as far back as the 18th century by the likes of Adam Smith. If there is a demand for something, the market will make it to on-sell to the consumer. Political leaders adopted this idiology quicker than a fat guy making his way to a pie eating competition. Before we knew it, all government systems – health, education, social welfare, utilities – were being run under this commercial model. How absolutely brilliant! Of course the market will provide! Why wouldn’t it? It knows everything about education. If a school is no good there will be no demand for its services, and people will take the very easy option of selling their house in that school zone and moving their entire family to an area where there is a school offering top quality educational solutions for the up and coming young capitalist.

Privatise everything. Pure capitalism. If there is no demand, why should the government provide. Why should they indeed!!???! Actually, it’s not quite “no demand” is it? We should say, “little or no demand”, because, let’s face it, we’re talking about profit here. If there is no profit to be made, there is no point in the market providing. And if the market, and in this case, the market includes the government, doesn’t need to provide a service because there is no (sorry, little or no) demand, then why should they? If the government don’t need to provide, then the demand on the taxpayer falls and we all win by paying lower levels of income tax. The only people that might lose out of this might be the very occasional poor person, who may have been demanding this service, but not enough to contribute payment of any kind. How can you make a profit if someone isn’t willing to pay! And any capitalist will tell you, low taxes mean that people will spend their money in shops, or online on all those goods/services we talked about earlier.

Oh, but hang on… I saw on the news last month that some of the bankings giants in the US were asking for a bit of government help… Oh God, no!! Because the banks have no money, they can’t swing any our way. By ‘our way’ I mean consumers and companies wanting to work the market. What’s more, some of the banks stopped working and went bankrupt. Shite! What’s happening? I still need banking services. I get paid every fortnight. My money needs to go somewhere. A bank is the obvious choice. Banks – I demand your service, therefore you must provide. After reading a bit about the problems, it seems that maybe there may have been a false market… What’s a false market? Well, sometimes in capitalism (and when I say sometimes, I mean only very occasionally, like, maybe, once or twice a month, perhaps), if companies make lots of profit on something, they want to keep making the profit, so they create conditions that will keep a declining market going. In the US, banks wanted to keep lending to people because mortgages & debt make a lot of money for them. Over the course of a 30 year mortgage, banks can make a very tidy profit on a household mortgage. So why not keep this market going??? After all, profits are really important to companies like banks.

Unfortunately, and it wasn’t the bank’s fault – rememember, they only lent the money to the people, it was the people who couldn’t afford to pay the debt. American people who dream of owning their own home in which to raise their children can choose to borrow money at any time, but it’s THEIR choice. They shouldn’t really be borrowing if they can’t afford to pay it back. That’s just silly. Ask any capitalist. Companies NEVER, EVER borrow if they can’t afford to pay it back. Anyway, so many American families could no longer afford to service their mortgages, and the banks started forclosing. As a result, there is now a massive slump in the US real estate market. Currently the banks own a lot of worthless property or family housing that nobody wants to buy. How selfish of the American families for not thinking of the banks before they borrowed their hundreds of thousands of dollars to live the American dream…

The Domino Effect: whereby you hit one domino in a row of dominoes and as it falls it causes all of the other dominoes to fall after it.

As the banks started to run out of money, so did many, many other companis. This month the big three Detroit car companies GM, Ford and Chrysler have run out of money. Having seen the demand for tax-payer funded federal money being met by the US government, a most gracious benefactor in these troubled times, the automobile industry has started asking for extra money. Flying to Washington in their private jets (to, quite sensibly, avoid the stress of domestic air travel one would think), they petitioned Congress for some of the juicy bailout billions. There has been a demand created, therefore the government must supply. It wasn’t the car companies fault that they have been misreading the market for years. How could they possibly be expected to foresee a time when crude oil prices would skyrocket because supplies were running out? How could they possibly be expected to see this. They are in the business of making cars, not, and I repeat, NOT in the business of predicting when the world oil supply may or may not run out. How could the car companies possibly be expected to understand about the international oil market. Their products only run on oil-based fuel. They aren’t made from any products that are refined from crude oil – none at all – except maybe for some of the plasticy bits. Car companies are car companies. They make cars, not oil. How could they possibly be expected to foresee world oil prices rising astronomically. Particularly in these troubled times when the Middle East oil supply is threatened by Al-Qaida and Somali pirates. How could they possibly be expected to foresee the future. They are not soothsayers. They are just car makers. Just car makers.

Sorry for 1500 words of sarcasm, but really, what do they expect? Any system is only as good as the people who run it. Communism is a great idea. Everyone shares everything and everyone contributes to the wellness of society. Sounds pretty sweet to me. But then you get idiots like Stalin and Mao running the show and it turns into opression central. It’s the same with capitalism. The problem with capitalism, with the commercial market model, is the people running it. As long as they focus on maximising profits, they are never, ever, ever, in a million, billion, gazillion years going to adapt to anything that is beyond the next quarter. Profits is profits. Dividends need to be returned to shareholders. That’s all that the corporate world care about. They can’t care about the people who work for them, the customers that buy from them, all of the millions of people around the world who are domiciled to use their goods/services. It is the shareholder that rules.

The greed of shareholders and the greed of the corporate elite will foreever be the downfall of the capitalist market model.

As New Zealand Green Party co-leader Jeanette FitzSimons put it so eloquently after election night a few weeks back…

Will we look back 20 years from now and think, “I’m really glad I voted for tax cuts rather than the future of our children”

Boon x