Archive for the ‘Economy’ Category

More on financial transparency – a response

July 22, 2009

The below is my response to Leigh at Knowing and Making discussing further the financial product transparency plans in the Conservatives’ ‘Plan for Sound Banking’ (See here for my summary)

I wanted to read the actual document before commenting further. Which I have now done. The way it is set out in the policy document is a lot clearer than the couple of lines in Peston’s post (on which I based by initial reaction).

The idea of getting providers to send out a ‘price list’ and a breakdown of their usage over the previous year makes a fair bit of sense. As a first point it will help customers appraise their own usage and think about whether the deal they are getting now is right for them (although people having sound financial awareness would be a necessity in this case).

Although I am not so sure about forcing them to provide machine-readable raw data for customers to put into a price-comparison site. What format are they going to use that customers (non-technical included) are going to know what to do with, let alone have all institutions agree to implement a common format in the first place? Having the data organised in a standard way, allowing customers to manually plug in the numbers on a website would be perfectly acceptable. But what is to stop a financial institution from coming up with a revolutionary new type of charge, what happens then?

I am a bit uneasy about it being a statutory requirement, from a free-market point of view, as I think there are sound business reasons for companies to be more open and up-front about such things. If they believe in the service they provide to customers they should have nothing to fear from easier comparison, I think they should be doing it voluntarily. Bet they would like to not have to pay any commission too, so open-source comparison sites could be welcomed.

Definitely agree with the idea of cutting out the rating agencies. But that is a slightly different case from arguing for the consumer side of things as it will be ‘expert’ commercial entities doing the analysis and comparisons; not lay people. Will be interesting to see how they implement it!

The Conservatives’ Proposal for Sound Banking

July 20, 2009

Robert Peston this morning outlined the ley points in The Conservatives’ as-yet unpublished policy document titled “Proposal for Sound Banking”. [Update: document now available from here]

The plan boils down to:

  • Effectively scrapping the FSA. Moving the supervision of financial institutions (banks, building societies and insurers) to a new division at the Bank of England. And rename the consumer protection aspects of the FSA’s remit to the rather grand “Consumer Protection Agency”.
  • Force banks and credit providers “to provide much more information directly to individual consumers” about charges and other aspects of their products. Also get these institutions to provide this info in a form able to be utilised by comparison websites.
  • Get the Office of Fair Trading and Competition Commission to investigate whether consumer choice and market competition has been affected by the consolidation seen over the last two years.
  • Finally, they set out plans for macro-prudential regulation. With the creation of a “Financial Policy Committee” to control the leverage (ratio of lending to capital) of banks and building societies.

What does Richard think about this?

It is all very well shifting, merging and renaming parts of different regulatory bodies but will that really make a difference to how well regulations are enforced. It is highly likely that the same teams at the FSA in charge of monitoring the banks will just move over to the Bank of England. So what is the point? As Peston notes – “the FSA now faces a nightmare few months: given the high probability that its days are numbered, retaining and recruiting staff will not be easy.” Will it do more harm than good?

On the increased information on products to consumers. What more detail can they give? Financial institutions are required to detail everything in the terms and conditions etc. Is it really that hard to work out at the moment? If it is go somewhere else.

The idea that price comparison websites will help consumers is rather worrying. They exist to make money – through commission and referral bonuses – and nothing else. I believe promoting them may cause more harm to the consumer finance industry (savings, credit cards, mortgages etc.) through an inevitable drive to the bottom in headline price. Surely one of the problems in the lending binge was the downward pressure on lending rates from the likes of Northern Rock forcing others to lower their rates (too far) or miss out on customers.

I don’t know nearly enough to comment on the macro-prudential regulation side of things so I won’t.

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Check out Leigh Caldwell’s thoughts on the policy document, and why he believes the behaviour of financial consumers needs to hold greater consideration by regulators.

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Wimbledon in the recession

July 9, 2009
Wimbledon - The Hordes
Image by ucayman via Flickr

Wimbledon doesn’t really show any signs of there being a recession on.

I thought we are supposed to be in a recession with everyone feeling the economic pinch and cutting back their expenditure? I went to the Wimbledon Championships twice in the last two weeks, and on that basis you would seriously question how bad this ‘recession’ is.

Firstly the numbers of people visiting… it was absolutely packed, it seemed much busier than in the last two years. On day two of the chamionships they had around 43,000 people come through the gates!  That is around £1.25m per day (based on the pricing for the first 2 days and court capacities) in admissions alone.

If we do a quick and very rough calculation of people buying things there:

  • Strawberries & cream (say 1/3 buy 1 @ £2.25) = £31,927.50
  • Water/Soft Drink (3/4 buy 1 @ £2) = £64,500
  • Pimms (1/4 buy 1 @ £6) = £64,500
  • Lunch (2/3 buy 1 @ £6) = £172,000
  • Gift/clothing from shop (1/2 spend £20) = £430000
  • Total = £762,927.50

Now that is a very rough estimate (and I think on the low side) of what people might be spending on their day out at Wimbledon.

Personally, as a tennis player and fan, I think Wimbledon is very good value for what you get:

  • Top professionals playing a few feet away (on outer courts anyway)
  • play going on from 12 until around 8 or 9pm
  • the atmosphere (a big thing for some, especially the afterwork city-types who come in after 5pm to sit out at the long bar drinking Pimms and people-watching)
  • etc. etc.

I started off this post planning to say that it is incredible that so many people have visited Wimbledon this year (in the heart of a recession) when it costs so much. But now I am not so sure, compared with other sporting events/entertainment it is actually quite good value. Football at Arsenal for example costs anywhere from £32-£92 for a 90-minute match…

It will be interesting to see how attendances at football stadia across the UK are affected over the first couple of months of the 2009/10 season. I predict falls (Except maybe for the very biggest clubs).

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WikiJob Poll: Is the recession over?

June 17, 2009

This is the latest post in the WikiJob Poll analysis series. This time I will be looking at WikiJob users’ views on whether or not the recession is over, and how that compares with other people’s views.

The latest poll asked “Is the recession over?” (with answer options of Yes or No) and as of writing this there have been a pretty credible 262 votes cast. With an overwhelming victory for those thinking the recession is not over yet; 216 votes compared with 46 votes for ‘Yes’ (see Chart 1).

WikiJob Poll: Is the recession over?

Chart 1 - WikiJob Poll: Is the recession over?

I had been keeping an eye on the poll’s progress and that ratio has been pretty consistent from the very beginning so it would appear that WikiJob users have not experienced much, if any, of the supposed “green shoots” appearing in the economy.

The CBI recently announced that it believed the UK economy was stabilising but that we wouldn’t begin to see a return to growth until early 2010. (www.cbi.co.uk). This was based on the second quarter GDP and inflation results along with the CBI’s own forecasts.

On the 17th the Office for National Statistics released the latest unemployment figures with a rise in May of those claiming job-seekers allowance of 39,000, less than what some economists had predicted.

Most WikiJob users would, I guess, base their impression of the recession on their experiences and probably from a jobs perspective (given WikiJob is about jobs!). I am sure there are many students who have just finished their exams, and who have been unable to get a position lined up earlier in the year, who are now really stepping up their efforts in finding a graduate role, but coming up with limited opportunities and massive competition. The stats aren’t great: with a fall of nearly 5% in the number of 18-24 year olds in employment.

The poll results probably also reflect the industry preferences of the WikiJob users (see Chart 2).

WikiJob Poll: What industry are you most interested in?

Chart 2 - WikiJob Poll: What industry are you most interested in?

With the users’ interest  heavily concentrated in the financial and professional services industries [Accounting, Consulting and Banking account for over 2/3 of respondents]. I see the banking and consulting sectors as being particularly hard hit (out of the options), slightly less so the large accounting firms. But still none of these compare to the pain being felt in the manufacturing sector in particular by the smaller specialist manufacturers which the UK seems to specialise in.

From what I have read many, better-informed people than me, believe that while the economy is showing signs of stabilising and some even believe there may be some positive signs. But current students and recent graduates don’t seem to be experiencing these, and are currently pretty pessimistic. An interesting employer perspective I received in talking with graduate recruiters druing my job search was that those companies who completely cut their graduate recruitment following the dot-com crash found that in the last couple of years there is a dearth of people coming up through the ranks to occupy the vital junior/middle management roles, which was why they hadn’t cut their graduate recruitment this time round.

I will close with a couple of quotes:

Alan Clarke, UK economist at BNP Paribas, said: “We are certainly moving in the right direction and this is one of a number of very encouraging signals that we have seen.”

and finally Stephen Boyle, Head of RBS Group Economics, said in his UK Monthly Economic Update “Signs of stabilisation are one thing, a sustained recovery is an entirely different matter as demand conditions remain weak. The sustained upward movement in long-term interest rates in recent months threatens to pour weed killer on any green shoots…”

Good luck in your job hunting, many jobs are still out there, at least you are giving yourself an advantage with the fantastic resources available on Wikijob and its forums.

WikiJob Stats Man (read more of my thoughts at richardthinks.wordpress.com)

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Is it time for a less selfish capitalism?

March 11, 2009

Lord Richard Layard, London School of Economics – Centre for Economic Performance, sets out his views on the need for a less selfish capitalism in an interesting article in the FT.

Lord Layard argues that we should change our measure of society’s progress:

[…]we should stop the worship of money and create a more humane society where the quality of human experience is the criterion.

He goes on to explain that despite massive wealth creation, happiness has not risen for nearly 60 years (in UK and USA). As such, Layard believes people should not saccrifice the most source of happiness, human interactions, in the pursuit of economic growth.

Our society has become too individualistic, with too much rivalry and not enough common purpose. We idolise success and status and thus undermine our mutual respect.

Lord Layard finishes with the following:

Values matter and they are affected by our theories. We do not need a society based on Darwinian competition between individuals. Beyond subsistence, the best experience any society can provide is the feeling that other people are on your side. That is the kind of capitalism we want.

What does Richard think about this?

While the idea that a society where everyone wants to work together to achieve a common set of goals and not care about personal economic reward is a noble one. It is, I feel, highly unlikely to ever succeed within the traditional Western-developed world. While most people have some altruistic tendancies and may be willing to saccrifice their own time to benefit others (although there is some debate as to the motivation behind altruistic actions), there will always be those people who only desire to have as much personal gain as possible and are very willing to abuse the generosity of others to meet their own personal goals. In this respect I am following Lord Layard’s statistic that 30%, in both Britain and the US, believe “most people can be trusted””. I would like to think that it is possible to have a free capitalist society where people choose to act in a manner which does not only benefit themselves, but realisticly I don’t see that happening.

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