Banking crisis

The Treasury plans to save the British economy are announced, and frankly I think that the Chancellor has made a fairly good job of trying to remedy the position, were it not for the delay in doing something.

I have some reservations over the guarantee of the inter-bank lending (or more particularly over the guarantee for 'qualifying' lending after the announcement date) as I think this gives banks the opportunity to offload risk to the Treasury ie you and me, without any compensating reward.

However, the attempt to improve liquidity in the market is essential, but as I write LIBOR has increased yet again.

LIBOR is the rate at which banks lend to each other, and is above based. That it has increased indicates the sheer nervousness of the banks in dealing with each other. Which raises the fundamental question: if they won't deal with each other except at a risk premium, then why would they expect us to do so?

The political impact of all of this are amazing – in every sense – and the economic impact is going to be felt for many, many months and years yet.

Frankly, I find the events of the past month almost unbelievable, were it not for the simpl fact that the public have been encouraged to borrow much more than they could afford, without consideration of the repayment, and that he whole edifice was destined to collapse in on itself sooner or later. Not even the deepest cynic in me expected a collapse of such magnitude and such severity.

Posting problems

Yet again I find myself somewhere that advertises wireless broadband and delivers slower than dial-up. The posts I have sent have been corrupted in transit and I'm going to have to resend them. Sorry, to all my avid readers.

Later that night......

The phone calls came. First Gordon, then Alasdair telling me that they heard I was in London and asking me to call in to give them some advice.

“Sole purpose of visit”, I lied, keeping them feeling somewhat self-important as I finished the rest of my tasks.

The substance of our conversations must remain confidential went as follows:

“When the Chancellor is faced with a crisis of confidence in the markets, the markets need a Chancellor who can demonstrate confidence in a crisis” ©The phone calls came. First Gordon, then Alasdair telling me that they heard I was in London and asking me to call in to give them some advice.

“Sole purpose of visit”, I lied, keeping them feeling somewhat self-important as I finished the rest of my tasks.

The substance of our conversations must remain confidential went as follows:

“When the Chancellor is faced with a crisis of confidence in the markets, the markets need a Chancellor who can demonstrate confidence in a crisis” ©

Duly ignored.

“Explain the prudence virtue of savings and you intention to increase the savings ratio, which will in part excuse and explain much of the painful actions that need to be taken.”

Duly ignored.

“Be decisive. The public value decisiveness and hate vacillation.”

Ditto. In spades.

I left the top-secret meeting in Downing Street depressed, and recommended that both Gordon and Alasdair reread Galbraith (JK, not Neil) to understand the fundamentals of what is going on.

London Airports

Today takes me through London airports for the first time in a long time.

It is easy to remember why the London's airports are alternately the best and the worst in the world.

The good is – of course – the multitude of connections, options and the ability to access almost any part of the City. This presupposes that 'The City' is where the action should be. Which is arrant nonsense, but until the revolution we are stuck with this.

The worst is – of course – the jobsworths and the pathetically under-resourced connections, which mean that any transit through the airports is doomed to meet with 'computer says no!' and a singular inability to deliver on expectations.

Cabinet reshuffle

Mandelson is back in Government, as Lord Mortgage of Brussels.

Is Brown that desperate? (Answer: Yes)

I've obtained an exclusive picture of Ruth Kelly announcing her plans to stand down as MP for Titanic South.

Lighthouse Caledonia

With 100 workers facing redundancy by Christmas, we have a solution in sight....

More than 100 fish processing jobs on Lewis on the Western Isles can be saved, according to a local MP.

[...]Mr MacNeil said the firm would like to build a new plant at Arnish on Lewis if a funding package could be agreed.

"Saved" being used in the loosest possible sense.

13 weeks to build and open the factory?

Back in the real world some of us think that the timetable might be just a bit ambitious.

• Discuss issues with landlords, design factory, seek planning permission and discharge permits from SEPA - at least 12 months
• Pull together funding package - add 6 months
• Build new road to replace single track - add 12 months and £millions
• Build factory and production line - perhaps 12/18 months

Or relocate to the other more efficient factory in Argyll, and expand its capacity.

The non-involvement of the Enterprise Minister (and MSP for Argyll), and the absence of any reference to the Government helping the situation tells it own story.

Having had many past discussions with various management teams in that factory, it's unsuitability has been known for many years, and I feel really sorry for the staff who will be expected to work flat out in the very busy pre-Christmas period, only to receive P45's in the New Year.

Free school meals

An excellent initiative from the Scottish Government to improve and encourage healthy eating by young kids.

However, the government will not be allocating extra money to fund the roll-out of the initiative.

It expects councils to find the money from the funding settlement already agreed.

Like all the best and easiest initiatives, someone else is paying for it. Presumably it will be funded through further cuts in services (aka efficiency savings).

Whilst Rome burns......

I am repeatedly told by senior Councillors that the MP repeatedly refuses to meet with the Council to discuss areas of concern, and where the Council and the community could benefit from both parties working together.

I'm sure that this is a malicious lie and that someone can identify the two or three times he has been into the Council Offices to meet the Convener or Vice-Convener this year.

It is obviously not helpful to have the MP (and MSP) and the Council arguing different positions, as it means that there is no coherent strategy on, say, the schools issue. But Mr MacNeil is busy on important matters of state, as the press release I received today clearly demonstrates.

----

(For Immediate Release) – Tuesday 30 September

ATTN: NEWSDESKS

GAELIC SIDELINED FOR MUSIC POST

Na h-Eileanan an Iar SNP MP Angus MacNeil, has written to the Director of Education at Comhairle Nan Eilean Siar, Mr Murdo Macleod, expressing his concerns that the Teacher of Music for Castlebay School which was advertised on the Comhairle’s website does not have Gaelic as an essential or a desirable skill. Several constituents have brought this matter to Mr MacNeil’s attention.

Mr MacNeil said:

“It is disappointing that at a time when the new Gaelic Digital TV Channel has been launched, Comhairle Nan Eilean Siar advertise a post which is so strongly linked with our language and culture and has completely omitted Gaelic from the job specification.

“As music particularly is a huge part of the Island’s Gaelic culture, and with Gaelic and music so strongly tied together, it would appear to be a damaging oversight to have completely missed Gaelic from the job specification.

“Having spoken to the Comhairle about the matter, and although they claim that it is difficult to attract people to some of these posts, I still feel that Gaelic should have been on the desirable category in the job advert.”

----

Perhaps an English language teacher could be recruited to help Mr MacNeil with the coherency of his press releases.

Sincerity - faked from every pore

Far be it from me to belittle the "start of the Scottish Government’s annual flu and pneumcoccal immunisation campaign", as reported in Hebrides News.

BUT, in a press release from our MSP it is reported that:

Mr Allan is greatly concerned that many people are unaware that they are eligible for a free jab

Obviously a serious matter as he goes on to say

If these people do not get vaccinated, they are leaving themselves vulnerable to the side effects of the virus.

And he then proceeds to list those who would most benefit from the jab. His concern is echoed by Stuart MacMillan MSP, whose blog from yesterday comments that

Mr. McMillan is greatly concerned that many people are unaware that they are eligible for a free jab.

And repeats the press release word for word.

The press release is obviously contagious, but I think I have found the source. Alex Neil MSP is obviously the 'Typhoid Mary' of this story, writing in October 2007 he presciently comments that

If these people do not get vaccinated, they are leaving themselves vulnerable to the side effects of the virus.

Further outbreaks of this highly infectious crap will be reported to the appropriate authorities, but as it only seems to affect SNP MSPs, it is of little consequence to mankind.

Credit crisis

The balance that needs to be struck in dealing with the fallout from the credit crisis is difficult, expensive and can potentially set a precedent for other businesses.

The biggest problem is the issue of 'moral hazard' - why should the banks be bailed out for making fundamental mistakes in the operation of their business? Will they not then think that they can do what they like, and always have that safety net there?

With that in mind, I think that the approach of the Chancellor to the Bradford & Bingley has been absolutely spot on. The shareholders have taken a bath; the deposits have been sold to the highest bidder, and the loan book nationalised at about market price - which happens to be a very low price at this time.

It is exactly what the Government should have done with Northern Rock, and it only serves to highlight their incompetence when first faced with the fallout from the excesses of modern banking practice.

Last night the US rejected the bail-out deal for American banks. This was a deal which George Bush staked his entire reputation (!) upon, about which he 'shroud waved' and predicted financial disaster, unemployment and recession if it was not passed immediately. Congress considered the views of George Bush, and rejected them: for the time being.

I never thought I would say these words, but I agree with the Republicans on the issues arising. The bail-out left the banks virtually unscathed, free to continue to operate, and with no restrictions on doing the same again. That is wrong.

In both the US and the UK, the shareholders have to lose. The Chief Executives of the banks have to go - and without fat pay-offs - in an orderly fashion. Consolidation must not leave the Boards unaffected whilst the front-line staff are purged. The banks must face restrictions on the type and extent of lending they can undertake. Bonuses have to be tied to long term results, and must be more modest.

I would like to see a much higher rate of tax on the highest earners - say 50% on earnings over £150,000 and 60% over £1m - so that the excesses are curbed, or at least the Treasury receive an appropriate share. I think dividend payments are going to have to fall, and the funds kept in the companies to pay for growth.

But more than that, the self proclaimed Masters of the Universe have been shown to have been nothing more than grossly overpaid snake-oil salesmen selling a dodgy product. The banking system must now fundamentally change and return to its roots of prudence, customer service and security.

Scottish Futures Trust

To avoid having to pay usurious rates of interest to private lenders, in order to fund public sector expenditure on infrastructure projects, it is reported that Alex Salmond is looking to borrow from a Sovereign wealth fund to bridge the gap.

So why should borrowing from the Qataris be better than borrowing in the marker?

Well, the interest rate would normally be expected to be slightly lower, which is normally attractive.

The difference is that in this case the loans (oops we can't call them that) have to be Islamic compliant and will actually charge no interest. Instead, there is a non-interest return on the investment. The difference between the Western and Eastern banking systems appears to be largely semantics, and the necessary forms to prove that the appropriate systems are being applied.

All this does is underline the shortcomings of devolution and the problems that will face Alex Salmond as he tries to square the election promises with the absence of money to deliver. Much the same difficulties as is facing Labour in Westminster, only on a much smaller scale.

Is it all a good idea? In my opinion it is not, as it leaves Scotland more exposed to the vagaries of the global marketplace, and risks control of key assets being lost to Scotland. And who is to say that the Qataris will not sell the debt to a third party?

It is just another flavour of PPP/PFI, and as such is nothing more than HP on an enormous scale.

But, the devil will be in the detail, and it might just be the only game in town.

As Burns might have said:

We were bought and sold for Qatari gold!
Sic a parcel of rogues in a nation!

An affront to democracy

This was how Cllr Roddy MacKay correctly described the farce that was the special meeting of the Council last night.

A £13m hole in the budget caused by the decision delaying the closure of schools - or more accurately, by being forced to use a totally inappropriate PFI/PPP model to fund the new schools - and the Councillors don't have the courtesy to layout the impact of their decision to the employees, service users, and the general public.

Next year will see budgets cut by 4% across the board - 2% savings demanded by the Scottish Government and 2% to fund the shortfall.

Listen carefully: it cannot be done.

A private business can adjust quickly; the public sector cannot. To make cuts of that size, effectively overnight, will mean redundancies, which in turn means consultation with staff and unions, and with statutory services effectively protected, there are some services that will be completely shut down.

Of course, the Council Tax freeze has exacerbated this problem, with an expectation amongst the public that somehow less income means no impact on services.

As LazyChicken quoted from Alasdair Allan's election address...

...as with other councils, the Executive's policy on PFI/PPP meant Comhairle nan Eilean Siar had little choice but to go down this route. However, the SNP's policy would prevent the Comhairle ever having to face long term costs on such a scale again.

He wants the schools kept open, but (according to my sources) won't meet with the Council to have a joint lobby with the Government for the additional funds to meet these costs.

I have no problem with the rural schools remaining open, as the recent Scottish Government legislation seems to force, but they should meet the additional - substantial - cost of their policy decision, not you and I.

I say it again. Scrap the entire PFI project. Find out what schools are going to have to stay open under the new legislation. Then redesign the new schools to meet the new reality. Then build them using sensible ie traditional, funding techniques. And the Scottish Government are to meet the reasonable additional capital costs (or take any capital savings!) that this approach delivers.

ADSL speed

Further to my previous posting about the possibility of 24Mb connection in Stornoway, we have now had the non-contended (i.e. dedicated) line put in and I am getting download speeds of up to 4.58 Mb and upload speeds of up to 0.4Mb.

Not earth shattering but still much better than it was.

I am told that a fibre-optic cable will need to come across the Minch* before the 24Mb domestic broadband is available, but I still getting contradictory reports about the possibility of 24Mb business broadband speeds.

* There is an existing top-secret fibre optic cable already running to the islands that has been lying unused for 10 years or so, which would do the job. But as it doesn't exist.......

Lighthouse Caledonia

You could see the probable closure of Marybank coming from the moment that the company was formed, with the bad news being passed from Fjord Seafoods to the new owners.

Sad, sad, news, but the costs of transporting goods to the mainland is one that has been repeatedly flagged by the company, the hauliers, the Comhairle and many others over the past years. The delayed pseudo-RET scheme is too little and way too late, and without certainly over the costs for many years the businesses are not going to make the long-term investments.

With double the capacity and half the staff, the factory at Cairndow must be the expected winner in this case.

Cairndow lies in the constituency of Enterprise Minister, Jim Mather, who is already facing job losses at Machrahanish, so telephone calls to him are going to be less productive than you might think.

Emergency meeting about schools

Thanks to the ever helpful Council Officers, I the following motion is going in front of a private meeting on Thursday, followed by a public meeting of the Council:

We the undersigned, demand that a meeting of the Comhairle be called as soon as possible and not later than Wednesday 24th September. The purpose of this meeting will be to discuss the political and financial implications of the decision taken at full Council on Thursday 4th September 2008 in relation to the cessation of S1/2 education in the Western Isles and the likely impact on the WISP programme(sic), on the education of all children in our schools, and on the unallocated funds in the capital programme.

Signed: Angus MacCormick, Donald J MacSween, Neil Campbell, Keith Dodson, Norman MacLeod (signature withdrawn 18/9/08), Kenneth MacIver, Charlie Nicolson, Kenneth Murray,John A MacIver, Murdo MacLeod, Martin Taylor, Catherine MacDonald, Donald Manford, Annie MacDonald, Philip McLean, Peter Carlin, Uisdean Robertson, Archie Campbell and indecipherable.

The report is available here, and on at para 4.4 you will see that Education will need to save 7.7% of their budget in 2010/11 to balance the books. Read the report and weep.

The exact financial position is largely unclear until the report to Policy and Finance Committee in October, but the impact is obviously huge. Time to start again, rather than stagger from decision to decision.

Palace coup

It looks like the threatened coup in the Comhairle will not now happen, mainly because the 'opposition' are bickering amongst themselves.

Those who want to see change are unable to gather support behind any single candidate.

The prime mover in trying to get the Vice-Convener to stand down (and undeclared candidate to replace him) won't show his hand and hasn't got support.

The two potential candidates for Convener (at least in their own opinion!) are fighting it out behind the scenes.

Many of the rest of the Councillors want change, but not if that means having to do something and take decisions.

And the ships sails on........

Gaelic TV channel

God help us but .... why does it exist?

Nice, in the way of a jersey lovingly knitted by your granny.

Stylish, in the way of a jersey lovingly knitted by your granny.

Keep this embarrassment off Freeview to avoid further and widespread ridicule.

The only game in town

Alex Neil MSP today put together a consortium - or more accurately, a sort of a consortium - to try to acquire the Bank of Scotland bit of HBOS.

At least someone is trying to do something to safeguard the jobs.

Alex Neil - or the other members of the consortium - must know that they are probably on a hiding to nothing attempting to dismember a bank that has been sold at a knock-down price to another bank. Lloyds TSB have got the bargain of the year, and they are not going to allow that vast prize (and the bonuses that will go with it) to slip away.

It is a shame that Alex Neil's move has been so thoroughly trashed by Alex Salmond, before it has a chance to move forward, when he declares that the takeover is a fait accompli, and 'the only game in town.'

Such is today's modern reality of where we are at, that what would hav been used as leverage yesterday is cast aside today.

Words of wisdom

The First Minister was on fine form as he laid into those responsible being blamed for the demise of the Bank of Scotland.

"It was laid low by the actions of speculators in the money markets and action must be taken against them. Other financial institutions will be targeted unless restraints are made to short selling. Short selling is when people enter into selling shares they have absolutely no title to whatsoever, and do it with the aim of making a speculative profit over other people's misery.

"I understand Russia has outlawed it, and that America has suspended it. I would urge our financial authorities to follow suit."

Shorting is to all intents and purposes a gamble that the price will fall. A Put option is also a form of shorting, so I assume that these should be banned too.

Going long is the alternative, and involves betting that the share price will rise, or as the FM might put it:

Going long is when people enter into buying shares they have absolutely no title to whatsoever, and do it with the aim of making a speculative profit out of other people's hard work.

Whilst, admittedly, no firm complains about its share price rising, but a speculatively overpriced share will fall back to its real level which can cause just as many problems for the company that is targeted.

Of course, the real problem is the economists who came up with the wonky theories that allowed the banks to construct crazy trading rapacious lending and borrowing techniques which resulted in huge dividends and staff bonuses* that brought the whole edifice down. Which, of course, means that a large part of the blame lies with HBoS management for allowing such an exposure to arise in the first place.

But, let's not mention that, shall we.

If shorting and margin trading is banned then the liquidity in the market will drop significantly, meaning that it becomes harder to sell, hence depressing prices further.

Reaching the point of equilibrium will be very painful, especially in a falling market, and if the economy is prepared and able to take the pain then banning shorting thereafter makes some sense, but only until new, more complex, and less quantifiable derivative techniques replace shorting.

In short, we have a soundbite that says nothing, and has offers no solutions that can be effected, whilst calling for more chaos to be injected into the system.

Just remember the basic rules: no one forced the sellers to sell or the buyers to buy.

* I seem to recall HBoS being praised by the FM for making such big profits and paying such large bonuses and dividends.

Emergency Council meeting

I understand that 19 Councillors have now requested an emergency meeting of the Council, to be held on Tuesday, to discuss how to bridge the funding crisis caused by the recent decision not to close the schools until 2011.

It appears that the entire capital budget of £12m may require to be committed to schools and the schools PPP, meaning that roads, care homes and a million other things will have no capital expenditure for the many years.

I've not seen the report for the meeting yet (hint, hint!), but I believe it will outline the catastrophic financial impact of the decision/non-decision, and will confirm that there will be nothing left in the pot.

And you wonder why the Vice-Convener is tearing his hair out.

18 Councillors (out of 31) voted to close the schools in 2011. 19 now want to understand and debate the impact of their decision. By any reckoning, there is a substantial overlap between the two camps, implying that some apparently took a decision without any understanding of the impact.

Isn't that fabulous news.

The lack of political leadership on this issue seems to be matched by a collapse of morale amongst the officers, with an exodus of qualified staff to the mainland, and an all pervasive sense of doom and disaster.

One Councillor confided that the failure to elect Donald Manford as Convener in June 2007 was a massive missed opportunity; and that the refusal of the MP and MSP to engage with the Council on almost any issue meant that the key issues were not being pushed with Government.

Another u-turn anyone?