Cutting outlooks, wealth, services, electricity supplies, and hair. But not banking power.

The banks are being bailed out, the citizens are being fleeced. Quelle surprise.

“A frustratingly slow economic recovery in developed nations is holding back the global economy,” pronounced the World Bank yesterday while cutting its world growth forecasts for 2013.

We’re cutting forecasts, cutting expenditure and cutting corners. But nothing’s cutting it. The Slog’s long-predicted emergence of Spanish banking reality is creeping out shock by shock. Bankia’s shareholders  may lose most of their investments and probably all of them says the Spanish bank rescue fund in its latest report.

According to the Fund for Orderly Bank Restructuring, Bankia has a negative value of 4.2 billion euros, and its parent group BFA is 10.4 bn in the red.

So now we’re cutting wealth too. Bankia is about to receive 18 bn euros of eurozone aid. But not its customers.

Greece’s banking system needs 27bn euros. Its total worth is only 22bn. Finance Minister Stournaras says bondholder hair will soon be cut too. The euro and the banks must be saved.

But not the citizens.

Greece’s environment ministry yesterday announced that the 10% electricity price (inc tax) will actually be higher still as the Public Power Corporation hands them another 2.9bn in increases. Stournaras confirmed that the Euro Working Group should next Monday approve the disbursement of the January bailout tranche, which amounts to 9.2 billion euros.

None of it will go to the citizens.

The Fed and the ECB are both verging on $4 trillion balance sheets, the total for all of the world’s central banks is $14 trillion.

This is being readied to prop up banks – not people and their livelihoods. Take a look at this from the UK’s largest financial publication, Money Week:

‘We believe the outcome of this problem is inevitable… and the recession, joblessness and instability you see right now is only the first stage of it. Many people think the slump we’re in now is as bad as it will get.

But the truth is, it’s only the start. In fact, you will certainly see the consequences of this deep-rooted problem unfold across the cities, towns and villages of Britain. No one will escape the fallout.

In all recorded history, no country has ever recovered from the financial position we find ourselves in today.  No government has ever been able to reverse this trend. No emergency action has ever come close to a solution. This inescapable problem has only ever had one outcome: financial collapse.’

Now of course, this is MW trying to attract new subscribers. But sticking their necks out this much and then being wrong won’t be good for sales.

The fact is, they’re right. It’s time to focus even more on how you and I can come out the other end of this in one piece.

The Sharp eyes of Sloggers across four continents are to be greatly thanked for contributing to this analysis.

 

 

BANKS: The one asset they seem to lack is foresight

When The Slog was still at Blogspot – way back in May 2010 - I posted (not for the first time) about the madness of so many financial institutions and pension funds investing heavily in the UK’s commercial property sector. In the EU at that time, there was three times more capital chasing commercial property than the buildings available for sale. I wrote, ‘It’s all very well for cash-rich conglomerates to buy into a sector that’s going nowhere except down the toilet. But when pension and assurance providers start doing the same thing….well, you know two things are coming: balance sheets riddled with sub-prime retail business loans; and credit default swaps backed almost entirely by worthless retail property as security.’

In this morning’s FT (the link is pointless as it won’t let you through) there’s a piece by Daniel Thomas headed ‘Banks in race to shed commercial property debt’. Since that Slog post of a year ago, says Thomas, lenders repossessed and sold property worth £500m during the year, and wrote off a further £500m.

Half a billion quid. Just like that.

But think about this: only about £5bn of the total debt has been repaid. Within the £204 billion of outstanding commercial property debt owed to UK lenders, a bowel-loosening £128bn of sub-prime debt is either in arrears, on the cusp of write-off, or effectively toxic. In a masterpiece of understatement, Daniel Thomas refers to this sum as the ‘area of greatest concern in future’.

I’m no Warren Buffet or Jim O’Neill. I’ve a reasonable nose for a good investment, and am blessed with enough common sense to ignore idiots who tell me up is down. But I’m a rank amateur in these matters. How come I could see this coming, and all those Masters of the Universe couldn’t? And do any of us really think these clowns should carry on being regulation-free zones?

This is nothing to do with politics, and everything to do with competence assessment. These people should not be allowed out alone, never mind allowed to trouser megabonuses.

Nick Clegg is wrong. But his cuckoo-cloud may have a silver lining.

For the Coalition, it is a sprint – not a marathon.

“An’ Cleggy needs double one hunnered an’ seventy to win now….”

I hear that Slick Nick is newly keen to establish himself as a thinking machine on a par with the Tory Team led by Oliver ‘Polite’ Letwin. This is going to be a tough call for Clegg, a man who thinks as much with his feet as on them. The pace of politics and the demands of the omnivorous media being what they are today, thus far the Deputy Prime Minister has just about got away with living on stuff like “It will take time for people to adapt to coalition politics” and his most tedious one to date, “This is a marathon, not a sprint”.

So here’s one short-term thing for Nick Clegg to think about as he delves back into his collection of didactic sociology tripe this evening: now it’s turning into a sprint not a marathon, what should the Coalition do? (Denying the reality of the question will be marked down).

I’m not a statistician, but I am blessed with an odd sagesse when it comes to processing where numbers lead; it’s probably a form of savantism. Either way, it is clear to all of us who are good at sums that the Coalition is losing the race between cuts and stimulus on the one hand, and outgoings on the other. They only ever had a slim chance of winning it anyway, but now that things are under way, without a huge glucose injection to accelerate the sprint towards a smaller State, they are doomed to f ailure.

Here are some real and very disturbing facts. Another reminder (he sighed) that I don’t make this stuff up.

By the end of 2012, the National Debt will be around 79% of UK GDP – even if the economic forecasts are right. The early signs in 2011 are that they are hopelessly optimistic. 2010 was the worst fiscal situation Britain has endured since 1945.

In the next four years alone we will need to borrow £620 billion. If there is more bank trouble or bond rates go up or we lose our Triple A rating, that figure will increase as will the cost of servicing the debt. The current cost is around £40 billion; relatively small changes to the three factors above could take that up to £60 billion. Being in the EU alone costs us £118 billion per annum.

Net – since the Coalition came to power – both debt and deficit have got worse, not better.

All these projections are predicated on growth in the UK economy. But our biggest trading partner is bankrupt, China is on the verge of a slowdown, and the US has a deficit the size of our debt. Who wants to buy our goods in that environment? Why would they want  financial services? Where are the plans to diversify the economy?

The growth simply isn’t going to happen, and the running costs of being Britain Ltd – overcrowded welfare State and EU member – aren’t going down. This morning, Markit concluded that the economy – especially the services sector – is in ‘near stagnation’.

Take the projections on welfare costs, for example. The first ONS data on that this week blew a hole in all of them. Another assumption is continued output uninterrupted by strikes. I wonder, what are the  chances of that happening?

A senior Cabinet Minister I was talking to before Christmas called all these ‘imponderables’. In the absence of miracles, they now need some pondering.

The sole – and I mean sole – silver lining on this cloudy horizon is that pretty much all the developed nations are going to be in the same boat. Furthermore, as everyone’s debts get out of control and those bank ‘assets’ head towards zero, the banking system will be in another (much bigger) mess at some point over the next three years.

“I thought you said recently the wealth was transferring to the banks from government and taxpayers?” I hear you saying.

Well, it is. But to fewer and fewer, richer and richer banks. The ones, to be precise, who didn’t go quite so leverage-crazy after 2001. The ones who were able to pick up the pieces for a song. Only the nice pieces, mind: we picked up all the smelly stuff. That’s why we’re getting poorer and they’re getting richer.

Even if the public were willing to bail out some of the Masters again, certainly in Britain there isn’t the money to do it. There might be in the EU, but Germany will resist paying up until it’s too late.

“Why is all of us in the same overcrowded lifeboat with no food or Verey lights a good thing?” I sense you thinking. I often think this too, but all told it should be.

It’s a good thing because a few important folks will say “Enough”. It’s the word that Alan Greenspan should’ve uttered in 2004, but a stammer is a terrible affliction and it’s too late for hindsight now.

Key among those folks will be Beijing’s Politburo. A broke West is no good to them. They’ll be distracted part of the time with stopping their own roaring inflation getting worse. But trust me: they will already have a dossier on every disaster scenario you can imagine – and quite a few that you can’t.

There’s also a chance that the Washington Establishment will be rattled enough by the Tea Party to think things through as well. And ultimately, even the men in Brussels will ask the right question. They’ll do so because every political leader will have rioting strikers with which to contend.

That question will be: “Why are we doing any of this?”

And some time after that, the big Write-Off will begin. The strong banks will (natch) lobby furiously against it, because such a move will remove the grip they have on governments.

But the simple truth is that most debtor countries (Japan being the big exception) owe money to the Chinese, the Arabs, the banks – and combinations thereof. It will be a question of Who Blinks First. But my hunch is that, on being told they can’t have the money, the creditors will be the ones to relent.

On the result of that poker game depends the future of the world. That is no exaggeration: those three creditor groups will wind up running the show, or the power will be redistributed. The likelihood is that some kind of halfway house will emerge. And for me, the best result for both ‘sides’ would be winding most of the debt back to nought….while once and for all putting the bankers and speculators back where they belong: serving the business and citizen communities, rather than the other way round.