Tuesday, September 25th, 2007 at 1:01 pm
“Markets recognizing the extent that credit discipline has deteriorated in recent years”. Not my words but the words of the International Monetary Fund in their latest Global Financial Stability Report. They expect that the period ahead may still be difficult as bouts of turbulence are likely to recur and the adjustment process will take time.
The effects are likely to slow global expansion but adjustment to the new conditions continues. If the process of change and adjustment stalls and financial conditions deteriorate then both the financial and the real economy could experience “more serious negative repercussions”
You can find the report here…..http://www.imf.org/External/Pubs/FT/GFSR/2007/02/index.htm
Broadly the report seems to suggest that avoidence of incentivizing and a basic understanding of maths would be of great benefit to the financial industry. It seems incredible that that even needs to be said. Is it not obvious to anyone?
Incentives for selling any product will affect the judgement of those doing the selling. It doesn’t matter whether you are selling a pair of socks or a multinational company. Incentives will cause people to sell when they might otherwise consider the sale unwise. Management who get huge bonuses for sales growth and individuals benefitting from commissions will always push that growth and sometimes push the growth by allowing sales that are unwise.
This has led us to a situation where many people cannot afford their repayments on loans and mortgages that they should never have been allowed to take up. Those who made their commissions are enjoying the benefits of their actions whilst the rest of us are left worrying that we will be the ones paying the price.
It is not very reassuring and we must hope that lessons have been learned. Time will tell.
Thursday, September 20th, 2007 at 4:46 pm
A provisional report from the office of fair trading finds that large supermarkets and dairy processors have colluded to increase prices of dairy products which has cost consumers an estimated £270 million.
Whilst farmers were struggling and barely, if at all, making a profit the supermarkets were buying milk cheap and selling it expensive. It’s a sad reflection on the state of business in the UK today. Businesses are about making a profit but for the supermarkets which make such claims about reducing the cost of shopping for consumers this is unacceptabl and unjustifiable. Supermarkets in France, for example, make around 10% profit on milk whilst in the uk the large supermarkets are apparently making around 30%.
Tesco recently agreed to pay farmers more for milk. At the time it seemed the action of a caring business that wanted to support it’s suppliers. No doubt that is exactly what Tesco wanted us to think. Now with this announcement from the OFT we must wonder if that wasn’t just a sign of Tesco trying to head off the expected and justified critism this OFT report will bring.
If the final analysis by the OFT following responses from the companies involved finds that laws to prevent anti-competitive behaviour have been broken then those companies are likely to suffer huge fines as a penalty. Many of us would say a good thing too but as always lots of the people who have benefitted i.e. shareholders and bosses who have received bonuses will take the money and run. Meanwhile the current customers and shareholders will have to pay the bill.
Monday, September 17th, 2007 at 5:08 pm
The Chancellor of the Exchequer has just announced that the government will guarantee all of the savings people have in Northen Rock.
This astonishing, but welcome, announcement shows just how scared the governement is about the effects of seeing queues of people desperate to withdraw their savings on other consumers, savers and on the image of the financial industry around the world.
Further worrying news earlier was that the share price for Alliance & Leicester had collapsed by around 40% in late trading on the stock exchange. The Company says that they know of no reason for the fall and that they have not approached the Bank of England for a loan.
