Tuesday, 25 March 2014

Lessons from the past

My attention was recently drawn to an article about the late Hyman Minsky: not a comedian, but an economist, although the line between these two occupations might well be a dotted one.

Minsky died n 1996, and his contribution to this blog, which I am sure he did not predict, is that he appears to have hit upon an accurate description of the cycle of financial instability which, by reason of being a cycle, is currently cycling away.

Minsky's arguments are actually very straightforward, and may well have been influenced by Galbraith's analysis of the Great Crash of 1929, which anyone who is remotely involved in the property market should read, and which is available at the bargain price of nothing from this link

Galbraith laid the 1929 crash out in all its astonishing absurdity.  The driver for collapse was the availability of lending on the security of stocks and shares.  As the ownership of shares became more popular, and their price rose with demand, banks "got in on the act", and lent increasing percentages of share prices secured on those stocks, which had the effect of increasing demand yet further until one day; one Tuesday to be precise, the realisation that just because something was used as security for a loan did not mean it was worth anything became all too evident.

So why has this pattern been repeated over and over again? Minsky's explanation was again simplicity itself.  At the start of the cycle, perhaps remembering the last crash, funders and borrowers are cautious, but then they pass into a second phase, where owners of gradually appreciating assets start to use them as security to acquire further such assets; with the gearing of the asset holder increasing throughout this phase, pushing up prices for those assets, and leading to a hysterical and insane expectation that the increases in prices will continue indefinitely.

Minsky referred to this last stage as a Ponzi stage, comparing the movement of funds within this overheated market to Ponzi schemes.

And then... Then the market collapses.  The degree of collapse depends on the inherent, rather than the inflated value, of the underlying asset, which as it is land, which is in genuinely short supply in the UK, does to an extent act as a moderating influence. 

Minsky was not warning, he was describing. And I would suggest we are in the Ponzi stages of a property boom. All the evidence suggests so.  

The clouding of judgement

So we know know, or think we know, that the ill fated Malaysian airlines known to the world as MH370 met its end in the Southern Indian Ocean. Why, we do not have any coherent idea.

But during the 18 days since the flight started, the rumour mills of our imaginative world have been working overtime to feed the idea that there is more to this than something within that aircraft: some hidden and conspiratorial motive that has caused the crash and the deaths of 239 passengers and crew. Even these numbers, 370 and 239 have been etched into the psyche of a generation.

And whilst the men and women of 26 nations have exposed themselves to the risks of one of the most intensive searches in history, the relatives of those on board have festered their hopes into suspicions, their grief into anger, encouraged by the media; and without a single voice, so far as I can see, saying that sympathy for those who have suffered loss should not cloud judgement; that reaction to any event should be proportionate.

In those 18 days: just under a twentieth of a year; some 60,000 people have died on the roads of our muddled planet, over 3,000 in China alone. Each of those casualties left a hole in the lives of others: a hole just as profound as that felt by the relatives of the travellers on this aircraft.  And yet there are no clamourings for justice, for concealed meaning to be revealed. Men and women are getting behind the wheels of their cars unaffected by these grim statistics.  

My argument is simply that proportionality is a necessity when dealing with any event.  When those personally involved influence decisions there is distortion. It is a lesson as valid for dealing with disaster and crisis management as it is for the execution of justice. And it is in that latter connection that it is of most interest to me. The historical basis of our legal system has always been the maintenance of the "peace"; this is the wellspring of justice: for without the rule of law, there is only "might is right".  That principle requires that legal decisions are made consistently, and not so as t0 favour those who shout loudest.  

When this principle is ignored or bypassed, injustice occurs; and the weak will generally be those who suffer most, as Brecht put it: 

There are some that are in the darkness
And others in the light
And those you see are in that light
But those in the dark stay out of sight

Friday, 6 December 2013

When the merry-go-round comes to a halt.

In the 1960s and 1970s and before, buying a house and paying off a mortgage was not hard to understand, even if it was just as hard to do as now.  You paid your deposit, often as much as a third of the price, and borrowed the rest on a 25 year repayment mortgage. At the end of the 25 years, the last pennies trickled into the account of the building society, and the house was yours, all yours. If you moved, you took another 25 year repayment mortgage, or a shorter period repayment mortgage if you were coming up to retirement; and the same process repeated itself.  Now, you will note a little phrase several times repeated: "repayment mortgage". What that means, as most people know, is that you paid capital and interest back with a reducing balance.

But then along came endowment policy mania. Instead of paying off your capital debt, you took out a collateral endowment policy which would, if the silver-tongued salesmen were to be believed, pay off your loan after 25 years, and then some You'd be rolling in caviar on the expected profits attached to the policy.  What could be wrong? Well, it was fairly obvious what could go wrong, and no one listened. What sort of lunatic would believe that your money, taxed (although for a while it was not) and subject to management charges, fees and commissions in the hands of insurance companies, would give a better return than paying off your debts? There was a time when with mortgage interest relief and endowment policy tax relief, the gap might have been acceptable, but once these had gone, surely endowment policies would vanish?  I wonder if anyone who heard my rant about this 25 years ago will read this and reflect on how common sense is so often obscured by the greed of others.

At least those who took out endowments would have been able to pay off some or normally most of their loan by the time 25 years went by.

But greed fed the next revolution in mortgage madness. The interest only mortgage where you, the borrower were "free" to choose how to fund the bill for your original mortgage amount in 25 years.  Of course most people made no real plan for this.  "Interest only" means lower payments and more to spend on everything else. Some mortgages used to penalise people who made partial repayments.  Now the norm is to allow 10% of the remaining capital to be paid off each year.

The other change was to mortgages with incentives for a limited period followed by a racking up of interest.  The object is very simple. Every two or three years, borrowers put their feet back into the mortgage broking pool, and the fees and charges incident on this keep a whole industry of people who would otherwise strain to get a job packing shelves in employment.

So we have two toxic products.  The interest only mortgage, where the borrower has a substantial sum outstanding but no viable means of paying it off other than selling the house, and the fixed term discounted mortgage, which may be interest inly or repayment, which forces a remortgage every two or three years.

And the crunch comes when you get old. 

If I'd been out till quarter to three
Would you lock the door,
Will you still need me, will you still feed me,
When I'm sixty-four?

There is no verse about getting a mortgage when you are sixty-four, but despite Mr Osborne putting up the pension age, it's not so easy. These are problems I have come across in the last year or so affecting clients over 60:

Borrowers who wanted to port their mortgage over to another property, but who were adjudged be to be too old to be allowed to do so even keeping the existing term and reducing the loan.
Borrowers who wanted to remortgage to avoid paying a much higher rate of interest after a "discounted" period had elapsed.
Borrowers whose mortgage term had run out and just wanted to carry on with their interest only mortgage, and who had been told that they had to sell and move, even if the amounts were manageable within their retirement income.

What is perhaps most invidious about this is that these people are in the main people who have not defaulted on their mortgages over the years and have little risk thereof in the future.  I am not one to advocate wild and intemperate lending, but all these borrowers want is to carry on with what they have. Instead they are being forced to sell, or sometimes to have recourse to sub-prime lenders who are very happy to swoop down and peck away at the entrails.

At the end of the day, this behaviour by lenders is just another form of abuse of their position of strength. 

Sunday, 13 October 2013

If you were disturbed this morning by a solemn peal of bells from your local church, then your local vicar was probably mourning not the passing of some local churchgoing worthy, but the expiration of the validity of the Land Registration Act 2002 (Transitional Provisions) (No 2) Order 2003

From and after 13 October 2013, anyone purchasing registered land where there is no entry protecting the obligation to contribute towards the maintenance of a chancel of a church, will take free of any such obligation.

This sounds almost as exciting as the Latvian football results. 

But for the last 10 years, purchasers of property have been subjected to the possibility that their property might carry this bizarre and (up until the mid 1990s) almost forgotten encumbrance, and have consequently been advised to pay for searches and insurance to cover this risk.  Simple mathematics will reveal that at around £20 per transaction on average, and with around half a million property sales a year, around £100 million has been spent by buyers of land in the last decade.  This is considerably less than the Church of England has received from chancel payments, even from bodies, such as the Oxford and Cambridge Colleges, whose liability is known to them.

There is no evidence of anyone having received a bill without there being some note on their title prior to 2003, and I would be interested to know if any entries have been registered against people who were not aware of their liability.

It is my view that this is a complete disgrace.

Sunday, 26 May 2013

Reason thrown to the wind in Woolwich

The tragic and pointless murder of an unarmed and off-duty soldier in a Woolwich street has not unsurprisingly hit the headlines of our press and appalled pretty well everyone. But what next? The police appear to have mopped up a number of suspects, and no doubt high profile trials will follow.  Those who stupidly typecast all Muslims in the same vein as those seen explaining, with bloody hands, the twisted logic of their actions, are having a field day of racist prejudice. Islamic leaders have joined the condemnation.  And the Government?  They appear to see the need to do something, anything, perhaps, to "stop this happening again". 

This post sets out the reasons why such an approach is misguided. First of all, I think this awful event needs to be seen in context.  We live in a society where a large number of individuals behave as individuals, and where pretty well every aspect of that behaviour confirms to a normal distribution. Statistics in a Solicitor's blog?  Yes, statistics. Now one facet of a normal distribution is that there are extremes.  At the risk of trivialisation, let us take the harmless pursuit of trainspotting.  As a society we range from people whose interest in trains is virtually non-existent, through people who like them to run on time and wouldn't mind a seat please, to those who have notebooks filled with numbers filling shelves of their suburban homes.

Violence conforms to the same pattern. Just as there are those who really would not hurt a fly, at the other end are those who have taken what I believe to be a societal aversion to violence away from their world-view.  Some seek to justify that, others do not. Murder is the result, and I would say that it is an inevitable result, of normality.  The more violent the mid-point of the curve, the nearer to normality is any particular act of violence.

Western societies, and I would suggest Britain is no different here, have become markedly less violent over the last century.  Indeed the publicity afforded to this event is evidence that we are just not attuned to violence.  With murders in the UK hovering around 600 a year, and around two thirds of them being perpetrated by people known to the victim, the chance of being killed by a stranger is around 1 in 300,000 -  around a fifteenth of the chance of being killed in a car accident.  You are over thirty times more likely to be murdered in South Africa.

Still, even in a society such as ours, there will be extreme events. But that is what they are, and they should not dictate policy.

Secondly, what possible steps could be taken to restrain lone maniacs from acquiring standard kitchen equipment and using it to attack someone chosen almost at random?  I possess three meat cleavers, around 15 large and very sharp knives, and two meat hammers, with impressive ends.  Will the possession of these items become a matter for licensing?  I think not. 

We are, I fear on the brink of a knee-jerk overreaction.  in Theresa May, we have a Home Secretary whose insecurity is palpable.  Calling a meeting of the COBRA Committee in reaction to what was obviously an isolated event with no national implications at all is an astonishing miscalculation.  Only today, the suggestion that groups who do not advocate violence but who are "radically islamic" in character may be banned has come from her.

If there is any lesson to be learnt from history relating to such things it is that pushing radicals underground leads to adverse consequences.  It leads to normal people feeling repressed and tending towards violence. Ms May is out of her depth here, and is running with the crowd, not making effective decisions and avoiding statements putting this matter into perspective, It is a crime, a horrid one perhaps, but the law is sufficient to deal with it. Jusitce must be done.

So is there anything that can be done at all?  In the short term, there is nothing, but in the long term maybe the Government's attitude towards religion needs rethinking.  Mr Gove's education "reforms" have facilitated the setting up of schools run by cranky Christian sects as well as Islamic ones.  Children are increasingly being segregated on religious lines, and the last thing we need is a society where faith determines everything, such as exists in Northern Ireland, and where divisiveness is a feature of normal life; and where tolerance is hard won rather than expected. 

Wednesday, 25 July 2012

Fun with the Daily Express

A little little known fact is that Solicitors eat; and occasionally my hunt for something to eat for lunch takes me past the news-stand in my local supermarket.  Daily Express headline analysis has become a mild obsession.  My object; to discover what is going on in their editorial department.

One thing is certain, news as such plays little part in the settling of the front page.  An obvious conclusion is that the editorial department is situated somewhere where there is no news. No news at all.  Perhaps a local black hole. Or some strange experiment in social isolation. Maybe a practice run for a trip to Mars, or even the real thing.

London is  hosting the Olympic Games this year.  But no mention of it or the associated muddles in the main front page headline in the Express.  Also recently absent: The LIBOR fixing scandal, the acquittal of PC Harwood, and The civil war in Syria.

Here is an analysis of recent headlines showing a curious distaste for reporting anything newsworthy.


before that, these themes continue:

22 June: Summer of Flight Chaos
21 June: £67 Billion - the amount we must pay to support doctors' pensions (vaguely related to the doctors' "strike"
20 June: House Prices on Rise at last
18 June: New Pension pain for millions
15 June: Summer starts in September
14 June: 80mph Storm chaos on way
13 June: Arthritis test will end pain for millions
12 June: Now 80% demand vote to Quit EU
11 June: Britain wants Charles as King
10 June: We must stop Germany now
9 June: 70mph Gales to batter Britain.
6 June: Thank you all (they had noticed the Jubilee)
5 June: Show must go on (Jubilee)
4 June: Our Diamond Queen
1 June: Now EU vote is a step closer
31 May: £110,000 a year doctors to strike.. (real news)
30 May: Interest rates on hold for 5 years.
29 May: Benefits Family is "too rich to work"
28 May: EU force new rise in price of petrol
25 May: Seaweed pill will help beat Arthritis.
24 May: Heart attack risk in Health tablets.
23 May: Prisoners to be given the vote.
22 May: Mortgages to soar in Euro crisis
21 May: Simple checks to stop heart attacks
18 May: Easy way to halt misery of arthritis.
17 May: Death of the Euro.
16 May: 25% off your summer holiday.
15 May: New Cold snap to last a month.
14 May: Go to Britain for benefits, says EU
11 May: Pension Pain for Millions
10 May: Kate's daughter will be Queen
9 May: Best way to battle arthritis
8 May: Britain snubs Euro Bail out
7 May: All migrants to get a British pension.
4 May: EU plot to scrap Britain.
3 May: Britain facing new big freeze
2 May: 1 in 6 Patients at Risk from GP Blunders
1 May: How Millions miss out on better pensions
30 April: Flood chaos to last all week.
27 April: 60mp Gales to batter Britain.
26 April: Madeleine: she is alive.
25 April: New Pill stops Arthritis Pain.
24 April: Europe to Ruin British Pensions.
23 April: Outrage at Care Home Abuse
20 April: Proof Aspirin is a life saver.
19 April: Coldest May for 100 years.
18 April: Madeleine spotted in Spain.
17 April: Simple Way to boost pensions.
16 April: New test for Alzheimer's.
15 April: New battle to cure dementia (if only they had waited a day)
12 April: Now Britain is on flood alert.
11 April: Energy Bills to be slashed.
10 April; Eye test to beat heart disease.
9 April: Pension Boost of £312 on way.
6 April: New Hope for Arthritis cure.
5 April: Millions miss out on decent pensions.
4 April: Statins halt Alzheimer's
3 April: Mortgage rise to hit millions.
2 April: Britain facing week of snow.
30 March: Time to stop Petrol Panic.
29 March: Pumps run dry in Petrol Panic.
28 March: £1 for a first class stamp
27 March: Petrol Strike chaos to cripple Britain. (Maybe this helped create the panic).
26 March: Now EU bans plastic bags.
25 March: New Arthritis Cure for £1 a day.
24 March: 5m Pensioners robbed in the Budget.
23 March: Aspirin is key to beating cancer.
20 March; End of free cashpoints.
19 March: Toll roads to cover Britain.
16 March: Diabetes warning on white rice (probably a small one)
15 March: New EU Rules wreck pensions.
14 March: Water Bills to soar in hosepipe scandal.
13 March: £1,000 for using hosepipe.
12 March: How to double your pension.
9 March: Pension bonus for millions.

What can we infer?

  1. The staff are at or fast approaching pensionable age.
  2. They suffer badly from arthritis, and other ailments.
  3. There is a lot of repetition.
  4. They don't like the EU.
  5. They worry about the weather, a lot.
  6. Little respect for statistics.

Thursday, 28 June 2012

The Blindness of the Great

It is quite remarkable, one might think, how chronic ignorance afflicts those in charge of organisations whose employees break the law to profit those organisations.  "We didn't know anything about it" - a mantra you will hear chanted in boardrooms in the banking sector about interest rate fixing, and, as the Leveson Inquiry has been told many times, also in the offices of News International.

They may even be telling the truth.  They may all have no idea how their companies work: no idea how profits bear no resemblance to performance. That might explain a lot.... 

O Blindheit der Großen! Sie wandeln wie Ewige
Groß auf gebeugten Nacken, sicher
Der gemieteten Fäuste, vertrauend
Der Gewalt, die so lang schon gedauert hat.
Aber lang ist nicht ewig.
O Wechsel der Zeiten! Du Hoffnung des Volks!

from Brecht's "Caucasian Chalk Circle"

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