I am in the market for saving some money - a monthly saver. As usual, I shop around a bit, getting interest rates from a number of different places. I popped into Halifax on the off-chance they have a good rate (possibly trying to encourage savers, given their financial problems of late) and they suggested I could get a better rate if I chatted to one of their FA’s. And the guy was an idiot - or rather, the advice that he gave me was written by an idiot. Quite frankly, if anyone who does not think about finance very much acted on the advice given, then there would serious risk of mis-selling.

I told the guy that I simply wanted a safe place to save some cash for a rainy day. I currently have a range of investments, covering a wide spectrum of investment classes, including international and national shares, commodities, FX, property, bonds and cash equivalents. Luckily, I have not been hit by the current economic problems, as I chose fairly carefully. In fact, in the some of the shares that I own, I have made nearly 50% in the last 6 months and in other investments, I have not lost or gained very much at all. However, now I want to save some cash for reasons that I will not go into here. But it was explained to this chap. Another thing that I explained to him was that tax was not an issue, as it could be in my wife’s name who does not pay any at the moment, so ISA’s are not necessary.

What was his advice? I should invest in a stocks and shares ISA with the Halifax, which would be fine as I could tune my attitude to risk by choosing anything from “low-medium” to “high” risk. Um, did he not listen to what I said? However, the most ridiculous thing he said was related to the risk ratings of investments.

Apparently, funds of UK bonds are always low-medium risk, whereas individual bonds, individual UK equities and funds of international equities/bonds are medium-high risk and individual international equities are high risk. And that assessment is independent of market conditions at the time of purchase! When challenged on this, he simply repeated the mantra, explaining the Halifax Pyramid Of Investment Risk to me once again, saying that if anyone invested and it made a loss, all they needed to do was wait until the market recovered. He completely did not understand that timing is everything in this game and that if he had given this advice to someone more vulnerable at the wrong time, it would result in heart ache and misery.

The second thing he said to me was that because I was a monthly saver, it didn’t matter if the market went down, as the following month’s purchase would be cheaper as the market had gone down, explaining that I would still make a profit if the market went up again. Again, completely not appreciating the need for timing.

The dodgy advice about what is and isn’t risky was clearly from the Halifax itself - but is the not listening to what I asked for from the Halifax or just that particular adviser? Filling out an online questionnaire resulted in the following:

Q: Compared to other people, how would you describe your typical attitude when making important financial decisions?
A: Very Cautious

Q: I am looking for high investment growth. I am willing to accept the possibility of greater losses to achieve this.
A: I am uncertain

Q: I would prefer small certain gains to large uncertain ones.
A: I am uncertain

Q: I want my investment to be safe even if it means lower returns.
A: I am uncertain

RESULTS OF YOUR ATTITUDE TO RISK
Your answers indicate you have a MEDIUM attitude to risk.

You would be likely to accept moderate risk with your longer term investments for growth or income if this would give you the potential for higher returns. You would probably feel comfortable with an investment that includes a high level of Stock Market linked investments, including some overseas shares. You understand and accept that the value of your investment may go up and down and that on final encashment you could get back less than you have invested.

Um, I thought my attitude to risk was either very cautious or uncertain? So there appears to be at least some institutional bias for me to put my money into shares etc., but perhaps more importantly, the FA probably gets little or no bonus for selling me what I want - a cash savings account. After all, they get “unlimited” earnings if they perform well:

Bonus Scheme
The bonus scheme gives you unlimited earning potential and is made up of several elements that are directly influenced by your personal performance.

And what is worse is that it was explained to me that because he was a FA tied to a bank, he was salaried, and therefore his advice is less likely to be swayed towards the higher commission produce that an IFA might suggest.

So Halifax, this is what I did with your advice when I got home:

Faced with unbelievable rises in train fares - from £102.90 to £252.00 - sometimes I do wonder if officials are delusional. According to Michael Roberts, chief executive of the Association of Train Operating Companies:

commuting by rail was considerably less expensive than commuting by car – even allowing for falling petrol prices – and journey times are usually quicker too

Never have I known the situation that he describes.

Using the train, it costs me £20 return to work with a monthly season ticket and a whopping £44 pounds if I get a day ticket. It costs me £12 in petrol per day if I drive, and I have a large petrol car. Ok I have to insure it, at a cost of £80 more per year than I would need anyway (the extra needed to commute). That would make commuting by train a whopping £1920 more expensive than driving. OK, some might argue that I need to buy the care. Fair enough - apart from that I need to buy one anyway, as quite frankly, public transport is a disaster - especially when transporting a family. So it will be the difference between the depreciation if I did and didn’t commute. Since the car only cost me £6000, it’s fairly clear that £2000 extra depreciation per year is a tall order - I fully expect the car to last at least three years even if I did the extra 120 miles per day commuting and it will be still worth something. For arguments sake, I reckon it would depreciate £1000 per year more if I commute with it. That still gives me a net gain of £920 per year, which is more than enough to pay for servicing and maintenance. In fact, I reckon I would be £500 per year better off if I commuted by car.

When will officials, and MP’s, realise that public transport in this country is not cheaper than driving? 

It reminds me of the conversation I had with Chris Grayling MP in 2006, who was then the Shadow Transport Secretary. After listening to a speech from him where he spouted nonsense about how trains were cheaper than cars, I put to him my particular example. For the particular journey I had done that day, it was cheaper by a factor of two to hire, insure and put petrol into a car than it was get the train (as that was how I got to this meeting). And it took much less time - by a factor of two. He did not listen to what I had to say - he replied stating that I had to buy, insure and maintain the car as it wasn’t only the petrol I had to take into account. He went on to inform me that because the trains went from city centre to city centre, it would take considerably less time. Um…. let me repeat…. to hire, insure and put petrol in a car was cheaper by a factor of 2! The hire company are making a profit from my hiring it, so it must be even cheaper still! And my journey did not start or stop anywhere near a city centre, adding a considerable time to my journey, as the public transport to/from the station (buses) are always much slower than the equivalent journey by car. All I can say is, God help Work and Pensions if he is still there in a year or two…

It drives me wild that politicians and officials are simply not willing to admit the truth - that travelling by train is too expensive in Britain today. 

But why do I get the train? Driving on roads (the A12) whose capacity is considerably smaller than the volume of traffic is much more unpleasant than being crammed into a train, whose capacity is considerably smaller than the volume of passengers. The stress of driving into and out of London is simply not worth saving £500, or even £1000, per year.

It’s policies like these that tell me the current Labour government do not want to win the next election or they are so out of touch they shouldn’t. A sixty quid fine plus 3 points on your license, for taking a swig from a water bottle whilst driving? For listening to music too loud? For eating a chocolate bar? Do the ministers not realise that this policy has the kiss of death about it?

And in other news, according to the BBC News At 10, the economy is shrinking at the fastest rate since the recession of the early 1990’s. So that’ll be the last recession then…. Plonkers.

Today I learned that the Lib Dem Colchester Borough Cllr. Paul Smith - the same Cllr. Paul Smith responsible for losing Colchester £4m - offered to take a pay-cut if he did not perform well. Hurrah! He volunteered to be the “guinea pig” for a scheme which could be extended to other cabinet members if it proved a success. However, it was thrown out as “unworkable” by the council’s strategic overview and scrutiny panel.

Apparently, it would be too difficult to figure out whether he had done well or badly over the course of a year. Some might say that the judging process should take the following form:

Q. Did he preside over a £4m loss?

A. Yes!

Q. Should he therefore forfeit some of his pay?

A. Yes!  

But of course, this is history - it is his future performance that will be judged. Furthermore, it the decision to invest £4m into Icelandic banks was taken entirely by the council officers. But that does not mean Cllr. Paul Smith is completely blameless - he is indeed presiding over a situation where officers can take decisions, without informing the councillors, that could dramatically change the future financial situation of the council. Perhaps this is normal - but we can still question whether it is right.

However, the question of why the plan was rejected comes down to his assessing his future performance. Is he really that good at covering his tracks that it is impossible for his peers to judge him? Is his official role really that opaque that it is hard to define a firm set of objectives for him to achieve? I have never held a political office, so it is difficult for me to judge really what a councillor can and can’t do, but even I know that there must be both good and bad councillors. Is it really that hard to judge how well councillors in general perform, or is it something specific to Cllr. Paul Smith?

The really sad thing about this is that the committee that rejected his plan is chaired and co-chaired by the Conservatives. How much political capital will he get from this? After all, the introduction of performance related pay to our councillors has a certain “ring” to it that Joe Public could appreciate. I am sure that the decision to reject performance related pay was taken for very good reason. It probably is difficult to judge the performance of councillors, or perhaps Cllr. Paul Smith in particular. However, I can see it now at election time - the headlines on his campaign material could be “Tories reject holding councillors to account”. The explanation of this decision, or future decisions of the council, could easily be achieved if more councillors blogged… Let’s hope they will.

According to Cameron:

“To pay for Labour’s spending would mean substantial tax rises over and above those that the Chancellor actually told us about… If we are to avoid substantial tax rises in the future — tax rises that will hamper the recovery — we must slow the growth of government spending.”

What is wrong with this so-called opposition. It should not be about “slowing the growth of government spending” but accelerating the cuts in government spending. Using the terminology of “slowing the growth”  assumes that there will be growth. Why make that assumption? Government spending was £318bn in 1997 whereas in 2007 it was £549bn. Surely isn’t there room for contraction of government spending?

Apparently,

In the early 1980s a council tenant’s average income was 73% of the national average. Today two in three tenants living in “social housing” are among the poorest 40%.

These two numbers are NOT COMPARABLE. One is a measure of the average income, the other is a measure of the proportion of poor people. Idiots.

I thought that two of the key problems in a recession is rising unemployment, due to companies going bust. So how exactly does bribing companies to take new staff on who have been unemployed for longer than 3 months actually help?  If Cameron was serious about tax cuts, then he should offer help to companies to not fire people or some sort of insolvency protection, rather than trying to tackle to long-term unemployment problem that this country has. If you really want to help, Dave, help stop businesses going bust in the first place by either giving them a big tax cut (e.g abolishing employer NI) or increasing the money in people’s pocket by reducing VAT (to 10% and bugger the EU), dramatically increasing the lower rate tax threshold or reintroducing the 10% lower rate. Timid tax cutting policies will only have the opposite effect to that desired - by not having enough impact because they are of too limited scope. One must be bold, and if you are worried about “fiscal responsibility”, cut the vast public sector budget in Labour’s client state.

But of course, he was only pushed into this “tax cutting” agenda because of the media - everyone knows that in politics, the first to announce tax cuts is the one that actually gets the most political advantage (that was what happened with Obama, for example). And that’s why Dave tried to pre-empt the budget report this week, by pre-pre-pre-announcing his policies before the weekend (some 3 or 4 days before the first of a string of announcements), trying to out-smart the Labour media machine at their own game.

In fact, one such cost-cutting measure to pay for a decent tax cut could be to abolish all of the media studies university courses and public sector paid (whether directly or indirectly) media advisors. That’ll save billions. Otherwise, we will end up with pre-announcements of an announcement of a meeting to decide when to announce a date to announce a new policy.

Ever since the banks were bailed out, I was worried that the government could not resist micromanaging their way through this mess. The difference between the Libor - the rate that banks lend to each other - and the BOE base rate - the rate that the BOE lends at - cannot be clearer. Generally speaking, banks don’t borrow from the BOE but from each other, so the rate that they pay for credit is the Libor and not BOE base rate. Yet our government do not understand this and are embarking on a policy of interference and micromanagement. The 1.5% cave in is all the evidence we need:

It was a difficult meeting… Right at the start the chancellor’s people thrust unflattering newspaper headlines under the executives’ noses. We then had to make it quite clear that just because rates fall it does not mean we can afford to do the same with our products… The issue was unresolved.

Bankers do not care about headlines. They only care that their business is viable and sustainable. Admitted, there is sometimes a correlation between bad headlines and poor business performance, but this it is not the place of the government to point this out. But what is perhaps more worrying is that it is “treasury officials” that are pushing the banks into a very political corner. Civil servants should not be worried about the papers - why are they doing political dirty work? Does this not break the rules?

A couple of weeks ago, I sent a FOI request to Colchester Borough Council to try and find out some information about the £4m lost somewhere in Reykjavik. Below are the responses:

1. What financial advice was received by Colchester Borough Council on investments from 1st October 2007 until 10th October 2008?

CBC use Sector Treasury Services to inform our treasury management policy and strategy. This takes the form of half yearly meetings, monthly credit updates, ad hoc credit updates, ad hoc updates relating to all forms of treasury management.

2. What companies, individuals or government departments are responsible for advising Colchester Borough Council on financial matters?

CBC use Sector Treasury Services to inform their treasury management policy and strategy. In addition we comply with Government guidance and legislation on treasury management.

3. What councillors were aware of the large investment (or impending investment) made to Landisbanki before the 6th October 2008?

Under Treasury Management Policy documents, the policy and strategy is set by the Council and the implementation of this is delegated to officers. Under the current policy, short-term borrowing and investment is authorised by Council officers.

4. Who was present at meetings when the decision was made to make the investment? Copies of all relevant meeting minutes should be included, if available and possible.

There were no specific meetings relating to this investment, since it formed part of the day to day Treasury Management activity, delegated to officers. Members of the finance team discuss Treasury Management activity on a daily basis.

5. What was the purpose of the money deposited in Landisbanki - was it short term storage (e.g council tax receipts due to be spent) or long term investment/income?

The council has short term surplus cash mainly due to: timing differences as to when Council Tax & NNDR are collected and required to be paid over; S106 monies received but not spent; delays in Capital Programme spending. This investment was a short term cashflow one.

6. What credit rating agencies were used to judge risk associated with investments, particularly those made in Landisbanki.

The council uses data from Fitch (as supplied through Sector) or if no data is available from Fitch, then data from Moodys or Standard and Poors. The agreed Council policy sets out the total amount that can be invested with a counterparty and the maximum length of time that any monies can be invested. At the time of investment, Landsbanki had a Fitch rating of A, F1, B/C, 2. According to our policy, this meant that at the time of the investment we were permitted to invest up to £5M for up to 3 months.

Given these answers, I see two particular issues. Firstly, no Councillor was aware of the officers placement of £4m of tax payers money into an obviously dodgy bank. Secondly, and more importantly, said £4m was placed in the bank due to issues with short term cash-flow - that means that the Council had too much money coming in at once and had to put it aside to pay for future services. The question remains as to what will happen when they theoretically need to dip into the £4m to pay for services…..

Yesterday evening, for the first time in my life, I went to a football ground. Not to watch or play football, but to listen to a speech by Dominic Grieve MP, the Shadow Home Secretary. And I was extremely impressed with him. Not only was his speech 1st class, the 30 minute chat I had with him impressed me even more. His knowledge of a plethora of issues was well  in-depth and informed. He even managed to sidestep the awkward comments and conversations that can be so common when speaking to some of the older clientele.  But there was one thing that he said, which had nothing to do with policies or fixing the Labour mess, but represented precisely what Labour truly stand for. And that is media manipulation.

I have already blogged about how I believe Labour, Gordon Brown specifically, used the timing of the US elections to political advantage. By calling the Glenrothes election 2 days after the US election and 1 day after a massive 1.5% interest rate cut (although that could not be predicted, the date of any possible cut was known. Lucky, but as we all know, you make your own luck in life), the news agenda was dominated by these events rather than the fate of Glenrothes. However, a quick look at the papers reveals that the day before the election, there was apparently no chance that Labour would win (see for example here, here and here). And apparently, Nick Palmer, the Labour MP for Broxtowe said

I don’t know any Labour MPs who are expecting us to win - the range of opinion is from “Well, we’ve given them a run for their money” to “Bloody byelections, what can you expect?”

Yet only a couple of days earlier, according to Dominic Grieve, there was not a single Labour Minister that thought they would loose. Most thought they would win by a healthy, but reduced, margin. It seems that the Labour spin machine was in, well, full spin. By letting it be known that they thought they would loose, Labour have managed to turn the headline “Labour reduce their lead by half” or “Despite Brown bounce, Labour still on course for election loss” to “Labour’s tale of the unexpected” from the Beeb. In fact, a swing towards the Conservatives of the same magnitude in the general election could result in a small, but very real, majority for them.

Despite what I would call a disastrous result - despite all of the resources in the World thrown at the seat, they still lost half their majority - the media are full of “Brown Bounce” stories because he fed them with a “we are going to loose” line the day before the election. It’s a perfect manipulation of the media.

I certainly don’t remember hearing about the convenient timing when the date was announced, the media all ran with the same story the day of the election (that Labour will loose) and now the media are full of the Brown Bounce. And this is the culture that is true New Labour - no strong policies, just media manipulation and plenty of coverage. And is has got to end. The media must be independent, free to investigate and report on their own. They should not be bullied into running the politician’s particular spin that day. Enough of the “Tomorrow, the Home Secretary will announce…”; enough of the same stories blanketing all of the news papers; enough of the bullying tactics. If a particular policy is not strong enough to win on debate and strength of arguments alone, it is probably the wrong policy.

Why is the media so obsessed with Obama, when we have our very own election to worry about? Yes, the Glenrothes bi-election is today, which possibly will signal the end of the Brown premiership and bring about a general election, yet the Torygraph has a dozen “comment” articles about Obama yet only one (very short) article on Glenrothes.

With literally hundreds of BBC reporters in the USA, and I am sure Brown was aware of this many weeks ago, the bias in coverage is easily explained. What were the beeb thinking of? I even saw one interview with the great grand daughter of the first self made black American millionaire. Like she had actually done anything in her life that was interesting, or more importantly, had anything to contribute to the debate.

And as I said above - Brown must of known what aunty beeb (and others) were up to. And that is why he chose to have the election 2 days after the USA election. This debacle is yet another example of how Brown is perfectly willing to abuse his powers for party political gain. The sooner we have fixed term parliaments and the decision of when to hold bi-elections made by the Electoral Commission the better. The primary concern about when to hold elections should be to ensure the playing field is as level as possible with respect to external events.

But this attempt at a media blackout may backfire on Brown. It means the campaign agenda is no longer set by the national media, but by what happens on the ground. And the SNP are excellent at these kind of campaigns. Let’s not forget, if Brown looses that election, the media focus will have done a full circle and have its sights firmly aimed back at Brown.

Server keeps overheating. Grrrrr. Am in Switzerland so can do nothing about it. We can but hope it remains ok….

I worry about what the government has in mind when it says it wants compulsory sex and relationship education in schools for all children, as young as five. It has nothing to do with children learning about their bodies, or about reproduction, or contraception. These are all facts. I do not want to stop or and I do not have a problem with teachers telling children the facts. And access to contraception at 13 has got to be better than being a mother at 14. Pragmatically, a certain and perhaps increasing number of young teenagers will have sex and it is better for our society, the teenagers and their parents to ensure that sex is safe from a pregnancy and disease.

The thing that I worry about is the relationship aspects to these plans, or rather the state’s definition of a relationship. Apparently, sex will be taught in the context of a loving and caring adult relationship. Laudable, I am sure. But, and there is always a but, 16 year olds in law are not adults. By all means, tell the teenagers that sex before the age of 16 is illegal. This is a fact. Don’t tell them that sex is “best” or “better” or any other opinion when it happens within an adult relationship. And why should it be loving, or caring? Why should one night stands be any less acceptable, from a factual basis, than a loving relationship? In telling children at school that sex is best when within an adult loving relationship, we are using the dogma and opinion of the establishment rather than fact to educate our children. And that worries me.

On a personal note, I happen to believe that sex within an adult and loving relationship is an ideal situation. From a pragmatic view, instilling this into our youth could reduce the teenage pregnancy and STD contraction, which has to be a good thing. And in a large number of parents, it is clear that they are either unable or unwilling to address sexual health and relationship issues successfully themselves. But what right does the state have to define a relationship? What right does the state have to indoctrinate our children with dogma? Why is it not the parents job, whether successfully or not, to teach their own children about the ways of the world?

For me, the breakdown of society as we knew it and the collapse of the church as a power in the community are inextricably linked. The sex education that the government is suggesting should happen in schools was indoctrinated in society by the church in years past. The question we must ask now, is that are we prepared for that void to be filled by the state or would we rather take our chances without it?

I wish I had not come back. I learned today that our incompetent Labour government, not happy with 100 or more separate tax increases, of plunging our economy into recession, of presiding over a massive banking crisis, of pissing billions of our money down the drain, of all the lies, backtracking and blaming the Tories for their own failures, they now want to plunge the country into economic ruin for decades to come.

I am utterly speechless. I cannot believe that the governing Labour Party are so vindictive and certain of their own demise that they are willing to sabotage the country so that the incoming Conservative government will be able to do nothing but increase taxes. Not happy with bankrupting their own party, they now wish to do so to the country they govern. They know they will never win the next election, but maybe if they force the Conservatives to increase taxes at the same time as reducing spending, they might win the one after. Never did I expect even Labour would go so low as to drill holes in the lifeboats so that no one would survive to bear witness to the crew’s failure.

Just look at this graph:

Apparently, the extra spending will come from borrowing because Labour has paid back the debt’s taken out by the Conservatives. But they only did it by following Conservative economic policies! Since they abandoned the prudence invented by their arch-rivals in their second term, they borrowed it all back again, and we are now at the point where we were in 1997! And these figures do not include the recent bank bail out, to the tune of £500bn! 

In the last decade I have grown to dislike and even detest Labour and all they stand for. I am now hold them in complete and utter contempt, disgusted by their lies, vitriol and incompetence. How dare they do this to the country! Do remember, it was only last week that Brown and his puppet Chancellor uttered the words “The age of irresponsibility must be ended”.

A few million here, a few tens of million there. The bonuses earned by our bankers are a King’s ransom for some, but chicken feed for the banks. Gordon Brown, as it is him that is behind this fiasco and its “rescue” (and not his Darling puppet), has insisted the banks should not pay “cash” bonuses this year to their executives. But the bonuses are chicken feed. They have not caused this problem in any way - the money that that the banks have lost is trillions, not hundreds of millions. Not even billions.

So what has actually caused this problem? Not enough regulation perhaps? Apparently, Brown has been calling for Worldwide regulations for years. Bullshit - as is shown in his Mansion House Speech where he calls for the exact opposite. Despite Brown’s talent for being economical with the truth, is more regulation the answer? 

I would say, and so would a number of others, is that the problem was that banks have been lending to people who cannot service the debt. They have been lending to high risk individuals - according to the BBC this morning, even those without a job. Under whose bidding? Well, Gordon Brown’s, of course. In his pursuit of equal opportunities for all, whether it’s in the best interest of those that are given the opportunities or not, Gordon’s economic policy, far from allowing the practice of it, has been actively encouraging lending to high risk individuals. It’s everyone’s right to own a house - after all, one can extract more tax from the population if more of them own a house.

And guess what the other string of these new proposals to “help” the banks? Yep - in order to accept the government’s money, the banks have to increase lending to those without very much capital (i.e small businesses) and individuals who wish to purchase houses (in a market that is currently in freefall). The root cause of this crisis - a large and sustained increase in access to credit - is the very policy that Gordon is attempting to sell to the world as the fix!

And what about that regulation? Has there been a failing in regulation? Perhaps - if banks were not involved in the practice of buying and selling packaged up debts, then the good and bad debts would not have been mixed together and there would not be the same crisis in inter-bank lending. If the practice of consolidating debt was banned, those banks that did not purchase bad debts would be insulated. Whilst there would still be a crisis, as the lending in the first place would still have taken place, the banks that only traded in “good” debts might still be able to borrow money. Perhaps better regulation could have reduced some of the severity of the crash, or changed the nature of it, but regulation alone is not the answer.

The crux of the matter is that banks need to go back a few decades and reduce access to credit, so that those that can service the loans are the only ones that are lent to. But of course no politician - even those in the Conservative Party - has the balls to tell the poor that they can never own their own home. So I worry about the nationalisation of the banks - with such large shares of the banks, can ministers stomach the one thing that will stop a crisis like this ever happening again? Politician’s imply they want to punish the bank’s executives for taking too many risks, but the real risk of the last decade was lending to the poor.

Update 15.06:

It appears that my hunch of Government’s not understanding the route of the problem is correct. And it seems that I was also correct about ministers not wanting to leave well alone, content only if they can micromanage from the bank’s policy so that it meets their own agenda. You see, another condition of the money is for the bank’s to return to lending at the 2007 levels. Labour will not admit the fundamental problem was caused by lending to those that cannot afford it.

When facing the prospect of being responsible for loosing £4m of tax payers money and asked where the money is now, what should the answer be? Should the local councillor, the Lib Dem Portfolio Holder for Finance Cllr Paul Smith, reply

Somewhere in Reykjavik, I suppose?

Is loosing £4m of tax payers money a laughing matter? One should point out that even though £4m sounds less than Kent’s £50 loss, relative to income, this is a critical blow to my new Borough. £4m is about 20% of the annual budget of the Borough Council and corresponds to a Council Tax rise of 3%!

As a result, I have put in my first FIO request to the borough:

To whom it may concern

I am writing to you under the Freedom of Information Act to request the following information with regards to the recent £4m “investment” in Landisbanki or one of its subsidiaries:

1. What financial advice was received by Colchester Borough Council on investments from 1st October 2007 until 10th October 2008?
2. What companies, individuals or government departments are responsible for advising Colchester Borough Council on financial matters?
3. What councillors were aware of the large investment (or impending investment) made to Landisbanki before the 6th October 2008?
4. Who was present at meetings when the decision was made to make the investment? Copies of all relevant meeting minutes should be included, if available and possible.
5. What was the purpose of the money deposited in Landisbanki - was it short term storage (e.g council tax receipts due to be spent) or long term investment/income?
6. What credit rating agencies were used to judge risk associated with investments, particularly those made in Landisbanki.

Whilst there are several requests for information here, these should be treated as individual and independent requests. They were collated into a single email for ease and convenience. If this email is treated as a single request and is above the £450 handling limit, separate emails will be sent containing the same requests.

I can be contacted via:
{my address}
All contact, including copies of the information requested, should be via email unless it is not possible. If you wish any clarification of the points, please do not hesitate to contact me.

Kindest regards,

Alan Drew.

It transpires that Colchester Borough Council has lost £4m, because of the many problems at the many Iceland banks. What’s more, according to Cllr Paul Smith, who is supposedly responsible for the finances, this money was only invested on the “1st or 2nd September”. Not only does he not know when he threw £4m of council payers money down the pan, it was obvious from as early as April there was a problem with the banks. There are several councils that withdrew money from the Icelandic banks, just as he made the decision to invest it! 

Just take a look at the following graph:

It shows you two things:

This councillor, the finance department that he is nominally in charge of and the incompetent administration that he represents, needs to be held to account. Yet when asked where the money is now, he jokes that it is somewhere in Iceland.

Just for the record, here is something that I have managed to dig up in the last hour of googling:

1. The Lib Dems (and Conservatives) knew about Iceland’s problem back in July:
Lord Oakeshott of Seagrove Bay here:
http://www.theyworkforyou.com/search/?s=Lord+Oakeshott+of+Seagrove+Bay+iceland

2. Some councils already acted and saved tax payers cash (this is a Conservative administration, although we should be careful as we have not been through the full list and idenified how many Conservative councils have lost out):
Brighton and Hove City Council, said it suspended transactions with one Icelandic bank - Kaupthing Singer & Friedlander - about a year ago amid concerns about the country’s banks expanding too rapidly.
“Our watchword is caution. We’re very aware of our responsibilities in managing taxpayers’ money, and are very careful both about who we invest with and how much we invest,” finance councillor Jan Young said. “We have no deposits with Icelandic banks.”

3. As far back as April, the cost of insuring the bank’s bonds against default rocketed:
http://www.ft.com/cms/s/0/162ac164-fb6a-11dc-8c3e-000077b07658.html

4. For the last decade, Iceland was deeply involved in the carry trade - meaning people would borrow in areas with low interest rates  to purchase assets in areas with high gain (Iceland). When the credit dried up, the investors had to unwind their positions, forcing Iceland (and their banks) into a slide. The carry trade was flagged up as dangerous when the credit crisis began a year ago. It was obvious that the banks were part of it:

“this decade [Iceland's] banking assets have grown at a speed rarely seen in the modern world. In 2000, the combined assets of Icelandic banks – mostly centred on Glitnir,Kaupthing and Landsbanki – were just below a year’s GDP. By 2006 they had risen to eight times GDP and the ratio i[n March was] thought to be near 10 times.”

5. The bank’s tier 1 capital (a measure of risk on the banks book, the lower the riskier) fell from 11.7% in 2006 to 10.1% in 2007 to 8.3% in July 2008.

6. Moody’s, the credit rating agency, in January 2008 made the following statement:
“Moody’s has concerns with regard to the Icelandic banks’ market-sensitive business model, in which the
majority of income is derived from investment banking- and corporate banking-related activities. Given the
difficult market conditions going forward, this could bring additional volatility to the bank’s earnings in 2008.
Indeed, the banks’ Q4 2007 results were already significantly affected by adverse market conditions,”

“In addition to the above-mentioned rating drivers, Moody’s decision to place the ratings of Landsbanki on
review for possible downgrade reflects the bank’s growing reliance on short-term Internet-based deposits
(Icesave) from overseas sources for funding the bank’s loan book. Landsbanki’s short-term Internet-based
customer deposits grew rapidly in 2007 and account for nearly 20% of total funding. Although growth in retail
deposits is in general viewed positively, Moody’s has some concerns related to the “stickiness” of overseas
deposits due to their relatively short history. ”

from http://www.glitnirbank.com/servlet/file/Moodys_30-01-2008.pdf?ITEM_ENT_ID=6860&COLLSPEC_ENT_ID=156

Fitch and Moody (credit rating agencies) have made the following changes to Landsbanki:
8.10.08 Fitch downgrade
8.10.08 Moody downgrade
7.10.08 Fitch downgrade
30.9.08 Fitch downgrade
30.9.08 Moody downgrade
21.5.08 Moody stable
9.5.08 Fitch stable
1.4.08 put on Fitch negative watch
3.08 put on Moody negative watch
28.2.08 Moody downgrade
30.1.08 Moody downgrade
22.11.07 Fitch stable
22.5.07 Moody stable

from http://www.landsbanki.is/english/aboutlandsbanki/pressreleases/?NewsID=13221

In March 2008 Moody’s, the rating agency, placed the Icelandic banking sector on negative watch and the banks’ credit default swaps, which measure the cost of insuring against default, have soared.

Using terrorist legislation for an economic crisis is wrong. What on earth were this government thinking when they decided to use this legislation to stop assets in Icelandic companies leaving the country? This decision will come back to haunt them - not only are they bullying a country with an economy the size of Coventry, but they have used legislation that was designed to keep our nation safe from terrorists, not countries undergoing an economic melt down. Furthermore, is it legal to use such legislation in a way it was not intended? And what about all of the other “terrorist” legislation that the government has written, insisting it’s all for our own protection? There is already anecdotal evidence to suggest the other laws are being abused, perhaps now the media (and country) will realise the price that we have paid is too high. Of course, will this derail the government’s attempts to get car GPS tracking installed in every car, or ID cards, or 42 days, or any host of other “protection measures”?  

It seems to me that short term political gain has won over our long term country’s international standing. It was only a few days ago that Brown was accused of not acting and not leading the nation, but dithering and following from behind. But there is leading us away from and there is leading us into a future crisis. Which road has Brown taken us down? From reading international news this morning, there seems to be significant opposition to us using terrorst legislation against what should be a friendly, western nation state. Furthermore, there are already reports that Iceland are accepting bribes loans in exchange for a Russian military/navy base. Bullying a small nation, such as Iceland, will only push them towards what they see as a powerful and protective friend - the Russians. This time, in Cold War 2 we will be surrounded and it might not be limited to Cold…

Remember - the moral of this story

According to the BBC, Kent CC has around £50m in the failed banks of Iceland. According to the 2007-8 budget statement of Kent CC:

At 31 March 2008 the Council has earmarked and other capital reserves of £60.3m as shown on page 20. 

This does not look good. Has Kent CC really put all of their eggs in one basket? If so, are Kent CC breaking government guidelines, where capital should be spread around amongst institutions? 

And there was me thinking that Conservative Councils were supposed to be competent…. let’s hope Colchester or Essex isn’t in a similar position, although Colchester is currently run by a Lib-Lab coalition.

** Update

It seems that they have not put all of their eggs in one basket, but the following nonetheless does make for sorry reading:

 Investment Strategy  

 The main aspects of our investment strategy will be: 

 7.19 Diversification 

 Up to now all of the investments made have been in cash based investments.  To give the opportunity to add to returns last year we introduced new asset classes into the portfolio to give the potential for increased returns.  With the potential for increased returns there is inevitably an increase in the amount of risk which we will take.  We intend to control the risk by: 

  Diversifying the investments made to take a number of positions and seeking to make investments in uncorrelated asset classes; 

 Use of pooled funds rather than direct investments; 

 Comprehensive due diligence being undertaken on any new investments made; 

 Allocating only a small part of the total portfolio to higher return, higher risk products; and 

 Approval by Members. 

To date we have not used any non-cash investments but we need flexibility moving forward. 

 

7.20 Types of Investments 

The available asset types at our disposal will be:  

Cash deposits – less than 365 day deposits with banks and building societies;  

Callable deposits – less than 365 day deposits with banks and building societies.  As at 31 December 2007 these stood at £117 million; 

Callable range accruals – over 365 day deposits with banks where the rate of interest paid depends upon LIBOR staying within a pre-arranged range.  We have undertaken two such investments worth £10 million; 

Money Market Funds – with Butlers support the JP Morgan Liquidity Fund is the preferred vehicle, but we have never used it as rates have not been competitive and fees are payable.  We also monitor the Goldman Sachs Liquid Reserve Fund and the Fidelity International Cash Fund; 

 Fixed Income and Corporate Bonds – a number of pooled funds exist and these would be considered with advice from Butlers; 

 Property – through the Superannuation Fund we have considerable experience now of indirect property investment via pooled funds.  These are also suitable for treasury funds.  Included in this category would be investment in infrastructure funds; and 

 Absolute return products – many leading investment managers now offer products targeting an absolute return, such as say RPI +3/4/5%.  To achieve such returns the fund manager invests in a range of underlying assets.  Again this type of investment is available via pooled funds with relatively small investments being permitted.