Courtesy of The Automatic Earth
Producer Mack Sennett’s comedy reels featured a bevy of "bathing beauties," among them Marvel Rea, seen here in the harlequin costume
Ilargi: It’s a thin line beteeen comedy and tragedy. From time to time, quite often actually, stories pass before my eyes that make me think: did I really just read that? Was that serious? Like I had one last week, with Paul Krugman talking about aliens:
Paul Krugman: Fake Alien Invasion Would End Economic Slump
"If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months [..]"
Ilargi: Only, what I found weird was not so much that he talked about aliens, but that he implied that a “common enemy" would end the US economic slump in 18 months. That to me, once again, shows such a deep lack of understanding of the issues at hand that what’s maybe truly weird is that the man still has readers. Unless the US declares all-out war on its creditors, there’s no way it can get rid of its piles of debt, public and private, in 18 months. So, nah, not all that remarkable perhaps, just more Krugman.
The following series of articles form today’s Daily Telegraph, however, does have that je ne sais quoi level. First off, James Hurley writes:
UK household finances are ‘worse than during height of recession’
Household budgets are deteriorating at a faster rate than during the height of the recession in early 2009, according to an analysis of consumers’ finances. Almost 40pc of households saw their finances deteriorate between July and August, compared to just under 6pc that reported an improvement as Britons were hit by rising prices and a squeeze on take-home pay.
The latest Markit household finance index also found consumers suffered the fastest fall in their available cash since the monthly survey began in February 2009. Income from employment fell for the eleventh month running – August saw the steepest decline in take-home pay for nine months – while spending power continued to be squeezed by rising prices.
Markit said these factors contributed to the sharpest reduction in savings since March 2009. Debt levels increased for the fifth consecutive month, and at the fastest pace since November 2010. The gloomy outlook applied to all income groups, age ranges and regions monitored by the survey, but consumers in the north of England are suffering more than those in the south, the financial information company found.
Tim Moore, senior economist at Markit, said: "With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year. It is likely that the UK economy will be increasingly dependent on external demand."
Ilargi: In short, the UK economy is gasping for air, being gutted alive. Nothing we didn’t know already. So it’s only logical that we see this item by Rebecca Choules next up:
Half of first-time buyers have given up hope
More than 50pc of would-be first-time buyers have given up hope of being able to afford property.
Fifty three per cent of would-be home buyers believe that they won’t ever be able to afford to buy a home. According to the Post Office, half of prospective home owners said that in order to save enough money for a deposit, they would need to either get a better-paid job with a higher salary, or receive a lump sum from a relative. The average age of a first-time buyer is 35 today compared with just 23 in the 1960s. The Post Office blamed rising house prices and the huge deposits needed to get on the property ladder.
The research found that on a regional basis, would-be buyers who are already living in London are being hit hardest when trying to raise a deposit, as they are faced with the obstacle of high property prices. Some 43pc of people living in the capital say that they could not afford a deposit unless their financial circumstances changed. This is considerably higher than the national average of 37pc.
Ilargi: Yeah, color me surprised to see all those people still looking for homes to buy. They should than the banks for saving them the misery. Britain has a huge housing bubble waiting to blow. Or is it different this time, and this place? Emma Wall reports:
UK house prices to rise 14% to record highs by 2015
The housing slump is over, according to the Centre for Economics and Business Research (CEBR). The think tank has predicted that by 2015 house prices across the UK will have risen on average 14pc – to an all-time high. A new report from the CEBR predicts that the average British home will be worth more than £200,000 by 2015, up from the current value of £176,000. This is nearly £10,000 more than the previous house price peak in 1997, when the average home was worth £191,200.
This prediction is less aggressive than the previous forecast from the CEBR in May, when it predicted that house prices would grow 16pc over the next four years. The CEBR blamed the lack of houses compared to demand for the expected rise. Shehan Mohamed, an economist for the CEBR, said: "We forecast an average of 110,000 new homes to be built every year over the medium term.
"This is significantly lower than the 225,000 homes that need to be created every year to keep pace with current housing needs, population growth and the trend towards reduced household sizes.
Ilargi: Let’s see: prospective first-time buyers can’t get a loan no matter what they try, but home prices will still rise to record highs, according to the CEBR. The question then becomes: who’s going to furnish the loans that will be needed for those record purchases? Will it be these guys that Patrick Jenkins writes about in the Financial Times?
The slump in equity values in recent weeks – particularly acute for Britain’s banks – has done much to undermine confidence in the financial sector and the economy’s prospects for growth. But it has also left the industry with a peculiar anomaly. Of the big four high-street groups, only HSBC now boasts a market capitalisation greater than its pension fund liabilities.
Lloyds, Barclays and Royal Bank of Scotland are, in the view of the stock market, worth less than the amount they owe their current and future pensioners. The gap is widest at Lloyds – with pension liabilities of £27bn, against a market cap of less than £20bn. It is pretty dramatic as trivia facts go. But since pension liabilities are long-term in nature, they have no direct connection with the banks’ own short-term market values.
The pension funds in question – so-called defined benefit schemes – are also independent from the banks, with their own assets to cover their liabilities. But there are ways in which the costs of meeting pension fund obligations can spill over into the banks themselves.
Ilargi: They can’t pay their own employees’ pensions, but they are going to push up home prices to infinity and beyond? Hmm. Here’s what British banks lost in market cap since August 2006:
- Lloyds: -94.54% (-58.10% in past year)
- Barclays: – 76.85% (-53.08% in past year)
- RBS: -96.83% (-54.15% in past year)
No, I don’t think so. I don’t think home prices in Britain are going to rise. I’d say it’s pretty obvious it’s in the early stages of a severe credit crunch, the same one the entire western world is in. US home prices have dropped over 30% to date, and that’s where Britain will go. And then, just like the US, it will go on falling, For a long time.
Unless, unless, the crazy scheme Jenkins was talking about actually flies. Hard to imagine, but hey, nothing seems too far-fetched anymore in the world of finance, does it?
Banks shift assets to cut pension deficits
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.
The moves – designed with the dual purpose of clearing unwanted assets from the banks’ own books while at the same time closing pension fund deficits – have been made as exceptional top-up payments into the pension schemes over recent months.
HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December. Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan. [..]
Nobby Clark, who runs HSBC’s pensions solutions group, said the transfer of illiquid assets into pension schemes was a sensible way for banks to deal with funding deficits. "The pension scheme has the ability to take liquidity risk with assets that aren’t liquid temporarily," Mr Clark said. Pension funds’ liabilities are long-term, so short-term illiquidity is unimportant.
Many big banks found themselves with vast portfolios of illiquid assets, such as asset-backed securities tied to the US mortgage market, following the 2008 financial crisis. Not only must banks mark the value of the assets, held in their trading books, to still-low market rates, but the majority also attract higher capital requirements under new regulations. The rules do not apply to assets in pension funds, however.
Banks gain from capital and tax relief on the transfer transactions, while the pension fund typically secures contributions much sooner than if it were to wait for cash payments. Some pension fund trustees have expressed concern that they are receiving questionable assets in place of cash. "[Trustees] might say: ‘If I can have a crisp new white shirt why would I want one you wore yesterday?’" said Dawid Konotey-Ahulu, co-chief executive of consultancy Redington.
But bank executives point out that transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent, according to pensions experts – sufficient to placate pension fund trustees.
Ilargi: Yes, you read that correctly: Britain’s banks, having been propped full with taxpayer money but still lost 75%-95% of their market value, are busy unloading their landfilling toxic waste (a term that comes straight from the banking world) unto their very employees. Who at least to some extent should be bankers, and understand what this stuff is worth; they may have well sold it themselves. And all this is presented as being beneficial to all parties. No scruples there.
Got to love this, though: ”… transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent [..]" Oh, is that a fact? Now that makes me wonder what these"securities" are carried on the banks’ books for.
The people whose pension funds are poisoned with the toxic paper can stand in line with all the others who -will- have no pensions left. There’s a number that actuallydoes show remarkable growth rates, says Rachel Louise Ensign in the Wall Street Journal:
For Many Seniors, There May Be No Retirement
Many older people are finding themselves in a position they never expected to be in at retirement age: still working or in need of a job. And the laundry list of reasons just keeps growing. Already battered nest eggs took another beating this month with the market’s wild swings.
With interest rates essentially at zero since 2008, income from Treasurys and certificates of deposit is pretty paltry. And the Federal Reserve recently said it would likely keep rates "exceptionally low" through mid-2013. On top of that, housing prices are still in the doldrums, leaving homeowners with much less equity to tap.
More than three in five U.S. workers in their 50s and 60s plan on working past 65 — and 47% of that group say they’ll do so because they’ll need the money or health benefits, according to a 2011 study from the nonprofit Transamerica Center for Retirement Studies
Ilargi: Calculated Risk’s Bill McBride summarizes a survey on the topic.
The New Retirement Plan: No Retirement
The survey found that for many Americans, the foundation of their retirement strategy is simply not to retire, to work considerably longer than the traditional retirement age, or work in retirement:
- 39 percent of workers plan to work past age 70 or do not plan to retire
- 54 percent of workers expect to plan to continue working when they retire
- 40 percent now expect to work longer and retire at an older age since the recession
Workers’ greatest fears about retirement include “outliving my savings and investments” and “not being able to meet the financial needs of my family.”
- Workers estimate their retirement savings needs at $600,000 (median), but in comparison, fewer than one-third (30 percent) have currently saved more than $100,000 in all household retirement accounts
- Most workers, regardless of age or household income, agree that they could work until age 65 and still not have enough money saved to meet their retirement needs
- Of those who plan on working past the traditional retirement age of 65, the most commonly cited reasons are of need versus choice
- Many workers (31 percent) anticipate that they will need to provide financial support to family members
Ilargi: Pensions, health care, education, you name it. Whatever field does not produce profit will be gutted, cut out and thrown by the wayside, no matter the consequences for anyone. It’ll happen in Greece, in Britain and in the US. And nowhere will it be accepted lying down once reality sinks in. The reality we’re busy creating is one most of us wouldn’t want to live in. So we choose to ignore we’re creating it. Until we’re in it, and ignoring is no longer an option.
