Wednesday, December 17, 2008

A 2-Ply Cheque

Since Sterling isn't valuable enough to warrant 2-ply paper anymore, a man in Suffolk paid his parking ticket in the form of a cheque written on toilet paper rather than the soft, strong and very, very long US currency in the picture. He claimed that he used stationery that reflected his feelings towards the system that he was unfortunately forced to support through his taxes.

He was issued with a summons and had to spend the day in court as a punishment because it would have cost an additional £15 for the bank to process the payment.

Radio 5 reported an older story with some parallells where a man was sent a photo of his illegally parked car with a penalty notice. The man sent a photo of a signed cheque in payment. The Police sent him a photo of some handcuffs.

4 comments:

Bob Briant said...

The weak exchange rate for Sterling is a consequence of the Bank of England setting low interest rates - internationally mobile capital switched out of Sterling to get better rates of return in other financial markets in Europe. Much the same applies to the US Dollar:

"The U.S. dollar tumbled against major currencies on Wednesday, hitting its weakest level in more than 13 years versus the yen, a day after the Federal Reserve cut interest rates to virtually zero."
http://www.guardian.co.uk/business/feedarticle/8164882

How come we got into this? This is part of the reason:

" . . Over the past decade, while the bubbles were emerging, it was frequently argued that central bankers have neither more information nor greater expertise in valuing an asset than private market participants. This was often one of the primary explanations for why central banks were not attempting to 'lean against the wind' with respect to emerging bubbles.

"As I argue in my recent National Institute article, had central banks raised interest rates by more than was justified by a fixed-horizon inflation target while house prices were rising above most conventional valuation measures, it is likely that the size of the eventual bubble would have been smaller. At least as importantly, because of the fear of being seen as ‘market-unfriendly’, fiscal and regulatory policy did not lean against the wind either. Our economies would plausibly have exhibited greater stability if tax policy were used in an anti-bubble fashion (eg a counter-cyclical land tax) and if regulatory policy were more activist (eg a ceiling on loan-value ratios) and contra-cyclical (eg time-varying bank capital requirements). . ."
http://www.ft.com/cms/s/0/dadc438a-cb84-11dd-ba02-000077b07658.html?nclick_check=1

We - all of us - should have complained about the house-price bubble but owner-occupiers like it when the prices of their houses goes up and up.

Btw several heavy-weight economists, like Charles Goodhart, were warning of that as far back as 2000 and 2002 - citations available.

Another part of the problem is the toxic assets - those securitised subprime mortgages which were sold on into global financial markets under the banner of Free Market Capitalism. That led to the growing distrust among banks and their refusal to lend to each other. Banks hugely dependent on inter-bank borrowing to support their balance sheets became insolvent as a result - which is why the government has given deposit guarantees and is offering taxpayers' money to recapitalise the banks.

Cllr David Theobald said...

Looking at the picture, is that what a bank roll looks like?

Bob Briant said...

Yes, it's truly awesome the damage that 100% (and better) mortgages can inflict downstream, especially if the mortgages are sold to those who can't afford to repay and when the mortgages are then neatly packaged up in bundles and sold into the financial markets to other unsuspecting financial institutions infused with the belief that the regulatory authorities are preventing bad practices. But isn't that just the sort of thing likely to flourish when a lot of no-brain politicians proclaim that Deregulation and Free Market Capitalism is the best way forward?

Bob Briant said...

We are presented today (Wed. 22 Dec) with a story by John Gieve, Deputy Governor of the Bank of England, that the Bank didn't really understand the significance of the burgeoning consumers' indebtedness (which has reached £1.4 trillion, about equal to Britain's annual GDP) and the associated house-price bubble:
http://business.timesonline.co.uk/tol/business/economics/article5382191.ece

That is very curious in the light of this news report from 2002:

"CHARLES GOODHART, a former member of the Bank of England's monetary policy committee, warned yesterday that the Bank is failing to take sufficient account of the house price boom in setting interest rates.

"His warning comes amid growing fears among economists that house prices, fuelled by the lowest interest rates for 38 years, are getting out of control. Yesterday, new figures showed that homeowners are borrowing record amounts against the rising value of their homes. . . "
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/04/06/cngood06.xml

Charles Goodhart wasn't the only leading economist expressing concerns about the house-price bubble years ago. Roger Bootle was another. I find it extraordinary that their warnings were missed by both the Bank of England and the Treasury.