Sick to the back teeth of the relentless gloom perpetuated by the entire media machine for what now feels like decades, I have spent the last month telling people that I am pursuing a positive news agenda. (I have also declared my intention of lunching my way through the credit crisis and calling it brand maintenance, but that is another story).
Of course, there is only so far you can go with that. There is no point predicting false dawns, or placing a positive spin where none really exists. But I do think that it is important to acknowledge and report when something good happens, and to accentuate the positive when merited. And I must say, I did not think that Northern Rock’s arrears figures, published last week, were all that bad.
Of course, the newspapers went to town, with screaming headlines such as Northern Rock arrears soar 395 per cent! (Daily Mirror), but in reality, three-month-plus arrears of 2.92% of its book is not that far off the industry average of 1.88%.
Also, the fact that only 4.53% of Together borrowers are more than three months behind comes as a pleasant surprise to me. Of course, no arrears are good news, and we can expect those figures to worsen as unemployment increases – and as all the quality borrowers have remortgaged away from the Rock – but it is important to keep these things in perspective.
Perspective seems to be something that has gone out of the window when it comes to bankers’ pensions and our response to them. Many of the papers made disparaging reference to ex-Northern Rock chief exec Adam Applegarth’s £109,000 pension top-up, and the fact that he can take a £305,000 a year pension at 60. That of course came on top of the outcry at Fred The Shred Goodwin’s £703,000 a year retirement deal.
Harriet Harman, who appears to make up policy on the hoof, went as far as to say that the ex-RBS chief would be stripped of his pension regardless of the law, which would set something of a dangerous precedent. Changing the law retrospectively is simply unacceptable, and for a politician to suggest ignoring it entirely is bizarre, to say the least.
Morally, it is entirely wrong, in my view, for these bankers to accept such large rewards. But since when have morals mattered to bankers? What is Sir Fred (who did receive his knighthood for services to banking, despite Harman’s denial of the fact in the House of Commons) likely to choose: the opprobrium of the masses or £703,000 a year? Hmm… that decision should take a nano-second.
Easy money?
Along with a further 0.5% cut in base rate, the Bank of England announced last Thursday that it will inject £75bn of new cash into the economy via a process known as ‘quantitative easing’, a phrase you have no doubt become familiar with in recent weeks.
Often perceived as simply printing more money, the idea sits uneasily with the British public who associate the concept with the Weimar Republic and Zimbabwe – spiralling inflation and worthless currency. In reality, the Bank of England does not literally turn on the printing presses to send a huge flurry of new notes into the economy. What will happen is that the Bank will create the money to buy the assets and credit the reserves of various banks and financial institutions with the new money.
Economists call this “high-powered” money, because the increase in their reserves should – in theory – allow the banks to go out and lend much more under the “money multiplier” principle. This should mean more money floating about the high street, which should stave off the serious risk of deflation. And of course, this is good news for mortgage borrowers and our industry as a whole.
At least, that’s the theory. But will it work in practice? The truth is, nobody knows – this is uncharted territory for the Bank of England. The US Federal Reserve and Bank of Japan have seemingly been using quantitative easing for a number of years with a degree of success. But the idea could backfire if the UK’s banks decide to sit on their bolstered reserves instead of passing the money on to borrowers.
