The 'Absent Landlords' of Property & Business are Compounding the World's Economic Crisis.

The 'Absent Landlords of Property & Business are Compounding the Economic Crisis!
In the U.K. we have a world renowned education system which is supposedly  one of the the highest rated in the world.
Lots of jobs require various qualifications in order to be considered for that particular industry. But what makes a mockery of all this education is the fact that there are many well paid positions which you can attain without an education. You can become a land lord of a property empire for example without a single qualification. A landlord can then profit from the general publics need for homes to live in. Or similarly, it may be a commercial property empire, in which the landlord will be profiting from the needs of businesses for a place to carry out their work. A lot of borrowed money is used by landlords renting out property and this adds an unnecessary extra cost to all of our lives as we are all paying this rent atleast as far as the businesses are concerned because the products and services we pay for have to cover the costs of business premises. (And this a major contribtion to all the shops which are having to close down). It will be a surprise to some that it goes on at all. Yet the fact that this busines is totally un-regulated raises questions as to why this would be. Some cynical people might say that it is because it would be to the cost of the finance industry, that the governments choose not to regulate this business. Unfortunately it is to the cost of every one of us that it is not regulated!

So basically, the people buying and renting property in general are doing us a dis-service. By buying the property and renting it out allowing a profit margin for themselves. Whilst doing little themselves to earn that payment. And the icing on the cake for these landlords is that the money you may have in an investment account for years saving for a deposit on a home, while you are saving will most likely be leant to landlords who will buy property with it, adding to its demand and pushing up the market price of homes. Therefore increasing the amount the saver needs to save for a deposit!

It wouldn't be quite so bad if it ended there,.............. but unfortunately it doesn't.

The business pages of many national news papers along with the financial news papers promote the idea that we should all be trying to own a bit of a business in one way or an other whether it be direct investment in company shares, bonds-which are government or company debt investments, or into a pension fund, or an other type of investment fund or just simply an ISA.

What all of these have in common is that every investor is going to require interest on their investment. All of these have their money in  some kind of business which is going to add costs to that business. Otherwise, where is the interest going to come from? What we then have is a similar situation to the landlords who are putting their money into property and renting out the property allowing for a profit margin.

Try to put your self in the position of a banker.
As a banker you know that every one wants a return on their investment. So how do you make sure that all your investors are going to be able to achieve this?
The first way you may think is to vet all the potential businesses for investment potential. Then only lend to the all the safest businesses with potential to increase their income to cover their added interest and loan repayments. But then what if you find you have more invested than you need for your good potential businesses. You will be left with a load of money in customers accounts which you will not be able to pay interest on. If you stop paying interest to investors, they are going to begin to take their savings elsewhere. This is a no go area (whilst there is no intervening regulating interest rate setter!), before long you are out of business. What you need to do is lend to some more businesses which may be you didn't really want to. This may be a risk, but if you lend to enough businesses, it won't matter if the odd business collapses. As long as you lend to enough businesses you can spread the risk. (Any way you can ease your headache by selling the debt to some un-suspecting soul) .Over all then, every one should be kept reaonably happy.

The situation we then have with a lot of our businesses is a situation of absent landlords. The investor in most cases doesn't even know what their money is being invested in. Even if the investor is a share holder of a business, share holders do little more than check on their share price and 'exit' their shares when they anticipate things are having a turn for the worse. Neither of these types of investor are much use to the long term prosperity of the business. Then we have the stock brokers and hedge funds, who continually buy and sell shares. Again, a stock broker is of little use when it comes to the long term success of a company. Hedge funds though can have a more influential contribution to a business. But their contribution will not help the company on a long term basis either. The strategy of hedge funds is again short term. Often a hedge fund will take the reins of a company by getting a representative on to the board of directors. But it is only to get temporary control whilst as much as possible is 'milked' out of the business until there is only a very streamlined version of the original company left. This could be achieved with redundancies, selling of assets and price rises. Ultimately there will come the day when the hedge fund 'exits' the business (sells all shares) at a good price before the share price begins an inevitable collapse as the affects of the 'streamlining' begin to have a detrimental affect. A private equity company may take control of a company by buying enough shares to take control of it. They work much the same way as the hedge funds. They will asset strip and make redundancies. If a hedge fund or private equity management company keeps hold of a company for a long period of time, it is because they can't sell it. It is not that they don't want to.

So can we expect any help from the banks in the way these companies are run. Afterall they are providing the money to their stock brokers who are buying shares. They are also lending money to the hedge funds who are buying them up and to the private equity companies. The banks make money by lending it, and without any mediator, they will lend this money pretty much at will. The only thing these banks will do is add debt to these businesses, as the hedge funds and private equity companies borrow money which inevitably means interest payments will be due from the companies they buy shares in.

So what about the executives of these companies, surely they are being paid enough to keep these companies on an even keel?
Well, they probably are, but an executive can earn more if he allows a company to get into debt. That is if some of the debt is used to pay the executives of the company for atleast the next few years in salaries, bonuses, company cars and some expenses.
What Im saying here is that for all those who are in control of business there are too many incentives to run a business badly on the finances side of the business.
The craziest thing of all is that every one including savers, investors, stock brokers, hedge funds, private equity companies, bankers and the executives of these companies, could contribute to a company being put out of business due to its debt without any of these individuals suffering any loss themselves. Simply because of the nature of the business world which allows all these people after a business has collapsed, simply to blame economic conditions and move on to the next business.

Investors make terrible landlords, whether they are a landlord of property or the 'landlord' of a business.

   

JP MORGAN ;Why did no one sue them for 'winning' billions during the financial crisis?

JP Morgan; Why did no one sue them for 'Winning Billions During the Financial Crisis?!
JP Morgan Chase are the biggest investment bank in the world (At time of this post).

In the lead up to the banking Crisis, Goldman Sachs were the biggest investment bank. But losses during the financial crisis meant the bank was to reduce its assets substantially.
However, JP Morgan made bets during the aproach to the financial crisis which were successful enough to cover any losses due to the financial crisis. This success has also bolstered the banks success since as investors have favoured the bank due to its apparent imunity to financial crisis. The confidence of its new customers may however be misplaced.
JP Morgan investment bank, recently hit the the headlines for losing $2 billion in 'bets that went wrong'.
Share holders of the bank are suing the Chief executive and the board.

Reasons for the law suit are,"Defendants mis represented the losses and risk of loss to the company arising from massive bets on derivative contracts related to credit indexes refecting interest rates on corporate bonds." as explained by Saratoga Advantage Trust-Financial Services Portfolio, one of the share holders.

What is interesting about this is that lots of this kind of thing was going on in  the lead up to the crisis. Only during this time, JP Morgan was one of the more successful banks. JP Morgans success today has been partly due to how it was able to ride the economic crisis. The reason for this was that lots of these 'bets' that JP Morgan were involved in during the crisis were a whole lot more successful. JP Morgan were in fact profiting by adding to the economic crisis. Other banks were losing money which was ending up in the hands of those same executives which are now being sued. Banks that ordinary people of the world helped to bail out with their taxes was in part due to banks like JP Morgan and the hedge funds run by JP Morgan who were protecting themselves, but at the same time adding to the losses of other banks and financial institutions, and to the bail outs which the public have had to pay for.

Some will say, how can this be right? While they are gaining phenomenal amounts of money, no one seems to care how they earn it. The press and media never seem to question it, and much of the press and media seems to actively encourage them by shouting about their profits figures when the accounts become available.

The other matter  concerns all of us and the way that these banks should operate in the future. We all invest in shares, bonds, derivatives, credit default swaps, etc one way or an other. I mean all of us.

All of us who have savings.
Once these are placed in investment account they can be used for various types of bets that JP Morgan have been involved in. This is because for example a hedge fund owned by JP Morgan will have access to the money in your account by your bank lending money  to the hedge fund. Your money could then be used to invest in a whole range of investment products such as the derivatives which have been blamed for the current JP Morgan loss.

All of us who have insurance.
Similarly, insurance money gets paid into funds which will be used by the investment banks and the hedge funds they run in a more direct way. (This is used as the deposit,  the money you have in a deposit account could be used for a loan, up to around five times the amount which would be put behind the main investment). These insurance funds will earn more money than the money in your investment account, but obviously you will not see any of it as this will go to the managers of the insurance companies. (This should make your insurance costs lower but it in reality, it is more likely to have the opposite effect. This is what happens when a finance industy is allowed to run it's self).

All of us who have National Insurance (Employed or unemployed!)
If you thought you had escaped with the two above routes to investments controlled by investment banks then you are less likely to escape through this route. Even the un-employed have investments which are being handed to investment banks to do with as they wish. National Insurance is invested in much the same way as any other type of insurance. The majority of these investments will be making money for the few, but as for the rest of us and the world economy in general, we will all suffer for these investments.

I really don't see how Saratoga are going to get compensated for the loss in value of their shares. This is what the investment banks do every day. Most of the money that has been paid to share holders in the past will have come from profits generated from the same type of business, but when JP Morgan had been more fortunate with their 'bets'. The share holders weren't complaining then. I totally agree that the bank was taking risks it should not have been taking. The problem is  that bankers beleive all their hype. That they are creating some kind of good from their gambling. All they are doing is creating problems, and these will become ever bigger as the bankers themselves become more demanding as far as their own salaries and bonuses. This gambling they are taking part in is at the expense of real investments which provide products like housing which we all need. Real business for these investment banks is becoming a bit of chore for them because the costs related to employment and other genuine costs of a business reduce the commission and interest possibilties that the investment banks can get from any deal. They therefore too often choose to use our money to gamble with.

The bottom line is this-
The share holders are right about the risks being taken but what they should be complaining about is the fact that they are merely gambling with investors money, whether it be money that JP Morgan are using whilst carrying out their business which could be contributed by any member of the public (through an investment account), or the share holders investment in the company. The share holders should be telling JP Morgan that they want the money invested in real business with real products and services instead of the type of 'investments' that the investment banks call business which in real terms is nothing more than touting, gambling and damaging the economy with our money. The problem with this is that the gambling, and the needless shovelling of money into business which don't need it is a major part of investment banking. 

If the investment banks are unable to react to the changing economic conditions and also the new expectations of both their customers ( by this I mean the originators of all the fund s that end up with the investment banks) and their share holders, they could find themselves having to down size some time in the near future. If things carry on as they are today, with the governments allowing the big banks to dominate the economy, the people are likely to start to influence the situation by investing money elsewhere, where the investment banks can't get access to it. Also the insurance companies which invest the money we pay to them may have to invest money where it will create more sustainable investments in order to keep their customers in the future.  

Rangers FC has met its Nemesis and lost!

Rangers FC have Met Their Nemesis and Lost!
Rangers FC , Scotland has gone into administration due to unpaid taxes of £9m.

There is also an other £49m of unpaid taxes under dispute.

Rangers previous owner was Murray International Holdings, owned by David Murray. He sold the club for £1 in May 2011.

However, some of the most influential in Rangers recent history are within the Lloyds Banking Group.

In January 2000, Murray International Holdings had debts of £52.7m.

In January 2008 the debts had increased to £773.4m

Net income from MIH has averaged 2.3% of sales between 2000 and 2008.

This is during what has beeen called the 'boom' period which had been the most profitable time for many businesses for many years.

Murray International Holdings began in metals but has diversified into other areas such as commercial property development, whilst also buying Rangers FC.

David Murray has made use of his business to underwrite loans to Rangers FC and this helped maintain their position as a dominant club in the Scottish Premier League. They have also performed well in European Competitions on occasion which would surely not have been possible without the backing of Murray International Holdings behind it.

Depending on your point of view, you may admire the way David Murray influenced the possibility of a European trophy for rangers during the time that he owned the club. Or you may look at the figures and also the slightly restricted position of being in the SPL (as opposed to being in a more competetive league such as the English / Italian /Spanish leagues), and may be come to the conclusion that the risk against the real chances of becoming a competetive force in European competitions, was too high a risk unless there was a realistic chance of maintaining a steady income from European competitions.

Although many people who are football supporters will be able to understand why David Murray may be be willing to take some risks for Rangers FC, the banks involved with the lending to Murray International Holdings should have been far more responsible. There are different motivations in owning a football club to owning any other business. Banks however should not become part of this. The banks had leant money against the Murray International Holdings. The thing is that the borrowed money being used to buy players for Rangers to compete in the SPL and to be able to compete in European Competition were unlikely to be able to cover the costs of the debt unless they were able to maintain a constant competetive presence in Europe. I think most people atleast looking from outside the scottish border would have to say this was unlikely due to the difference between the average SPL team and the aveage Champions League team. Im not saying they can never have a good run Europe, but to maintain this standard year after year would be a big ask. One that is unrealistic.

This is where you would expect a bank manager to bring a dose of reality. But it just did not happen. The banks continued to add debt to Murray International Holdings. Mostly because the business behind the football club provided the banks with a cushion. But this is not good enough. The debt was being used in an irrational way, only to feed pipe dreams. Putting the whole of Murray International Holdings and all the jobs of those who worked for the company at risk.

This is evidence that the banks just don't seem to have the brains in place to actually analyse the business plans that are behind the lending that they authorise. We need an independant organisation between any type of business and the banks. Because banks make terrible decisions due to their vested interest which is not the success of any football club, but their own profit and bonuses.

INVESTMENT BANKING

Ideally, we need an international organisation which is totally independant from the banks. The organisation should oversee every deal that takes place by investment banks. Currently we have a situation which is not dis-similar to a load of toddlers running riot in a sweet shop. The F.S.A. and the S.E.C. would appear to be slightly older toddlers  holding the sweet shop door open as all the others enter and quickly exit the shop, handing some sweets to the doorman as they exit!
FROM  "DAVID CAMERON HAS WORKED OUT WHAT CAUSED THE ECONOMIC CRISIS!", X-ECONOMICS.BLOGSPOT