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.
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.
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