October 7th 2011 – Informal Political Luncheon (IPL)

October welcomed two new faces to the assembled diners – David Allsop and Julia Peach. David is a local architect from Kettering who spoke briefly to the other diners about his work and the Greece situation. He said ‘if you wanted to borrow money in the old fashioned way you would go to the bank and they would ask what collateral you could give in return.’ He felt if the same principle was applied to Greece that they should give something as security for the bailout money they will receive like Cyprus or another such island.

Frank Simms said yesterday the Bank of England put money into the system to raise the bond price called “quantitative easing”. He wondered if it had been done to put money into our own bonds that moved that money from the government discreetly into the Euro zone?

Geoffrey Pointon agreed ‘that it was quite likely a case of “smoke and mirrors”.

Les Breathwick added ‘are the public ever told the truth?’ This week we have heard that David Cameron wants households to pay off their debts but that money will get taken out of their households and not be used for spending in the economy surely that will compound the problem. David Cameron is to a degree naïve like George Osborne as they seem to think all they have to do is prune the imbalance between the public and private sector.’

Frank Simms said he was asked last week how to get small business moving and feels that a new government bank that will invest in small businesses would be the way forward. He said ‘it is the only way they will be able to find finance in the current climate.’

Geoffrey Pointon said ‘capitalism – if it goes wrong we socialise the debts but not for a small businesses.’ ‘Why when the government encourages people to work 16 hours a week and receive tax credits should we not have a similar scheme like this to help the sole traders and businesses get off the ground?’

Frank Simms – ‘the movement of money in the world has gone from capitalised countries to newly emerging economies like Russia etc. The way the money markets operated in the past has gone. If you look at the World Bank it has run out of ideas and can’t regenerate the money to put back into economies.’

Tim Wright added ‘that all credit applications are now controlled by computer software. Machines cannot make balanced decisions in the same way as seeing your bank manager where they could use human intuition.’

Geoffrey Pointon asked the room about their thoughts on the Europe situation – should it federalise or come apart?

Derick Horsfall believed in a united Europe but felt that the organisation that currently runs it was out of control. He noted that in his opinion we sat on the fringe too long and had not taken any active lead over the years in joining Europe.

Les Breathwick felt ‘we should be grateful that we hadn’t been involved or we would be part of the messy situation too.’

Tim Wright said that ‘we would never be part of the common currency because UK law was Common law whereas Europe was Roman law. Therefore we would always be separate.’

Geoffrey Pointon asked ‘do we still have the great entrepreneurial skill embedded in the UK make up?’

Derick Horsfall said ‘it was wrong for the Bank of England to put money into the failed financial system it should have been put into small business.’

Geoffrey Pointon suggested a ‘bond fund underwritten 70% by the government to put into small business’.

David Allsop added that ‘all the banks had to hold 15% cash now instead of the previous 5% that is not touchable. He pointed out that as a child he was told money was stored work. So this means that we are storing 10% over and above the 5% we used too. He said we would do better as a nation to accept that 5% capital was sufficient as that was how banks were always run.’

Geoffrey Pointon said ‘the problem is we have allowed them to run under their own model.’

Tim Wright – ‘the regulators failure was the markets changed but they did not understand the changes or the risks so allowed it to continue in a false would of derivatives.’

Frank Simms – ‘they need to realise that they can’t sustain their bonuses which were enabled from the flawed banking derivatives of the past.’

Les Breathwick felt that ‘the system was shot to pieces and the actual value of liabilities unknown.’

Geoffrey Pointon noted that ‘some Lloyd’s securities were issued and traded at 13% and asked does that not tell you something? When the public put their deposits into banks they are getting less than a 1% return but lending is above 15%. So why can’t they make less profit? We are not going to get out of this mess through the current institution of banks but need a new institution.’

Franks Simms – ‘Nick Leeson knew that the control mechanisms around him were so weak but Barings didn’t want to know as his first few transactions had made vast profits. There was no process to keep him in check.’ ‘The same at UBS nothing unusual was found during their audit.’

At the close of the luncheon as always a quick round table on the next general election date came back with most feeling it will run the course.