Archive for the ‘General’ Category

Looking into the abyss

Not so long ago I was joking that either Citibank or HSBC going bankrupt would be a really spectacular event as both are based in one country yet have the bulk of their interests overseas, so who would support them?

Well, it’s happened to Citibank now and it turns out that the American government figured that if they were allowed to go to the wall it would be just that little bit too spectacular to happen so they’ve bailed them out. One wonders how long it can be before we see if the UK government have a similar view of HSBC although that might be quite a while from now as HSBC management dumped the problem HFC quite some time ago and that’s where a lot of their high risk loans lay.

But when you’ve the situation of the largest banks in the world at risk like this it sounds to me that it’ll be quite some time before we get ourselves out of this particular financial mess.


Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

Northern Rock, Bear Stearns… who next and how will it be dealt with?

With 20/20 hindsight, Northern Rock was an obvious disaster waiting to happen.

When a relatively small regional bank turned out to be writing 20% of all of the UK mortgage market, weren’t some warning signals coming up? After all, that kind of growth in market share implies a very aggressive approach to marketing and indeed on pulling in money to fund all those mortgages.

Bear Stearns, along with many pure investment banks, tends to have quite an aggressive approach to running it’s own book too As it turned out, it was a little too optimistic with the projections and ended up just as bankrupt as Northern Rock for pretty similar reasons.

The approach on both sides of the Atlantic was quite different. Whereas the UK government continued to dither about and ended up taking over the bank itself, the Fed was much more aggressive in going for what needed to be done. They simply transferred the bank to JP Morgan (“sell” isn’t the word to use given the price paid) and backed only the residue of the business that couldn’t be easily transferred.

Which is the right approach and what’ll happen next time around?

Unfortunately, neither is really “right” in the sense of being a workable solution to the problem of the debt crisis. In both cases, a signal has been sent out that significant banks won’t be allowed to go bankrupt and that the government will take over the highest risk aspects of any bank when necessary. I’m not sure that’s a good message to be sending out at the moment as it implies that there’s no risk too much.

On the other hand, would it be better to have let one of those banks go bankrupt? Northern Rock had a major slice of the UK mortgage market and large numbers of savers so letting it go wouldn’t have been good for the government at the next election for sure. Although Bear Stearns hadn’t as many private clients they’d have been pretty vocal ones given the amounts involved but aside from that the bank was a major player with many interlinking deals and would have caused severe repercusions had it gone down.

Sadly, it’s looking like these two banks are merely tasters of what is to come if the credit crisis isn’t sorted out very soon.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

What’s the best way to hold your money?

Although many would argue that if Fort Knox accumulates a mountain of gold, then that’s clearly the way to go but it rarely is.

Yes, you can find that gold will appreciate quite substantially from time to time, particuarly when things appear bleak in other financial areas. But, when things pick up again, you’re just left with a pretty lump of metal which doesn’t pay you any interest or dividends.

Shares are obviously risky so if you’re looking for something that’s safe, then you need to avoid them and anything that’s based on them too which means that bonds are out too. Even the banks aren’t really 100% safe. If they’re large enough, the government will usually feel obliged to step in and bail them out, but do you really want to assume that your bank qualifies as being “large enough”?

You might think that I’ve eliminated everything, but there is one totally safe way to hold your money and it’s so simple that most people overlook it. All you need to do is to put your money in the government’s bank.

In practice, few governments allow you to bank directly with their central bank but the central bank normally has a number of offshoots with which you can deposit money and which also have that 100% guarantee. For example, in the UK you can use National Savings (from instant access savings through to fixed term investments) and in America you can buy Treasury bills (a fixed term investment).

What you’ll usually find is that these investments pay a little less than their equivalent as put out by normal banks. For example, at the time of writing, you can get 4.5% from an instant access account for a high street account but only 3.45% from National Savings. That 1% difference is effectively the cost of the 100% guarantee for your money; many depositors with Northern Rock would have been more than happy to pay it.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

Been turned down for a standard card? Why not try applying for a premium one?

American Express are weird.

Just before we left I thought that it would be a good time to finally get around to applying for one as I figured that if need be I could just transfer the account over here (although in practice it looks like hardly anyone takes it here). I fired off the application for their blue card (I’m too stingy to pay the money for their charge cards) and it came back “no”. Never thought any more about it until I got the maildrop from William when I found buried in that a “60 second” application for their gold card which was addressed to me at my parents address (which I’ve not been living in for years now). Well, less than 60 seconds later, I’d filled it in for the laugh and off it went. Just got the latest maildrop of credit cards that I’ve not gotten around to changing the address of and what should I find but my brand new gold American Express card!

So you apply filling in your proper address and they don’t give you it. You fill in an address from years ago and they send you an even better card. Weird. Still not very useful in France but it does look very pretty as the whole card is a gold hologram. Oh, and I’ve even got a free sportsbag for applying too!

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

What’s Financial Perspectives all about?

Simple really… anything and everything to do with money which means how to get it, how to save it and how to spend it.

Whilst we’ll obviously be covering the “how to get it” with an Internet slant, we’ll also be touching on how to get it and get more of it in all kinds of fields along the way.

Under how to save it we’ll be looking at how to save it in banks but also how to save money when you’re buying things too.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.