Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Massacre of the Innocents (by Springheel Jack)

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What strange times these are. I saw a story this morning in the UK's Daily Express about the meltdown in private pensions in the UK. You can see that here. There's not much to say about this really, regulations (by the government) force pension funds to hold long dated bonds, the yield on those bonds has been pushed down to less than inflation (by the government), and UK pensioners are forced to buy annuities at retirement (by the government). 

A 65 year old man retiring at the moment in the UK can use a £100,000 pension fund to buy an annuity yielding £5,743 per year. As the life expectancy for that man is 78 at the moment, the company selling him the annuity can expect to pay him about £75,000 on average before his death, at which point they will keep the change, as well as any return they have made from the £100,000 in the interim. If you're wondering how that's possible, you should remember that the competition authorities in the UK are notoriously deaf, dumb and blind. They famously concluded a study in the 1990s looking into why compact discs cost 25% or more in the UK than elsewhere by saying that UK consumers were happy to pay more, and the cartel of car dealers and manufacturers in the UK kept prices so high for so long that car manufacturers used to refer to the UK as 'Treasure Island'. That scam only ended because UK car buyers starting buying in large numbers from Europe through the internet. 

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Power Corrupts (by Springheel Jack)

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Am I the only one that thinks all this fuss about LIBOR fixing is strange? Granted it was illegal and was an example of bank corruption, insider trading and so on, but it's been a long time since there was anything with even a faint resemblance to a free market in interest rates, and numerous practices that might once have been considered corrupt and dishonest have long since moved into the banking mainstream. Anyone waiting for the wave of prosecutions that should have followed the subprime fiasco has been waiting a while, and when the banks involved say that they thought that what they were doing had the tacit approval of regulators, that does at least seem possible. 

Also the fixing of LIBOR has been blatant for years. I've read about it quite a few times as I recall. Is it really possible that the regulators just noticed? Granted they've won no awards for clear vision in the past, and one could be forgiven for wondering whether they need assistance to dress themselves in the morning, but it does seem hard to believe. 

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Euro Saved! – Take #58

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There was a very large move overnight as the EU eased repayment rules for EU banks, and announced a $149bn plan to promote regional growth at the EU summit. Much has been made of Merkel's isolation at the summit and I was reading this morning that French President Hollande won't be backing down on his demand that Germany back a Eurobonds plan, so it seems that risking future German bankruptcy is a risk that the (ahem) French are prepared to take. We'll see how that goes today, but given that unconditional agreement by Merkel looks like political suicide at home, that she stated earlier this week that no such agreement would be reached in her lifetime, and that it would most likely be ruled unconstitutional by German courts in any case, it seems unlikely that Hollande will get his way. 

What we might see however is German agreement to a Eurobonds scheme conditional upon Euro members surrendering a lot of fiscal sovereignty to, in effect, Germany, and that might have the potential to kick any major crisis a few months down the road. We'll find out what has been agreed over the weekend. 

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Other People’s Money (by Springheel Jack)

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Margaret Thatcher once famously said that 'the trouble with socialism is that eventually you run out of other people's money'. She was talking in a world much more centered around sovereign nations than the current one though, and there are therefore two modern solutions to this problem that she wouldn't have considered practical or even possible (or sane). 

The first of those solutions is for governments to implement deficit spending and borrowing on a scale previously unknown except in wartime. At the same time central banks make this easy to finance by pushing interest rates down to almost zero, and cushion the market impact of this new sovereign debt reaching the bond markets by printing enough money to buy the new bonds themselves. In effect this is theft on a grand scale from anyone with savings in cash, pension funds or bonds, but it keeps the show on the road a while longer: 

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