War Loan is often called the biggest scam perpetrated by a British government on its people. It was first issued in 1915, to pay for the First World War, and enticed millions of subscribers with the slogan: “Unlike the soldier, the investor runs no risk.”
That turned out to be a lie. Those who invested in War Loan and their descendants — some 100,000 people still own the stock, many of whom inherited their holding — saw its value destroyed by inflation. £100 invested in War Loan in 1932, the year Neville Chamberlain strong-armed holders of the earlier version into a Greek-style restructuring, is worth £1.74 today.
Those who perpetrated the scam avoided justice but it is easy to see how the new perpetual bonds advocated by George Osborne could leave the Government open to future claims of mis-selling. It is hard to see who could gain from lending to the Government for a century at ultra-low interest rates: the Chancellor’s own prediction of demand from pension funds was swiftly shot down by the National Association of Pension Funds.
Mr Osborne’s comparison of these new bonds with perpetual bonds previously issued to deal with crises, such as the First World War and the 18th-century South Sea Bubble, gives the game away. As Marc Ostwald, of Monument Securities, points out, it is a tacit admission that cutting budget deficits and overall debt burdens in the Western world cannot be achieved by austerity alone, with a restructuring of UK public sector debt also necessary.
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The Union of Democratic Mineworkers was born in 1985 with the noble aim of giving miners an alternative to the NUM, then controlled by Arthur Scargill.
It is unfortunate, then, that Daw Mill, Britain’s biggest remaining deep pit, has been brought to the point of closure by a UDM-dominated workforce whose members regularly indulge in the kind of antics of which Mr Scargill himself might approve.
Despite generous shift allowances that mean miners at Daw Mill can earn as much as £1,000 in a weekend, productivity is poor compared with UK Coal’s other deep mines. Much of this is due to go-slows and Spanish practices. Daw Mill has been hit by several “face gaps” of late, where a new coal face is not ready for mining when an old one shuts. One such face gap in 2010 lasted for four months.
Yesterday’s statement shows that UK Coal has had enough. While couched in diplomatic language, the underlying message is that each pit will stand or fall on its productivity, so Thoresby and Kellingley could continue operations even if Daw Mill closed. It is significant that UK Coal is supported in this by its banks, pension trustees and the Coal Authority.
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Coal mining still has a future at Daw Mill. But only if its workers, on 21st century wages, desist from working practices thought to have been abandoned in the 1980s.
Lesson learnt in America
Citigroup and its chief executive, Vikram Pandit, have hopefully learnt a lesson after failing the Federal Reserve’s latest stress test of America’s banks: patience is a virtue.
The tests obliged banks to prove they had enough capital to withstand a jobless rate of 13 per cent, a 60 per cent fall in the stock market and house prices falling another 21 per cent.
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Under those scenarios, Citi had a core Tier 1 capital ratio of 5.9 per cent, sufficient to pass the test. However, when its plans to return capital to shareholders were taken into account, Citi came up short with 4.9 per cent. Its experience echoes that of Bank of America, which failed a stress test last year when its capital return ambitions proved too great. This time around, it submitted no request to return capital via dividends or share buybacks and was rewarded with a pass.
Citi’s response should have been an admission that it sought to return too much capital to investors. Instead, it published a statement on its website, claiming: “The Federal Reserve’s objection to our capital plan does not equate with ‘failing’ the stress test.”
Mr Pandit’s pledge in January that “this will be the year that we’ll start returning capital” now looks rather stretched. A little humility might have been more appropriate.
How not to get ahead
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Greg Smith, the disaffected Goldman Sachs employee who excoriated the bank in an open resignation letter published yesterday in The New York Times, is a rarity in more ways than one.
According to the 2012 Michael Page Financial Services Global Employment Trends survey, published today, 84 per cent of people working in the sector say that they have considered leaving it. But most admit to harbouring such thoughts only rarely and admit that they are unlikely to follow through on it.
A key explanation of why Mr Smith is so unusual in leaving comes elsewhere in the survey: 85 per cent of those polled said that they expected their bonus for this year to be at least the same, if not higher, than the one for last year.
The survey also provides another reason why Mr Smith is unusual: escaping from stress or pressure at work is considered by most to be the least important reason to look for a new job. Considered far more important by most is career advancement, something Mr Smith can scarcely be said to have done here.
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Norway facing test of strength
The Swiss National Bank has done it and so has the Bank of Japan. Now Norges Bank has become the latest central bank to take on the markets and seek to cut the value of its runaway currency.
The unexpected cut in its key policy rate yesterday, from 1.75 per cent to 1.5 per cent, sent the krone — which last month hit a nine-year high against the euro — to its lowest level for a month.
But the gambit is riskier than those of the SNB and BoJ. The krone, unlike the yen or Swiss franc, is underpinned by a strong oil price, so a rate cut may have less impact. Meanwhile, with fears growing in Norway of a house-price bubble, the bank may have to reverse this cut before long. It will be an interesting test of strength.