Sunday, March 02, 2008

Another Take on MP's Allowances.

All this talk about 'scandals' involving politician's allowances. Just thought I'd post my take on this - which amounts to a contemptuous grunt. I daresay most politicians, who bought properties in London or Cardiff several years ago have made a tidy profit as a result of the market rising. Now, when I read of calls for this 'profit' to be repaid to the taxpayer, I reflect on how nice it would be to hear similar calls for any losses incurred as a result of the market falling to be covered.

Because I live about 2-3 hours from Cardiff, I bought a rather nice flat in Cardiff Bay about three years ago when the market was sizzling. While I was an Assembly Member, the taxpayer covered the interest on the loan - well, on most of it anyway. In fact, I chose to buy a better flat than the allowance covered, so I had to fund quite a bit of the interest myself. If I'd sold the flat immediately I lost my seat, I would have lost several thousand pounds. So - to those who complain about the profits, I say "sympathise about the losses".

The reason this came to mind today is that the Wales on Sunday has the most depressing report in today's edition about the property market in Cardiff Bay. Because we liked our flat, we've kept it on. So you can understand how I feel, reading about values which have dropped by 10% in the last year - and how I snorted derisively when the American company which was given planning permission for a 33 story new flats development in Cardiff Bay last week said that he was confident they would all sell quickly. Or are we creating a slum of the future, as the WoS piece suggests is possible. Only way to look at these things is "You win some. You lose some!"


Left Field said...

Isn't the point though that if plain old John Smith from Montgomeryshire had landed a good job in Cardiff, he would have had to have financed it all himself? If he were then made redundant, he would also have to take any loss in property value on the chin.

Politicians seem to have it made. My bosses favourite quote is..."If you can keep your pension when all around are losing their's, you're a politician my son."

Dr. Christopher Wood said...

Glyn: you should have taken notice of my letters! Back in 2006 I predicted a downturn in the housing market in Wales based on "certain sounds and noises" on the US side of the wee pond. It's pretty much a historic thing that when the brown stuff starts to hit the fan in the USA, a lot of it lands in Europe, which includes the UK, which includes Wales.

Friday, 1 September 2006
Sep 1 2006 Western Mail

The chill wind of US property prices

SIR - According to Sam Burson's article, "Boom time for seaside properties" (Western Mail, August 28), the property market along parts of the Welsh coast can make as much money as dealings on the stock exchange with presumably less concomitant risk.
Ahhh "risk", that ugly word again. Well, the risk-takers had better take notice of a recent trend in US property prices. A chill is blowing in them USA hills and it is likely to spread across the wee pond to the EU, which includes the UK. Like a bad weather forecast, expect high winds with heavy rain, and hail the size of rugby balls.
As the captain of the USS Stark might exclaim, "Don't be caught with your pants (trousers) down".
To my Welsh brothers in arms, give serious thought to getting out of speculative investments in the property market while you are still ahead!
Let the London boyos take the drop!

Glyn Davies said...

left field - I'm not going to argue about this, but lets look at it rationally. An AM from the Cardiff area can travel to work, while an AM from Mid, North or West Wales would have to stay in an hotel for three nights a week - say £6K - £7K per annum. Hardly fair.
Because many people are taking the same view as you, its likely that the allowance may be scrapped (for MPs anyway) and the current allowance incorporated into a salary increase - which everyone will get irrespective of whether they have incurred hotel costs or not! Smart move? - or not.

You make a good point about pensions. David Cameron committed a future Tory Government to ending the current final salary scheme in his speech yesterday, if he becomes Prime Minister.

christopher - I will read your property advice more carefully in future.

Dr. Christopher Wood said...

... and keep in mind Glyn that I made the property price prediction when the consensus was still firmly on boom time for property speculators, as crystallized in Sam Burson's article, "Boom time for seaside properties" (Western Mail, August 28). If memory serves, my first letter on this topic was published in July 2006.

Glyn, keep in mind then that I have also written several times that the UK will suffer a massive economic hit in 2008, something that is now revealing itself. While so called experts predicted a moderate drop off, I wrote of a massive economic juggernaut that was up for hitting the UK in 2008. This prediction also went against the consensus view at the time it was written.

The prediction included tips such as, but not limited to, workers in the financial sector in London should opt for safe harbour while there is still time; should consider moving into public jobs or more secure jobs ahead of “the rush” when their colleagues get laid off en masse. Another part of the prediction was that the USA (Feds, Federal Bank system under Executive branch control) would export much of the problem, that UK Banks would take a big hit, that the City of London will be destroyed, but not by a physical act of violence, but as fall out from the economic juggernaut. Since that prediction a British bank has failed (Northern Rock).

The CoL has not yet fallen, so you now know of this part of the prediction ahead of time, again this prediction was made against a back drop of consensus that did not even consider such events (but Northern Rock has fallen, so the prediction remains on Q, meaning I don't as yet have a reason to doubt the prediction). I understand from UK newspapers that CoL building projects are moving into “cold freeze”.

I must write that I had no objective basis for communicating this prediction in view of the consensus at the time. Perhaps I can put together slip ups and words that blow an otherwise carefully woven fabric, which allows me to put "2 and 2 together". The noises I am hearing right now speak to wee waves of panic – the powers that be on this side of the pond are genuinely concerned that Europe could wither in the ongoing economic smash up between China and the USA.

The recent awarding of a major Pentagon aircraft refueling tanker contract to EADS, which owns Airbus, which in turn has a wing manufacturing plant in North Wales (with another major plant at Filton) – the timing is fascinating.

The Pentagon has awarded this contract over Boeing. Think about that, and let’s not forget that Airbus is arguing before the WTO that Pentagon contracts awarded to Boeing amount to a subsidy and so offset any subsidies that Airbus are (not) receiving from EU governments. Also, keep in mind that EADS has plans to open an Airbus plant in China, which begs the question, is Boeing more concerned about that than losing a major chunk of military business from the Pentagon to EADS? Things are clearly afoot here. Even WAG is not aware of the game plan. Disclaimer: I am not in any government position and I certainly don’t have access to any confidential files, I’m just “adding 2 and 2 together” and asking questions that seem obvious to ask. I’m a news junky and have what seems to be an encyclopedic mind for holding ‘news’ information and discerning news from news ‘stories’, if you get my drift.

The thing I find worrying is that (re: economic downturn) the EU/UK stock markets did not pick up on what was just around the corner until it was too late and several EU/UK banks are having to make several write downs including a major UK Building Society. USB have had to make huge write downs along with a major DE Bank. There is at least one other UK bank in VERY SERIOUS trouble – I think most people know that now. Gordon Brown has recently given a public thumbs up to sovereign funds (a nice name for China, and Middle East countries national banks; China is awash with foreign currency, and the Middle East with oil dollars from crazy dollar oil/barrel prices).

Keep in mind that aircraft and oil prices remain priced in dollars. If the Feds decide to pull the carpet out from the dollar – the current squeeze will turn into a crush for Airbus (now awarded a major contract in US dollars). There’s something strategic going on here. While workers at Broughton in Flintshire must feel their jobs are now secure for several years ahead, the Pentagon contract could be used to wipe out EADS – that saying comes to mind, “be wary of what you wish for”. The UK air manufacturing jobs are now dependent on the value of the US greenback. If the dollar goes further west, EADS will be heading in the same direction, while Boeing is knocking out 787 Dreamliners as fast as its production capacity allows. Recall that Boeing took out McDonald’s to get hold of their manufacturing plant and engineering know how while promising McDonald workers that McDonald aircraft production lines would not be shut down (I suspect they are now all shut down or what’s left are being tooled to manufacture Boeing aircraft).

Of course allowing ‘sovereign funds” to take major stakes in UK (and USA) banking systems is somewhat unusual and allowing and even encouraging such ‘generous’ government level clearances begs answers to certain questions. It might be better to take some pain now by letting some banks go the wall rather than letting sovereign funds buy out chunks of the EU/USA banking system. But then this begs the question: is the USA really planning to pull out of the WTO? Will China and the Middle East feel the squeeze with sovereign funds tied into the EU/USA banking system? Just think how much more leverage the EU and USA would have if they decided to set up a new WTO to take out the current WTO with sovereign funds tied into the EU/USA banking structure, it wouldn’t take many new laws to destroy the shareholder value of the sovereign funds and effectively suck in money from China and the Middle East. After all, isn’t that what the Gordon Brown government threatened to do to Northern Rock shareholders? Isn’t that what the Feds are doing to Chinese dollar holdings – dropping interest rates in the USA which immediately impact on Chinese sovereign fund values and the cost of a barrel of oil on the spot market? Are actual or potential Republican cabinet level bums (some of whom Obama has already signaled will be in his Executive branch of the US government should he win the national election later this year) formulating a ‘long play’, of which a falling dollar is the first shot, and indirect control of a major EU high tech manufacturing operation (EADS) being a second shot? China lacks the ability to manufacture modern airliners and wants EADS to build a plant in China. Maybe the awarding of a 20 billion dollar contract to EADS is a payoff for supporting upcoming US foreign policy, not yet publicly announced. So many questions are raised about this startling contract and Boeing’s acquiescence.

This is all above Wales – Wales needs to develop a knowledge economy on the backs of patented Welsh IP. The IP protection system is international in breadth, and Wales being such a small player can’t do anything on the strategic level to worry any other international player – so Wales could and should invest in protecting its inventions and discoveries and file them ASAP at the USPTO – there’s a provisional filing system specially set up to help small inventors with limited budgets to file for patent protection even on inventions disclosed to the public (e.g., published in JMolBio etc.) for up to 12 months from the disclosure/publication date of the journal. If Wales patents just one “MAB” kind of patent (monoclonal antibodies, manufacture of) then Wales would create an industry worth billions and generate thousands of well paid jobs – just look at Abbott in Chicago – built their company from such discoveries as MAB (a British invention) applying the technique to manufacture all sorts of diagnostic kits such as HIV, Hepatitis test kits.

Dr. Christopher Wood said...

As if on Q, today's Telegraph reports, "UBS shares led the banking sector lower on speculation that the Swiss bank was poised to reveal further large write-downs on its mortgage-related assets." For "mortgage related assets" read "exposure to US sub-prime mortgage scandal". Imho, it was and is a scandal, I hope the Feds (this time, the FBI) haul in the big players behind this scandal and they serve some serious time in direct correlation to their insatiable greed. Not really a legal argument, but there are a LOT of Americans who have been hurt bad by these greedy buggers and will not shed a tear to see them spend time in Uncle Sam's 'homes from home', and I hope we are not talking "camp cup-cake" here.

PS if UBS goes down, the impact on the European banking system will be catastrophic. UBS and another UK bank going down, CoL's credibility will be further tarnished and we might expect Frankfurt and even non-European stock markets pick up what the Europeans drop off. CoL will experience a MEGA HUGE fall out in terms of jobs - not much time left now, those working in the financial sector in the CoL should think carefully of minimizing their exposure by moving now to a more secure job - possibly in teaching or moving into law firms handling foreclosures and bankruptcies.