- Is your energy flowing?
I extracted this from Ron Whites ezine because it hit home to me – I was sitting in front of my computer, reading his article just as he knew I would be.
Does it have the same impact on you? Do you have the right business mindset for success?
Potential energy basically says that the higher an object is, the greater the potential energy. A ball on a six-story building has more potential energy than one on a three-story building. As a matter of fact, the doubling of the height doubles the potential energy.
When I started thinking about potential energy, I was considering it in regards to me—and you, for that matter. You see, it has been said that from those to whom much has been given much is expected. Based on the fact that you have access to a computer, understand how to read and have a thirst for learning, you have been given much. Or, in scientific terms, you have tremendous potential energy. You are like that rock on a tall building. However, if you sit there, the potential energy is never utilized or accessed.
One of the greatest tragedies of life is when an individual has tremendous potential energy and squanders it. That is one of my greatest fears. I am constantly faced with the prospect of not using my potential energy. To me, that is one of my largest motivating factors. Every day as I age, I look in the mirror and question if I did everything I could to use my potential energy. Did I do everything I could to figuratively jump off that building and expend the energy?
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Tags: Business mindset, business potential, potential energy
- Rory Sutherland – The Ad Man
Mike Klingler of Renegade Professional posted a link to illustrate how the job of the marketer is to advertise the value of a product or service and that this value could be intangible.
I took 3 great quotations from this video:
- saving is consumerism needlessly postponed
- poetry is when you make new things familiar and familar things new
- we are perishing for want of wonder, not for want of wonders
If you are in business and/or in marketing, you will find this presentation entitled : ‘Rory Sutherland: Life Lessons of an Ad Man‘ very educational.
If you want to be amused, you might want to read this article on his blog about Tiger Woods – pure brilliance
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Tags: how to market, intangible value, marketing the value, marketing value, rory sutherland, the value of marketing
- We need to cut up our credit cards now!
When I was in corporate banking, the definition of solvency that I used was ‘the ability to meet your debts as they fall due.’
This means that ’solvency’ depends upon:
- the ability to meet all your expenses from current cashflow or
- that you have headroom within your current credit facilities or
- your financial standing is such that you have the ability to raise more credit to finance your deficit spending.
- having assets you can easily liquidate to repay the debt
These immutable laws of solvency apply whether you are an individual, a business or a sovereign state.
The rules of finance dictate that the higher the risk of default, then the higher the cost of the credit.
This higher cost of credit increases the financing burden on the borrower which therefore increases the likelihood of default – in banking, we measure this risk using the gearing ratio – the amount of borrowing in relationship to the net worth of the individual, business or country.
Alternatively, interest costs as a percentage of net income, or the number of times interest costs are covered by net income, is also a good measure of risk.
Of course, the longer the borrowing entity loses money, or runs a budget deficit, the more the borrowings mount, the more the interest burden and the longer it will take to repay the debt.
In other words by borrowing to have more today, we effectively mortgage our future income and the less we will have tomorrow.
Unless interest rates are fixed on the borrowing for the term of repayment, there is the additional risk that interest rates will rise due to market forces beyond our control. The higher our gearing and the lower our interest cover, the greater the risk to our solvency.
These are the immutable laws of solvency.
The financially weak will often be exploited by the lender whilst they are powerless to negotiate, being dependant on the continuing support and goodwill of the lender. The lender does not want the borrower to default but will exact a high price for that support in times of crisis and uncertainty to cover the higher risk of default.
These are simple facts of life.
Let’s now turn to the finances of the UK under the stewardship of Gordon Brown and the Labour Party.
Some 13 0r 14 years ago, they inherited a sound economy following the austerity years of Maggie Thatcher and the Tory party. Since coming to power they have squandered vast sums of taxpayers money in implementing a huge social experiment during a time when we have seen many public sector budgets increase almost uncontrollably.
This has created the illusion of prosperity and asset bubbles have inflated, fueled by vast increases in the credit available from the Banks and foreign investors. Gordon Brown contributed to this bubble by changing the way in which the Banking system is regulated early in his Chancellorship – this meant that the banking regulators were ‘asleep at the wheel’ as the Banking system spiralled out of control.
As I was on the inside of the Banking system until 2001, I was a witness as the foundations of the current crisis were put in place and we were being incentivised to achieve targets that cried out against the very banking principles that had been drummed into us over the previous 20 years.
It was scarcely believable to me that we were being incentivised to abandon those principles of good banking practice that had been drummed into us and learned through countless years of banking experience. So concerned and disquieted was I by those times, the stress of the job became almost unbearable.
I just could not abandon those principles and values that were the foundation of everything I believed in as a banker.
I had no alternative but to resign voluntarily or risk the loss of my mental health – you cannot for long continue working at a job which you no longer believe in. To do so will impair your self-respect and integrity.
I therefore find it quite breath-taking that Gordon Brown seems to have absolutely no sense of integrity (or perhaps it’s just financial incompetance?):
- he has attempted to lay the blame of the UK banking crisis on a worldwide recession rather than his own incompetance
- he has master-minded a huge budget deficit in the UK
- he has been at the head of a vast culture of government greed and over-spending
- the electorate have been spoon-fed a diet of of spin and lies to hide the full scope of his ambitions to cling onto office
- we are now carrying a vast burden of our people that are dependant on state hand-outs for survival because the conditions for business are such that real jobs are not being created – on the contrary, they have been utterly destroyed.
He has clearly stated that he believes that it would be wrong to cut spending now as economic recovery starts to get traction
The problem is that, with the huge burden of debt that the UK and many countries are carrying around the world, any recovery is likely to be extremely weak and especially vulnerable to rises in interest rates.
In fact rises in interest rates are inevitable – they can hardly go lower than 0.5%!
Rates will have to rise soon, as the UK’s spending deficit cannot be addressed by a weak recovery and the markets will demand higher interest rates to fund our spending deficit. Every month that goes by, and we increase our debt burden, the more we will eventually have to repay and the higher the likely interest burden.
Through quantative easing, bank bailouts and various other schemes such as the scrappage scheme, we have merely delayed the evil day of reckoning. That suits Labour as they attempt to cling to power at the next election, but it is not in the interests of our UK citizens as a whole and certainly not for our children who will have the almighty task of working to repay our debt-mountain.
As we are now geared to the maximum extent as a country, we are now also particularly vulnerable to further financial shocks. And the potential for such shocks is everywhere – Greece, the US budget deficit and debt mountain, Iran, peak oil etc etc
I therefore believe from the bottom of my heart that we must have a change of Government – one that recognises that we must get out of debt as soon as we can, before the inevitable ‘expected unexpected’ happens. I don’t know what that will be – I just know it will happen and, as a country, we are not currently in a position to absorb much more pain.
Whoever succeeds Brown will have no option but to lead us into an age of austerity because we have all mortgaged our future to the hilt.
The sooner we bite the bullet, face our debts and address them, then the better for all us. It will take integrity, extreme courage to do the unpopular and great leadership to do what needs to be done.
I’m not convinced that the person to do that has yet appeared at Westminster but we need to recognise that our Government has led us all inexorably down a path of insolvency and we now need leadership that fully understands the immutable laws of solvency.
As individuals and business owners, we also need to adhere to these laws or face the inevitable consequences of breaking those laws. And the longer we take to square up to our responsibilities and these immutable laws, the harder it is to recover.
P.S. If you think Northern Rock, Bank of Scotland and Royal Bank of Scotland were just unlucky victims of the credit crunch, think again. They were the most aggressive competitors when I was in Banking, always willing to take greater risks at lower prices. They deserved to go bust – what they didn’t deserve was to be bailed out by the tax-payer. The payment of bankers bonuses in such circumstances just illustrates again their shocking lack of integrity.
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Tags: avoiding insolvency, Credit Crunch, get out of debt, Insolvency, laws of solvency, the rules of solvency, uk economy
Surveying your list of prospects and customers is a good way of finding out what it is they want from you.
There are some paid tools such as Survey Monkey that enable you to accomplish this task but Google Docs now offer a free online survey tool.
Here is a link to a blog post and video by Erica Douglas entitled
How To Survey Your Customers for Free Using Google Docs
explaining how this works .
If you have a blog, then I also recommend that you sign up for her Blog Success Manifesto in the right-hand widget panel.
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Tags: erica douglas, free online surveys, free survey tool, google docs free survey tool
- More expensive credit = lower house prices
I constantly under-estimate the power of this Labour government to rig the markets and the economy – always at enormous cost to the tax-payer.
This extract from Money Week sets out how they have rigged the UK property market to cushion the impact of the latest recession. But time is now running out.
The nightmare for our country is the scenario that Gordon Brown has done enough to convince the financially illiterate that the current economic crisis had nothing to do with Labour and Labour is the best option going forward. This would be the ultimate con and Britain could very well descend into a Zimbabwe type melt-down were Labour to continue their current policy of denial.
What caused the house price surge?
Remember the subprime crisis? A quick recap. Banks used to make home loans using the money that savers deposited with them. The savers got one rate of interest, the borrowers paid a higher rate, the banks made a profit in the middle, and everyone was happy.
Then banks realised they could parcel up the loans and sell them to other people. So rather than having to attract savers, they wrapped up home loans and sold them to investors. Demand for these packages (home loan-backed securities, or MBS) was so high that banks couldn’t write loans fast enough.
Hence borrowing costs and standards plunged, house prices surged, lots of people got home loans who shouldn’t have, and it all went pear-shaped when some particularly dodgy debtors in the US started defaulting before they’d even made a single payment.
Fine, we all know the story. But what happened next? The securitisation market dried up completely. Demand for MBS shut down everywhere. That was a problem for British lenders. Because between 1999 and 2007, according to the CML, new lending for house purchases outstripped retail deposits by £180bn. In other words, that £180bn didn’t come from savers, it came from investors.
So when investor demand for MBS vanished, lenders were left in a fix. They didn’t have anything like the amount of money they needed in order to write the sorts of quantities of home loans they’d been writing before.
So the government stepped in. Two schemes were introduced to prop up lending for home loans, and by extension, the housing market and house prices. One was the Special Liquidity Scheme. This effectively allowed banks to swap MBS with the Bank of England for gilts, then swap the gilts for cash at very cheap rates. A full £178bn has been borrowed by the banks in this way.
The other scheme is a Credit Guarantee Scheme whereby the Treasury has guaranteed banks’ fund-raising. £134bn has come through this route. As Robert Peston points out on his blog on the BBC website, “that is £314bn of credit provided to lenders by us, the taxpayers.”
Why house prices will fall again
Trouble is, the bill is coming due. The £178bn has to be paid back by the end of 2012. Meanwhile, most of the debt guarantees also expire in 2012, or by the latest, 2014. As Peston says, 2012 might seem far off at the moment. But not if you’re writing 25-year home loans. If you know that you’re going to have to repay all that debt in a couple of years’ time, you’re not going to be keen to keep writing new loans.
If the banks had to raise that kind of money privately to repay the loans to the government, then they’d be competing for capital with lots of other institutions and companies. What happens when demand for something (investors’ money) goes up while the supply remains the same? You guessed it – it gets more expensive. So the banks will have to pay more than they currently are to get their hands on that money.
Lloyds Banking Group recently raised £4bn via an issue of MBS, reports Norma Cohen in the FT. The bank had to pay more than 1.85 percentage points above 3-month Libor (one of the key rates at which banks lend to one another) to get private investors to buy the stuff. What happens when all the banks try to do the same, particularly when the MBS market is still very fragile?
And of course, if the cost of funding for the banks goes up, then the cost goes up for consumers too. So you’ll have to pay more for your home loan (not to mention personal loans and small business loans). And as the price of credit goes up, prices of houses will fall again.
The trouble is, the banks can’t really afford for that to happen either. They’ve only just got to a stage where they can pretend that their loans aren’t massively underwater, because prices have ostensibly rebounded so sharply.
So the CML is clearly hoping for some sort of extension to the lending schemes. “We are not suggesting that government pour vodka in the punch bowl. We are asking how government can get the patient to sober up without too much shock therapy,” said the lobby group’s Rob Thomas.
The last thing Britain can afford right now is more debt
But can the Government afford to extend the schemes? This is where Greece comes back into the picture. Investors are starting to look at us, then look at Greece, and wonder where exactly the difference lies, beyond the climate. Both countries have hugely over-extended public sectors. And at least Greece is talking about cutbacks. In Britain, neither party is willing to talk tough before the election.
Sterling tanked against the dollar yesterday while gilt yields rose. It’s as if investors had suddenly thought: “Wait a minute. Greece is implicitly backed by Germany. Who’s propping up Britain?”
In short, the last thing Britain can afford right now is the spectre of even more debt being piled onto the books. As US economist Simon Johnson, formerly of the International Monetary Fund, put it: “Unless you [Britain] can persuade the markets you’re really going to bring the budget under control in the foreseeable future, you’re going to have big trouble.”
The time for open-ended bail-outs is passed. Governments can’t afford to take on any more dodgy debt from the private sector. That almost certainly means that the price of credit is going to go up. And the price of everything else will go down.
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Tags: house prices, uk house prices, why house prices will fall
