Sunday 2 June 2013

Ah diddums, boo hoo, etc.

From The Telegraph:

Thousands of pensioners and high-net-worth investors are at risk of losing a vital income stream under a rescue being prepared for the stricken Co-operative Bank.

The supermarkets-to-funerals mutual is preparing an emergency rescue plan for its financial subsidiary that is expected to include losses for holders of the bank’s junior debt, including £310m of permanent interest bearing shares (PIBS) issued by Britannia Building Society before it was taken over by the Co-op, and £60m of preference shares.

Of the £370m of bonds, which pay annual interest of between 5.55pc and 13pc, some £30m is held by members of the public. Any rescue would almost certainly see the coupon cut or cancelled, costing retail investors about £3m a year.

When you 'invested' in something as obscure as PIBS, it must have been obvious that the high returns were not guaranteed and largely a reflection of the higher risk attached to them, i.e. the risk that you wouldn't get your money back. I don't see why certain people should be insulated against this basic rule. The Co-op Bank appears to have screwed up and somebody somewhere has to pay the price (bear the risk), in a free market system the people who agreed - in exchange for a nominally high yield - to take the risk should pay it, end of, regardless of their age.

And how much are we talking about anyway? £3 million a year?

And how much is the government and the banking system trying to screw out of the next generation of purchasers via the Help To Sell scheme?

Using their figures, the price of an average £160,000 will be bumped up to £200,000, so each new purchaser/couple is taking on an extra £40,000 of debt, which will cost him or her/them another £80,000 in mortgage repayments over the next twenty-five years, that's a real cash cost of £3,200 a year.

Whatever the maths of this is, the overall transfer from first-time buyers and future taxpayers (which is by and large the same group of people) to bankers and current landowners will be approximately double the promised total guarantee volume of £130 billion plus twenty-five years' interest thereon = £260 billion.

Divide that by ten million people under 40 who don't yet own a home and the total cost to each and every one of us over our working lives is something £26,000 each.

Thanks a lot, Georgon Osbrown!

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