It's not clever to be smart

A recent business discussion reminded me of the following story

Sherlock Holmes and Dr Watson went on a camping trip. After a good meal and a bottle of wine they lay down for the night, and went to sleep. Some hours later, Holmes awoke and nudged his faithful friend awake. "Watson, look up at the sky and tell me what you see."

Watson replied, "I see millions and millions of stars."

"What does that tell you?" Holmes questioned.

Watson pondered for a minute. "Astronomically, it tells me that there are millions of galaxies and potentially billions of planets. Astrologically, I observe that Saturn is in Leo. Horologically, I deduce that the time is approximately a quarter past three. Theologically, I can see that God is all powerful and that we are small and insignificant. Meteorologically, I suspect that we will have a beautiful day tomorrow. What does it tell you?"

Holmes was silent for a minute, then spoke. "Watson, you idiot. Someone has stolen our tent."

The value of labor

Meeting people on the train

At the train station, a cheerful, attractive, girl handed me a brochure. It said: “Meet the people behind your railway.”

It seems that the train operator feels that when we realize that trains are operated by people, we’ll feel less frustrated by the poor service.

To keep the record straight, I don’t take the train to meet people. I am there to meet trains. The truth is that I’d be much happier if I didn’t meet anyone on the train. So please don’t introduce me to more people. For this I have my blog. Just make sure I get to it on time.

Credit Crisis Rescue Package: if you still don't understand what they are talking about in the news

 

You have two cows, and you write down on a piece of paper that the cows are worth $100 each.

You notice the cows are on fire. Your paper still says $100.
Fortunately, mark to market has been suspended so you don't have to pay attention to the fire.

Your cows are dead from fire. Your paper still says $100.
Fortunately, mark to market has been suspended so you don't have to pay attention to the dead cows.

You notice that you aren't getting as much milk as expected, so you adjust the model and mark the cows down to $98. You are confident, however, that the dislocated stream of milk revenue will quickly revert to expectations.

You need to borrow some money so you ask investors for a loan against the cows. The investors tell you the cows are dead, and you already owe them $200 dollars you borrowed to buy them in the first place. You show them the paper that says the cows are worth $98 each.

They light your paper on fire. You ask the government to buy the dead cows at $98 each.

The government holds meetings all weekend and finally comes up with a plan to inject $45 dollars into your cattle ranch. In exchange, the government gets a right to milk generated from the cows at some point in the future. It expects you'll buy a new cow with the $45.

You have two dead cows, $45 and $200 in debt to your investors. You have no plans to buy new cows, so you take the $45 as a bonus.

Lesson In Banking 101

This article was first published in the British humour magazine "Punch Magazine" on April 3, 1957: But still VERY pertinent to Banking practices today. It a clear demonstration that in 50 years, we have neither improved not got any smarter.

Q: What are banks for?
A: To make money.

Q: For the customers?
A: For the banks.

Q: Why doesn't bank advertising mention this?
A: It would not be in good taste. But it is mentioned by implication in references to reserves of
$249,000,000,000 or thereabouts. That is the money they have made.

Q: Out of the customers?
A: I suppose so.

Q: They also mention Assets of $500,000,000,000 or thereabouts. Have they made that too?
A: Not exactly. That is the money they use to make money.

Q: I see. And they keep it in a safe somewhere?
A: Not at all. They lend it to customers.

Q: Then they haven't got it?
A: No.

Q: Then how is it Assets?
A: They maintain that it would be if they got it back.

Q: But they must have some money in a safe somewhere?
A: Yes, usually $500,000,000,000 or thereabouts. This is called Liabilities.

Q: But if they've got it, how can they be liable for it?
A: Because it isn't theirs.

Q: Then why do they have it?
A: It has been lent to them by customers.

Q: You mean customers lend banks money?
A: In effect. They put money into their accounts, so it is really lent to the banks.

Q: And what do the banks do with it?
A: Lend it to other customers.

Q: But you said that money they lent to other people was Assets?
A: Yes.

Q: Then Assets and Liabilities must be the same thing?
A: You can't really say that.

Q: But you've just said it! If I put $100 into my account the bank is liable to have to pay it back,
so it's Liabilities. But they go and lend it to someone else and he is liable to have to pay it back,
so it's Assets. It's the same $100 isn't it?
A: Yes, but....

Q: Then it cancels out. It means, doesn't it, that banks haven't really any money at all?
A: Theoretically......

Q: Never mind theoretically! And if they haven't any money, where do they get their Reserves of
$249,000,000,000 or thereabouts??
A: I told you. That is the money they have made.

Q: How?
A: Well, when they lend your $100 to someone they charge him interest.

Q: How much?
A: It depends on the Bank Rate. Say five and a-half percent. That's their profit.

Q: Why isn't it my profit? Isn't it my money?
A: It's the theory of banking practice that.........

Q: When I lend them my $100 why don't I charge them interest?
A: You do.

Q: You don't say. How much?
A: It depends on the Bank Rate. Say a half percent.

Q: Grasping of me, rather?
A: But that's only if you're not going to draw the money out again.

Q: But of course I'm going to draw the money out again! If I hadn't wanted to draw it out again I
could have buried it in the garden!
A: They wouldn't like you to draw it out again.

Q: Why not? If I keep it there you say it's a Liability. Wouldn't they be glad if I reduced their
Liabilities by removing it?
A: No. Because if you remove it they can't lend it to anyone else.

Q: But if I wanted to remove it they'd have to let me?
A: Certainly.

Q: But suppose they've already lent it to another customer?
A: Then they'll let you have some other customers money.

Q: But suppose he wants his too....and they've already let me have it?
A: You're being purposely obtuse.

Q: I think I'm being acute. What if everyone wanted their money all at once?
A: It's the theory of banking practice that they never would.

Q: So what banks bank on, is not having to meet their commitments?
A: YOU GOT IT!

About brothels, banks and governments

The Mustang Ranch brothel, also known as the Mustang Bridge Ranch or Valley of the Dolls, was Nevada's first licensed brothel. In 1990 the U.S Federal Government seized it for tax evasion and, as required by law, tried to run it. They failed and it closed.

I only hope governments are doing a better job at running the banks they own than at running brothels.

Profiteering

“Shame of the Banks that are profiteering from the rate cut by axing their best deals.” said a newspaper headline.

And I say, shame on those who while using our money to bail banks out, did not take the opportunity to force banks to become socially responsible organisations.

Because, until someone changes the rules of the game, banks will play the only game they know --  profiteering is the name of their game.

Don't Pay Then!

 

In the last year, Britain’s top ten best-paid chairmen have led their companies to an average loss of 36%. In contrast, the companies of the 10 lowest-paid chairmen in the FTSE 100 have gained 1% in average.

We should then expect that companies with unpaid chairmen, or no chairmen at all should perform the best.

Well Done Post Office

The post office – of which I have been a good customer for year– has always provided the worst service of any financial institution: internet and telephone banking have been substandard, the queues have been long, the clerks uninformed, and every simple request takes for forever.

But some things happen fast

Due to my travelling, I missed a £12 payment. Normally such a small amount would roll with some interest and fee into my next statement, sometimes with a polite reminder.

Not any longer.

Within four days I have received a warning letter saying that: "according to Consumer Credit Act 1974 I have defaulted and have to immediately remedy the situation before any further legal action would take place."

Four days? 12 pounds? Are they serious? At least it explains where they put their resources, and why  and why everything else takes forever.

Do you pay too much?

Last week three clients overcharged by their utility providers hit the news. The first was a North London woman whose water bill for her one bedroom flat was £6,600; the second was a pub owner who was charged £37,000 for his water use; and the unbeatable record belongs to a Cambridge woman who was charged £90m for her electricity bill.

Nobody takes such huge numbers seriously. We all know that errors do happen and cannot be avoided completely. However, if utility billing systems cannot detect such errors, it is very likely that they don’t detect smaller errors as well. That is, all of us are likely to be overcharged regularly.

Will you know if your electricity bill, water charge, or bank fees are off by 20 pounds? I would not even be surprised to discover that some companies deliberately add a few pounds to every bill they send. How would we be able to tell?

These huge errors, as ridiculous as they may be, highlight a fundamental problem we all have. Utility companies and service providers can charge whatever they want, and we, customers, at their mercy, will never know.

My dear cucumber

One good thing that came out of the hike in food prices is that the EU has agreed to ditch the law controlling the curvature of cucumbers. If you were not aware, until now it was illegal to sell bent cucumbers.

My xxx imagination is working overtime. How did such a law come into being? Who suggested the law in the first place, and what was going through his or her mind? So the good news is that now we can all choose our cucumbers the shape we like them.

Let’s not let the EU take away our most fundamental liberties. Well done Irish voters.

The Dragon Den

At last! Giraffe milk has been pronounced Kosher by orthodox Jews. If you are not familiar with the term, Kosher is to the Jews what Halal is to the Muslims, that is, a set of arbitrary biblical rules that define what a Jewish person can or cannot eat.

So now I am planning to establish the first dairy giraffe farm in the UK. Investors are welcome. Please subscribe below.

Trains, privatisation and the feudalist society

Yesterday it took me three hours to get back home after work, instead of the normal 40 minutes. It was just another one of those train signal failure that forced me to take an underground to a different line, which took me to a different station, mot mine, but still a reasonable taxi ride from home.

Unfortunately, it’s not a rare occasion. Unfortunately, I know I won’t get compensated for the extra time or money I spent. Unfortunately, no one at work today agreed to put any money against me that such an occurrence will not happen again within a months.

The entire concept of privatisation of monopolies is senseless. Capitalism is based on competition. There is no competition to the trains. Without this, it is nothing but extortion:

• Governments use tax payers tax to build the train infrastructure for the benefit of the tax payers.
• Then the government decide they are more concerned about the quick money (to pay for Iraq war, for instance) so they forget that the tax payers paid for the train, and decide to sell it to the fat-cash-cow milking company that pays the highest bribe. (How can you sell something that belongs to the public, I am still not sure)
• The fat-cow milkmen, who borrowed the money to buy the cash cow, is now committed only to its shareholders. But this is easy, as they have a monopoly, they do not need to invest, all they need to do is take apart, destroy, under invest, and squeeze.Commuters? What are they?
• The utterly unhappy commuters are bad news before elections, so the government take the mandate away from the company, but leave them with the profits. After all it wasn’t public property anymore when they destroyed it.
• The government now find a skinny cash-cow milking company, to turn fa.

Are we back to the feudalistic system, that nobody matters but the landlords?