Wealth Disparity

Wealth disparity increasing

New data published by the Guardian newspaper suggests that the prevalent global wealth disparity is increasing worldwide. The wealth of the 400 wealthiest individuals in the United States has increased significantly since 2012, rising from 1.7 trillion dollars to 2.1 trillion dollars.

Whilst the wealth of the top 400 people in a country is by no means an entirely accurate or complete representation of the distribution of assets and by extension wealth , these statistics make for interesting reading given the current wealth distribution of the United States.However, I think it is important to note that wealth of ultra high net worth individuals is correlated to stock market indices , for much of the wealth of these individuals is held in shares of their own companies, or large portfolios of stocks in multiple different companies.

A simple Google search reveals that the asset allocation of the United States is incredibly disproportionately biased towards the upper echelons of economic society. Whilst the top 1% of people by wealth hold 34.6 % of the wealth, the bottom 40 % hold a frighteningly low 0.2 % of wealth, statistics which make for worrying reading for those who rightfully wish for a more equal society with equal quality of life for all.

How Lehman Brothers unfolded

Here is a brief summation of the Lehman Brothers collapse and subsequent chaos. The short span of time between the collapse and further  problems is telling !

15 September 2008

Lehman Brothers collapses after efforts by Bank of America and then Barclays to take over the Wall Street firm fail. Bank of America instead buys Merrill Lynch.

17 September

Lloyds TSB steps in to rescue HBOS after its share price halves in the first hour of trading as markets are gripped by crisis. The American authorities step in to provide an $85bn lifeline to the insurance company AIG.

20 September

The US treasury secretary, Hank Paulson, ask Congress to back a $700bn plan to buy up bad loans, known as the Troubled Asset Relief Programme or "Tarp". A battle begins in Congress to get the programme passed.

21 September

Goldman Sachs and Morgan Stanley formally become banks, allowing them access to the Federal Reserve's funds but subjecting them to tougher regulation.

7 October

Alistair Darling, the chancellor, is told by the RBS chairman Sir Tom McKillop that the bank only has enough cash in hand to keep operating for a few more hours.

8 October

Iceland's three biggest banks collapse.

11-12 October

Government ministers and top bankers spend the weekend thrashing out plans to bail out RBS, Lloyds and HBOS. Barclays agrees to raise its own funds, eventually turning to investors in the Middle East.

13 October

The bailout is announced and the banking system brought back from the brink. Darling says the government does not want to be "in the business of running banks" – "we are in the business of stabilising banks, that is our purpose".

2 April 2009

A crucial G20 summit approves a planned $5 trillion stimulus for the global economy and agrees to take steps to rein in banks.

27 April

The banking crisis starts to hit eurozone countries, as Greece's sovereign debt is downgraded to junk

Lehman Brothers, Five Years On.

As many of you will know, the Lehman Brothers' (LB) collapse was one of the most tumultuous and dangerous events which precipitated the meltdown of the global financial crisis. The LB collapse is not only significant for the magnitude of it's effects, but also for the fact that large ratings agencies such as Moody's gave LB an "A " rating only a week before its sudden collapse which left employees jobless within a day with no prior warning.

Since then, one would have to question whether any significant and meaningful changes have been made to the financial system to prevent a repeat of the LB collapse. Despite increasing levels of regulation, derivative usage is still prevalent, which essentially validates the statement made by former chancellor Alistair Darling : " As long as people think they can make money out of nothing, it will happen again "

In my opinion, despite what appear to be major regulatory changes, most of the alterations made are from an architectural, and not a mechanical viewpoint. For example, the FSA has been replaced by the PRA / FCA, yet it is unclear exactly how this is supposed to help prevent crises of liquidity. 

Furthermore, despite the Basel III agreement stating that banks should aim for a 7% capital ratio by 2019, a fierce debate has ensured regarding something known as the leverage ratio ; whereby banks were disallowed to judge which assets were inherently riskier than others. The way in which the debate regarding asset volatility still ensues shows not only the complexity of modern financial assets, but also , in my opinion, why they are such a fascinating subject to study.

UK Unemployment down

The UK’s unemployment has edged closer to the 7 % target stated by Bank of England governor Mark Carney which is thought to be the level at which the economy could successfully withstand an increase from the record low 0.5 % interest rate which was designed to ameliorate the effects of the recession and encourage borrowing, as the cost of borrowing is of course correlated  with the Bank of England base interest rate.

The unemployment rate has been validated by both the International Labour Organisation’s method of unemployment measurement and the claimant count method, both of which show a marked decrease in unemployment.

In response to the changes in unemployment, a surge of sterling purchases pushed the pound to a 7-month high against the Euro, as analysts still continue to predict a stronger economic regeneration than the Bank of England’s monetary policy committee ( MPC ).

There is still however a sizeable bank of information to suggest that conditions in the labour market remain precipitous for many, with wages rising at only 1.1 %- Significantly below the 2.8 % rate of inflation, which is still above the Bank of England’s 2.0 % target and which erodes the value of people’s wages, with the high inflation and meagre rise meaning that in real, that is to say inflation-adjusted terms , wages are actually lower this fiscal year than last. Furthermore, nearly a million people remain long term unemployed and youth unemployment has risen, again suggesting that the economy has a long way to go for long term, sustainable growth.

Blackberry Share price

Ailing fortunes for Blackberry maker RIM

The fortunes of the Blackberry brand and it’s owner, Research in Motion, have been struggling over recent years in response to increased levels of competition from rival smartphone makers, such as Samsung, Apple, LG et al. Thus far, efforts to revitalise the brand, through new models such as then Z10 have failed, with a flagging share price and a consistently reducing market share, resulting in repeat and widespread losses on the basis of reduced revenue and rising development costs. Furthermore, the brand is also now suffering from a depleted image, being seen as unfashionable and firmly unpopular compared to fresh new devices such as the iPhone 5 and Samsung Galaxy iterations.

As such, the company’s market capitalisation has decreased to just over $6 billion, with a share price of approximately $11.00 at the time of writing ( September 2013 ). Help appears to be on the way, however, with a reported buyout from the largest shareholder in the troubled company, Fairfax financial holdings LTD, which holds a 10 % stake in the business. 

One can assume that the takeover is a serious proposition , as the chairman of Fairfax resigning from the Blackberry board in order to avoid any possible recriminations arising from a potential conflict of interest. Further details provided below courtesy of the Guardian :

“BlackBerry's biggest shareholder has approached several large Canadian investment funds about forging a deal to take the smartphone maker private, but the proposal is still "an airy-fairy, 'what if' kind of thing," according to a source with direct knowledge of the situation.
The shareholder, Fairfax Financial Holdings Ltd, has a 10% stake, and its chairman and chief executive, Prem Watsa, has left BlackBerry's board already to avoid any possible conflict of interest as the company assesses its strategic options.
The source, who declined to be identified because the still-preliminary talks are private, said that in addition to Watsa's Fairfax there had been an early and informal approach about a possible deal from another investor.
The person declined to name the second party.
"There have been various calls saying 'if we came up with some kind of a proposal would you look at it?'," the source said.
Fairfax did not respond to a request for comment, and Waterloo, Ontario-based BlackBerry said it does not comment on speculation.
BlackBerry, which has bled market share to rivals including Apple's iPhone and phones using Google's Android technology, said last month it was weighing its options, which could include an outright sale.
BlackBerry shares rose more than 6% on Monday after Britain's Sunday Times newspaper said Watsa was closing in on a rescue deal for BlackBerry, with support from Canada's influential pension funds.
The big funds, including Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan, declined to comment.
BlackBerry shares closed at $11.53 on the Nasdaq, up from $10.84 at the close on Friday, giving the company a market capitalization of just over $6bn.
The source said any deal would likely involve more than one of Canada's powerful pension funds, which would have to weigh the possible benefits of helping a fallen Canadian icon with the risks of getting involved in such a deal.
If a concrete proposal was on the table - something that is not yet the case - things would likely "go quiet" while investors looked at their options, the source said.

“

Financial / Management accounting

Whilst trawling the internet for career information, I became more aware of the similarities and differences betwixt Financial and Management accountants.

Essentially, a financial accountant  is responsible for profit and loss accounts and other financial information which is utilised by people outside of the organisation, such as tax authorities or those considering an investment in the company.

A management accountant, on the other hand, works within the organisation and produces reports for management. Unlike financial accountants, whose reports are structured to be compiled at certain dates or intervals, management accountants are not only called upon to report on the financial state of the organisation at any given time, but also analyse a wider range  of data, such as cost efficiency, budget and comparative analysis , feasibility reports and merger and consolidation reports.

If I were to pursue a career in accountancy, I feel I would enjoy management accounting more due to the increased variability of the work ; Rather than compiling profit and loss accounts on a daily basis, analysing the feasibility of a merger or acquisition of another company seems interesting an enjoyable, and lends itself well to a number of other careers within business and finance, such as an Equity Sales role within the city of London ( i.e stockbroking ). Stockbroking is an enticing career option for me again due to the variety of the work ; A stockbroker is required to know every intricate detail regarding the companies which he or she is aiming to sell shares, and as a result learns a great deal about some truly fascinating businesses.

HMRC wrong again on the scale of Corporate Tax Avoidance

I recently came across this segment of an article whilst researching my EPQ piece on tax avoidance, and found it fascinating in the way it ably demonstrates the sparsely documented scale of tax avoidance by large corporations.
“A fascinating parliamentary answer by David Gauke MP, the Exchequer Secretary responsible for HMRC to Michael Meacher gives an extraordinary insight into a number of critical tax issues.
This is the exchange, which was noted on Tuesday:
Mr Meacher: To ask the Chancellor of the Exchequer pursuant to the answer of 13 May 2013, Official Report, column 29W, on taxation: business, how many large businesses contributed to HM Revenue and Customs’ total additional revenue of £6.9 billion gained via compliance activity in 2011-12. [156966]
Mr Gauke: HM Revenue and Customs (HMRC) deals with around 10,400 large businesses. The largest 800 businesses are managed within HMRC’s Large Business Service and 381 of those businesses contributed £5.0 billion additional revenue in 2011-12 as a result of HMRC’s compliance activities.
The remaining large businesses are managed within HMRC’s Local Compliance (Large and Complex Unit) and from these HMRC secured £1.9 billion additional compliance revenue in 2011-12. The information to show how many businesses were involved in the enquiries that produced this additional revenue could be provided only at a disproportionate cost.
Now let’s analyse that.
First, let’s note that £5 billion of extra money was raised from just 381 large businesses in the UK in 2011-12. That is an average of £13.1 million each.That’s a staggering scale of tax avoidance per company.
But let’s look at the total next. According to HMRC’s most recent estimate of the tax gap total tax avoidance was £5 billion a year. However, since just 381 companies were seeking to avoid £5 billion in tax (and remember this excludes the well documented multi billion pound abuse of IT companies) it is obviously impossible that this estimate is right. “
I think that this article is a pertinent , accurate, and powerful demonstration of the scale of the problem of tax avoidance by both large domestic and large transnational corporations. HMRC’s most recent estimate of the amount of tax avoided by corporations stood at £5 billion, yet just 381 corporations have been found here to be avoiding that much in tax.
There are two possible implications of this ; Either HMRC simply has no idea of the scale of tax avoidance by large corporations, or it does not wish to face the problem full-on and instead chooses to hide behind what is clearly a vastly reduced estimate. Given both the scale of the problem, and the fact that a copious quantity of (taxpayer’s ) money has been invested into HMRC to solve the increasingly prevalent problem of tax abuse, by individuals, criminals, and corporations, either prospect is worrying.