Credit Where It's Due

One of the biggest problems facing small businesses is the promise of getting paid. Even successful firms are having difficulties agreeing sufficient credit limits to get sustained growth. This is due to the fact that credit insurers are reining back their offerings.

One of the best ways to mitigate risk in business is to buy credit insurance on debts. This means that if I deal with a customer and they want to have a credit account to purchase from me, then I can buy insurance to cover that credit limit. The insurer will use credit rating data like Dun & Bradstreet and Experian to assess the risk itself, and then offer to insure an amount of that credit limit which means that should my customer go bust or not pay for another reason, the insurer pays the amount owed to me. If I choose to allow the customer to go above the credit limit agreed with the insurer, then the extra risk is all mine and it may even risk the insurance of the original agreed amount as it was a decision taken solely by me to increase the exposure.

Now credit insurers are getting much tougher as credit rating agencies are also assessing companies' net worth and credit history far harder. For those companies who do not have a decent balance sheet, good cashflow or good credit history, agencies are slashing ratings and this means that credit insurers are decreasing the levels of cover offered. Credit lines are shrinking fast and this means that even if we want to expand our sales, often the confidence is not shared by credit insurers and this limits opportunities to sell more.

This is really at the heart of the small business engine and while the Government focuses on credit into the mortgage market to kick start the economy, it is the confidence to trade amongst ourselves as businesses in the UK which is a far bigger problem. While we get much harping about global international trade and protectionism, the reality of the credit crunch and recession is much closer to home for most businesses.

Credit Initiatives

We have heard before that there has been the Enterprise Loan Guarantee Scheme which allows banks to offer loans with up to 75% of them guaranteed by the Government and how this is being abused by the banks to not offer new loans but cover existing debt. That was a poorly implemented scheme from the Dept. of the Business Secretary. The next move from this department is aimed at credit risk between businesses.

The British Chamber of Commerce (BCC) has been lobbying on behalf of SME companies for such a move as it is limiting companies' ability to survive let alone thrive in this economic crisis. The good news is that the Government is expected to announce in the forthcoming budget some measures to help remedy this. On a similar scheme offered to banks, it is envisaged that the Government will underwrite part of the credit risk for bad debt and allow credit insurance companies to be more liberal with their assessments and support.

Already though, many small businesses have pushed back as in order to qualify for this support there are tomes of forms to fill in and data to acquire which is firstly beyond the reach of most small companies and, secondly, an onerous burden of administration on them which they typically cannot afford the time to do. It seems the scheme is doomed from the start as it is once again geared toward larger companies that have the in-house resource or money to fund such vast increases in the administrative load.

Credit Where It's Due

The real issue that could arise is similar to the Enterprise Loan Guarantee scheme where banks have basically gone to existing customers, offered a small increase in current loans and then converted them to Government backed lending. It means little NEW credit facilities are being given but more of the old facilities are now heavily guaranteed by the Government, I mean, taxpayer. The credit insurance business could go exactly the same way if this is introduced in a similar manner. Far from increasing available credit, the credit insurers will simply pass more of the existing book of risk onto the Government and not increase credit limits much at all.

Let's hope we get credit where it's due.

Job Done - What's Next?

'This is the day the world came together to fight back against the global recession, not with words but with a plan for global recovery and reform,' said Gordon Brown at the end of what many believe was an astonishing G20 summit.

Astonishing in that just 24 hours earlier, the French were threatening to walk out, the Germans were unhappy at the size of bail outs and China did not want anything that ruined their chances of re-stimulating their economy. Rumours abounded that Barack Obama himself acted as a mediator between the French and Chinese to get agreements.

So What Did We Get?

There were a lot of floral words and nice commitments but the really meaty bits which had a plan attached, was the $1 trillion stimulus package and the consensus on regulation going forward which should be a great deal tougher than before. The French and Germans will feel very cosy after all this, as the stimulus package seemed somewhat restrained given a similar amount was pledged as part of the last stimulus package in the US alone. The good news is that the money goes to the IMF who will in turn pledge around $100bn to help bail out the struggling nations.

Beyond that, we were into the world of platitudes - promote global trade and reject protectionism and build an inclusive, green and sustainable recovery seemed like noble aims but in practice will be very hard to achieve and nebulous to measure. While my theme of transparency was not referred to there was a reference to reforming the international financial institutions under greater scrutiny, looking at bonuses more carefully, financial accounts, tax havens, hedge funds - in general, a far higher level of scrutiny.

Are We Really OK Now Then?

I think everyone realises that the summit could not wave a magic wand and put all to right. But this is probably a distant second. There is broad agreement on a way forward on funding, stimulus and regulation and those are pretty crucial. It was certainly a case of 'Look after your own' in that there was little hope given to less well off nations who were sitting, quite literally open-mouthed, waiting for the developed world to remember them and so the word 'protectionism' to them has a different meaning. But that said, at least we have some way forward.

I think there is a general relief that the magnitude of the new stimulus package is far less than we all worried about. There seems to be an air of restraint and that comes as a blessed relief to taxpayers who waited to see just how much of their future earnings and well being were staked on their behalf.

In some respects we got away with less of a sting than we thought.

Of course, I am far to thick to realise quite where the IMF gets all its money from if we don't have it to give to them and given that we may have to go back there, cap in hand, at some stage, it seems a bit pointless handing over what we haven't got. But that's just my naive self talking. I am sure someone can put me right on that - maybe its like EC rebates.

Hope At Last

What the G20 summit did prove is that in a world of terrible divides, there is the power to drive us to come together with common commitment to tackle issues when they threaten us all.

It is a tragedy that it had to be something which in reality is trivial, to do so. Trivial in the sense that it is the future prosperity of the developed world that was at stake caused by the greed of the minority - if only we could have been meeting to give $1 trillion to the poor, starving and diseased of this world or tackling the consumption of our natural resources or the level of CO2 in our atmosphere - all with the same level of collective commitment to the common good.

Instead it was all about self-preservation. As much as I am happy we got a consensus, once again it will be one of the major missed opportunities of the decade as there will be unlikely a time when the same people meet to discuss other agendas.

Life, indeed, does go on.

G20 - Hopes, Fears and Humble Pie?

When a similar Summit was held in London a few years ago, City trader-types thought it was funny to photocopy money and lob the copies out of their office windows along with bars of soap at the mass of protesters below. It caused an angry reaction which resulted in a good deal of property damage.

This time around, Banks have sent around internal memos urging restraint and recommending that employees should turn up to work today and tomorrow in casual clothes for fear that besuited people will be automatic targets of the wrath of the protesters on their way to the G20 Summit at ExCel in Docklands.

How strange it is that the very people upon whom the traders poured scorn and fake money the last time around are the very people who have pledged real money over the next 30 years in taxes in order to save their very careers.

A modicum of humble pie would not go amiss.

Our Hopes

After Gordon Brown's rather forlorn round the world trip on a mission to nothing, G20 kicks off for real tomorrow and Brown has reassured us all that there will be a broad consensus on the strategy and actions in order to lead us out of the financial chaos we are in. The likelihood of getting such a general agreement was dampened when the French threatened to walk out of the Summit before it had begun as they disagree fairly diametrically with the UK and US approach to the problems faced. It is good news that President Sarkozy is on his way now, hopefully with the lovely Carla in tow.

As much as we all may be angry with how this disastrous situation has come about and however much we may disagree with the enormity of some of the solutions, the one thing I am sure we would all hope for is a broad agreement on what to do about it.

Gordon Brown refers a lot to Protectionism and I think he needs to be clear about what he means here. On the one hand we are concerned in Britain that British jobs were taken at places like Lindsay Refinery and on programs like 'The Apprentice' there is a definite swing toward doing things to support British business; we also need free trade between borders in order to help get our economy ticking again. But that isn't necessarily what the PM means - he wants more flow of capital and credit into the British economy as literally hundreds of billions have been withdrawn from our money markets in recent months and lending has dropped sharply. It's lending to other banks, of course, but he wants to get that into the wider economy to fuel more accessible mortgages and resurrect the housing market. This is what fuelled our economy over the last 12 years and the PM wants to reset the clock to August 2007 to get it all back to normal.

I don't think that will be achievable. Every country has a duty to get its own house in order and some have suffered more at the hands of the global markets than others. President Obama wants a global response but he was clear in his bail out directives on capital projects - American construction, American steel, American labour. He would have been stupid to have said anything different.

What we would all like to see as well is some kind of global consensus on how banking should look for the future. It is more than clear that the system was not just broken but it was flawed from the beginning - it needs radical change and a re-focus on the core duties of banks which is to provide capital and credit. We would like to see more active, watchful and powerful regulatory authorities which have a global remit to not just monitor wrong doing but to look at business models, profiteering, bonuses and business ethics to ensure we do not have the sleepy old yes men of last time. It is a tragedy that our FSA is being remedied by the same executives who presided over the mess we are in - we need new people, fresh ideas and a commitment to facing banks down not pretty words.

No matter what Lord Turner and Hector Sants say, the FSA had all the remit to tackle banking previously - they just chose to ignore what was going on.

Transparency is a word I like. I would like to see a more transparent banking system that we can see and understand. That people invested in banks in Iceland is all very well but they should have a clear view of how these banks act and what risks there are. How we do that? I don't know but it is tragic that the 300,000 or so investors at Dunfermline Building Society had no idea their savings and investments were at risk through the suicidal business activities of the society's executives. Somehow we need to see that.

Transparency means Government and Public Service too. We have been disgusted locally over the state of public servants' ethics and it is time we got a clear view what our elected and unelected officials get up to, who pays them outside of us, how they spend our money, why they pick fights with other countries and how they account for failure.

The last year has brought into sharp focus the difference between responsibility and accountability at the top level - not one senior politician has accepted the accountability for the actions or inaction.

The culture of greed has almost destroyed us - it is even apparent in the music of the young. We have become a 'must-have' society and it has made us all spend far beyond our means. We have been invited to leverage our assets to produce more money which has fuelled a frenzy of profiteering and a bonus culture which has literally driven us to the point of ruin. It would be something if we could get the G20 countries to agree that the bonus culture at the top end is curbed which will lead to more sensible lending - it means a reduction in personal debt is a priority rather than enticing us to grab the money being pumped into our economies to increase our borrowing.

That has to be suicidal.

Our Fears

The worst that can happen is that the G20 countries walk away with only a statement which does not address any of the above but that they issue some carefully worded platitudes which really mean there was no agreement on anything. The next few months could be crucial for us all and we need these people to agree on at least one course of action in unison - perversely, even if it is the wrong one.

I fear that the G20 group will look upon the protesters and believe they are not representative of a wider opinion. We all deplore mindless violence and unpeacful protest - the whole protest is at risk of being hijacked by those looking for a fight. But this time round, there is a profound and fundamental opinion pervading in our society that believes that much of what we see today could have been avoided and that it was the very people who are assembling in London who slept on the job to ignore the signs. With due respect to new guys like Sarkozy and Obama, our fear is that we aim for a return to the status quo and not to radically change our system so that this cannot ever happen again. Without tackling this, we will be cursed with more booms, followed by ever increasing troughs.

If, in 3 or so years time, we are all remortgaging to leverage regrowth in our assets, then G20 will have failed. We must find a way to get back to sensible borrowing based on household income and avoid the lunatic lending of the last 12 years.

The problem with capitalism is that it is great when things are going well - we talk of honourable projects like reducing carbon, funding new projects to find fuels and materials that will conserve our resources and of helping others less fortunate than ourselves. The moment capitalism fails, it tries to patch itself up at any cost. There is a huge risk that all the good work to drive environmentally based projects and awareness will, at worst, dissipate and, at best, get set back years as we clamour to pump precious capital and money into a system that failed us so badly at the cost of all else.

The cries of the developing world have been drowned out by the siren calls of international rescue packages designed only for developed countries. At a recent African Nations Summit, the theme was that Africa did not cause this problem - it did not bring down the banks or financial system. Its problems have remained constant while we fly around our cliquey groups, mustering resources and taxpayers' money to rescue the few elite people many of who were personally richer than the combined wealth of millions of African people.

My biggest fear is that we consume far, far too much of our money saving a few rich people at the cost of a generation of Africans desperate for our help.

Humble Pie

I have talked of the banking community viewing the protesters very differently from before. This time round, real money in tax pledges have saved the necks of the arrogant people who threw the photocopies of cash out of their windows. Today and tomorrow, they will avoid eye contact and being recognised by the protesters for fear they may get a piece of their mind - and it would probably not stop at mere words.

My biggest hope is that we will have a banking system that breeds people with sense, compassion and real purpose instead of self-seeking, greedy, arrogant and repugnant people who in the face of losing billions still feel they are owed millions. I hope that the current crew not just eat some humble pie but that they remember in future that it is our money and our future with which they play. Accountability, going forward, should be the watchword and next time around let us all hope that the law helps us redress any excesses instead of mere moral indignance.

I hope, perhaps unrealistically, that the G20 Summit will be a platform from which the world will change for the better. I don't expect it overnight but some time in my lifetime is not too much to ask.

'Humility Needed - Can You Lend Me Some?'

Gordon Brown is in the US and today becomes only the 5th Prime Minister in history to address Congress. Of course, he will get a warm welcome there after all the good behaviour in that 'Special Relationship' but he has a new word to chuck at them - 'Protectionism' and it is probably not what they want to hear.

In an interview in the US, Brown has sort of echoed Alistair Darling's call that Ministers should show 'Humility' and a 'Collective Responsibility' for the economic crisis we are in. Brown seemed to echo this saying he would not shy away from his responsibilities but he was quick once again to say that current economic woes were not pertinent to Britain but were caused but a global financial freeze up.

Previously he has put the current woes down to sub-prime mortgages in the US but, of course, in present company that would not go down well. Besides, I think even he has heard the excuse enough to know it's untrue. Britain built its economy on a flawed business model and we are now victims of it. That many other countries did the same is neither here nor there - we knew it was not sustainable so we should not have pursued it. Consequently, the policies and vast monies to put the situation right has only endeavoured to sustain the failed business model. It is good money after bad and has compounded the original error massively.

No matter what Brown says, the problem has got bigger from his ineptitude to deal with the basic problem - the flawed business model.

Protectionism Is Not Nice

In the US Congress they recently passed a Bill which would stimulate the economy but it had the nasty caveat that as much as possible, US steel, iron and manufactured goods should be used in the process. This has set Brown on a path to warn of a global fight on the recession and that protectionism will not help stimulate the world markets. To the fiercely patriotic Americans this will be like a whisper at a football game - they will not hear it and are not interested. It is protect their own time.

It's pretty rich from a man whose first reaction when Iceland's banks failed and the country slid toward bankruptcy was to threaten legal action to recover the funds British people had in them. Let's actually be honest about it - he meant British local authorities who had around £1bn in the banks. While it was a good thing no depositor lost their money, if you invest in foreign banks then surely you do it at your own risk. What Brown should have been doing was making sure that Icelandic deposits were protected by the FSA rather than kick a country in the teeth when it was down.

Brown will, in his speech to congress, liken the fight against the global recession as akin to fighting the Nazis in the 1940s. That should twang the heart strings of the Americans who rescued we British from the clutches of Hitler. The analogy falls a little flat as the enemy is unseen, is not preaching hideous ideology, isn't slaughtering Jewish people and is not firing bullets at or invading countries. That's the sort of the thing the US and UK do to Iraq. Brown writes books on courageous feats and he clearly likens his mission to some night time, low level bomber like Leonard Cheshire, taking out V2 rocket launchers so that we can all live safely.

Sadly for Gordon, there is no war. It's just a long clear up process of the financial disaster he and others walked us into. There is no 'Virtual Hitler' just the spectres of the dumb politicians and avaricious bankers who brought the mess on us. He is fighting people like himself.

The Story Continues

Meanwhile, back at home, we await the next round of the Goodwin Pension Fiasco. It threatens to run longer than Peyton Place and is at least as interesting. Will Sir Fred have to give back part of his pension entitlement? In the left corner is Harriet Harman who clearly senses there are votes and popularity to be won if she can be party to it by mentioning it. On the right, Fred Goodwin himself stoically sits atop his vast pension pot waving two fingers in the direction of the Government.

If you send monkeys to solve the problem, give them peanuts and they will go away happy. When Brown et al are considering what they should be showing humility about, failure to negotiate directly with Fred Goodwin should near the top of the list.

Just behind fouling up the economy and making us liable for £1.3 trillion of bad debts.

Sorry, Gordon Can't Answer The Phone Right Now.....

Well I ask you. All I was trying to do was to call and tell him to stop wittering on about 'Global Confidence' and Gordon wouldn't even take my call. But at least it brought a smile to his otherwise dour face.

As GB gibbered on about 'It is time for the world to face the crisis as one', having just muttered something about 2009 being the year when the world 'came together' to tackle the economic crisis, my head was starting to spin. As he then went on to warn about 'creeping protectionism' I began to lose the will to live and so I decided to call him. Thankfully the call interrupted his drone and brought a smile to everyone's face - even his.

Word Games

Protectionism seems to be in the 'in' word at the moment. The Chinese Premier used it in his speech which upset GB as he had laid first claim on it and threatened to impose sanctions on China if the word was not retracted with a formal apology before his speech. In rushed behind the scenes diplomacy, it was decided that the country with a budget surplus could use the word first, although those with borrowing higher than 57% of GDP could have second use.

There are further talks going on to agree on the meaning of the word after Japan and China had imposed tariffs on imports to keep their local products first in sales yet were using the word liberally. There was vague agreement that 'protectionism' could be applied to banks only lending to companies and consumers in their own country which was seen to harm global trade and exacerbate the problems. Most nodded ascent on this point and so Mr. Brown ploughed on with the point, "The thing we know about protectionism is that it protects nobody and least of all the poor."

Many nodded their heads sagely before saying, 'Eh?'

Protecting Jobs

GB's point was that it was high priority for political and business leaders to rise to the economic challenges and act to help those worried about losing their jobs. I may be a bit thick here but isn't that part of the point about protectionism? Anyway, the PM pushed on regardless to applaud the US in the main for pumping money into the economy as part of 'The largest ever Fiscal Stimulus' to which there were many in the audience who tittered at the economic innuendo, several were openly embarrassed and at least one Financier shouted 'This is outright financial pornography' before storming out throwing his papers in the air in revulsion.

"We have a choice what happens next," GB said stridently. "It is time for action and it is a time for having the confidence to act......It is trust that we have to rebuild as a result of the credit crisis and the failure of the banking system."

I love it - as usual GB was distancing himself from the cause of all this which he has put down to the sub-prime scenario in smalltown America. The fact that Governments and Regulatory bodies just sat by doing nothing does not seem to enter his mind or his conscience. Once again, we see fingers pointing solely at the banks, yet hardly a bank in the last 10 years could have survived the most simple test of liquidity if the derivative scam had suddenly ground to a halt. Trust, I would argue has to be rebuilt in the Political system too - the one that told us we had a rock solid economy that would not be affected by a recession, would survive better than others if it did and had a bedrock built on the value of people's homes.

It would be just nice to see Brown just show a bit of humility, puff out his jowls and admit he blew it.

G20 and Away!

So it is all eyes on the G20, the global economics equivalent of the Olympics and coincidentally being held in London, probably at some hastily erected new building to keep in spirit of the Government bringing forward large spending projects because we are short of a few. There seems to scepticism about whether there can be a collective, global action to tackle the economic problems.

If Brown is anything to go by, his blatant protectionism was shown when he threatened to launch law suits on Icelandic banks if they did return savers' money. As noble as that may have seemed, it was hardly a nice gesture to a country that was quite literally going bankrupt and equally if you are prepared to allow foreign banks to lend you must allow them to take deposits if they need to - and if they hit problems well that's the rough and the smooth surely?

I have great sympathy for private savers but what on earth were Local Authorities doing putting money into foreign, less protected accounts just to earn a shaving of a percent of interest more? Who allowed them to do this in the first place and who in these Local Authorities is qualified to make such investment decisions? And it wasn't just a few spare quid it was nearly £1bn of rate-payers' money? Why was it not paid back to the rate payer to invest themselves and asked for only when they actually needed it?

I don't know - I'm no expert but I can't help feeling Brown's rallying calls are signs of a growing desperation to help Britain out as our economy is so dependent on foreign investment in the City particularly, without it Britain could well be a spent force in the world of high finance. It also seems it's pretty much one way - GB seems to be saying invest in us but we are not going to do anything for you, but I may be wrong.

One last line of hope from GB was a touching reminder of the global commitments to climate change policy and helping Third World countries. Well, the wasted money put into propping up the fat cats in the banks might have been much more happily received in parts of starving Africa. Once again, epitomising the New Labour years, we see wasted opportunity.